Company Analysis on eFax - Essay Example

Company Analysis on 'eFax' Introduction Even with the advent of internet, fax traffic continued to grow during the later part of 1990s and early 2000s against the predictions of the industrial experts. At that point of time fax continued to be easiest and most-widely used form of document communication. It was estimated that half a trillion pages would be faxed around the globe during the year 2000. Taking this opportunity to its advantage the company eFax.com, a leading internet document provider announced a free consumer service called eFax.com which was intended to unite the world of fax with the convenience of email. The objective of the company was to turn every fax machine virtually into an internet-on-ramp. The company provided millions of professionals a revolution in their document communications reducing the clutter of paper work and making faxing easy and accessible (Business Wire). eFax.com was the first company to provide such a free unlimited Internet service which had set a new standard because of the easiness to use technology involving fax - to - email delivery. The free service by the company was intended to unite 500 million global users of fax with approximately 100 million users of email. eFax.com was a breakthrough of web services and this paper brings out an analysis of the company eFax including its evolution and the final takeover by J2 Global. eFax.com - an Overview The company was utilizing its digital messaging technology for Internet applications. This included the use of Hotsend software, introduced in December 1998, and he M900e MFP which came to the market in January 1999. On February 8, 1999 the company changed its name from JetFax Inc to eFax.com and made the announcement of its eFax service, the first free fax to email service. eFax.com Inc was formerly known, as JetFax Inc was a leading provider of internet document communications solutions. eFax.com had a wide range of products that could allow the users even without technical knowledge and expertise handling the paper management and document communication without any complicated procedures. The company's flagship products were 'Hotsend' - free software to read the email attachments and 'eFax.com' a free fax - to - email consumer service. eFax.com Inc was a leading developer and provider of integrated embedded system technology catering to the 'Multi Function Product' (MFP) market. The MFP market consists of office equipments that combine the print, fax, copy and scan functions in a single machine. The company had built up its product of eFax.com basing on this strong technology emphasizing the internet applications for the domestic transmission and software expertise. SWOT Analysis The SWOT analysis reflects the strengths, weaknesses, opportunities, and threats relating to the operation of eFax.com. Strengths Unique product line that covered business related associations and also the company is the first one to introduce efax kind of a product Free eFax service attracted more number of online customers increasing the advertisement revenue Combination of embedded system technology and connected software enhanced the utility of the products and services offered with scope for further technological improvements The company has a wider and prominent customer base Weaknesses The company had several products with misplaced focus on marketing The currency and other associated risks with the business in foreign countries increased the currency risk and other losses associated with the foreign exchange transactions The changes in technology entailed more expenditure towards research and development Opportunities The technological advancement provides scope for the development of newer and improved products and services including VoIP and other voice communication products The products are capable of being marketed internationally which increases the scope for the increased revenues Combining the embedded technology system software with the latest technological advancements make the application of the services easier to be customized to different industries Threats There is a stiff competition from different service providers which makes the business tough for the firms in the industry Rapid technological changes make the products obsolete at a faster rate entailing a large research and development expenses Cost of providing services may sometimes exceed the likely revenue in the case of some products because of the huge development and launching expenditure and the product may not take off due to some reason or other. Products of the Company The objective of the company was to expand its product range to a wide variety of internet based electronic and paper document communication solutions. A major portion of the company's revenues was earned from the sales of JetFax branded products and consumables through the channels of business equipment dealers. The embedded system technology being used by the company had the capability of providing the necessary intelligence for a Multi function product and the technology also optimized and controlled the MFP's printing, faxing, copying, and scanning operations. The company had licenses for a wide range of MFP solutions which the company marketed under its OEM customers' brand names. The company also offered software which were sold on a standalone basis or coupled with embedded systems to provide a complete integrated hardware and software solution. These software products were marketed in the brand names of 'Jetsuite' and 'PaperMaster'. Apart from the JetFax branded products and related commodities, eFax.com developed and licensed its embedded system technology for manufacture and integration by its customers who were original equipment manufacturers. The embedded system technology was being used by these manufacturers in their multi-function products. Based on the specifications and requirements of the OEMs the embedded system design is modified by eFax.com The Company made suitable modifications to the hardware and software and also made changes to the printer and scanner interface, control panel and user interface. The Company was paid the development fees for its services on such modifications and the company was also entitled to receive per unit royalties for the license usually being prepaid. Some of the products where the embedded system technology was used were Hewlett-Packard LaserJet 3100, Samsung printer, Minoltafax 