E-Stamp
CorporationlStampscom-T-l
BEFORE THE
POSTAL RATE COMMISSION
WASHINGTON,
D.C. 20266-0001
POSTAL
RATE AND FEE CHANGES,
DOCKET
2000
NO. R2000-1
DIRECT TESTIMONY
OF
RAYMOND
BOGGS
ON BEHALF
E-STAMP
CORPORATION
OF
AND STAMPS.COM
Timothy J. May
Patton Boggs LLP
2550 M Street, NW
Washington,
DC 20037-1350
Tel. 20214576050
Fax. 20214576315
David P. Hendel
Wickwire Gavin, PC
6100 Boone Blvd., Suite 700
Vienna, VA 22162-2663
Tel. 703l790-6750
Fax. 7031446-1767
Counsel for
E-Stamp Corporation
Counsel for
Stamps.com
May 22,200O
Table of Contents
I. Executive Summary..
................................................................................................
A. lndicia Background
and Basics.. .........................................................................
.7
.7
B. PC Postage Benefits to the U.S. Postal Service ................................................
10
C. Small Business and Home Office Postage Forecast.. ........................................
11
D. Small Business Attitudes Towards PC Postage .................................................
17
II. The U.S. Small Business Survery of Current and Future Uses of PC
Postage and Products ...........................................................................................
.I9
........................................................................
.I9
A. Highlights of the Methodology..
B. Sampling Frame. ................................................................................................
C. Data Collection/Incentives
................................................................................
20
.20
Factors.. ...........................................................................................
.21
E. Margin of Error.. ................................................................................................
.23
Ill. Small Business PC Postage Forecast ....................................................................
24
D. Weighting
A. Small Business and Home Office PC and Internet Forecast.. ...........................
.24
B. Annual Small Business and Home Office Postage Spending.. ..........................
.33
C. PC Postage Revenue .......................................................................................
.35
............................................
.37
Plans ................................................
.37
IV. Small Business Use of Postage and Mail Equipment
A. Postage Equipment
Use and Acquisition
B. Interest in Different Meter and PC Postage Solutions.. ....................................
.39
PC Postage Interest by Company Size.. ..........................................................
.39
Use.. ........................................................
.43
PC Postage Interest by Technology
V. The U.S. Postal Service’s Role as Regulator
-2-
and Advocate
. .. . .. . .. . . .. . .. . .. . . .. . .. . .. . 44
List of Tables
Page
Table
1
U.S. Small Business Survey Sample Size, Relative Share, and Survey
Weights by Company Size, 1999 .....................................................................
U.S. Small Business Universe by Company
U.S. Small Businesses
with PCs by Company
U.S. Small Business PC Penetration
U.S. Small Business Internet
2003 (% of PC Establishments)
6
Size, 1998-2003..
....................... .26
Size, 1998-2003..
by Company
.22
................... .27
Size, 1998-2003..
............. .28
Penetration by Company Size, 1998.......................................................................
.29
U.S. Small Business Internet Establishments by Company Size, 19982003.. ................................................................................................................
30
U.S. Primary-Income-Generating
Home Ofke
Households,
PC
Households, and Internet Households, 1998-2003 .........................................
.32
8
U.S. Small Business Spending on PC Postage, 1999-2003..
.34
9
U.S. Income-Generating
Home Office Spending on PC Postage, 19992003 .................................................................................................................
.34
U.S. Small Business and Income-Generating
Home Office Spending
on PC Postage, 1999-2003.. ...........................................................................
.36
U.S. Small Business Use of Postage Meters and Scales by Company
Size, 1999.. ......................................................................................................
.37
U.S. Small Business Use of Postage Meters and Scales by Technology
Users, 1999.. .....................................................................................................
38
U.S. Small Business Plans to Add Postage Meters by Company Size,
1999 .................................................................................................................
.38
U.S. Small Business Interest in Different PC Postage Alternatives by
Company Size, 1999.. ......................................................................................
.40
U.S. Small Business Interest in PC Postage, Postage Meter User
Versus Non-User, 1999 (% of PC Owners) ......................................................
.42
U.S. Small Business Interest in PC Postage by Technology Use, 1999
(%) ...................................................................................................................
.43
7
10
11
12
13
14
15
16
-3-
..........................
List of Figures
Page
Figure
IBI Two-Dimensional
Barcode
. . .. . .. . . .. . ...____.........................................................
U.S. Small Business and Income-Generating
on First Class Postage, 1998-2003
Home Office Spending
.
.
U.S. Small Business and Income-Generating
Home Office Percentage
of First Class Postage Spending, 1998 and 2003
.
.
8
12
13
U.S. Small Business and Income-Generating
Home Office PC Postage
Spending, 1999-2003 .. . . .. . .. . .. . .. . . .. . .. . .. . . .. . .. . .. . . .. . .. . .. . .. . . .. . .. . .. . .. . .. . .. . . .. . .. . . .. . .. . . .. . . 14
U.S. Percentage of Spending on PC Postage,
Income-Generating
Home Office, 1999 and 2003
-4
Small Business
and
16
I
Direct Testimony
of Raymond
L. Boggs
2
3
My name is Raymond L. Boggs. I am vice president of Small Business and Home Office
4
Research
5
Massachusetts.
6
office automation
7
manage
8
Small
9
Program
10
Programs
at
international
I have a diverse
industries
background
Corporation
Research
Business
in
Framingham,
computer,
research.
the Education
Market
Telecommunications
and
At IDC I
the Home Office Program,
I supervise
and also co-direct the Small Business
IDC Telecommunications
and channel
Program,
ePanel.
(IDC)
in the communications,
as well as consumer
the Small Business
and Medium
Data
and the
Research
program with the
Group.
11
12
As part of my work,
I direct survey
13
advanced
telecommunications,
personal computing,
14
services
designed
businesses
15
identifying
16
customer
17
competitive
18
for advanced
19
needs of small and home-based
enterprises.
