No Stamps in Cyberspace

No Stamps in Cyberspace

by / July 31, 1996
Like many government agencies at the local, state and federal level, the U.S. Postal Service (USPS) has started to realize that it must redefine and reinvent itself to meet the new realities of an electronic Information Age. If it doesn't, it may soon be unable to economically deliver even its traditional "snail mail" services without imposing significant new burdens on the taxpayer.

In other words, the Postal Service faces the very real possibility that -- unless it can forge a place for itself in a marketplace that is increasingly dominated by electronic communications -- it might be out of business in the next few decades. The cost of handling even a normal first-class letter, for instance, may skyrocket so high that neither the customer nor the taxpayer would be willing to pay the cost.

The ramifications of this are far-reaching. Financially, USPS is the 11th largest business in the United States -- bigger than Coca-Cola, Xerox and Eastman Kodak combined -- as well as the nation's largest civilian employer with 729,000 career employees. It is a $54 billion-a-year operation that handles 40 percent of the world's mail -- 177 billion pieces last year.

Ironically, USPS stands as living proof that even the most staunch bureaucracies can be turned into cost-efficient, customer-oriented operations. USPS today operates virtually without government subsidies. In 1997, for example, it will ask for just $138 million. And much of this is to cover mail with free and reduced postage rates as set forth by Congress.Speaking before the Economic Club of Detroit earlier this year, Postmaster General Marvin Runyon pointed out, "Not long ago, some folks were putting the Postal Service on the endangered species list. Today, we are not only surviving, we are thriving. Our performance is the best it has ever been."

This turnaround was accomplished by emulating the survival strategies of big businesses like General Motors, IBM and Xerox -- streamlining, downsizing, cutting layers as well as jobs, refinancing debt on better terms and cutting costs. Through computerized automation (a lot of mail is now sorted with optical scanners, for instance), USPS handles millions more addresses than the old, tax-subsidized Post Office Department with just a third more employees. Meanwhile, it has managed to keep postal rate increases well below inflation levels.

The paradox is that, on one hand, the Postal Service appears to be a glowing success. Business is booming without taxpayer subsidies. Postal rates are being kept down. So what is the problem?

Runyon admits "our competitors are beating us, and beating us pretty soundly, in just about every area of our business. Their service is better. Their overall value is better. And they are doing a better job of going after and winning the business."

Yet even that isn't the real problem. For the first time in years, mail volume has started to drop. "Fax, e-mail, electronic data interchange and electronic financial services have reduced the volume of mail, particularly in the business-to-business sector," said Robert Reisner, USPS vice president of Technology Applications. "In the next five years this impact will be even clearer."

The Postal Service estimates that the revolution in electronic commerce and information technology has already put one-fourth of its mail volume and revenue at risk to electronic diversion.

With rising costs, shrinking volume, and declining market share, customers inevitably will face increased postal rates. More will take their business elsewhere, leading to a deadly spiral of rising rates and falling volume. So despite vast improvement, the Postal Service might still face extinction. Not because of inefficiency, but rather because the society they serve is rapidly embracing a whole new way of communicating and doing business.

The puzzle is why the Postal Service has not yet managed to get in on the electronic communications revolution in any significant way. It is not as if it's any surprise that the volume of paper mail would begin to drop.

Elsewhere, some postal services apparently read the writing on the wall years ago. In Sweden, for instance, a postal subsidiary was created to handle electronic mail service. The result is that Sweden Post is that country's leading producer of fully electronic services, mail, enhanced fax and stock market data.

The obvious question is why USPS didn't pursue a course similar to the postal service in Sweden. After all, it's not as if USPS is starved for cash these days. Last year, for example, USPS made a profit of $1.8 billion.

Unfortunately, there seems to be no simple answer to this. When asked to explain, Reisner put it down to the fact that USPS is a public institution. "The practical reality is that private institutions can assemble enormous capital investments and bet on the future," he said. "But public institutions will have a great deal of trouble doing so without appearing to cross subsidize one customer's interests with another's payments."

