Part 2 of the Postal e-volution series

Part 1 ~ How can USPS thrive in the 21st century?

Part 3 ~ market wars: Postal Service rivals clamber for position in the new e-commerce economy

Part 4 ~ Commercial Freedom: Is USPS being left behind as ost offices abroad go global?

Part 5 ~ Creating a Postal Service to serve America's future

But the new era of e-commerce and communications spawned by the worldwide web of computers has an upside, too. The most obvious example: On-line shopping means more demand for home deliveries—the very thing letter carriers do best. The challenge facing USPS and the NALC members who depend on it for their livelihoods is to catch the wave, not be swept away by it. The question is how to balance the impact of the electronic diversion of mail with the commercial opportunities the new technology offers.

This second installment of The Postal Record’s “Postal e-volution” series on the problems the USPS faces as it tries to evolve into a vibrant 21st century business will look at four areas where change, danger and opportunity intersect:

The potential impact of electronic bill-paying on USPS revenues;

The threat Internet advertising poses to Standard A mail;

The increasing parcel business generated by the boom in e-commerce; and

Development of new home delivery services and the possible role for USPS in non-traditional deliveries.

Few things are cut and dried in any of these categories—hunches and guesstimates abound. Despite its explosive spread, the communications revolution is still taking shape. Commercial use of the Internet began less than a decade ago, and cyberspace has proven to be a very tricky place for prognosticators. But by considering the threats and opportunities on the horizon, letter carriers can begin to assess both the impact this e-volution will have on their jobs and how NALC members can work together to help shape the future.

Paying paperless bills without stamps

EBPP—the acronym almost sounds like a diet supplement, but it is the foundation for dire predictions of a sharp drop in Postal Service revenues. “Electronic Bill Presentment and Payment” has the potential to divert an immense amount of first-class mail—the bills, bank account and investment statements and similar financial reports “presented” to consumers through the mail by businesses, and the return mail from consumers when they pay their bills, make investments or accept offers.

Bills, statements and payments make up about 49 percent of all first-class mail (around 50 billion pieces last year) and account for more than one-quarter of total USPS revenue. If all those transactions suddenly became electronic—get the bill as an e-mail, pay it with a mouse click—the Service would face a financial catastrophe. Postmaster General William Henderson, auditors from the Government Accounting Office, and others have cited EBPP as the main menace of the Internet to the health of the Postal Service.

Some postal people have been complacent about the threat because the current reality only hints at what the future may hold. The truth is, virtually everyone agrees that paying bills on line is the wave of the future. The only question is how soon it reaches shore, not whether. Internet access will become more widespread. Security issues will be addressed. Businesses will push to achieve the savings EBPP promises. The future is here—or at least coming around the corner.

The technological groundwork for EBPP was laid beginning in the 1970s, first with direct deposit of benefit checks, then with payroll deposits and automated payment of utility bills by electronic fund transfer (EFT). On-line billing takes that technology to the next logical level. Like conventional billing, EBPP is a two-way transaction through an intermediary. However, instead of the Postal Service as the middleman, the transactions are handled by a computer network operator, and instead of being sealed in an envelope entrusted to a letter carrier, the charge and payment data is streaming through cyberspace.

ON-LINE EXPLOSION CONTINUES

Fewer than 1 percent of American households now receive and pay bills on line, although research conducted for USPS estimated at least 30 percent have the technology needed to do so—a personal computer and Internet access. By 2003, 62 percent of households will have computers and 59.3 percent will have Internet access. That means the number of families on-line will double in less than five years. By then, USPS expects, 10 percent of households will pay some or all of their bills on-line.

While CheckFree (see page 12) actually runs a virtual on-line bill paying system—facilitating electronic information exchange between billers and customers over the Internet—cyber firm Paytrust.com is a virtual system in name only. The New Jersey-based firm depends on the USPS to handle its traditional role to make the payment process work. Here’s what happens, based on a recent Wall Street Journal report:

Paytrust customers get an e-mail notice of a bill. They sign on to Paytrust’s web site using their password, examine their bill, then click one of the choices—to pay it in full, pay only part, or put it off.