21
Prior to joining
consumer
22
practice area of Response
for small
key product
channel
requirements
preferences,
developments.
technology
research,
and
of different
and evaluating
I have consulted
products
forecasting,
and market
and office automation
home
offices.
extensively
and the emerging
for
products and
Research
includes
tracking
changing
market segments,
alternative
analysis
strategies
on changing
communications
in response
distribution
to
trends
and networking
20
IDC I directed
and business
Analysis Corporation
23
-5-
in Princeton,
research
NJ.
in the technology
1
I managed
research
qualitative
activity
to support
2
provided
and quantitative
3
previously
4
Research
Program
5
Decisions
in Not-well, MA. where
6
growing SOHO market.
established
and
the firm’s
primary
managed
research
the
and the Small Business
Electronic
Small
Access
program
and
to a wide range of clients.
Business/Home
Market Strategy
Office
I
(SOHO)
Service at BIS Strategic
I was among the first to identify and examine
the
7
8
I have written
articles
for major trade
and general
9
regularly quoted in Business Week, The Wall Street Journal, and The New York Times.
10
I have been a featured speaker at COMDEX/Fall,
11
other industry
12
School of Business at UCLA.
13
and have earned
14
Carroll School of Management.
trade shows.
graduate
business
the Consumer
I served as a guest lecturer
I completed
degrees
Electronics
and am
Show, and
at the Anderson
my undergraduate
from Brown
publications
Graduate
work at Hamilton College
University
and the Boston
College
15
16
My testimony
examines the current use of different postal solutions by small businesses
17
and the opportunity
18
services.
19
the use of different
20
solutions,
My testimony
associated
with
new
PC and Internet
postage
products
and
looks at the size and scope of small business mailing activity, at
mail products,
at small
business
interest
in new technology
and presents market forecasts for the use of PC postage solutions.
-6-
I
I. Executive
Summary
In this section of my testimony,
summary
market forecasts,
Program,
I outline the basic PC postage
technology,
provide
and present an overview of small business postage use.
5
A. New lndicia
Background
and Basics
6
The U.S. Postal Service (USPS) has approved
7
address information that makes it possible to generate
8
term “PC Postage” is used essentially
9
printed by the customer
10
based mail applications
11
mailed by others, including some that support online refilling of postage meters. These
12
and related applications
13
used to implement PC postage, the Internet plays a key role as a conduit that delivers the
14
postage to the customer for printing.
a standard
way to encode postage and
PC postage. In my testimony, the
as the USPS uses it -
using the customer’s
that help businesses
are not examined
to describe postage that is
own printer. There are a variety of PCprepare mailings that can be printed and
here. Although
different approaches
can be
15
16
The enhanced
17
developed
18
postage
19
regulatory
20
computer-based
21
using their computers.
22
and convenience
barcode used to display postage information
through the USPS Information
is indicated
Based lndicia Program
by an Information-Based
role in evaluating
and qualifying
lndicium
commercial
postage printing, which enable consumers
Program
on a letter or package was
(IBIP), where digital
(IBI). The program
products
and services used for
to purchase and print postage
goals primarily involve security, although
are also performance
and evaluation
-7-
plays a
effectiveness
criteria for IBI and PC postage
1
products. Different approaches
using PC postage must be fully tested in a multistage beta
2
process before formal approval can be given.
3
4
IBIP introduced
PC postage
in March,
1998. PC postage
5
dimensional
6
the postage amount, a unique identifier, and mail processing
7
piece (see Figure 1).
barcode that contains information
products
print the IBI two-
important for revenue protection,
information
such as
about the mail
8
Figure 1
IBI Two-Dimensional
Licensing
postGfkEf,-’
tildfranaPaxk?
Barcode
I
T~~dmemicxd
Source: U.S. Postal Service, 1999
-8-
tarmle
\EWiOelcvtyp
1
The IBI have the same information
2
indicia, including:
3
l
Licensing ZIP code
4
.
Destination
5
.
Software ID
6
l
Ascending
7
l
Algorithm
8
.
Device ID
9
.
Date of mailing
10
l
Postage
11
.
Digital signature
12
.
Rate category
13
l
Reserve field
14
l
lndicia version number
15
l
Certificate serial number
that is contained
in the traditional
postage
meter
delivery point
register/descending
register
ID
16
The IBI is printed on the envelope
17
placement
18
verify the address
19
account.
on an envelope
in the upper right-hand
or package.
information
The software
in the PC postage
and deduct the postage
Mail pieces with the new IBI are introduced
-9-
corner or on a label for
amount
product will
from the customer’s
into the regular mail stream and
are processed
in the same manner as metered mail, with no restrictions
on destination
addresses.
B. PC Postage
Benefits
to the U.S. Postal Service
PC postage has a number of benefits to the USPS:
6
.
Reduced fraud, given the security of the technology
.
Greater
accuracy
of postal addresses,
since automatic
ZIP+4 postal codes occurs as part of the address
inclusion
validation
of
process,
whether via online or CD-ROM based approaches
.
10
11
.
12
Reduced
need for “bricks and mortar”
increasing
small business mail volume
Support for PC-based
mail applications
post offices to accommodate
that will contribute to significant
growth in small business use of the mail for promotional
13
purposes
14
15
The efficiencies
of mail handling
made possible
16
single benefit to the post office. In effect, the USPS is making postage partners of small
17
businesses
18
by offering discounts
just as it is already subcontracting
with PC postage
will be the biggest
some of its sorting work to large mailers
to those mailing large numbers of presorted
letters.
19
20
While the USPS is not offering discounts
21
directs
22
technology
mail to individual
carrier
seems sufficiently
routes,
compelling.
for using PC postage or the ZIP+4 code that
the convenience
associated
with the new
Rather than print stamps, the USPS in now
-lO-
1
letting customers
use their own printers, ink, and paper to print the postage themselves.
2
We are moving from a 19th century technology
to a 21 st century technology.