1000 and Xerox Work center 250. In addition to the embedded system technology the company also offered software like 'Jetsutie' and 'Papermaster' for a convenient communication and the combined use of electronic and paper documents. The company also offered software called 'Printer Control Language' printer drivers. The company also utilized its technology for merging paper-based document transmission via fax with electronic message transmission via email on the internet. In the year 1998, the company introduced the software 'Hotsend' that can be downloaded freely from the internet. It allowed the user to send any document as an attachment with the email communication. The introduction of eFax service in the year 1999 allowed the user to get a free phone number which will forward the incoming fax messages directly into a specified email id. This service being one of the most popular products of the company utilized proprietary, portable document technology, digital message compression capabilities, and software developed by the company. eFax Plus is the premium fax and voicemail service intended to provide the customers local or toll-free telephone numbers fax sending and other advanced communication management services based on internet. Features of this service include sending faxes via email, sending faxes directly from the Web, optical character recognition of received documents, and automatic email distribution of received messages to several email recipients. eFax Messenger and Messenger Plus are some of the other products that were offered by eFax.com. According to a statement by the company "eFax.com has signed up over 600,000 users since the service was introduced February 8, 1999, clearly making eFax a significant new force in Internet communications" (Larry Barret, 1999) Customers of eFax.com At one point of time the company was supporting 1.6 million users which included 45,000 customers who are fee-based. The customers of the company included office equipment dealers and distributors who undertook to make a resale of the products of the company that included Company's branded MFPs, options, and consumables. The OEMs are the other customers of the company who license the embedded system technology and software of the company in conjunction with the manufacturing and distribution of their own MFPs. The JetFax branded products were sold in the United States and Canada through office equipment dealers like IKON and other dealers associated with Business Technology Associates (BTA). The company had approximately 200 dealers in United States and Canada as of 31st December 1998. With regard to the software sales, the company received license fees and development fees for its embedded system technology from a large number of manufacturers of MFPs. As at the end of the year 1998 the company had arrangements of licensing of embedded system technology with at least 25 companies and Hewlett-Packard, Oki Data, and Konica are some of the OEM customers for the embedded system technology. Sales and Marketing Arrangements The Company marketed its products throughout the world to OEMs, dealers and distributors. The Company had different sets of sales force for marketing the JetFax branded products and OEM software and licensing business. An exclusive Vice President was hired in the year 1998 with the specific responsibility of developing and implementing improved marketing plans for the internet based products. The company realigned its market forces to refocus on the internet based activities. The company also utilized the services of external consultants as well. As regards the marketing of the OEM licensing segment, the company made all efforts to enhance the relationship with the existing OEMs and also strived to get new OEM customers through well defined account management and programs of marketing. The marketing department of the company used media like public relations, press coverage, exhibits, and presentations at the trade shows, brochures, and other marketing tools to promote eFax.com as a leading provider of MFP solutions to the OEM customers. The JetFax branded products were marketed by the company mainly through the dealers in office equipments. The efforts of the company in marketing in this segment included provision of training to dealers, provision of sales incentives in the form of cash incentives, group trips for the dealers, quantity discounts on large volume deals and provision of market development funds. The marketing techniques for the branded products included direct mailing, print advertising, and some public relations initiatives. The marketing strategy of the company for its software products included bundling them with the multiple OEM products. In addition there were software promotional upgrades and add-on software products like installation of reminder screens, emails to registered users and website advertisements. The company undertook the marketing of internet products by establishing separate websites for marketing of its 'Hotsend' software and eFax.com service. In addition to an active public relations campaign that led to wide press coverage the company made the internet product offering through advertising along with other internet partners and through banner internet advertising. The company also used radio advertising and other popular advertisement media. The company marketed its products in countries like Western Europe, Australia and New Zealand. The company marketed its branded products through office equipment dealers and distributors in countries like Australia, Canada, the Netherlands, New Zealand, Scandinavia, Switzerland, and the United Kingdom. The company had direct selling arrangements in the United Kingdom and through a subsidiary company 'JetFax Gmbh' the company marketed its products in Germany. The company had sales, service and support staff located in Ireland and Germany. Research and Development Efforts eFax.com's research and development activities included new product development, enhancement in the utility of the existing products, testing of the products and technical documentation for the newly developed software products. The main research and development activities were attended to from the company's headquarters in Menlo Park, California and its software applications division that was operating from Santa Barbara, California. The primary research and development activities included the efforts focused on the ongoing