Saturday, November 01, 2003

Telirati Newsletter #9

A bit of a slog for those seeking instant condensed wisdom, this old nugget on the fax server industry does maintain some relevance: One of the more innovative applications of camera phones is in document facsimile and other document-like imaging functions, like capturing images on a whiteboard.

Developers of these fax-like products will have to contend with the fact that the fax machine is still a standard of usability: paper is fed into one machine, and an identical paper comes out the other. Calling this process "imaging" is a cop out. If it isn't as easy as teleporting a document, mobile camera document imaging applications will find only a minority of their potential user base.

Newsletter #9 The future of faxing:

The future of faxing? How about the future of buggy whips, eh? Not quite the same. Typewriters did not exterminate pencils. Neither did computers. PowerPoint-obsessed managers and interminable meetings viewing "presentations" only sharpen the appetite for doodling. Until man stops marking paper with pen or pencil, we will need to transmit those images. To boil it down to the essentials, fax machines look to be about as permanent as phones. Not to say "eternal" but functionally close to it for the sake of this discussion. And this discussion is about how faxing will evolve in the near term.

Faxing stands on two pillars: The fax machine, and enterprise fax management. The fax machine has embedded itself into the office environment as much as any other office machine, like the copier, the phones, and the postage meter. It is part of how large numbers of businesses view the typical complement of an office, no matter the function of that office. Fax servers that implement enterprise fax management come in when the deployment of large numbers of fax machines adds up to a cost that is higher than it ought to be. Fax servers can also serve particular business processes or applications such as broadcasting information, or order processing resulting in documents sent to large numbers of customers, for example.

So, while fax servers are sold, in part, to reduce the need for fax machines, cultural and human-factors issues prevent the fax machine from being eliminated entirely. It is a vain hope that the need to put a sheet of paper in a fax machine, send it immediately to a recipient, and confirm that the recipient has the document facsimile in hand, will go away. Fax server vendors now know they cannot promise their customers that every fax machine, and every phone line serving those machines, can be consolidated into a server.

Fax servers are the easier of the two pillars of faxing to treat: fax serving has a bright future. An increasing number of businesses will see the scale of their operations grow to the size where buying a fax server makes economic sense. Microsoft is including a simple outbound fax resource sharing system in their NT operating system, which brings the incremental cost of the simplest form of fax serving down to zero. If Microsoft increases the functions of their fax sharing tool in NT 5.0, it may move the fax server business exclusively into the high end, but from the user's point of view, and from the hardware-maker's point of view, all the news is good.

The greatest threat to fax servers on the customers' premises is Internet faxing. Internet faxing was originally conceived as a cost reduction tool. The Internet would be used for long distance bypass. That model flopped for this reason: any business that does so much faxing that long distance savings matter can already seek competitive bids from long-distance providers. The Internet fax service providers never achieved the scale that enabled them to reduce their billing overhead so that the long-distance bypass savings show up in the customer's pocket. That, and the fact that the "last mile" to the recipient's fax machine constitutes the bulk of the cost in both Internet and PSTN-based faxing, made Internet faxing a dud in transmission cost savings. So how is Internet faxing a threat to fax servers?

The Internet faxing business model needs to be revised to an outsourcing business model. This is a model already understood and implemented by Internet backup services. "Don't buy that tape drive. Don't incur the administrative overhead of making backups. Don't hassle with keeping the tapes in a safe deposit box or secure off-site storage. Let us do it all for you." Similarly, the cost of phone lines for a fax server, server maintenance and administration, etc. could all be moved off-site. The more administrative features, like logging and archiving fax traffic, the user requires, the more compelling the off-site, outsourced model becomes. This will also have the effect of moving the fax server business to the high end, since the service providers will need large scale, multi-locations fax server systems. (One wonders why MSN, which has pioneered all manner of Internet-based, revenue-generating services such as airline ticket sales and real estate sales, has not taken on serving the direct needs of Microsoft customers in backup, virtual fax numbers, voice mail, fax serving, etc. An odd blind spot for so big an investment.)

The fax server business is divided into layers, and the upper strata are further divided by the way fax serving is used. At the low end, fax serving is mostly resource sharing: take the individual fax modems off the users' desks, and pool them into a server. Most such resource sharing is used for outbound traffic only. Most inbound traffic in low-end installations comes into fax machines. Computer Associates is a leading player at the low end, dominating low-end fax serving on the NetWare platform. ("CA?" you say. Well they got the business when they bought Cheyenne -- kind of like a whistle in a Cracker Jack box. It is in fact, just as you may think, unclear how fax serving fits CA's business model. Yet it fits no worse than much of the ragbag of hundreds of products CA sells.) OmTool has made hay in the low and low-to-middle market on the NT platform. But it is a vague business at the low end. High return rates and a large percentage of "shelfware" characterize the low-end market. Many customers of low-end fax serving find the fax server software cheap enough to try, but they don't have the scale, or administrative discipline, or, frankly, the need to make the move away from their fax machines. But, as I have heard many times in this business "You can sell anything on price."

