At Pitney Bowes, employees are discouraged from using the term “snail mail.” That’s because the term sounds derogatory, and the old-line Stamford, CT company sees nothing to denigrate in ordinary mail – Pitney Bowes has long been the dominant provider of postage meters in the U.S., deriving nearly half of its $4-billion-plus revenues from the rental of meters and related equipment.
On Wall Street, investors seem to have a different view of Pitney Bowes and its domination of snail mail. In a booming stock market, the company’s stock price has declined from just over $70 a share as recently as last July to the upper 40s during November.
The cause-and-effect of these two facts doesn’t seem especially subtle. During an age in which it’s now possible to download postage via the Internet and then print out postage stamps from a personal printer, the old standby postage meter business begins to look more and more like the buggy whip business during the early days of the Model T.
It isn’t as if Pitney Bowes is ignoring the Internet. It has established partnerships with online organizations around encryption of emailed documents and helped develop the standards for making postage available for sale via the Internet.
But no matter how much Pitney Bowes races around establishing partnerships and making itself Internet-savvy, it can’t escape one basic problem: The Internet has made its near monopoly and most profitable business highly vulnerable to competition via the web.
The new reality is that it’s easier for newbies to compete with Pitney Bowes in selling postage online than in selling postage meters. One of the reasons Pitney Bowes was able to establish such a dominant position over the course of this century is that the postage meter business requires huge capital expenditures to manufacture the meters and sizable ongoing expenditures to market them.
Of course, one of the great attractions of the postage meter business is that it is an “annuity business.” Once a business rents postage meters (and the U.S. Postal Service allows only rental, not sale, of postage meters), customers tend to stick with the machines or upgrade to newer more expensive ones, and pay rent year after year after year.
Now, a company like Stamps.com can come along and replicate the basic Pitney Bowes offering (a postage meter) without having to set up a manufacturing capability. And much of its marketing can be done via email, which is much less costly than snail mail. By late September, just prior to its official launch, Stamps.com had nearly 100,000 individuals pre-registered for its service.
Pitney Bowes has lagged the competition. While Stamps.com and a second company, E-Stamp, were out of the gate selling postage over the Internet by early fall, Pitney Bowes is only now rolling out its version of online postage, ClickStamp. If online postage turns into an annuity business, these other companies have obtained a competitive advantage by being there early.
But there’s more to the Pitney Bowes malaise than new competition. For one thing, Pitney Bowes in the online world seems to lack of a clear message. While Stamps.com focuses on “postage from your printer,” Pitney Bowes seems to be dabbling in a number of online-related areas – encrypted messages, direct marketing lists, postage via the telephone – but hasn’t been especially forceful in any of them.
Stamps.com was first out with an aggressive campaign to replace postage meters with online postage, and has already established a strong brand. The marketplace has pushed the price of Stamps.com to the $80-a-share range from less than $20 early in the summer – exactly the opposite direction from Pitney Bowes.
But perhaps more significant is the possibility that the online sale of postage over the Internet will never be as lucrative as those postage meters that businesses rented year after year. There will be more competition around the service fees that companies charge to provide the postage. Thus, postage providers will need to come up with increasingly more creative offerings than ever before to avoid becoming mere commodity purveyors. For example, sellers of postage may need to integrate advertising into the postage they sell – either online or via the stamps.
Investors have thus far voted with their feet that Pitney Bowes may be unable to maintain its long-time lucrative margins around making and selling postage meters. The jury is out as to whether the company is nimble and creative enough to adapt its offerings to the Internet and to thrive in the online wars.
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