development of the company' unique selling point of embedded system technology. The other activities on which research and development activities were conducted included the development of desktop software and internet based document handling services. The company had the idea that the company's competitive edge on the embedded system technology is gained by the development efforts being taken by the company on the technology and also by developing new software by defining the need for the new products and guiding future enhancements. The company also believed that by introducing new developed features in the corporate market it would be able to maintain its technology lead by introducing advanced new features in the corporate business segments and also by refining such features before they are applied to the products for OEM customers. The company was able to gain a solid technological strength for the development of internet based product offerings through their exposure to software and communication capabilities which the company developed over a period for the products relating to the supplies to OEM customers. With the background of the knowledge and expertise of the products delivered to OEM customers the company added the research and development support to the internet based products. Intellectual Property and Proprietary Rights of eFax.com The success of the company was largely dependent on the proprietary technology it possessed. In order to protect its proprietary rights the company relied on a proper mix of protection available through copyright, trade secret, and trademark laws. The company also relied on regulations relating to patents, non-disclosure, and other contractual restrictions. With a view to protect the confidentiality of the various procedures and other information the company entered into non-disclosure agreements with its employees, consultants, OEM customers and other strategic partners who did have access to such confidential information. The company by this way limited the access of these agencies to the distribution of its designs, software, and other proprietary information. Manufacturing Operations of eFax.com The company had its manufacturing operations centering round the JetFax branded products for supplying to the corporate customers in the MFP market. The manufacturing operations of the company were carried out by making a final assembly and testing of the products with mostly outsourced materials and components. While most of the components are general and standard in nature, the company relied on various suppliers for the supply of these components for its products. The company generally considered all purchases as individual transactions and never had any long term agreements with any of the suppliers. However certain components were available from only one source. For instance Oki America is one of the major suppliers of components to the company. There are several other suppliers on whom the company depended to a large extent for the supply of specific components. Some of the components used in the manufacture of company's products were sourced from suppliers located in foreign nations. It may be noted that such foreign sources were subjected to risk of changes in government policies, introduction of import restrictions, and some other factors which were beyond the control of the company. All the manufacturing operations of the company ceased at the end of the first quarter of the year 2000. Competitors "The market for MFPs and related technology and software is highly competitive and characterized by continuous pressure to enhance performance, to introduce new features and to accelerate the release of new products" (IPO Filing). The objectives of the company with respect to meeting the stiff completion from the other players existing in the market included among other things: providing efficient service and furthering the business to meet growing demand creating a renowned name for eFAx.com much ahead of the competitors building the subscriber base to the maximum extent before any competitor gain significant entry into the marketing arena and continuing with the expansion of the provision of its internet communication service product offering The market for MFPs and related technology and software in which eFax.com is operating was highly competitive and demanded continuous upgrading of the technology by introducing new features and an accelerated rate of introduction of new products. The branded products of eFax.com were to compete with other major domestic fax vendors. These competitors had considerably greater resources than eFax.com. Some of the main competitors were Canon Inc, Panasonic (Matsushita Electrical Industrial Co. Limited), Pitney Bowes Inc, Ricoh co Ltd, Sharp Electronics Corporation and Xerox. Thus vendor name, the brand recognition of the vendors, expertise on software and technology, functionality of the products, time to market and above all cost of the product are some of the factors which form the basis of competition for these companies. The competition for the technology, development services, and software emerged primarily from the solutions that the OEM customers develop internally to enhance the utility of their products and also to develop and market future products. The main competitors for the company with respect to its MFP embedded system technology were Peerless Systems Corporation, Personal Computer Products, and Xionics Document Technologies Inc. Employees As of 31st December 1999 there were 110 employees on the rolls of the company and also a full time contractor with equal number of people. The company's industrial relations were good and there was no stoppage of work, nor any labour union representation for any of the demands of the employees of the company. The company followed the practice of hiring employees on contractual basis as and when need arose. Legal Cases During the month of March 1999 E-Fax Communications Inc, a California registered corporation filed a suit against eFax.com which was a Delaware corporation. E-Fax communications alleged that eFax.com had engaged in the infringement of trade marks and also had practiced unfair competition by using the name 'eFax.com'. Both the companies entered in to an out of court settlement on April 1999 whereby E-Fax Communication agreed to waive all its claims on the trademark and also agreed to transfer the entire rights on the Trade Mark to eFax.com