Stamps.com: The Check Is in the Mail

Even for Net start-ups, it is rare to see an IPO that has zero revenues.
But this was the case with Stamps.com
(STMP)
, which had a successful debut.

Then again, the company is setting the stage for taking a sizeable portion
of a big market. After all, there were 197 billion pieces of mail sent out
in 1998. The amount of postage? A cool $58 billion.

To me, using the Web to do postage makes lots of sense. You don’t have to
wait in line (about 7 million people do this every day), nor do you have to
use special equipment. It’s a no-brainer.

And so far, it makes sense to many others. Stamps.com recently reported
that 94,072 people have already pre-registered for the service.

Also, the company has wasted little time in signing strategic agreements.
Partners include such heavy hitters as ZDNet, Concentric, Lotus,
Microsoft, AOL, MySoftware, Office Depot and Quicken.com.

For example, in the Lotus deal, Stamps.com will be placed in the tool bar
of the Lotus Organizer. About 42 million have access to this.

As for the Microsoft deal, Stamps.com will be part of the MS Office Update
Web site.

Not everyone will use Stamps.com. It is focused primarily on the Small
Office, Home Office (SOHO) crowd. But this is a big crowd. The SOHO
category spends about $171 million a month on postage. Also, 63 percent already
order products online.

It’s easy to use the Stamps.com solution: A customer need only install
software — which is in the form of a CD ROM or which you can download.
Then, you can print postage directly on envelopes, labels or other
documents. That’s it.

The software integrates seamlessly with word processors, address books,
accounting packages and contact managers.

Clearly, Stamps.com has the first-mover advantage in an extensive
marketplace. What’s more, the cost structure of Stamps.com allows for
high-margins.

With the technology fairly stable and subject to regulations
(which do not change much), the biggest cost item will be marketing;
however, these expenses will fall as a percentage of revenues, as
Stamps.com builds its customer base and brand.

Also, the barriers to entry are considerable. For example, a company needs
to get approval from the US Postal Service. It is a ten-stage testing and
evaluation process. As for Stamps.com, it applied for the process in March
1997 and got approval on August 9, 1999. In fact, Stamps.com has seven
patents on its technology.

True, Pitney Bowes does have a pending lawsuit against Stamps.com. However,
I think Stamps.com should prevail. Actually, the Pitney Bowes suit goes as
far as to deny the validity of the US Postal Service process, which would
be a difficult thing to overcome.

While this company does not have profits now — it will. Fast.


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