Blog

Is the j2 Global Fax Business a Lemon?

In case you missed it, last month Citron Research, whose editor is renowned short seller Andrew Left, released a report on j2 Global. The report, "Citron Exposes the Dirty Secrets of j2 Global (JCOM)!", contains Citron's arguments that j2 is an overvalued stock.

j2 Global's stock dropped after this announcement. While it has recovered from its initial decline after the release of the report on March 10, 2016, j2's stock is still trading at about 12% less than before the release of the Citron article.

Source: Google

Is the Fax Industry Declining or Growing?

I wrote in a post last year that the fax market continues to grow. I know this is counter intuitive in a world of secure email, file sharing and e-signature services but many organizations are increasing their use of fax and this increase outweighs the migration from fax to these other forms of secure information exchange.

Davidson Consulting estimates that the combined fax market will grow at over 10 percent per annum through 2018 with the fax services market expected to grow at 15.9 percent through 2018.

Discussions with fax server and service providers and high-volume fax users indicate that fax volumes continue to grow. Some service providers have advised that their fax volumes are currently growing at more than 20% per annum. This growth is from legacy fax server replacement and customer growth. Large fax distributors in both the US and Europe have advised that 2015 was either their best fax revenue year ever or as good as their best fax revenue year ever.

A large part of the fax volume increase in the US is driven by moving non-compliant document communications of protected health information (such as medical records) to a compliant system, which is quite often fax. Fax plays a big part in healthcare because many of the healthcare systems do not easily communicate with each other.

We recently had discussions with an east coast hospital that is in the process of increasing their monthly outbound fax volume by 500,000 faxes per month to 1.5 million faxes per month for this very reason. These volumes are quite typical. Here are some other examples of large fax volumes:

  • Colorado healthcare provider – 800,000 fax pages per month
  • Cloud-based EHR and billing provider – 15 million fax pages per month
  • Top 5 US bank – 40 million fax pages per month

In a recent analysis that IXD undertook to determine the future of the fax industry and the technologies needed to displace fax, we estimate that at least 120 billion fax pages are being sent worldwide each year.

There is no doubt that some fax volume has migrated to secure email, file sharing and e-signature services but fax continues to be mission critical for many businesses because it provides a common messaging protocol and compliance process for both senders and receivers.

What about j2's Fax Revenue Growth?

According to j2 financial information, their 2015 fax revenue was $303 million, a growth of 5% over 2014. Some of this growth comes from acquisitions and because of the information that j2 provides, or lack of it, we are unable to ascertain their organic fax growth rate (or decline) in both dollars and fax page volumes.

Other public fax service providers such as OpenText, Esker, RingCentral and GoDaddy do not disclose any fax revenue or fax volume information. My concern for eFax is that their growth seems to be coming from acquisitions and not organic growth in a market which we believe is still growing in both dollar terms and volume.

Fax Industry – You Say Growth, Citron Says Decline

Citron asserts that the fax industry is in decline and that this is "obvious by just observing the Google trends on "internet fax" and "eFax"".[1] Citron assumes that people are less interested in the search terms Internet Fax and eFax over time because the graph they use is declining over time.

This is not necessarily correct. Google Trends shows the relative popularity of a search term over time – not total search volume over time. According to Google:

"When you search for a term on Trends, you'll see a graph showing the term's popularity over time ...... A line trending downward means that a search term's relative popularity is decreasing. But that doesn't necessarily mean the total number of searches for that term is decreasing. It just means its popularity is decreasing compared to other searches."[2]

To illustrate that relying on Google Trends is not an indicator of volume or interest for a product, I have created a new graph that compares four keywords – secure email, electronic signatures, file sharing and fax.

Data Source: Google Trends

Based on Mr. Left's assumption of how Google Trends works, you can see from this graph that far more people are interested in fax than they are in secure email, electronic signatures and file sharing combined.

This seems inherently wrong. Therefore, without access to search volumes, we should assume that Google Trends is not a good indicator of whether an industry is in decline and one should rely on other information to determine the growth state of the fax industry.

Are j2's Patents a Barrier to Entry to the Fax Market?

No. Entering the fax market with a fax service or server is simple, doing it well and to be able to do it globally is another matter.[3] Over the last 10 years I have been continuously surprised by new entrants into the fax server and fax service market. For example, HelloFax, a Y Combinator company, was founded in 2010 and DialPad (previously known as Switch.co, the makers of UberConference) launched their fax service just last month.