for an agreed consideration of $ 2.5 million to be settled by cash and in stocks. Information on the Shares of eFax.com The company's common stock was traded on the Nasdaq National Market tier of the Nasdaq Stock Market. The trading symbol of the company in the stock exchange was "EFAX" Till February 8, 1999 - the date on which the company's name was officially changed from JetFax Inc, to eFax.com - the common stocks were traded in the Nasdaq National Market with the index of "JTFX". On the 8th February 1999 the company's name was officially changed to 'eFax.com' pursuant to a Certificate of Ownership and Merger' that provided for the merger of JetFax Inc, with eFax,com a wholly owned subsidiary of JetFax. The company resorted to an initial public offering of 3.5 million shares of its common stock comprising of 2.75 million shares offered by the company and 0.75 million shares offered by the stockholders who wanted to offload their holdings. The initial public offering was undertaken in June 1997. The trading in the common stock of the company was started on 11th June 1997. Prior to this date there was no public trading on the company's common stock. The share price movements with the high and low rates for the year 31st December 1999 is provided below: Table: Price Movement of Common Stocks of eFax.com during the Year 1999 Particulars High $ Low $ Quarter IV 12.438 6.906 Quarter III 18.375 7.125 Quarter II 30.125 11.250 Quarter I 25.375 2.750 The last sale price of common stock reported on the Nasdaq National Market on April 3, 2000 was $ 5.00. Financial Information The financial data of the company for the year ended 31st December 1999 and the comparative figures for the year 31st December 1998 are produced below: The overall product revenues for the year ended 31st December 1999 showed a declining trend from the prior year due to the fact that the company had been going through a process of transition to an OEM and internet based business model from the existing product based model. The change in the focus of marketing of the company towards internet based services had resulted in the increased expenditure on promotional and other marketing expenses. Most of the additional expenses related to the media and internet advertising promotional expenses which covered the basic services as well as the new products and features that were introduced. Particulars Y.E 31st Dec 1999 $ '000 Y.E. 31st Dec 1998 $ '000 Product Revenue 18,817 23,385 Software & Technology Licensing Fees 3,629 5.069 Development Fees 1,059 1,779 eFAx Services 1,200 - Total Revenue 24,705 30,233 Total Costs and Expenses 49,936 32,019 Net Loss from Operations (25,231) (1,786) Net Loss after Interest Income and Taxes (25,732) (1,501) Net Loss per Share 2.04 0.13 Working Capital 1,946 10.,928 Total Assets 15,508 16,215 Shareholders' Equity 8,070 13,837 Source: SEC Filing There had been a reduction in product revenues to the extent of 20 percent to $ 18.8 million from $ 23.4 million for the years ended 31st December 1999 and 1998 respectively. This was due to the fact that the company discontinued the JetFax branded products from the manufacturing line. eFax Service revenue totaled to $ 1.2 million reflected the transition of the company to an internet based business model and the revenue represented primarily of monthly subscription, signing up fees, service charges on the basis of usage and advertising revenues. eFax premium service revenues started flowing in from the month of June 1999. Inherent Risks in eFax.com's International Activities A considerable portion of the company's total revenues was generated from the sale of eFax.com's products in markets external to the United States. The competition to the products from eFax.com and the products incorporating the technology of eFax.com is having a high intensity and the following are some of the risks the company faced in this connection: Fluctuations in foreign exchange rate and other associated restrictions The burden of complying with a wide range of regulatory measures and legal provisions prevalent in different countries The longer cycles of accounts receivables A large number of government controls on the operation of such businesses as those of eFax.com There are inherent risks associated with the internalization and localization of the products meeting the local requirements in foreign countries The various trade restrictions imposed in this types of businesses Mounting tariffs and other trade barriers The governmental restrictions on brining the earnings back into the United States and The adverse tax consequences that may arise out of the earnings All these risks had materially adverse effect on the eFax.com's business, its financial conditions, and operating results. Since all the transactions relating to the business of eFax.com are made in the currency of US Dollars. Therefore the changes in the US Dollar value relative to foreign currencies made the products of the company less competitive in foreign markets. Because of this exposure to international activities the company faced currency exposure and currency exchange risks. For instance the company purchased the components for the manufacture of the branded products in pursuance of buying contracts which required payments in foreign currency resulting in currency exchange risks (SEC Filing) Conclusion Thus the product of eFax.com is a breakthrough Web Service that offered a fax number with a free usage that can be used by any number of individuals so that they can receive fax messages at their own email ids. In this way eFax.com targeted a large number of mobile professionals, small and medium business enterprises, home offices and other similar customers who were on the look out for faster, more efficient and more reliable means of communication to address the issues relating to the frustrations and hassles of using paper documentation for their communication at a point of time when the communication through fax mode was really time consuming and expensive. eFax.com was the first company to provide an efficient solution for the problems connected with the use of paper documentation. References: Business Wire 'eFax.com Introduces Breakthrough, Free Fax-to-Email Service; Getting Paper Documents to Email Has Never Been Easier; Boon for Road Warriors, Small Businesses and Home Offices' IPO Filing 'Competition/Competitors' Larry Barret 'eFax snaps out of recent losing streak' SEC Filing 'eFax.com' Read More