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CryptTalk Takes White-label Strategy as it Waits for Quantum-computing

CryptTalk first burst onto the domestic news scene in the spring of 2016 when the Hungarian Ministry of Interior said it wanted to outlaw the award-winning Magyar telephone encryption system. The ministry alleged that CryptTalk posed a national security risk, enabling terrorists to converse by phone without fear of being overheard by the authorities.

Attila Megyeri

Four years on, Arenim Technologies AB, the company behind CryptTalk, is alive and well, boasting a list of clients that includes OTP Bank, international law firm Oppenheim and the Boston Consulting Group. Revenues last year totaled EUR 0.9 million, up 19% on 2018.

“It was really quite absurd,” Attila Megyeri, chief technology officer at Arenim Technologies, tells the Budapest Business Journal, recalling the row at the time.

“My mother called me and asked: my son, are you really going to jail? We were on the top page of [news website] Index, with the threat that if we didn’t hand over the contents of the code, we would go to jail.”

In practice, the authorities held off, and today the ministry is silent, seemingly persuaded by CryptTalk’s argument that it cannot hand over any codes, since the system is so designed that even the operator is unable to monitor and decrypt client phone conversations.

“There is no ‘back-door’ with CryptTalk,” says Megyeri, using industry jargon to describe the “way into” a communications system for security monitoring. “It is technically impossible to hand over any code or key that could be used to decipher calls made with the [CryptTalk] system,” he underlines.

Ministry Endorsement

Indeed, ironically, the ministry complaints constituted a solid endorsement of the system, resulting in an additional 1,000 or so new CryptTalk users at the time, says Szabolcs Kun, chief strategy officer (and with Megyeri, co-founder) of Arenim Technologies.

(Kun stresses that if any national security authority presents evidence of criminal misuse of CryptTalk, the company will terminate its contract with the individuals concerned. Thus far, no such authority has ever appeared with any such evidence.)

The genesis for CryptTalk began in 2008, when Kun was working on a telecommunications project where a large international customer wanted a service to encrypt phone calls. Kun had the prototype ready in about 12 months, but it took until 2014 to finalize the concept and launch CryptTalk for Apple iPhone devices, initially only focusing on Hungary.

Meanwhile, Kun and Megyeri had teamed up, founding Arenim Technologies Kft. to develop telecom software for call centers and private branch exchange solutions. (Arenim Technologies AB is registered in Sweden, chosen for that country’s legal system, with its emphasis on privacy protection.)

But despite their best efforts, remarkably affordable pricing (the cheapest individual package is a mere USD 10 per month), glowing user recommendations and high praise in two security audits by NCC, the U.K.-based Cyber Assurance consultancy, winning clients has proved agonizingly difficult and time consuming.

By April 2016, even boosted by the free publicity from the Hungarian interior ministry, CryptTalk had acquired just 9,000 users. The issue, says Kun, is that CryptTalk is a “trust-based” product.

“Someone told me years ago, ‘Hey, Szabi, you’re like the Christian church: you’re selling faith.’ If someone is a believer, then you are OK. If someone is a non-believer, you can [almost] never convince him,” he says.

Strategic Rethink

The slow growth in client numbers forced management to have a strategic rethink.

“We realized we were trying to evangelize the market by ourselves, as a small company, but marketing your product to people in the era of WhatsApp and Viber, to be on the same page with free software, that’s a struggle,” says Kun.

As a result, management shelved plans for offices in South Korea and Canada, instead opting to sell the core CryptTalk software as a “white-label” product to existing large telecommunication companies, which have easy access to a massive, trusting customer bases, and allow the telcos to sell the product under their own branding.

“This was a game changer. We focus on doing what we do best, which is develop the software, and leave the sales and the customer support to the larger players. They’ve got the networks ready, in hand. They may have two million customers. Of course, only 1% might be interested in this encryption service, but that’s 100 times more than our reach,” says Kun.

Although persuading the telcos to take up CryptTalk is also no easy matter – the process typically takes between one and two years from start of talks to launch – the results quickly showed up in the top line.

Revenues at Arenim Technologies AB, at just EUR 278,000 in 2016, climbed to EUR 349,000 in 2017 and then more than doubled to EUR 758,000 in 2018. Despite the effects of the coronavirus pandemic, sales are likely to be around the EUR 1 mln level.

White-label Growth

Today, four major telcos use CryptTalk software, tailored slightly to suit their own needs and brands. Although branded CryptTalk users now number 30,000, Kun estimates that white-label sales account for 70% of recent growth, and white-label revenues are likely to surpass those of own-branded this year.

Arenim Technologies, now in its 10th year, employs about 35 people, the majority in Budapest, and hires regular sub-contractors for specialist fields as needed.

“The company’s in pretty good shape. We have at least two legs, and [though] this C-19 virus period tested us, we [came through] very well. We didn’t have to fire anyone, or cut salaries or costs,” says Kun.

Company engineers are now preparing for the next challenge, the emergence of so-called quantum computers that will have so much computing power that even CryptTalk’s highly complex encryption codes are likely to be at risk of being cracked.

“This is not a market today, but, the very first day when the first publicly available quantum computer is on the market, even if it’s an unreachable price, then there will immediately be capacity out there to decrypt specific security level codes,” says Kun.

“And on that day, we have to be on the market, ready with our products. And if that day comes, I think my bank account will be filled.”

Szabolcs Kun