What the Postal Service Can Learn from the Web

On December 3, 2008, In Biz, By Tac Anderson

us postal service

Image by kiss kiss bang bang via Flickr

People often talk about how the Web turned traditional business models on their head. But do we really understand the full significance of that? I’d like to give you an example.

With the holiday season quickly approaching we will all be using the postal service during the worst possible time.

How does the postal service make their money?

They charge postage. 1st class, which is what most of us use, pays the most per ounce. Bulk rate (aka junk mail) pays the least.  The bulk rate customers are the postal services *power users*. They use the service the most and pay the least.

The postal service is suffering as more and more 1st class customers use their service less and less. Paying bills online. Sending eGreeting cards. Sending emails instead of letters. Sending photo’s digitally instead of through the mail.

The bottom line is the customers who pay the most – and send the highest quality content – are being incentivized to use the service the least. The customers who pay the least for their service – and arguably send the lowest quality content – shoulder the least amount of the financial burden.

How do Web based business make their money?

*Most* Web businesses make their money by getting as large amount of users as they can. Advertising is one obvious example, but freemium services work the same way.

The freemium model gets as many users as they can and then only charge their *power user* for the premium services. Flickr is a great example of this. Flickr is free to everyone, but once you reach a certain amount of storage you have two options: delete older unwanted pictures to keep your storage size down, or pay $20 annually. I took the lazy route and paid the $20 – well worth it.

What if the postal service worked the same way?

All the 1st class users would pay the least amount (totally free is a little unrealistic). The *power users* would pay the most.

The first benefit I see is that this would drastically reduce junk mail. It would also increase the likelihood that your 1st class users would use the service more (seriously how much does it cost them to send a letter?).

What do you think? Am I crazy? Is there no way this model could apply to a non-Web business? I think it could. It would just require the postal service to think about their business model differently (not likely going to happen).

UPDATE I also got some Twitter comments on Web based business models that could be applied to the Postal Service.

From @waded:

@tacanderson The CDN one… print letters/junk in the same city. I wonder if that would be cost effective or not?

@tacanderson Netflix does something similar for commonly-watched movies. (They use both physical distribution centers, and digital CDN.)

This could be interesting. People could submit there letters digitally and then have them printed and delivered closer to the location. This would probably work really well for the bulk mail industry.

From @nathancook:

Love your USPS comments; Wondering would people mail their letters for free by allow junk to be attached (think: webmail). @tacanderson

Me: @nathancook ooh, nice one. like google.

@tacanderson More specifically, yahoo or msn that literally attach spam footers. I use youmail and am thankful for their spam model for VM. (voice mail)

I think this idea also has some promise. Kind of like the Google model. Free Web searches but you get advertising with it, or like Nathan points out, it’s how HotMail started out. You’d always still have the option of paying a premiumto have your letter delivered w/out advertising.

Maybe there’s a business in giving away pre-stamped envelopes w/ advertising on them? hmmmm

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  • I'm sure there's a B2B API play for the USPS (and by extension FedEx, et al), wish I had time to dream it up today ;-)

    In a way, something like business reply mail is already there:

    http://www.usps.com/replymail/business.htm

    Any ideas? What could another business add on top of what the USPS already delivers? What would you do with a "white label global physical delivery network"?
  • Richard
    Had to come back, just to let you know that I strike at half-baked ideas like a rattled viper. I get smacked on the nose a lot of times, but I'm always there when the baking's finnished and it's time to cut the cake. - You go have an Amazing Day!
  • Tac
    Thanks for the comment Richard. You're right you'd have to have a way to keep bulk users from just switching to lower cost "1st class".

    I also fully admit that this is a half baked idea that came to me before falling asleep last night. Not my most lucid moment but I think Ethan is on to something. What if you extended that service into a platform (taking a page from Microsoft)? what other services could you fulfill? Could you open source it? hmmmm
  • Richard
    I do get what you are saying and it is a good food for further thought. I just don't think the contrast and comparison here works for me.

    Imagine paying less for everything you use the least and more for everything you regularly consume or buy in volume.

    I was in the direct mail business but we sent First Class because it tends to get opened better than bulk. I sent out over 1.5 million pieces of mail using first class and suffered through 4 postage increases before closing the door on that business.

    Most of the mailers I sent was 10,000 pieces. Few individuals if any will ever send that many first class letters in a lifetime. The postal service IS CURRENTLY look differently at their model and changes are coming down the pipe at this moment, but economy of scale must remain in their model now and forever in the future as far as I see.

    It is the bigger businesses, whether they are sending advertisements or invoices who make it possible for you to have the luxury of someone coming to your house and carrying your letter for you to anyplace and delivering it to anyone you can describe on the outer envelope, all for a grand total of 42 cents.

    Still, your post does make one think, at least it did me :-)
  • The coolest thing I've seen in shipping is the AMZ fulfillment API:

    http://aws.amazon.com/fws/

    USPS has some monopolies/differentiators, there's got to be a way for them to platform-ize all that physical infrastructure.

    It's like: what would you do if you had access to a bunch of mailboxes and, literally, an army of door-to-door deliverypeeps?
  • Tac
    Thanks for the comment Ethan.

    I agree that you wouldn't be able to emulate the structure exactly but I think you could flip the model, getting more efficiencies. It would require a complete restructure of their org structure of course.
  • It's an interesting thought.

    - depends on the demand elasticity for "direct mail", a good person to ask would be www.unstructuredventures.com (he used to be w/ COF). I'd be really surprised if USPS hasn't modeled this to death to optimize pricing.

    - The thing with freemium is that for a "virtual" good the marginal cost for the extra features is nominal (or nonexistant) and the margin is huge. Not sure if that would work here. Paying for premium gets you extra features; not sure what the premium feature would be for the "power user" is in this model. In the status quo, the "power user" drives economies of scale, so they get a price discount. Maybe if we all banded together to negotiate a better price on postage that would work ("we promise to send X letters/year if you drop the 1st class stamp to $0.10)

    Thanks!
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