Sounds great, no stamps, no checks, no paper at all! That may be true for the consumer, but what really happens is far different than what it appears. When a customer signs up with Paytrust, the company instructs the billers to change the paper bill delivery address to its post office box. At the Paytrust warehouse, the bills are opened and scanned, using technology like USPS remote encoding centers, and Paytrust computers “read” these documents for account numbers, names, amounts, etc. The e-mail notice is then generated by computer from Paytrust. When the customer clicks to pay, what really happens is Paytrust writes a physical check and puts it in the mail.

The company hopes to receive bills in electronic form one day and handle payments through fund transfers. The current system is a way to build up a large enough network that it becomes economically attractive for billers to sign up. But in the meantime, there’s no doubt that the check is “in the mail.”

It’s a virtual virtual system While CheckFree actually runs a virtual on-line bill paying system—facilitating electronic information exchange between billers and customers over the Internet—cyber firm Paytrust.com is a virtual system in name only. The New Jersey-based firm depends on the USPS to handle its traditional role to make the payment process work. Here’s what happens, based on a recent Wall Street Journal report: Paytrust customers get an e-mail notice of a bill. They sign on to Paytrust’s web site using their password, examine their bill, then click one of the choices—to pay it in full, pay only part, or put it off. Sounds great, no stamps, no checks, no paper at all! That may be true for the consumer, but what really happens is far different than what it appears. When a customer signs up with Paytrust, the company instructs the billers to change the paper bill delivery address to its post office box. At the Paytrust warehouse, the bills are opened and scanned, using technology like USPS remote encoding centers, and Paytrust computers “read” these documents for account numbers, names, amounts, etc. The e-mail notice is then generated by computer from Paytrust. When the customer clicks to pay, what really happens is Paytrust writes a physical check and puts it in the mail. The company hopes to receive bills in electronic form one day and handle payments through fund transfers. The current system is a way to build up a large enough network that it becomes economically attractive for billers to sign up. But in the meantime, there’s no doubt that the check is “in the mail.”

(Postal Service studies concluded that today’s electronic bill payers are primarily college-graduate baby boomers in white-collar professions. This group typically latches onto new technology first—think of the folks carrying walkie-talkie-size “mobile” phones 10 or 12 years ago—and is heavily represented among households that use some form of electronic banking. Think about how widespread cellular phones are and you have an idea how EBPP could take off.)

Because bill-paying involves sensitive bank account information, most observers say consumers will have to be thoroughly convinced of the security of their financial information before large numbers embrace the on-line alternative. The recent attacks on Internet sites by cyber vandals have underlined such worries. Privacy issues also have been highlighted by news reports about Internet companies using “cookies” to build detailed profiles of on-line shoppers and other web-surfers that they sell to marketing operations. Who will have access to key financial data and how it might be used are critical questions for EBPP advocates.

Industry officials are keenly aware of these privacy concerns and are working intently to resolve them. Some of the hottest cyber stocks are companies that specialize in encryption and web site security.

Aside from security and privacy, the major barriers to widespread EBPP are that dozens of competing companies are using different systems and limited number of billers that are participating. If customers can’t pay all or at least most of their bills on line, they have little incentive to use such services, since they’ll still have to leave their computers to write and mail checks to some companies. Conversely, without a lot of customers signed up, companies have little incentive to get on board. As with security issues, the industry leaders are moving aggressively to build their customer base—both billers and payers—and standardize systems.

Atlanta-based CheckFree operates one of the largest services and also is the backbone for bill paying for some major commercial web sites, including Yahoo! Later this year, America Online, the industry giant that abandoned an earlier bill-paying venture with Intuit, is planning to launch a new one with CheckFree. And Pitney Bowes, the postage meter company, has made a deal with CheckFree that links its Digital Document Delivery system to the bill-paying network.

The Wall Street Journal reported in February that CheckFree handled 125 million payments last year for three million customers. CheckFree and its dozens of rivals together accounted for just 1 percent of all U.S. bill payments.