3
4
C. Small Business
5
Figure 2 shows the annual volume of postage associated
6
with
7
households
8
Total postage
9
from almost $11.6 billion in 1998 to $16.3 billion in 2003. Small businesses
under
100
and Home Office Postage
employees)
and
Forecast
income-generating
where at least one person is working
spending
10
to account
11
although the percentage
12
Figure 3).
for both segments
home
offices
-
spending
will be growing
throughout
(firms
specifically
full time at a home-based
combined
for the largest share of postage
with small businesses
business.
at 7.1% annually
will continue
the planning
period,
will decline slightly from 58.2% in 1998 to 57.7% in 2003 (see
- ll-
Figure 2
U.S. Small Business
Postage, 1998-2003
and income-Generating
Home Office Spending
on First Class
(5M)
16,000
14,cQo
12,ooO
10,ocQ
8,000
6,000
4,000
2,m
-r
0
1998
1999
ig
2000
2cQl
2002
q
Smdl!xEinen
2003
timeoffice
Key Assumptions:
l
U.S. economic growth rates will not change significantly.
l
Small business and home office spending on postage will continue to track closely
with spendin on other communications technologies.
Messages in t ll e Data:
. Small business postage spending is relatively consistent across company size
categories. Less variation by industry than in PC and network spending exists.
. While PC postage users will have above-average spending on postage, the impact
of the technology on total postage spending will not be felt during the planning period.
Source: International Data Corporation, 1999
1
-12-
Figure 3
U.S. Small Business
and
First Class Postage Spending,
T&I
Income-Generating
1998 and 2003
Home
Office
Percentage
of
= $11.6~
Tcdal = fl6.3B
Key Assumptions:
l
U.S. economic growth rates will not change significantly.
l
Small business and home office spending on postage will continue to track closely
with spending on other communications technologies.
Messages in the Data:
. Small business postage spending is relatively consistent across company size
categories. Less variation by industry than in PC and network spending exists.
l
While PC postage users will have above-average spending on postage, the impact
of the technology on total postage spending will not be felt during the planning period.
Source: International Data Corporation, 1999
1
2
3
4
Total
5
indicates.
spending
on PC postage
will be growing
by 275.6%
annually,
From the start-up year of 1999, when total PC postage spending
- 13 -
as Figure
(equipment
4
plus postage)
will reach $8.2 million, annual spending
200 to reach $1.832.3
represent
generating
(specifically
over
million in 2003.
10% of total
home offices.
priority
postage
Revenue
mail)
will
will grow by a factor of roughly
IDC believes
spending
that PC postage
by small
businesses
related to ground and overnight
represent
an
additional
will come to
and income-
package
opportunity
for
delivery
industry
participants.
Figure 4
U.S. Small Business
1999-2003
and Income-Generating
Home Office
PC Postage
, ,--.,
Spending,
I
1,600
1,400
1.2w
1,000
800
600
400
200
0
1999
2ooo
H
2001
2002
q
Srdlbusines
2003
limeoffice
Key Assumptions:
l
U.S. economic growth rates will not change significantly.
o 1999 is the first year when PC postage is commercially available, beginning in
August.
PC postage estimates include spending of first class postage only. Overnight and
parcel post package delivery are not included.
Messages in the Data:
l
Starting at one-half of a percent in 1999, the share of home office first class postage
represented by PC postage will grow to almost 8% in 2003.
l
The growth of home office PC postage spending will be similar to that of small
business PC spending, roughly doubling each year throughout the planning period.
Source: International Data Corporation, 1999
l
-14-
1
I believe that the largest share of PC postage revenue will come from small businesses,
2
compared
3
from about four-fifths
initially to about two-thirds
4
Figure
income-generating
5
million versus 7.4 for small businesses),
6
PC postage
7
among home-based
with home-based
5). Although
businesses,
and the average
spending
although the small business
share will decline
at the end of the planning
home offices
are far more numerous
both the number of small businesses
per company
businesses.
8
- 15-
period (see
will be greater
(12.2
moving to
than that seen
Figure 5
U.S. Percentage
of Spending on PC Postage, Small Business
Generating
Home Office,
1999and2003
and Income-
Homeoffice(l9.5%)
business (80.5%)
Total = $8.2M
Total = $1.66
Key Assumptions:
. U.S. economic growth rates will not change significantly.
. 1999 is the first year when PC postage is commercially
l
A%?kstage
available,
beginning
in
estimates include spending of first class postage only. Overnight and
parcel post package delivery are not included.
Messages in the Data:
l
Spending by both small businesses and home offices on PC postage will roughly
double each year through 2003.
l
Because of lower initial sales, the relative share of home office PC postage spending
will increase compared with small business PC spending over the planning period.
Source: International Data Corporation, 1999
1
- 16-
1
D. Small Business
2
Small businesses
3
owner in 10 very or somewhat
4
greatest
5
postage to a meter. Using the Internet to download
6
not cited as often as printing postage that had previously
I
Internet.
interest
Attitudes
Towards
are interested
in the idea of PC postage,
interested
in traditional
PC Postage
postage
in the concept.
solutions
with more than one PC
Small businesses
using
the telephone
into a traditional
indicate the
to download
postage
been downloaded
meter is
from the
8
9
It should be noted that these interest measures were collected in what was essentially
10
concept test rather than as a precise comparison.
11
of the solutions; just the general interest levels in the different concepts were measured.
12
These
13
generated
14
solutions
only generate
15
postage,
independent
16
4Q99 and expected
17
postage solutions.
baseline
measures
found
that each
Pricing was not associated
a
of the different
PC postage
relatively high interest. In other IDC survey work, new advanced
interest from about 5% of respondents.
of the significant
to increase
advertising
investments
in IQOO, indicated
with any
solutions
technology
Basic interest
already
a strong potential
in PC
underway
in
market for PC
18
19
Although
PC postage
represents
an alternative
20
interesting
21
users of any other technology,
22
likely than meter owners to be very interested
to traditional
to note that current meter users are more interested
with a single exception
- 17-
-
postage
meters,
it is
in PC postage than are
home page users are more
in PC postage. These attitudes suggest
1
an opportunity
2
postage
for PC postage
“novices”
as
well
proponents
as
those
to attract small businesses
already
- 18-
using
traditional
of all types mail
systems.
2
II. The U.S. Small Business Survey
Uses of PC Postage and Products
3
A. Highlights
4
The methodology
5
follows:
1
.
of Current
and Future
of the Methodology
used in the 1999 U.S. Small Business
IDC contacted
by telephone
a representative
Survey can be summarized
as
sample of more than 3,500 small businesses
using Dun & Bradstreet’s
database
of U.S. small businesses
as
the sampling frame.