The entrance of new technology companies such as DialPad into the fax space indicates that there is continued demand for fax. GV (formerly Google Ventures) are investors in both DialPad and HelloFax.

I do not believe that new fax server and service companies consider j2's patent portfolio and patent trolls in general when deciding to launch their service. What they see is a revenue opportunity and their belief that they can provide a better product or service than what is available today. They only learn about j2's patents and other fax patents after they have entered the market and patent representatives from j2 etc. send them a patent infringement notification.

The articles that Citron Research cite regarding j2 patents (Intellectual Property Wrongs[4] and Will 2014 Bring the Death of the Patent Troll[5], the later regarding the Bobo patent) make interesting reading and should be required reading for budding software entrepreneurs as they learn more about patents in general.

It is the patent infringement notification that is an upside for j2. They can still negotiate royalties past the patent expiry date for infringement up until the patent expiry date. Some fax service companies, especially the life style ones, may be happy to sell to j2 as there are not too many fax service company acquirers.

What is the Future for the Fax Industry?

Fax is certainly not a long-term growth industry and sooner or later fax will decline. People I have talked to think that fax will continue to be an important means of document communication but that the market will start to decline sometime in the next three to five years.

The reason why the fax market is not dead is that there is no clear substitute product. E-signature services such as DocuSign and Adobe eSign are great for recording signatures to a document but do not meet the needs of a secure document delivery service such as when a hospital needs to send medical records to a clinic. File sharing and secure email solutions may meet the needs of senders but generally do not meet the compliance requirements of receivers in healthcare, financial services and many other industries.

j2 and the other large fax solution providers are in a unique position to lead the forefront of fax displacement. They cannot do this individually and they must be prepared to collectively leverage their customer base in such a way that they not only drive down their fax costs, but also start the evolution that cannibalizes their existing business so they are on the forefront of the next generation of technology that truly displaces fax.

Fax solution providers have a great customer base and confidential document delivery know-how. If they are the ones that provide a true fax replacement solution, then their businesses have a future beyond just being a cash cow that eventually withers and dies.

What is the Upside for j2's Fax Business?

j2 or another large fax service company such as OpenText could lead the evolution that replaces fax. It is certainly not from providing another secure email and file sharing service. Secure email and file sharing services are becoming ubiquitous and there appears to be little money to be made from these offerings.

What j2 and OpenText both have is a significant customer base that they could leverage into the solution that displaces fax. They also have the clout to reduce telephony expenses, a huge drag on their P&L, and not necessarily through the existing telephony providers.

Can DocuSign or eSign Displace Fax?

Absolutely, but they will need to do it in such a way that goes beyond providing e-signature services, secure email and file sharing. Both companies have large customer bases that they could leverage into a secure document delivery solution that displaces fax, whether they want to is another matter. What is definite, to displace fax, you have to love it first!

About IXD

At IXD, we are working to develop a true fax displacement solution. A service that solves the pain points that exist with fax and alternative secure document and file delivery technologies. Today you can use our IXD Secure Mail service for free because we believe that secure communications should be free for everyone. If you are an Office 365 user, sign-up for our IXD Secure Mail for Office 365. It is also free.

The IXD Gateway provides high-speed routing capabilities, SMTP to secure mail translation, and file system/print services. You can learn more about the IXD Gateway at our products page.

To learn more about how IXD can help your business send and receive information securely, please email us at info@ixd.co or call us at 425.954.5150.

Matthew Brine is the CEO at IXD, a secure information delivery provider. He has been involved in the enterprise messaging and document management business for over 15 years and is super excited about the possibilities of interconnecting e-signature services, secure messaging, file sharing and fax. You can contact him at mattbrine at ixd.co and connect with him at www.linkedin.com/in/matthewbrine.


[1] Citron Research, Andrew Left, "Citron Exposes the Dirty Secrets of j2 Global (JCOM)!", Page 2.
[2] https://support.google.com/trends/answer/4355164?hl=en&rd=1
[3] There are multiple issues with setting-up a global fax service due to local data sovereignty requirements and telephony infrastructure. Generally, only the large fax service companies can afford to do this, even though many smaller fax service companies will claim a global POP (point of presence) infrastructure.
[4] Robin Cooper Feldman, "Intellectual Property Wrongs", 18Stanford Journal of Law, Business & Finance 250 (2013). Available at: http://repository.uchastings.edu/faculty_scholarship/1045
[5] Keith Collins, "Will 2014 bring the death of the patent troll", Aljazeera America, December 23, 2013. Available at http://projects.aljazeera.com/2013/patent-story/.