CheckFree recently moved to acquire Transpoint (a Microsoft venture that supports its on-line MSN bill-paying feature) in an effort to reach the “critical mass” needed to make EBPP blossom. But businesses have been dragging their feet on presenting electronic bills without an industry standard for operations. Banks that handle the financial transactions also have balked. No one wants to invest in a Betamax e-billing system if the VHS version is going to become standard. But, as with that videotape disparity, one system is certain to emerge as the market leader.

Also standing in the way is the attitude “if it ain’t broke, don’t fix it”—or, as a study published last year by the Federal Reserve Bank of New York dryly put it: “Households have shown considerable inertia in adopting new payment methods, especially when the existing ones still work.” This, too, can be expected to change as consumers become more comfortable with the Internet experience, moving from e-mail and web browsing to on-line shopping and stock trading.

Electronic statements, a smaller portion of total first-class financial mail, could migrate to the Internet even more quickly than billing and payments. Since the monthly or quarterly reports from brokerage firms or other financial services are a one-way transaction—delivery of data to the customer, without a return payment—the process is less cumbersome and raises fewer security and privacy worries. Last month, Business Mailers Review cited a recent study that about 3 billion such statements were sent electronically last year and that number will double by 2005. That represents about $1 billion in postage revenue.

ECONOMIC MOTIVATIONS

The savings for businesses from on-line billing and payments could be substantial. One estimate prepared for USPS suggested companies could save between $1.25 and $2.75 per bill by using electronic alternatives, which cost about 50 cents. Using different data, the Federal Reserve report cited a 90-cent cost for preparing a bill and processing the return payment. No matter which number you accept, with more than 16 billion bills going into the mail each year that means at least $15 billion in potential savings, creating tremendous pressure on bottom-line conscious managers to adopt on-line billing.

For individual households, which typically pay 12 to 20 bills a month, the motivation is more convenience than savings in postage and preparation time. Transpoint, for example, charges $2.95 a month for the ability to pay up to 20 bills. It lists more than 750 companies that can be paid, mainly public utilities, cable and telephone services, and credit cards. To add specific companies not on the list, the charge rises to $5.95 a month.

Although it’s sometimes difficult to find the bottom line in the cyber world, it’s virtually certain EBPP will accelerate as Internet access spreads and billing providers establish uniform standards. That is why both the USPS and GAO forecast first-class mail volume will begin to contract in the next two or three years. If their prognostications are correct, time is growing short for the Service to find strategies for covering expected losses in revenue.

How vulnerable is advertising mail?

As the initial article in this series pointed out, the electronic diversion of first-class mail is nothing new. In the 1980s and 1990s, faxes and electronic fund transfers reduced first-class business-to-business volume by tens of billions of pieces annually. Fortunately, this loss of volume was more than offset by surging business-to-household first-class pieces and explosive growth in third-class mail (mostly advertising and now known as Standard A mail).

Direct marketing advertising spending by medium in 2000 (Billions of dollars)
.
Telephone Marketing		$ 71.1.
Direct Mail		$ 44.6.
Television		$ 21.8.
Newspaper		$ 18.5.
Magazine		.$ 9.5
Radio		.$ 7.0
Other *		.$ 8.2
.
Source: Direct Marketing Association
.* Includes $2.1 billion in Internet advertising

We’ve seen how electronic billing may soon threaten to divert a significant portion of business-to-household mail. In the short run, however, Standard A mail may be even more vulnerable to the information technology revolution.

American companies big and small will spend more than $300 billion on advertising this year, of which some $175 billion can be classified as “direct” marketing, advertising aimed at generating sales directly from consumers and businesses. Advertising of this sort invites consumers to purchase items by phone (toll-free 800 numbers), through mail order catalogues or, increasingly, on-line via the Internet. As the box at right indicates, direct mail spending is expected to reach $44.6 billion this year, trailing only telemarketing in annual expenditures. Two-thirds of this direct mail spending goes toward design, printing and mail preparation costs, but the Postal Service’s share in the direct mail business will exceed $15 billion this year, nearly one quarter of its total revenues.