The middle of the fax server business has lately been the playground of RightFax. RightFax is now part of AVT, a voice mail vendor. AVT is known for products that always look clunkier than those of its Seattle neighbor Active Voice, but that always seem to sell better. AVT is the only second-tier voice mail company to really break open the unified messaging market and derive a serious fraction of its income from that highly sophisticated part of the voice mail business. AVT does it by hard work: building a dealer channel that consists of dealers that have the scale and sophistication to sell products that are difficult to install, as all communications products are, relative to their data networking cousins. This must be rubbing off on RightFax, which has done well in the mid range fax server business through the same attention to what works in the channel. Success has given AVT an appetite: they recently bought AIFP, an application-oriented enterprise fax server company.

Mid-range fax servers require attention to the dealer channel, because the same fate of high return rates could befall these fax servers if not for a dealer channel that can install them. Typically, the installation process consists of installing a fax board in a server PC of the customer's choice. Most fax server software supports more than one brand of multi-port fax card. The fax cards are usually no pleasure to install, with peculiar IRQ and IO port requirements and no support for plug-and-play detection of these resource needs. And, since there are no software abstractions in Windows for either the fax boards, nor is there a fax API, there is consequently no concept of standard drivers for fax boards. Microsoft tried and failed several times to arrive at fax software interface standards, and now seems to treat the subject with the same enthusiasm the Russians have for Afghanistan.

High end fax servers are, of course, generally bigger. They are also, generally, turn-key systems -- built by the vendor. When they are sold, they stay sold. Customer returns of these systems are rare and if they happen, they signal some significant fault in the vendor's product. These systems are deployed two ways: First, general purpose enterprise fax management, in situations where numerous different documents are sent to and from desktops throughout an enterprise. Second, in application-specific settings, where application-generated traffic dominates: travel itineraries, purchase orders, invoices, etc. High-end fax servers are well placed to avoid challenge from outsourcing. High end servers will become the tools with which companies manage the use of in-house and out-of-house telecommunications resources for faxing, blending Internet fax services with least-cost routing and load balancing.

What of the fax machine itself? Remember that there are hundreds of millions of people in this world who consider a fax machine easy enough to use, almost as easy as a telephone, while they find computers impenetrable. So, while the world's 100 million fax machines do not form as formidable a host as the number of telephone handsets, these are enough to rival the number of computers in use. And, since fax machines usually serve a group of people in a singular, specialized purpose, the number of people who regularly send faxes far outnumbers e-mail connected computer users. These great numbers, combined with the cultural barriers that keeps a large segment of fax users from converting to computer-based communications, and added to the basic need to transmit images on paper, means fax machines will not be displaced by e-mail soon. It also means that new standards like G5 faxing are not exactly responding to a real need. You will likely see all the need for a combination of e-mail and faxing met by a combination of Super G3 and existing e-mail standards.

Do these product categories overlap? Sure, especially if you look only at product features, and not how the products are delivered or how the customers use them. For examples, small fax servers that resemble inexpensive print servers bring the turn-key model to mid range fax servers. Castelle and JetFax are examples of this type of fax server. The convergence of the Internet networking standards and all-in-one peripherals will beget innovations in the turn-key fax server device category. These "thin servers" represent the future of the fax machine: an intelligent terminal device for the intranet as well as a server. If such devices can be made inexpensively enough, and if they remain as easy to use as a fax machine, they will actually penetrate the market for fax machines, which is far, far bigger than that for the existing market JetFax plays in. The barest surface of benefits derivable from a combination of the Internet and faxing has just been scratched, and these benefits are far more concrete than those offered so far in the various Internet-enabled telephone handsets.

Faxing, therefore, in every product segment from the lowliest fax machine in an un-automated office to the most monstrous server bristling with T-1 lines, has a good long way to go before it has exhausted either the potential for greater productivity, or the potential for innovation that can be directly translated to user benefit. There are at this moment two pens and a colored pencil on my desk. It looks as if I will remain close kin to my stone age ancestors (and not just for reason of what my wife refers to as my "jutting brow") in marking flat surfaces with a stylus. And the need to transmit those markings will remain as well. There are, in faxing, more segments than any vendor in any subset of these segments will see or admit to, though almost all are likely to grow.

The future belongs to those vendors that will meet this continuing need with undiminished simplicity while delivering more value (probably via the Internet) to that simple task.

Copyright 1997 Zigurd Mednieks. May be reproduced and redistributed with attribution and this notice intact.