9
l
IDC set proportions
by five different size categories
10
employees),
11
codes to ensure that the sample was representative
12
population.
13
questionnaire
14
information
15
business/head-office
location of small businesses
16
the
incentive,
17
questionnaire.
18
.
study.
IDC sought
geographic
regions, and Standard
After a telephone
concerning
technology
As
an
to obtain
screening,
current
products,
we
and
objective. Almost 56% of small businesses
20
questionnaire
21
returned the completed questionnaires.
agreed to do so. Among
- 19-
future
mailed
19
Industrial Classification
(SIC)
of the U.S. small business
we mailed a color-coded
services,
1,000 completed
(based on total number of
utilization
and
24-page
of a variety
issues
to
the
of
primary
that agreed to participate
a gift catalog
questionnaires
along
with
and exceeded
in
the
this
that were invited to respond to the
those that agreed to respond,
30%
.
IDC weighted
overall survey findings to reflect the representation
size categories
in the population.
size category’s
B. Sampling
proportion
The weighting
of various
factor was based on each
of the population.
Frame
Initially, IDC purchased
a list of 10,000 small businesses
from Dun & Bradstreet.
We
sorted the list to meet the following criteria:
.
All listed small businesses
had fewer than 100 full-time employees.
8
.
All listed small businesses
were within specified SIC codes.
9
.
The
data
10
establishing
11
businesses
12
.
was
nationally
sample
quotas
representative.
that corresponded
in the general population
The primary business/head-office
13
C. Data Collection/Incentives
14
IDC contacted
15
and lQ99. Each potential respondent
We ensured
respondents
The company employed fewer than 100 people.
17
.
The company
.
was not operated
out of a home.
in its annual work-at-home
Only the company’s
by telephone
during the 4Q98
was screened to confirm the following:
.
19
of small
location for each listing was included.
more than 3,000 potential
businesses
to the proportion
by
by state, size, and SIC codes.
16
18
representation
home-based
survey.)
primary location/head
- 20 -
(IDC tracks
office was used for data collection.
.
1
The
office
manager,
owner/president,
2
decision
3
the primary respondent
or the individual
to acquire telecommunications
who
and other advanced
makes
technology
the
was
for the survey.
4
5
All qualified small businesses
were invited to participate
6
We mailed questionnaires
7
asked small business executives
8
and return both in the return envelopes.
9
during this period.
and incentive
in the study and 55.6% agreed.
gift catalogs
to these small businesses
to till out the questionnaires,
and
make their gift selections,
We sent a total of 3,500 questionnaire
packets
10
11
After a period of three to five days, we made follow-up
12
questionnaire
13
reminder
14
three weeks of the initial mailing.
packets
and encourage
calls if small businesses
participation.
calls to confirm receipt of the
We made up to three subsequent
did not return the completed
questionnaires
within
15
16
We received
a total of 1,043 questionnaires
17
among
18
response rate was 16.5% (29.7% x 55.6%).
19
D. Weighting
Factors
20
IDC weighted
overall findings
21
categories
22
sampling
23
those
small businesses
in the entire
techniques
with
fewer
that agreed
by the cutoff date. The response
to participate
was 29.7%.
to reflect the actual distribution
U.S. small business
population.
10 employees,
did
-2l-
not dominate
the survey
of small business
size
IDC used disproportionate
in the survey so that the largest segment
than
Overall,
rate
the
of small businesses,
sample
frame.
By
1
oversampling
larger firms,
2
company
3
130 firms with 50-99
4
appropriate
5
distributed
IDC was able to ensure
size would retain statistical
employees,
number
that an analysis
validity. For example,
of results
IDC interviewed
by
a total of
rather than just 30 firms, which would have been the
if the sample was strictly proportional
to the way companies
are
by size.
6
7
Table 1 shows
8
percentages
9
population
10
respondents
11
population.
the percentage
of small businesses
in IDC’s sample. In order to correctly
and
were
for
different
weighted
subgroups,
like
in accordance
in the total population
calculate
vertical
with their
and the
survey results for the total
markets
relative
and
number
PC
owners,
in the total
12
Table 1
U.S. Small Business Survey Sample Size, Relative Share,
and Survey Weights by Company Size, 1999
Number of
Relative
Population
Respondent
Respondents
Share (%)
Share (%)
Weighting
1.3781
40.8
56.3
426
Under 5
1.1914
17.1
20.3
178
5-9
0.9552
13.2
12.6
138
IO-19
0.4801
16.4
7.9
171
2049
0.2304
12.5
2.9
130
50-99
NA
100.0
100.0
1,043
Total
Note: Oversampling of firms with IO+ employees permits greater
reliability in breakouts by company size.
Source: International Data Corporation, 1999
13
- 22 -
1
E. Margin
of Error
2
Given the sample size of 1,043 small businesses,
3
U.S. Small Business
4
numbers in the tables and figures in this report may not be exact due to rounding.
Survey was *3.0%
the margin of error for IDC’s 1999
at a 95% confidence
- 23 -
level. Note that some
I
III. Small Business
2
IDC’s forecast for PC postage is built on two key building blocks:
.
3
The
4
number
PC Postage
of small
businesses
Forecast
with
personal
computers
and
Internet
access, and how that will be growing over time
5
Annual
l
6
small business
that will be associated
7
Other market opportunities
8
operators
9
office market is examined.
spending
on postage and the percentage
with new Internet-based
for PC postage
will likely be interested
solutions
are discussed
in PC postage,
of postage
in this section.
Home office
and the size and nature of the home
In addition to first class postage,
which will be associated
10
with the largest share of PC postage revenue, there will also be revenue from overnight
11
delivery
12
and other
13
postage capabilities.
14
A. Small Business
15
Three sets of forecasts
16
postage
17
personal computers,
18
can potentially
19
to act on their interests.
and ground
services
market:
delivery
services.
will represent
Additional
other
sources
service revenue
of income
and Home Office PC and Internet
serve as a foundation
the total number
of small
related to supplies
for firms providing
PC
Forecast
for estimating
businesses,
the potential size of the PC
the number
of firms with
and the number of firms on the Internet. While all small businesses
be interested
in PC postage, only those with Internet access will be able
20
- 24 -
1
Table 2 presents the forecast of the total number of small businesses
2
total number of small firms, those with under 100 employees,
3
annually, from almost 7.4 million in 1998 to almost 8.2 million in 2003.
