Messaging market pits start-ups against big firms

From humble beginnings as Web fax and voice mail companies, a group of Net start-ups hopes to chip out a profitable place in the center of the new telecommunications world.

It's an ambitious goal, and one that could put them squarely in the sights of the biggest--and recently highly acquisitive--communications companies.

Companies like EFax, OneBox, JFax, and Ureach are in the vanguard of the "unified messaging" market, bringing together fax, email, voice mail--and ultimately telephone calls--into a single Web mailbox accessible by phone or PC.

It's a market with enormous appeal for people trying to manage multiple telephone numbers, mobile phones, and email accounts. But these new services also are edging onto the turf of telephone companies and big Net firms like Yahoo and Microsoft--a fact that casts a threatening shadow over the start-ups' burgeoning businesses.

In light of this, the companies are racing to sell their services to the telephone companies where they can, and at the same time trying to develop a large subscriber base on their own.

"The competition will come from the telephone companies," JFax founder Jaye Muller said. "But we want to partner with people like that. We want to convince them that if they want to do this now, they should do it with us."

Service is good, but free is better
Muller, a musician who hails from East Germany, got the idea for his company while touring with his band. As the group traveled from hotel to hotel, Muller found he would often miss faxes or voice mail messages. To remedy this, he set up permanent phone numbers in New York and London that would aggregate faxes and voice mail that then could be checked by email.

Most online messaging services work in the same way. Companies buy huge blocks of telephone numbers in cities around the world, and give each subscriber a private number or extension and an email box. These numbers can be used as secondary phone numbers for individuals or as a central messaging center for businesses.

But the trick for most of these online services is figuring out how to balance the Web users' desire to get services for free--or close to free--and the companies' eventual need to make a profit.

"These companies end up competing in an everything-is-free market," said Lucas Graves, a Web technology analyst with Jupiter Communications. "If you don't offer your service for free, it's likely that some well-funded competitor will."

Most of these start-ups offer a free service, allowing customers to receive faxes and a limited number of voice mails. Advanced services, such as added messaging storage space, is available for a fee.

JFax says it has about 250,000 customers who use its free service and about 46,000 customers who pay $12.50 per month for advanced services.

Competitor EFax, which has heavily marketed its messaging services, claims to have more than 1.4 million subscribers to its free service.

Heavy-hitters look on

The big local telephone companies also are considering offering similar services--a move that could prove either an enormous opportunity or a death knell for the start-up messaging firms.

AT&T is already developing a unified messaging service as part of its package of cable TV, local and long distance, and wireless services. The messaging service is slated for launch next year.

Ameritech and BellSouth now offer portions of JFax's service to their customers. But all of the Bells are also aiming to create individual telecommunications portal Web sites, to offer services such as messaging, as a unique feature of their high-speed Internet services.

The online companies see this as another market opportunity, rather than potential competition. Companies say they can provide the stodgy Bells with a stepping stone into the market for Internet-based telecommunications.

"We don't necessarily need to fight with them," OneBox chief executive Ross Dott said. "We can find ways to work with them."

But analysts say competition from telephone companies will likely heat up when the online companies integrate telephone calls into their services. These features will tap Internet telephony technology to route calls to other devices, such as cell phones or computers screens.

JFax plans to launch phone service in the first quarter of next year, and analysts say the others are likely to follow suit.

"That's their biggest market potential--actually completing live voice calls [over the Internet]," Jupiter's Graves said. "I think to date, the telephone companies are largely ignoring that potential."

But with that potential comes risk, as the companies begin to go head to head with companies such as AT&T or Bell Atlantic. This is where the companies need to ensure they have a large, loyal user base to survive, analysts say.

"[Their future] depends on how quickly they can get out and develop loyalty," International Data Corporation analyst Jeanette Noyes said. "If they can build up their base quickly, they've got a shot at it."