Of course, Sweden Post is also a public institution, so there has to be a little more to it than this. Reisner is no novice when it comes to matters of technology. He even said that new electronic services will be critical to survival for "the competitive post of the 21st Century."

Runyon has, in the past, criticized existing legislation which imposes "a wall of regulations and red tape" on USPS and denies it the kind of "entrepreneurial freedoms" that both private enterprise and foreign postal services enjoy. He argues that where America once led the world in providing innovative government services to the people, USPS has fallen behind its international counterparts.

Yet that also fails to solve the puzzle completely. It is not that USPS has not tried to be innovative when it comes to electronic services. It developed one plan, for example, that called for USPS to become an independent third party which would postmark, certify and ensure the privacy of electronic commerce transactions using encryption technology.

At one point, Reisner announced that the Postal Service had been negotiating with software companies like Digital Equipment Corp. and IBM, as well as with computer networks like America Online, to offer an "official" USPS electronic postmark service in lieu of private sector encryption services. USPS was also reportedly lobbying for legislation that would mandate use of its electronic postmark algorithms in most commercially available communication software. This led to a critical backlash with overtones of the Clipper Chip controversy.

Since then, the Postal Service appears to be treading cautiously. In April this year, a global ePost service made its debut, allowing electronic mail to be sent domestically or to foreign countries where it would be printed and delivered in hard copy form.

While this is a service developed in coordination with the postal services in a number of other countries, it isn't yet widely available in America. And although this might prove to be a valuable service when it does become generally available, it is unlikely to make USPS indispensable in the coming century.

So what's left? Well, since May 1994, USPS has been working with representatives of more than 18 federal agencies and 50 state and local governments to develop a nationwide system of kiosks to allow citizens to "interface" with government at all levels.

In December last year, it took the first step "toward making 24-hour electronic access to government services a reality" by awarding four contracts to develop interactive "Service to the Citizen" kiosk prototypes. The plan is that if market tests prove successful, more than 10,000 kiosks could be online in post offices, libraries, shopping malls and other convenient locations within the next few years.

The big question regarding this plan is what services these kiosks might provide. To date, the emphasis seems to be on simply providing government information. And if that is the case, this certainly isn't going to make the Postal Service indispensable either. Especially if post offices are closing down because fewer and fewer people are sending the quantities of paper mail they once were.

Possibly USPS is taking a cautious route here because it has already been burned once in its first experiment with electronic kiosks -- the ill-fated "Postal Buddy."

This entrepreneurial project was launched by the small private firm that developed the Postal Buddy and actually patented the kiosk/change of address process (much to USPS's chagrin). A couple of dozen prototype kiosks, tested in early 1990s, sold goods like printed labels and greeting cards, but also featured a change of postal address service.

However, due to what the Washington Post called "intense bureaucratic rivalries" and a fear that it "might cost jobs," the project did not go as originally planned. The Postal Service later blamed this on a failure of the project to produce enough revenue coupled with the "user unfriendliness" of the kiosks and technical malfunctions.

Postal Buddy Corp. spokesman, Marty Goodman, however, said, "Post office revenue was never the intention. The original idea was that the Postal Service would simply save money -- potentially many millions of dollars a year -- through an automated change of address service. Postal Buddy was killed because it was successful and the Postal Service realized that they would be making a lot of money if only the idea had come internally from within the bureaucracy and if they, rather than private entrepreneurs, had the patent on the computerized change of address process."

A subsequent lawsuit over the canceled contract cost the Postal Service $50 million in an out-of-court settlement and tarnished the careers of those officials most involved in the project. Meanwhile, electronic communications began to take off, leaving the Postal Service behind.

At the heart of the dilemma the Postal Service now faces seems to be a fundamental issue that has, as yet, to be addressed by any of the Postal Services plans. After all, what is the Postal Service but a "universal mail service?"

