Fax This to Japan: You <i> Can </i> Go Home Again

The next time you hear someone railing against the shortsightedness of American industry, take some solace in the fact that most of Japan’s leading electronics firms are deaf, dumb and blind to a billion-dollar market opportunity. It’s not that they’re stupid or gutless; it’s that they don’t quite yet grasp how much we Americans crave instantaneous communications.

Yes, fax machines have done absolutely gangbusters in the business world, but why hasn’t Japanese or Korean industry had the wit to market them as consumer products? Fax machines lend themselves perfectly to the high-volume, high-quality, low-price economies of scale that turned videocassette recorders and compact disc players into mass-market best-sellers. They’re stuffed with electronics--easy to plug in, easier to use--and they’re all built to a global standard. This technology is practically begging to be turned into a home appliance.

So what’s the problem?

“The true consumer market doesn’t exist at this time,” insists Richard Sklaire, assistant general manager for Samsung’s consumer business products group. “Home office? Yes, but there’s no demand for swapping recipes with Aunt Millie.”

“What are they going to do with them--send letters to Aunt Minnie?” asks Joseph F. Cosgrove, national marketing manager in the facsimile division for Sharp Electronics, one of the world’s most successful fax manufacturers. “There’s no great benefit there. I don’t think people want to pay to print their utility bill at home.”

Ignoring for the moment this troubling obsession with aunts, it seems as if these Pacific Rim giants are ignoring the very lessons that made them so successful: You create consumer markets by scaling up production and slashing prices. Price is the gasoline to pour on the fire of demand. Make it easy for people to buy. Let the market tell you what features and functionality to build in or strip out.

The problem is that these companies have rigidly defined the fax as a business machine. They’re a little too caught up in the Federal Express syndrome: that these machines are absolutely, positively only about the transmission of business documents.

“These Japanese companies are primarily focused on the business market,” said Sheridan Tatsuno, head of NeoConcept, a technology consulting firm, “and they’d rather offer increased functionality rather than cut prices and create a consumer market.” How un-Japanese.

Not all these companies are scrambling in the high end. Murata, for one, has been particularly aggressive in slicing prices and seeking retail outlets. Sharp’s Cosgrove points out that, with no fewer than 60 competitors, fax prices are bound to tumble. But the point is that it’s time to market the fax as a consumer product.

“The fax machine is an obvious consumer product,” said Richard Foster, a senior partner at McKinsey & Co. who handles the consultant’s innovation practice. “This technology is autocatalytic; the more there is, the faster it grows.”

“At some point, some American ad agency is going to put a bug in the right ear and you’re going to see an ad with somebody’s child putting a drawing into the fax machine and Grandma’s smiling face when she receives her copy, and there will be the tag line: ‘Grandma is only as far away as your fax machine,’ ” said Phil Sih of InterFax, a Menlo Park, Calif., fax information service start-up. “The fax is de facto creeping into the home.”

The idea is to get people to think of the fax as this incredibly versatile device that can handle everything from thank-you notes and homework to telephone bills and newsletters. Why shouldn’t the American Automobile Assn. offer to fax people maps on the best routes to take their trips? Why wouldn’t a travel agency be interested in sending people vacation details and ticket information?

If you’re Sears or Land’s End, don’t you think the idea of using the fax as an extension of your catalogue makes sense? Don’t call them catalogues, call them faxalogues. You could even have people send in their measurements over the phone for fittings. For sending formal complaints, confirmatory notes and quick inquiries, the fax is a nearly ideal medium.

To be sure, a fax doesn’t have the sex appeal of a VCR or a CD player; that’s entertainment. But that’s not the right model for the mass-market business. Faxes are functional, so a better analog is telephone answering machines. Five years ago, who had to have a phone-answering machine? People would call back, right? According to the Electronics Industries Assn., 6 million answering machines were sold in 1986, 11.1 million in 1988 and an estimated 13.5 million will be sold this year. By any measure, that’s a mass market.

If you designed a fax machine with that sort of scale in mind, said Sharp’s Cosgrove, prices could drop to less than $200. “Once you get the volume up, you can put things on a single chip,” he maintains. “If designed correctly, you can eliminate a lot from a fax machine.” Five years ago, fax print heads sold for more than $400; today, they go for $50. At the right volumes, they drop to less than $10.

Indeed, McKinsey’s Foster and NeoConcept’s Tatsuno believe that U.S. manufacturers could come in and dominate consumer fax--if they had the guts and ingenuity. To be sure, the regional Bell operating companies have an enormous incentive to encourage fax use. (Currently, Pacific Bell is looking only at business fax.) They’d be smart to encourage consumer fax, as well.

Paul Saffo, a research fellow at the Institute for the Future in Menlo Park, sees three technical “spurts” that will turn fax into a pervasive home medium. “The first spurt will be a plain paper fax at a $500 price point,” he asserted, noting that current fax paper quality is a disincentive to many potential purchasers. The second spurt comes when the telephone companies offer “value-added” fax networking services, like overnight store and forward, and the ability to bypass busy signals and transmit faxes while people are talking on the phone. The third spurt occurs when prices drop to $250 and faxes come with such options as expanded memory and easy links to personal computers.

That’s just technical infrastructure. As Saffo notes, the real dynamic driving this is quality of life. “Think of the fax as a form of freeway bypass. Instead of doing something wonderful, fax becomes a medium for avoiding something horrendous,” he said, adding that Los Angeles is the perfect fax city.

My guess is that, when fax catches on in Europe and 1992 kicks in, the Pacific Rim companies can reap huge economies of scale by producing consumer machines for European and American households. The Japanese should re-learn the lesson they’ve been teaching the rest of the world: If the price is right, the market’s there. Fax that to your Aunt Ethel.