Direct mail was one of the great growth industries of the 1980s and early 1990s. Between 1980 and 1995, Standard A mail volume grew by 9.4 percent annually and postal revenues from advertising mail rose from 14.7 percent of total revenues in 1980 to 22.5 percent in 1995. Note that first-class volume grew by just 4.0 percent annually during the same period.

Ironically, the growth in Standard A was driven by the revolution in computer technology that is now, a couple of technological generations on, threatening to displace such mail. The development of inexpensive personal computers in the early 1980s allowed mailers to target direct mail in very sophisticated ways while pre-sorting the mail to take advantage of significant discounts on postage. Using Census Bureau data and marketing research, direct mailers targeted consumers and neighborhoods based on income and other demographic characteristics to increase response rates. Although Americans often complain about the amount of “junk mail” they receive, the fact is direct mail works. Sales from direct mail skyrocketed and corporate marketing managers reserved a growing share of their advertising budgets for Standard A mailings.

INTERNET ADVERTISING BOOM

What goes around comes around, for today the information technology revolution that began in the 1980s poses a threat to the direct mail business it fostered. The arrival of ever more powerful personal computers and new technology to link them to the Internet has created a new category of advertising—interactive direct marketing. Advertising by e-mail and “banner” ads on web sites that allow consumers to point-and-click to learn more about products and purchase them on-line is the fastest growing segment of the advertising business. In 1994, Internet advertising spending stood at just $11 million. This year it will exceed $2.1 billion and is expected to grow by 50-60 percent annually over the next several years. Forrester Research, a company that tracks developments in the so-called new economy, predicts that spending on Internet advertising will top $15 billion by 2003 and surpass that for magazine and radio advertising combined by 2005. This year advertisers will spend $7 billion on radio spots and $9.5 billion on magazine ads.

The past as prologue In January 1977, the Postal Service was in a state of decline. Less than six years old, USPS was facing a “technological crisis”—the words used by then-NALC President J. Joseph Vacca. Brother Vacca, now NALC president emeritus, testified before the national Commission on Postal Service appointed to consider how to shore up USPS. Speaking at the dawn of the personal computer age and a dozen years before the creation of the worldwide web, Vacca foresaw mail-diversion and revenue-loss problems very much like those the Service now faces. He suggested a radical—but logical—solution: Expand the Postal Service’s traditional role as the nation’s communications backbone to include the emerging electronic communications system. In short, Vacca was arguing that the USPS should be put in charge of the American portion of what would become the Internet. “The purpose of electronic communications is not different in any basic degree from the purpose of mail communications. When mail communications was the primary means of conducting commerce and message exchange in America, it was then determined that responsibility could not be properly performed by a multitude of competing private interests,” Vacca reminded the commission. “Inevitably, I am led to the conclusion that this major [electronic] communications system should be brought under the blanket of the constitutional mandate of the USPS.” To do otherwise, he warned, would mean the national communications network would not be controlled by the people, but would end up in the hands of “corporation directors. Surely such a result will not be viewed as consistent with the public interest.” That idea, obviously, did not win out, but Brother Vacca’s remarks in 1977 presaged the present challenge to the Postal Service. Citing the emergence of electronic fund transfers, electronic messaging, and data transmission, the letter carrier leader said, “When in place, these three systems will have the ability to service most of the needs of commerce. When you realize the essential product of the postal system is commerce initiated and commerce response, you begin to get a glimpse of the magnitude of these changes to our communications network known as the USPS.” Although those systems took longer to develop than forecast, the development of the easy-to-use worldwide web and affordable personal computers is propelling more and more traditional mail onto the Internet. At last, it appears, the future is now.

A few numbers will explain the allure of Internet advertising. Last November, the Census Bureau reported that the 100 millionth American had accessed the Internet. Approximately 52 million American households now have a personal computer and 37 million of them can connect to the Internet from home. The Yankee Group, a consultant to the USPS, estimates that the number of households with PCs will reach 62 million within three years and that the number with Internet access will top 59 million. To the average citizen, this trend is a major technological revolution. For advertisers, to use the jargon of the Internet industry, it represents “a lot of eyeballs.” Indeed, that is what web site operators compete for: eyeballs. The more people who visit a web site, the more advertisements that site can show and the more ad revenue it can generate. Many so-called dot.com companies get a majority of their revenues from advertising, not from the sale of their products or services.