Why is Fax Still Prevalent?

It is not intuitive, but we are sending more faxes.

The demand for secure document delivery is large, growing and driven by regulation such as HIPAA, FINRA, PCI-DSS and SOX. When it comes to high volume secure messaging, the number one solution that is used for secure document delivery is fax.

According to Davidson Consulting, the combined fax market will grow at over 10 percent per annum through 2018 with the fax services market expected to grow at 15.9 percent through 2018.

Wow you say, but isn’t fax dead? And the answer is yes, as you know it.

Most people think of fax as a fax machine, sending documents slowly, with poor image quality, via the telephone network. But today, fax is more than a fax machine, it has become the de facto transport layer for secure document delivery.

The majority of fax volume today is done by on-premise fax servers such as Biscom and RightFax and through fax services like Concord Fax and eFax. Fax is used because it is the easiest and most cost-effective way to deliver confidential information.

Healthcare, financial services and insurance all rely heavily on fax technology that was patented in 1843. These industries have the need to share many documents and they have found that the easiest way to do this is still with fax.

For example, Lancaster General Health faxes over 80,000 pages per month and all these fax pages are generated from their Cerner medical records system. Many large banks, insurance firms and health care organizations fax over one million pages per month. These faxes are generated from an application by a user or from an automated process.

The problem with fax is that it is the one technology everyone hates, and it is not going away soon.

People use fax technology because there are no cost effective alternatives for secure messaging and high-volume document delivery. In part, this is because companies have made significant investments in their inbound and outbound fax workflows, including compliance investments, and they are reticent to change this part of their process.

There is no doubt that secure email, file sharing and e-signature services have replaced some fax traffic, but not as much as you would think. Fax alternatives such as proprietary secure email are too complex with a myriad of protocols, causing frustrations for users who want integrated and interconnected solutions.

There are good secure mail services like IXD (www.ixd.co) that provide free secure email for occasional users so no one ever has to send confidential and important information via email or go searching for a fax machine ever again.

IXD is also an effective alternative to fax for high-volume document delivery. It even allows you to leverage your existing old world fax technology into next generation secure document delivery servers without any change in workflows, allowing you to maintain your compliance requirements.

Sign-up for IXD today and protect your personal confidential information. If you have secure high-volume document delivery needs or you want to upgrade your aging fax server or fax service into next generation secure document delivery technology, contact us at info@ixd.co.

Matthew Brine is the CEO at IXD, a secure information delivery provider. He has been involved in the enterprise messaging and document management business for over 15 years and is super excited about the possibilities of interconnecting e-signature services, secure messaging, file sharing and fax. You can contact him at mattbrine at ixd.co and connect with him at www.linkedin.com/in/matthewbrine.

About IXD

At IXD, we are working to develop a true fax displacement solution. A service that solves the pain points that exist with fax and alternative secure document and file delivery technologies. Today you can use our IXD Secure Mail service for free because we believe that secure communications should be free for everyone. If you are an Office 365 user, sign-up for our IXD Secure Mail for Office 365. It is also free.

The IXD Gateway provides high-speed routing capabilities, SMTP to secure mail translation, and file system/print services. You can learn more about the IXD Gateway at our products page.

To learn more about how IXD can help your business send and receive information securely, please email us at info@ixd.co or call us at 425.954.5150.


IXD - Easy Secure Information Exchange

Welcome to IXD – a new easy way to send and receive documents, messages and other files when security and/or tracking are paramount.

Right now, you might already be asking, does the world need another secure email or enterprise file synchronization and sharing solution? No, we do not think it does.

What the world does need is a global secure information exchange network that transcends email, fax and proprietary messaging and file transfer solutions; one that eliminates the pain associated with email, fax and proprietary file transfer solutions.

You can think of IXD as the 21st century telephone exchange (broker) for secure messaging, proprietary file transfer and fax solutions.

Ultimately the IXD Secure Information Exchange Network will enable users to securely and seamlessly transmit and exchange documents, information and messages irrespective of their fax number, email address or proprietary file transfer solutions. This will be a big benefit to businesses and provide them with substantial savings by reducing the number of messaging and information exchange systems they need to manage.

Our team includes leaders with deep product, engineering and sales experiences from Microsoft and OpenText. We are passionate about security and improving every-day communications. You can learn more about IXD's founders here.

Thank you for learning about IXD. We look forward to working with you to improve the way information is securely exchanged and tracked.

Matthew Brine
Managing Director and Founder, IXD