4
The number of small businesses
5
from almost
6
penetration
7
end of 1998 to 91.7% in 2003, as Table 4 indicates.
8
certainly encouraged
small businesses
9
that new applications
have been the key to expanding
through 2003. The
will be growing
by 2.0%
with PCs will be growing even faster by 3.6% annually
6.3 million in 1998 to just under 7.5 million in 2003 (see Table 3). PC
of small businesses
will grow from the already
high level of 85.1% at the
Although
lower PC prices have
to add more PCs in recent years, IDC believes
10
The use of the Internet for both communications
11
interaction
12
not to make use of personal computers.
small business
and expanding
have both been of interest to small businesses
PC penetration.
prospect and customer
that had previously
chosen
in the number
of small
13
14
Related
15
businesses
16
access was about 25% in 1996, but at the end of 1998 had reached 61.5%. By the end
17
of 2003, the percentage
18
change
19
than 3.9 million in 1998 to over 5.9 million in 2003, an annual increase
20
group will be the primary market for PC postage.
to this
Internet
interest
is the significant
going online. The percentage
is expected
growth
of small business
PC owners
with Internet
to reach 79.3% (see Table 5 and Table 6). This
means that the number of online small businesses
- 25 -
will have grown from less
of 9.0%. This
1998
1999
2000
2001
2002
2003
%%c;$R
\.-I0
1.9
2.8
2.0
2.0
0.5
2.0
4,305
4,382
4,465
4,556
Under 5
4,155
4,229
1,591
1,638
1,686
1,720
5-9
1,501
1,545
971
992
1,011
1,032
IO-19
933
952
603
615
627
640
2049
581
592
214
215
216
217
50-99
212
213
7,684
7,842
8,005
8,165
Total
7,382
7,531
Ke Assumptions:
. .z mall business formation continues at the present rate as U.S. economic growth
continues with only minor fluctuation.
. Population growth will be greatest among firms with 5-9 employees.
Messages in the Data:
l Small business
formation continues to exceed total business growth throughout the
forecast period.
. The net number of smaller businesses will grow at a faster rate than the number of
firms with 50-99 emolovees desoite hiaher mortalitv rates.
Source: International data Corporation, l-999
-26.
w
4,050
1,617
989
618
211
7,485
3.8
4.1
2.9
2.4
0.9
3.6
3,651
3,777
3,911
Under 5
3,356
3,523
1,451
1,514
1,575
5-9
1,320
1,389
908
935
961
IO-19
856
882
576
590
604
20-49
548
562
206
207
209
50-99
202
204
6,791
7,024
7,260
Total
6,282
6,559
Ke Assumptions:
l
l mall business formation will continue at the present rate, and the largest share of
new businesses will add PCs.
l
The smallest of small firms, with under 5 employees, will continue to lag behind other
firms in using PCs.
. Growth in PC penetration will be fueled by lower prices, increasing ease of use, and
perceived benefits of the Internet.
Messages in the Data:
. Year-to-year growth in PC penetration is slowing as firms approach saturation.
l
Nine out of IO small businesses will have at least one PC by the end of the planning
period.
Source: International Data Corporation, 1999
-2l-
Under 5
80.8
83.3
84.8
86.2
87.6
88.9
5-9
87.9
89.9
91.2
92.4
93.4
94.0
IO-19
91.7
92.6
93.5
94.3
95.1
95.8
2049
94.4
95.0
95.5
95.9
96.3
96.6
50-99
95.1
95.6
96.1
96.5
96.8
97.1
Total
85.1
87.1
88.4
89.6
90.7
91.7
Ke Assumptions:
. J mall business formation will continue at the present rate, and the largest share of
new businesses will add PCs.
. The smallest of small firms, with under 5 employees,
will continue to laa behind other
._.
firms in using PCs.
l
Growth in PC penetration will be fueled by lower prices, increasing ease of use, and
oerceived benefits of the Internet.
Messages in the Data:
. Year-to-year growth in PC penetration is slowing as firms approach saturation.
. Nine out of 10 small businesses will have at least one PC by the end of the planning
oeriod.
1 Source: International Data Corporation, 1999
- 28 -
1998
58.6
61.0
65.2
69.8
74.8
61.5
1999
62.4
64.8
70.1
73.5
78.9
65.4
2000
65.8
68.7
73.1
78.6
82.4
69.0
2001
69.7
71.0
76.8
82.5
85.6
72.5
2002
73.3
75.8
79.1
85.2
88.9
76.0
2003
76.9
78.6
82.3
88.2
90.1
79.3
Under 5
5-9
IO-19
20-49
50-99
Total
Key Assumptions:
. Small business interest in using the Internet will increase for a variety of
applications.
. More retailers, traditionally the slowest to adopt new technology, will be interested in
using PCs and the Internet.
l
Lower cost of broadband access will increase small business interest in the Internet
for different applications.
Messages in the Data:
. The rapid ramp-up of Internet adoption will slow as almost all who can benefit from
the Internet sign on.
l
Like fax machines, the Internet is becoming a standard business communications
tool for even the smallest firms.
Source: International Data Corporation, 1999
-29-
Under 5
1,967
2,198
2,402
2,633
2,867
3,115
9.6
‘.-I
5-9
805
900
997
1,075
1,194
1,271
9.6
IO-19
558
618
664
718
761
814
7.8
20-49
383
413
453
487
514
545
7.3
50-99
151
161
169
178
186
190
4.7
Total
3,863
4,290
4,685
5,090
5,521
5.934
9.0
Key Assumptions:
. Small business interest in using the Internet will increase for a variety of
applications.
l
More retailers, traditionally the slowest to adopt new technology, will be interested in
using PCs and the Internet.
. Lower cost of broadband access will increase small business interest in the Internet
for different applications.