The potential to reach millions of consumers is what makes Internet portal sites such as Yahoo so attractive to advertisers. Yahoo claims to have 100 million visitors per month, or five times the number of subscribers to American Online, the nation’s leading Internet service provider. That is a lot of eyeballs for advertisers to target. This partially explains why the stock market has placed such a high value on Internet stocks. Yahoo, for example, has a market value of $70 billion (the price of its stock multiplied by the number of outstanding shares.) That is far greater than the book value of the U.S. Postal Service’s assets, even though Yahoo’s revenues in 1999 were less than one percent of the Postal Service’s.

DOUBLECLICK AND 24/7 MEDIA

Two Internet start-up companies that barely existed five years ago are at the center of the Internet advertising boom. Doubleclick is the leading on-line advertising agency in the world. It sells ad space on 650 major web sites and works with thousands of smaller web sites to build audiences. It serves corporate clients in 20 countries and operates a network of 90 computer “servers” that deliver advertisements to consumers who visit corporate web sites.

The company claims to deliver 1.5 billion ads per day and to reach 43 million unique consumers each month on its clients’ web sites. What makes Doubleclick’s service so valuable to advertisers is that by collecting data on Internet consumers (often without their knowledge), the company can target different ads to different consumers—much in the same way that direct mailers use Census data to target postal mailings.

Another company, 24/7 Media, also delivers billions of ad images per month to web sites. But it also is building a massive database of e-mail addresses to allow companies to send targeted advertisements by e-mail. In order to allay privacy concerns raised by companies such as Doubleclick, 24/7 Media uses what it calls “opt-in marketing.” Basically, it asks consumers to volunteer their e-mail addresses. At last count, 20 million Americans have given the company their e-mail addresses.

This giant database of e-mail addresses, which is growing every day, makes 24/7 Media a major competitor to the Postal Service. Just like traditional mailers who use the USPS, it can target advertisements to individual consumers. But it can do so at a fraction of the cost. According to the Yankee Group, interactive advertisers such as 24/7 can cut the cost of direct marketing by 65 percent by eliminating the costs of paper, printing, mail preparation, transportation and postage costs.

Over the past five years, the growth rate for Standard A mail has declined to approximately 3.8 percent annually—less than half the rate experienced between 1980 and 1995. Part of the reason for the slowdown is that direct mail marketing has matured as an industry. Some even argue that it has reached a saturation point and that Americans’ love-hate relationship with “junk mail” has turned decidedly negative. But the Internet advertising boom is also clearly taking its toll. Just as electronic diversion has reduced average first-class volume growth to 1.2 percent annually since 1995, Internet marketing is taking an increasing share of corporate advertising dollars. As one Forrester analyst recently remarked, “Corporate advertising budgets are relatively stable, so the providers of traditional advertising will increasingly find themselves in a zero-sum game. One media’s gain will be another media’s loss.”

At present it is not clear whether direct mail or other forms of direct marketing will lose more from the growth in Internet advertising. The patience of most Americans for telemarketing is clearly growing thin. Newspapers continue to lose readers and television networks are struggling to hang onto viewers who increasing spend more time on-line or watching cable. In this setting direct mail could still do well, at least in the short run. In fact, many of the high-tech dot.com companies at the heart of the technology revolution have become heavy users of the Postal Service. America Online advertises its services and sends complimentary copies of its software via bulk mail while the Internet grocer Streamline.com uses both Standard A and first-class mail to recruit customers.

The Direct Marketing Association is still projecting growth in direct mail advertising. Its latest forecast sees total direct mail spending (which includes preparation, printing and postage) rising from $44.6 billion in 2000 to $57.4 billion in 2004. The USPS can expect to take in about a third of that, some $18-19 billion.

