Company: j2 Global Communications
Located: Los Angeles, California
Geography: Global – 48 countries
Market: Provider of outsourced, value-added messaging and communication services
Key Customers: More than 11 million customers
Website: j2 Global Communications
I asked Scott Turicchi, President a few questions about j2 Global’s business and his view of the SaaS market in 2010 and beyond.
Did you start out as a Software-as-a-Service company?
Not exactly. We didn’t get founded based on our technology. The man who spawned the idea for j2 Global Communications was a rock and roll musician born in East Germany named Jaye Muller, who was touring Europe doing concerts. Mueller was writing newsletters about current events but found it difficult to communicate using email, the phone, voicemail or even fax while on the road. Email is location independent but using traditional telephone communications while traveling with the band was a mess.
When Mueller got back to the United States he formulated his business concept and started pitching his idea to investors. Then he went out and obtained some phone numbers and began testing. He found a problem based on his own experience and his assumption was that other people wanted to be location independent and that was why email use was growing so dramatically.
j2 Global Communications, Inc., which was then known as JFax, was founded in late 1995 and started to build out our solution in 1996. The company then extended its geographic reach to London, with the ambition of building a global solution. We then raised our first round of funding in 1997 and then some additional working capital in 1998 and then in 1999 during the crazy Internet days went public. At the time we went public we were only $7M based on our trailing 12 months of revenues, a business that would never be able to do a successful IPO today. Our IPO raised $80M but we have never had to raise any additional capital since then.
Then in 2000, the stock market crashed and we had to find a way to deliver a profitable business with our model. We used our capital to purchase eFax and developed a new more efficient business model that leveraged both indirect channels as well as low cost marketing techniques. We continued to pressure test our model and by 2001 we went from losing cash to making money. Because of the cash constraints on our business due the capital markets, we had no choice but to develop a profitable subscription business model.
Why do your customers buy from j2 Global Communications?
Our founders believed that it didn’t matter whether you are an individual buyer, professional consultant, even worked inside of a large corporation; you wanted the freedom to choose your own business tools. j2 was first to the market and we had to educate the market on the value of services like converting faxes to emails and the advantages of having a broad network.
Because of our target buyer’s desire for freedom of choice, we shifted our model shifted to selling a range of phone, fax and business services that contained administrative tools, attractive pricing, support and overall control. With the ability to monitor and manage a wide range of telephone and fax services, this enabled us to effectively sell to, and retain, larger customers as well as our traditional small and medium target firms. Even today, the majority our customer base are still small businesses, those who purchase fewer than 150 seats.
Our enterprise customers like our financial stability and strength, the fact that we are publicly traded and have healthy cash balances on hand. We are currently running at about $254M in annual revenues with over $260M of cash and no debt, so this provides a lot of comfort to large customers who want to buy and use our services.
Another reason customer buy from j2 Global Communications is that we really understand how to meet their needs around messaging and communications and we have developed expertise around these core competencies and have proven we can deliver over a long period of time. Our company lives and dies by providing our services with a very high level of quality to our customers. This is our core business.
j2 Global Communications has developed strong brand awareness over the last ten years. This has become quite meaningful to us by helping to reduce the cost of running our business because a significant number of leads come to us through customer referrals, which are free leads. Currently about 40% of paid customer signups fall into the ‘free’ categories that we track.
Our sales and marketing teams get a range of investment to go out to the market and generate leads. All of these budgets are based on average revenue per unit (ARPU) and we have found that our Customer Acquisition Costs have almost been cut in half based on the strength of our brand and we can track this directly to our site activity. The investment you put behind your brand, can really be seen over time. It typically takes new brands a lot more marketing investment to build their awareness and generate quality leads.
Our organization tends to be more fiscally conservative but we are very customer-focused and that is how we have built our brand. This business philosophy was born out of necessity, but it has really paid big dividends for us over time.
What do you see as the key trend emerging in the SaaS industry?
For our company, the big trend we see is that large enterprise customers are willing to outsource more of their services to SaaS providers like j2 Global Communications. This willingness is especially true for global companies who no longer want to maintain PBX’s or fax servers; it just doesn’t make financial sense for them anymore.
The SaaS wave is real and thanks to the Great Recession, cost pressures have made the SaaS value proposition very attractive to all sizes of organizations. Big guys are really open to SaaS. Then there is huge opportunity for SMB’s who are looking for big boy software but only need 70-80% of the functionality. These firms also like the ability to pay-as-you-go model and that they don’t need any technical expertise to use our services.
What is your outlook for the balance of 2010?
We have been cautious. My thesis for 2010 has been that it is directionally better than 2009, and generally positive. j2 will re-engage from a sales and marketing perspective but we continue to monitor our business metrics such as customers, sales and other external macro-economic data on an ongoing basis, and we can re-evaluate our tactics every 30-60 days based on any changes in the economy.