Messages in the Data:
l
The rapid ramp-up of Internet adoption will slow as almost all who can benefit from
the Internet sign on.
. Like fax machines, the Internet is becoming a standard business communications
tool for even the smallest firms.
Source: International Data Corporation, 1999
-3o-
1
Table 7 summarizes
the growth in primary-income-generating
home office households,
2
the other major target market for PC postage.
3
income-generating
4
8.9% annually, from 14.3 million in 1998 to 21.9 million in 2003.
The total number of households
with an
home office, where at least one person works full time, is growing by
5
6
The number of these households
with at least one PC is growing
7
from 10.0 million in 1998 to 17.8 million in 2003. PC penetration
8
households
by 12.3% annually,
in these home office
follows just behind that seen for the smallest small businesses.
9
10
Home office Internet adoption
follows a pattern similar to the one seen among small
11
businesses.
12
access two years ago, the percentage
13
fourths of PC owners forecast to have Internet access at the end of the planning period.
14
The number of primary-income-generating
15
be growing
16
combined
17
the potential small office/home
18
19.6 million.
While only about one-quarter
by 19.5% annually
of home office PC households
is now approaching
had Internet
60%, with more than three-
home office households
on the Internet will
from 5.6 million in 1998 to 13.7 million in 2003. When
with 5.9 million small business
Internet users expected
office (SOHO) prospect
19
-31-
in 2003, this means
pool for PC postage will reach
W)
15.5
16.7
18.1
21.9
8.9
14.3
20.6
Home office
households
11.1
12.3
13.8
17.8
12.3
PC households
10.0
16.3
13.7
6.5
7.7
9.5
11.8
19.5
Internet households
5.6
Key Assumptions:
. U.S. economic growth rates will not change significantly.
l
Economic
conditions
and tax law changes will foster home-based
business
establishment.
Messages in the Data:
. Growth in primary self-employment
will exceed that of any small business size
segment.
. By 2002, the number of primary-income-generating
home offices will have grown
53% over 1998. Almost one household in five will include a full-time worker in a
home-based business and will be important prospects for PC postage.
Source: International Data Corporation, 1999
-32-
1
B. Annual
Small Business
and Home Office Postage
2
In preparing forecasts for the PC postage market, IDC has focused on small businesses
3
as the most important
4
market as well. Although
5
postage customers
and will not account for the largest share of PC postage spending,
6
they still represent
an important
7
therefore
8
through
9
revenue to providers of PC postage.
customer
segment.
home-based
It is also useful to examine the home office
businesses
source
will not represent
of revenue
included in IDC’s market estimates.
the USPS -
Spending
for industry
In addition, spending
such as Priority Mail or Express
Airborne,
DHL, and others will be interested
11
provided
through
12
programs,
although the revenue associated
13
forecasts
provided
14
standard
previously
15
solutions.
in integrating
Such approaches
and are
on package delivery
will provide additional
their own solutions with those
will be part of integrated
with these programs
in this report, especially
discussed,
participants
IDC believes that private carriers like UPS, FedEx,
10
PC postage.
Mail -
the majority of PC
are not included in the
since the heart of PC postage,
is not presently
delivery
a part of private-carrier
the IBIP
overnight
16
17
As Table 8 indicates,
18
annually from $6.7 billion in 1998 and $7.2 billion in 1999 to over $9.4 billion in 2003. At
19
the same time, spending
20
office households
21
billion in 1999 to $6.9 billion in 2003 (see Table 9).
small business
spending
on first class postage will grow by 6.9%
on first class postage
will increase
by 7.4% annually,
-33 -
by primary-income-generating
home
from $4.8 billion in 1998 and $5.2
1999
2000
2001
2002
2003
1 YYY2003
$jGR
cl
6.6
212.0
435.9
741.9
1,095.3
258.9
\.-I
Total ($M)
Share of total first class 0.1
2.8
5.3
8.4
11.6
NA
spending (%)
Key Assumptions:
. U.S. economic growth rates will not change significantly.
. 1999 is the first year when PC postage is commercially available, beginning in
August.
. PC postage estimates include spending of first class postage only; overnight and
parcel post package delivery are not included.
Messages in the Data:
. The share of small business first class postage represented by PC postage, starting
at one-tenth of a percent in 1999, will grow to almost 12% in 2003.
. Spending on first class PC postage will roughly double each year throughout the
plannino period, although this growth will begin to decrease after 2002.
Source: l&&national
Data Corporation, 1999 -
I YYY-
Total ($M)
1999
2000
2001
2002
2003
1.6
80.8
178.0
327.1
537.0
Share of total first class 0.0
1.4
3.0
5.1
spending (%)
Key Assumptions:
. U.S. economic growth rates will not change significantly.
. 1999 is the first year when PC postage is commercially
7.8
available,
2003
CAGR
(%)
28.0
NA
beginning
in
August.
.
PC postage estimates include spending of first class postage only; overnight and
parcel post package delivery are not included.
Messages in the Data:
. Starting at one-half of a percent in 1999, the share of home oftice first class postage
represented by PC postage will grow to almost 8% in 2003.
. The growth of home office PC postage spending will be similar to that of small
business PC spending, roughly doubling each year throughout the planning period.
Source: International Data Corporation, 1999
-34-
1
C. PC Postage
Revenue
The USPS gave the official start to PC postage
in August,
national rollout given to E-Stamp and Stamps.com
after an extensive
Postage revenue for 1999 represents
acquisition
and postage.
IDC’s estimates
used (essentially
for
period of testing.
of PC postage hardware
Not all the postage sold will be used in the quarter, although
on the postage sold, rather than the postage
1999, with approval
are based
the way postage
meter
revenue and stamp revenue can also be considered).
9
Total spending
on PC postage
will be growing
by 275.6%
annually,
as Table
10
10
indicates.
11
plus postage) will reach $8.2 million, annual spending
12
200 to reach $1.6 billion in 2003. IDC believes that PC postage will come to represent
13
over 10% of total postage spending
14
offices. Revenue related to ground and overnight
15
mail) will represent
From the start-up year of 1999, when total PC postage spending
will grow by a factor of roughly
by small businesses
an additional opportunity
(equipment
and income-generating
home
delivery (specifically
priority
package
for industry participants.