Still, the future is uncertain for Standard A mail. As Postmaster General Henderson wrote in a recent letter to Rep. John McHugh, chairman of the House Subcommittee on Postal Services, “Recent trends in Internet advertising now suggest a stronger potential for electronic diversion of advertising mail revenues than has been assumed in the past.”

Potential profits from cyber sales

If electronic bill-paying and Internet advertising are threats to the first-class and Standard A mail stream, the boom in Internet shopping is creating a potentially profitable echo—a rise in packages that need to be delivered to people’s homes. The Postal Service is campaigning hard to become the carrier of choice for those purchases and capture revenue that would offset projected declines caused by the electronic diversion of first-class and Standard A mail.

Priority Mail, with two- to three-day delivery and delivery confirmation, is the product USPS officials tout as holding the most potential for profit. In fiscal 1998, Priority Mail was just 0.6 percent of total volume, but accounted for 6.8 percent of revenues. Priority volume increased 10 percent in fiscal 1999 and the trend is forecast to be up, up, up.

It’s estimated that web retailers shipped about 230 million Internet purchases in 1999, with the heaviest concentration in the holiday season, and the Postal Service delivered one-third of those packages. Amazon.com, by far the largest “

e-tailer” and a heavy user of Priority Mail service, sends out around 10,000 packages on an “average” day, but in November and December the number rose to 50,000 or more. As web businesses work out the kinks exposed during the Christmas rush—notably poor inventory control and system crashes—there is no doubt on-line purchases will multiply. Some forecasts call for sales to double annually for several years to come.

USPS officials ruefully acknowledge that their predecessors let the parcel business slip away years ago. By the 1980s, United Parcel Service, Federal Express and other private carriers had swooped in to grab up the business. In 1997, UPS dominated the total parcel market with an estimated 51 percent, mainly standard deliveries. FedEx, specializing in overnight, had a 26 percent share, and the Postal Service 13 percent. The balance was divided among dozens of smaller carriers—all of which also want a bigger slice of the pie.

The e-commerce boom presents the USPS with an extraordinary opportunity to reclaim market share because it plays to the Service’s strength—low-cost home delivery. With letter carriers delivering to every address six days a week and a nationwide network in place, USPS is uniquely positioned to expand its role as the institution that brings Americans together—and brings them their books, prescriptions, coats and dresses, and anything else you can buy on the web.

BEATING 'CLICKER SHOCK'

Consider this: UPS delivers about 12 million packages a day. Only 20 percent are residential deliveries. And it charges as much as $10 on top of shipping fees to do so. It’s costs like those that cause “clicker shock” for cyber shoppers and the price advantage clearly belongs to USPS. (Letter carriers deliver about 7 million Priority and Standard B/Parcel Post pieces each day.)

The daily arrival of letter carriers is another major plus for USPS. Web-based businesses have come to realize that getting customers isn’t their biggest problem, it’s keeping those customers happy. They also have learned what catalog companies have known for a long time—25 percent of on-line purchases are returned, and, as one New York Times writer put it, “No one ever returned a sweater over the Internet.”

Returning merchandise via UPS, FedEx or most other private carriers can be downright difficult. Often it involves carrying the package to some storefront drop-off or a warehouse in an industrial park. But since letter carriers can accept parcels (within reason) on their daily rounds, returns can be easy. In fact, “Returns@ease” is the name of the web-based service USPS offers with some retailers that allows people to print postage-paid return-address labels from their home computers.

Even shippers who use other services for delivery turn to USPS for returns. For example, Freeport Studios, the up-market arm of L.L. Bean, sends clothing by UPS, but includes a USPS postage-paid return label in the package. “It’s so easy,” one young cyber-shopper said. “You just put the label on and leave it by the door” for the letter carrier.

As noted, USPS had an estimated one-third of all Internet shipping in 1999; UPS snared 50 percent, and FedEx just 10 percent. There is obviously room to grow in this expanding market —and money to be made. That’s why the Service has invested $5 billion in upgrading parcel handling capacity and efficiency.

