[Red Herring] Stamps.Com

I Find Karma (adam@cs.caltech.edu)
Fri, 18 Dec 1998 11:38:01 -0800 (PST)

Chalk this one up to another obvious idea that's going to make someone a
wad o' cash...


> By Peter D. Henig
> Red Herring Online
> December 17, 1998
> Online postage provider Stamps.com and America Online (AOL) have just
> announced a distribution and marketing alliance that will make
> Stamps.com's Internet postage services available across all AOL brands
> in early 1999.
> As part of the agreement, AOL members and visitors to the AOL.com Web
> site will receive "Member Perks" packages that include free postage and
> postage supplies.
> That's not bad visibility for Stamps.com, a company only two years old
> and still privately held, which, until now, has been below radar in the
> suddenly high-profile space of postage over the Internet.
> "It's a space that I think is going to be huge," says Internet analyst
> Keith Benjamin of BancBoston Robertson Stephens. "Although there have
> been other companies out there trying to do this, Stamps.com is the
> first one to figure out how to download [postage] without any hardware,
> and that could give them a big first-mover advantage."
> According to Stamps.com, BancBoston Robertson Stephens will soon be
> doing a round of private equity financing for the Internet company, and
> is rumored to be in line to underwrite an upcoming IPO.
> Stamps.com has developed technology that allows users to download
> postage through the Internet and print it directly on an envelope,
> without having to spend a dime on additional hardware or PC gadgets.
> "This isn't your grandfather's post office," says John Payne, Stamps.com
> president and CEO.
> Other notable players in the postage market include E-Stamp (which, like
> Stamps.com, the U.S. Postal Service just approved for beta and market
> testing of Internet postage), NeoPost, and Pitney Bowes, the corporate
> behemoth that has forever owned the market for leasing postage meters.
> However, Stamps.com is currently the only Internet postage solution
> approved by the USPS that does not require the installation of a
> hardware device on each personal computer to securely download postage.
> "I think Stamps.com is well positioned versus their competitors," says
> Van Baker, director of consumer market research for Gartner
> Group-Dataquest. "They approached this from the point of view that
> hardware is a bad thing when it comes to postage, and I think this is
> the correct assessment. The small business buyer and the consumer do not
> want to have to manage a postage meter, even if it is a dongle on the
> PC."
> Although gaining approval from the USPS to sell postage over the
> Internet -- a year-long process -- is nothing new, Stamps.com appears to
> be the first to satisfy the Postal Service's high standards on security.
> The company attributes this to its unique encryption technology.
> "The post office is able to measure at least $200 million in mail fraud
> per year," says Mr. Payne. "Anything they can do to prevent that only
> helps them."
> While the USPS has worked hard to market itself as a slick, profitable,
> and efficient business, analysts say it is happy to share the burden of
> selling postage to small businesses and consumers, Stamps.com's target
> audience.
> "This is where things are going, to the virtual desktop," says Bonnie
> Brooks, analyst with Creative Strategies, a research and consulting
> firm. "The USPS is relying on companies like Stamps.com for an Internet
> strategy. ... It didn't seem like the post office wanted to do this all
> by themselves."
> Ms. Brooks notes that Stamps.com makes sense for the small office/home
> office (SOHO) market because small businesses and individual consumers
> can't justify the cost of a postage meter. And because Stamps.com
> software lets users put their own logo right next to the postage, "you
> can look like a professional even if you're not a real company, which,
> believe it or not, is a big deal in the marketplace," says Ms. Brooks.
> However, there are some barking dogs along Stamps.com's delivery route.
> Aside from the competition, the company's first challenge will be to
> teach consumers how to use the service. "Many consumers are
> uncomfortable trying to figure out how to print envelopes on their
> printers," says Mr. Baker. "And the alternative of printing the postage
> on the letter itself requires a window envelope, which most consumers
> are not using."
> Indeed, it's taken the consumer electronics industry over a decade to
> simply teach people how to set the time on their VCRs; finding the right
> envelope and learning how to fold a letter to display the postage could
> be the next challenge for befuddled consumers.
> The size of the Internet postage market is tough to estimate right now,
> say analysts, because there are no firm statistics on how many consumers
> want to use metered postage. Currently there are 1.6 to 1.7 million
> postage meters on the market, according to Stamps.com, but the market
> for meterless metered postage could be greater. The business model for
> Stamps.com looks sound: it uses a fee-for-service model, charging a
> 10-percent "convenience fee" on top of the cost of postage purchased by
> the consumer.
> In this early phase of Internet postage, Stamps.com claims 85 percent
> gross margins, excluding customer acquisition costs. And although Mr.
> Payne admits there will be price pressure over time, analysts like Mr.
> Benjamin are convinced that the market opportunity is too large for the
> concept to not succeed.


The Internet is in fact the most amazing paper trail in the history of
the world, a fact often lost on some elements of our media which tend to
treat the online medium as a shadowy otherworld, cyberspace, where you
can't trust anything you read or anyone you meet.
-- The Motley Fool, LA Times 2/22/97