16
17
IDC believes
18
businesses,
19
will decline from about four-fifths
initially to about two-thirds
20
period. Small business
on PC postage will increase by 258.9% annually from
21
$6.6 million in 1999 to $1,095.3
that the largest
compared
share of PC postage
with home-based
spending
businesses,
revenue
although the small business share
million in 2003. Spending
-35 -
will come from small
at the end of the planning
by primary-income-generating
1
home offices will increase
2
1999 to $537.0 million in 2003
even more rapidly, by 328.0%
annually, from $1.6 million in
3
2000
1999
Small
business
PC
postage spending
Home office PC oostaae
spending
Total
2001
2002
19992003
gGR
2003
6.6
212.0
435.9
741.9
1,095.3
2058.9
1.6
80.8
178.0
327.1
537.0
328.0
8.2
292.8
613.9
1,069.O
1,632.3
275.6
0.1
Share of total first class
2.2
4.3
7.0
10.0
NA
1
spending (%)
Key Assumptions:
l
U.S. economic growth rates will not change significantly.
l
1999 is the first year when PC postage is commercially available, beginning
- in
August.
l
PC postage estimates include spending of first class postage only; overnight and
parcel post package delivery are not included.
Messages in the Data:
l
Starting at one-half of a percent in 1999, the share of home office first class postage
represented by PC postage will grow to almost 8% in 2003.
l
The growth of home office PC postage spending will be similar to that of small
business PC spending, roughly doubling each year throughout the planning period.
Source: International Data Corporation, 1999
The growth rates in PC postage spending
1999 represented
high because the base year of
less than four months of sales and the beginning
While first class postage will represent
be noted that USPS spending
packages
are especially
will represent
the heart of PC postage spending,
for overnight
additional
of active promotion.
it should also
express mail, second day, and parcel-post
revenue opportunities.
-36-
2
IV. Small
Equipment
3
A. Postage
4
Small businesses
5
scales. Because
6
costs of ownership
7
in addition
to postage,
8
equipment
can be prohibitive
1
Business
Equipment
Use
Use and Acquisition
of
Postage
and
Mail
Plans
vary in their use of basic postage equipment
-
postage meters and
the largest share of meters is leased rather than owned, the up-front
are not prohibitive.
However, with lease costs of $20-40
refilling, and ink supplies,
the continuing
expense
per month
of postage
to small businesses.
9
10
As Table 11 indicates,
just over one-quarter
of all small businesses
11
meter and scale. Meter use grows dramatically
12
of firms with under five employees
13
scales tracks very closely with the use of meters, although
14
use in larger firms -
15
advanced
with company
have a postage
size, from less than 15%
to 77.7% of firms with 50-99 employees.
most likely, the result of scales
The use of
actually falls below meter
being incorporated
in more
postage equipment.
Table 11
U.S. Small Business
VW
Use of Postage
Meters
and Scales
by Company
Size, 1999
Numoer or tmproyees
Total
Under 5
5-9
35.4
Have postaoe
28.3
14.8
meter
34.3
Have postage
26.5
15.0
scale
N = 1,043
Source: IDC’s Small Business Survey 1999
16
- 37 -
IO-19
20-49
50-99
44.2
62.6
77.7
39.1
51.5
70.8
1
The use of postage
meters is associated
with the use of more advanced
technology
2
general, as Table 12 indicates. The majority of those with LANs (55.7%) and almost half
3
of those with a home page (48.8%) use postage meters, which would be in keeping with
4
the higher level of mail volume associated
5
add different postage equipment
with these firms. Table 13 describes
by small businesses
in
plans to
of different sizes.
6
Table 12
U.S. Small
1999 (“ii)
Business
Use of Postage
Total
PC Users
LAN Uses
30.4
28.7
Have postage
28.3
meter
Have postage
26.5
scale
N = 1,043
Source: IDC’s Small Business
Table 13
U.S. Small Business
Current meter
user
Current meter
non-user
Survey
Meters
and Scales
by Technology
Users,
55.7
~EF’
33.6
Have
Page
48.8
55.1
33.1
49.0
Home
1999
Plans to Add Postage
Meters
by Company
Size, 1999 (%)
Total
1.7
Number of Employees
Under 5
5-9
1.6
1.6
IO-19
1.6
2049
1.9
50-99
2.0
5.1
4.7
5.2
6.5
4.7
20.7
3.9
4.3
2.9
6.2
Total
4.1
4.2
N = 1,043
Source: IDC’s Small Business Survey
1999
8
-38-
1
B. Interest
2
PC Postage Interest by Company Size
3
IDC tested a variety of traditional and PC postage concepts to assess general interest in
4
different
5
provided, with the goal of developing
6
solutions.
7
depending
8
use of a four-point
9
interested,
10
in Different
approaches.
Meter and PC Postage
Solutions
Only the most basic descriptions
As specific
program
on how effectively
an assessment
details are refined,
of different
or not at all interested)
were
of the general appeal of alternative
interest will increase
issues like cost and implementation
scale of interest
approaches
(very interested,
somewhat
or decrease
are addressed.
interested,
provides a basic measure of technology
The
slightly
appeal that
can be compared
across different small business segments.
12
The first postage
solution tested was the traditional
13
telephone.
14
size, as Table 14 indicates.
15
smaller ones. Refilling the meter by phone was stronger than via the Internet, although
16
interest
increased
17
modem
was
18
businesses,
19
superior.
