Saturday, July 30, 2005

Dead Letter: eStamp

Rewind the tape to 1999 for me, will you?

America is knee deep in technology hysteria.

VCs are trigger happy, funding any dot.commer with a half-decent business plan to turn the world on its head by leveraging this thing called internet time.

The NASDAQ is at 5,000.

Times were good, weren't they?

An entrepreneurial spirit not unlike that of the 19th century Railroad Boom permeated the winding roads of Menlo Park and Silicon Alley alike.

From East to West, the question remained: How to make money off the Internet Boom, that sweeping transformation of print media to digital communication?

Suddenly, everything could be purchased without getting out of pajamas.

Groceries online.

Books and CDS online.

Parking tickets online.

Sex online.

And stamps.

This is the story of 2 companies willing and able to revolutionize the way people sent mail.

eStamp and its brain-dead child,

E-Stamp was the first PC Postage service approved by the U.S. Postal Service, but failed after users got tired of the necessary hardware adjustments and the company's original financial backing called it quits.

Made sense: eStamp was bleeding money left and right.

Like any other fialures, the costs of acquiring a customer far surpassed the revenues that customer generated.

The average order for eStamp? A measely $3.50

Second in line was, which facilitated the stamp-printing process for end users vis-a-vis software, which eStamp apparently never thought of.

I'm going to be honest with you.

The idea of postage 24 hours a day, 7 days a week is an attractive business model.

In fact, that's precisely the sort of supply chain transforming art that dot.coms like these were so entrenched in.

It's called disintermediation.

In economics, disintermediation is the removal of intermediaries in a supply chain.

Cutting out the middleman, in other words.

Instead of going through traditional distribution channels, companies may now deal with every customer directly, for example via the Internet.

One important factor in servicing customers directly is that costs naturally fall.

Turnaround time is insanely fast, making the online buying experience more than anything, a hymn to convinience.

Still, as online grocer Webvan learned the hard way, sometimes people just prefer going the brick and mortar route.

For all its hype, both eStamp and had trouble acquiring customers.

Only in hindsight did we realize that eyeball count doesn't equate to revenues.

It's too bad because eStamp could have really taken off.

eStamp was first to market.

With a strong marketing approach, eStamp could have exploited the network effects principle, which states that the value of a product increases as more and more people use it.

We're talking about stamps after all -- a $60 billion dollar market.

Everyone uses at least one stamp a month, right?

The e in eStamp drowned.

Ultimately, eStamp sold all its intellectual property to for a little more than $7 million., still in business today, trades eons away from its high.

That paperless utopia both eStamp and promised us?

Message returned to sender.

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