It almost doesn't matter where you live or do business in America. Unless you are in the wilderness somewhere, a letter addressed to you will be delivered to you -- or at least to your general vicinity. And if you want to send mail, you can send it cheaply and easily.

The issue of the growing division between the technological haves and have-nots is starting to receive more and more attention. Reisner, himself, speaking at a Smart Valley Project meeting last year, said, "If you develop two worlds of information -- a society of information haves and have-nots -- the country will suffer with the divisions and cynicisms that such a world would breed ... That puts an extra burden on institutions like the Postal Service to be a universal provider, keeping people connected to their government."

That is thinking in the right direction. The trouble is, it just doesn't go far enough. It hangs up where the new kiosk project hangs up -- at least as far as the Postal Service is concerned. For the Postal Service doesn't exist to simply provide a universal information service between the government and its citizens. It exists to provide a universal mail service between third parties, whoever they might be. Moreover, the real problem that technological have-nots face is not simply a growing lack of access to government information. They also have less and less access to the world of business and even the world of culture.

In effect, as more and more business and social communication becomes electronic, the universal mail service which the Postal Service has traditionally provided in effect won't exist anymore. Not unless some form of universal e-mail also becomes a reality.

A two-year RAND Corp. study entitled Universal Access To E- mail: Feasibility And Societal Implications pointed out: "E-mail has swept the communications and information world during the past decade, providing instantaneous global information and data exchange ... However, even though this revolution has broadened and changed the ranks of people with access to information, it has not altered one fundamental feature: An information elite still exists, made up of those with access to and knowledge about computers and e-mail. And as e-mail becomes more pervasive, as more commercial and government transactions in the United States take place online, those information haves may leave the have-nots further behind, unless we make concerted efforts today to provide all citizens with access to the technology."

Reisner, who spent a couple of days at RAND providing input for the study, agrees that the issue of universal e-mail is important. But he also admits that it is something which the Postal Service has yet to incorporate into its planning.

So while the Postal Service is taking a lead in developing one-way universal information access through kiosks, it has yet to work out the role it might play in two-way electronic access.

The RAND study emphasizes that "one-way information- providing technologies -- whether broadcasting systems or technologies that provide only search and retrieval -- are inadequate. Two-way technologies supporting interactive use and dissemination by all users are key."

E-mail is not only "valuable for individuals, for communities, for the practice and spread of democracy," the study says, but it is something that every citizen should have access to, so much so that universal access to e-mail should be a cornerstone of National Information Infrastructure (NII) policy.

To be fair, the importance of universal e-mail has not been a high priority in the NII agenda to date. Grass-root community freenets have largely carried the torch for this in the few individual communities they serve.

But if the Postal Service really had vision, it would be taking every possible avenue to find a way to get into the universal e-mail business -- not at some distant point in the future, but right now. It is no longer even a question of innovation. After all, it would be doing something that small volunteer community groups with minuscule budgets have been managing to do in dozens of communities.

The Postal Service could, for instance, use the freenet model and perhaps, working with libraries, launch test programs -- even using free software and older computers as public terminals -- to provide some form of universal data and e-mail access to anyone with a library card.

While not necessarily the best solution, or even one that would solve the entire problem by a long shot, it is a start which could be undertaken right now. Such test programs could probably even be funded by diverting a small portion of its advertising budget. And it is even possible that in doing this, the Postal Service might find that it is getting more goodwill and support than its current promotional expenditures are buying.

The Postal Service has been trying to be innovative. So far this hasn't resulted in it securing any prominent place for itself in the world of electronic communications. The Postal Service might do far better looking back to its roots. If it simply defined its fundamental mission in the years ahead as providing cheap universal mail, e-mail and information access without a lot of bells and whistles, and if it then rapidly set out to make that happen any way it could -- getting the mail through using any means it can manage, so to speak -- it would probably secure a role for itself in the world of electronic communications.

And it would not be talking about the possibility of its own demise because electronic communications are increasingly becoming the way the world works.

Blake Harris Editor
Platforms & Programs