PUSHING PRIORITY

In advance of the last holiday season, USPS made deals with Amazon.com and Eddie Bauer that led to television commercials that were aimed at other e-tailers, not residential patrons. One ad showed a couple wearing Eddie Bauer coats as the announcer noted the coats were “bought on eddiebauer.com and shipped by Priority Mail.”

At the National Postal Forum convened by PMG Henderson last fall, Jeff Bezoz, president of the on-line book dealer Amazon.com, had high praise for Priority Mail:

“We have a computer logarithm that calculates the best combination of service to the customer, taking into account cost and speed of delivery. And 65 percent of the time, that logarithm chooses the U.S. Postal Service Priority Mail.”

Tom Adams of e-Bay, another participant at the Forum added:

“Much of what occurs on e-Bay [is] person-to-person. Right now, the Postal Service is the only company that goes to every single address every single day.”

The same session heard about a home-based business that nearly lost its biggest customer because UPS billed a shipper for additional charges since it had to make a home delivery. UPS is considering an expanded home-delivery network, but the point of the story is not so much that UPS discriminates against home deliveries, but that many e-commerce businesses start at home—the very place the Postal Service provides the best service. Small entrepreneurs are a major target of USPS marketing and such programs as on-line postage. (FedEx also is working to expand its residential delivery network in some areas; the next installment of this series will review new strategies of USPS competitors.)

USPS is aiming to double parcel revenues to $10.9 billion by 2004, mirroring the expected expansion of e-commerce. The addition of on-line tracking and delivery confirmation and signature verification are making USPS products more competitive, and effective marketing could increase that share of the delivery market and cover a significant chunk of the forecast contraction in first-class revenue.

Is the milkman on the way back?

Anybody over a certain age can remember a time when many Americans enjoyed weekly or even twice-weekly delivery of milk and other dairy products. It was common all over the country for dairy producers to operate home delivery networks. Suburbanization and the development of supermarkets operated by large grocery store chains changed all that. The economics of the industry changed and dairies could no longer compete with the low prices offered by the supermarkets. The milkman seemed to pass into history.

Today, the milkman—now pumped up to deliver other groceries and supplies—appears to be making a comeback, thanks to the Internet. Companies like Streamline.com, Webvan.com and Peapod.com are attempting to build on-line grocery stores and the home delivery networks needed to make them work.

Streamline.com, begun in Boston in 1993, expanded to Chicago and Washington, DC in 1999 and will begin operations in the New York metropolitan area this summer. Consumers can order and pay for groceries on-line and have them delivered to their homes. The company places a special receptacle in its customers’ garages and delivers once a week for a fee of $30 per month. It also offers to pick up and return dry cleaning and will even deliver postage stamps and bottled water.

San Francisco-based Webvan.com specializes in the delivery of groceries and non-prescription drugs. Customers may order items 24 hours a day, seven days a week using the Internet and may choose the day and time of delivery. Delivery for orders totaling more than $50 is free.

So far none of the on-line grocery stores has made any money. In the case of Webvan, the firm lost $95 million on sales of just $4.2 million due to huge start-up costs. But the absence of profits has not stopped Silicon Valley venture capitalists from betting that on-line grocers can eventually capture 10-20 percent of the $500 billion per year grocery market.

Wall Street analysts, however, are increasingly skeptical about the ability of companies like Streamline.com and Webvan to become profitable. The sheer cost of establishing stand-alone delivery networks is, among other problems, a major obstacle. That is where the Postal Service could come in. With its universal delivery network and logistics expertise, the Postal Service could offer the solution to the delivery problems facing on-line retailers beyond the boundaries of traditional “mail order” goods. To enter into such a business the USPS would have to overcome any number of regulatory and political hurdles, but in order to survive the Service must remain open to new ways to serve the American people.

Even if the on-line grocery business fails to fly—and there is good reason to doubt its success with or without the Postal Service’s assistance—the USPS could benefit from the delivery of products traditionally sold in stores but now available on the Internet. As cyber-shopping develops over time, opportunities to more fully utilize the Postal Service’s network are bound to arise. The challenge facing the USPS and the NALC will be to recognize such opportunities and to work together to take advantage of them.

Article from the April 2000 issue of The Postal Record.

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