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Concept Arbitrage: eFax

Posted on Saturday, Nov 10th 2007

There is another type of concept arbitrage that Indian entrepreneurs ought to think about, which I discussed at length with Sridhar Vembu in the context of Zoho. That is, taking an already successful product, service, or SaaS and dramatically undercutting on the basis of price. Sridhar is mainly trying to undercut Salesforce.com on CRM.

Here is an example.

Have you used eFax? “eFax is an online fax service that eliminates the need for a fax machine, an extra fax line and all the associated expenses (paper, ink cartridges etc.). Get a real fax number that’s tied to your email. Send and receive faxes as email attachments. It’s all the reliability and security of faxing with the ease and convenience of email.”

And here is the price chart:

efax pricing

Now, imagine providing the same service at 20%-25% of eFax?

This segment is a part in the series : Concept Arbitrage

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Not sure how it would or would not apply in India but the folks behind eFax have a pretty darn strong patent portfolio protecting their business to say nothing of marketing expertise…many have tried, most have struggled — and failed.

jeff Monday, November 12, 2007 at 12:25 PM PT

Jeff,

The patent portfolio point is well-taken, and needs to be checked whether it can be worked around.

On marketing, this is a classic Search Engine Marketing / Web Marketing opportunity. That is not rocket science, and can be tackled.

However, I would, if I were to venture into such a project, check why the other efforts have failed, when they failed, and what may have changed.

Sramana

Sramana Mitra Monday, November 12, 2007 at 5:39 PM PT

Earlier we opened account with eFax but rates are so high for Indian clients and support take lot of time to respond…We find 2 year old Indian company http://www.faxmyway.com Delhi and Mumbai efax numbers in just $ 6 per month …Support give resolution in just 30 minutes… Great service

nutech Friday, August 15, 2008 at 7:39 AM PT

[…] Readings: *Concept Arbitrage: eFax * An interview with Brian Jacobs of Emergence Capital where he explains the investment thesis of […]

Deal Radar 2008: EchoSign - Sramana Mitra on Strategy Monday, October 20, 2008 at 9:09 AM PT

It’s an interesting question but I think competitors will have the same challenges that our friends at Zoho will have in taking huge market share — it’s hard to challenge a trusted brand that manages a critical service with a discount alone. The flip side of the classic axiom of “don’t compete on price”.

It clearly is possible to deliver an electronic fax service more cheaply than eFax does — not only do competitors like RingCentral do so, but eFax itself has other more inexpensive brands itself it has acquired through acquisition and otherwise.

But eFax has such high brand recognition and equity, and the risk in “not getting a fax” seems so high, it’s unlikely most business users would switch to a service that is simply cheaper. And they offer a 100% free option for the very frugal, which is hard to beat.

Combine that with marketing challenges — it’s hard to market a product that is incredibly cheap. The CPA has to be so small on a couple-bucks-a-month service that it’s very hard to make them profitable if they require online advertising to acquire subscribers.

Jason M. Lemkin Monday, October 20, 2008 at 10:04 AM PT