11
This solution was of greatest
Internet-based
meter that is refilled by
interest to small firms regardless
of company
Interest is greatest among larger firms, and smallest among
with company
generally
postage
more
size. Connecting
appealing
postage
than
solutions
-39-
by phone and implicitly by PC and
using
the
Internet.
will not automatically
For some
small
be perceived
as
U.S. Small Business
Interest
Table 14
in Different PC Postage
Size, 1999 (%)
Total
Under 5
Alternatives
by Company
Number of Employees
5-9
IO-19
20-49
50-99
Traditional meter, refill by
phone
Very interested
Somewhat interested
Total
12.8
10.9
23.7
8.5
6.6
15.1
15.2
13.4
28.6
19.7
15.2
34.9
17.9
17.3
35.2
26.8
32.5
59.3
Traditional meter, refill by
Internet
Very interested
Somewhat interested
Total
6.4
10.8
17.2
3.8
5.5
9.3
6.7
15.2
21.9
9.1
18.2
27.3
14.8
16.7
31.5
14.6
25.2
39.8
9.5
15.7
25.2
8.0
13.7
21.7
9.8
17.7
27.5
12.1
15.9
28.0
14.8
19.1
33.9
8.1
25.2
33.3
PC postage - any type
Very interested
Somewhat interested
Total
N (PC owners) = 949
Source: IDC’s Small Business Survey, 1999
-4o-
I
PC Postage
solutions,
which involve postage delivered
printer, is more appealing
the Internet.
although
to firms with under 50 employees
As firms increase
interest
employees,
remains
in size PC postage
competitive
and in traditional
solutions
are more interested
Small firms with postage
9
than using PC postage, as Table 15 indicates. This preference
with under 5 employees
11
employees
12
consider
13
meters.
meters generally
alternative
in either technology
postage
less attractive,
in firms with under 50
in traditional
meters filled
prefer refilling their meters via the Internet
and with 50-99 employees.
very interested
become
meters refilled over the Internet.
8
10
than refilling meters over
with other approaches
Firms with 50-99 employees
via telephone
over the Internet to a PC and
solutions
despite
-41-
is greatest among firms
The percentages
were similar, suggesting
having
already
of firms with 5-49
a willingness
invested
to
in traditional
Postage
Table 15
U.S. Small Business Interest in PC Postage,
Meter User Versus Non-User, 1999 (% of PC Owners)
Total
Postage meter users (N
= 283)
Traditional meter, refill by
Internet
Very interested
Somewhat interested
Total
Under 5
Number of Employees
5-9
IO-19
20-49
50-99
16.2
19.5
35.7
15.0
11.7
26.7
15.0
20.0
35.0
15.3
23.7
39.0
20.2
23.1
43.3
17.5
27.8
45.3
14.6
22.4
37.0
10.0
16.7
26.7
18.3
28.3
46.6
15.3
20.3
35.6
19.2
25.0
44.2
8.2
23.7
31.9
2.1
7.0
9.1
1.6
4.3
5.9
1.9
12.5
14.4
4.1
13.7
17.8
5.2
5.2
10.4
3.8
15.4
19.2
Very interested
Somewhat interested
Total
7.2
12.7
19.9
7.6
13.2
20.8
4.8
11.5
16.3
9.6
12.3
21.9
6.9
8.6
15.5
7.7
30.8
Source: IDC’s Small Business
Survey, 1999
I
PC postage - any type
Vet-v interested
Somewhat interested
Total
Posta e meter nonusers 9 N = 881)
Traditional meter, refill by
Internet
Very interested
Somewhat interested
Total
PC postage - any type
-42-
38.5
I
I
1
PC Postage
Interest by Technology Use
2
Interest in PC postage solutions
3
16 indicates. Small businesses
4
meter refilled by phone. Both small business
5
prefer traditional
6
postage
7
interested.
8
and home page users will also be key, given the large percentage
9
with home pages that are very interested
also varies by the use of other technologies,
with LANs show the highest interest in using a traditional
Internet users and home-page
meters refilled by phone, although
solutions
when
Small business
as Table
the percentages
Internet
include
the balance
those
users also
shifts in favor of PC
both very and somewhat
users will be the prime prospects
for PC postage,
of small businesses
in PC postage.
10
Table 18
U.S. Small Business
;rodilinal
meter,
Interest
refill
by Technology
Use, 1999 (%)
PC Users
LAN Users
;Fept
Have
Paae
12.8
10.9
23.7
22.1
14.7
36.8
12.9
12.6
25.5
18.9
14.6
33.5
6.4
10.8
17.2
14.3
14.1
28.4
8.7
12.7
21.4
13.9
14.6
28.5
9.5
13.8
12.8
16.1
Home
by
Very interested
Somewhat interested
Total
Traditional
meter, refill
Internet
Very interested
Somewhat interested
Total
PC Postage
by
PC postage - any type
Very interested
Somewhat interested
15.7
22.5
18.2
21.2
Total
25.2
36.3
31.0
37.3
N (PC owners) = 949
Notes:
Home page users are generally more interested in any technology alternative.
Internet users are enerall more interested than total PC owners in any of the Internetrelated postage soitions, 8 ut phone refill of meter still cited most oi Iten.
Source: IDC’s Small Business Survey 1999
- 43 -
1
V. The U.S. Postal Service’s
2
A unique attribute
3
deliberation
4
the high-technology
5
industry).
The lengthy
6
programs
is simply not a part of the thinking in Internet companies.
7
something
8
serves as a cheerleader,
9
missions
10
triumphant,
Role as Regulator
associated
with this market is the role of the USPS. The careful
and testing of new technology
community
is unlike anything
(with the possible
beta testing
of a gatekeeper
and Advocate
associated
to be found elsewhere
exception
with
of the pharmaceutical
E-Stamp’s
and Stamps.com’s
In addition to being
and umpire in fully vetting new technology,
actively encouraging
can be in conflict
-
new technology.
the more cautious
in
the USPS also
Sometimes
side of the house
these two
is generally
although the role of industry supporter will continue to be important.
11
12
Internet postage can play an important
13
mail more efficiently. IDC believes that this factor has been important in the relatively fast
14
(for the Post Office) approval time for PC postage. PC postage also benefits the USPS by
15
bringing advanced
16
greater use of the mail. The USPS also benefits from the ZIP code checking capability
17
that PC postage provides.
18
sort the mail, so far the same is not true for small businesses
19
qualify for discounted
mailing capabilities
part in helping the Postal Service to move more
to smaller firms, which can be expected to make
(While large mailers receive discounts
mailing rates.)
-44-
by helping the USPS
that, individually,
may not
CERTIFICATE
OF SERVICE
I hereby certify that I have this day served the foregoing document upon all
participants of record in this proceeding in accordance with Section 12 of the Rules of
Practice.
Dated: May 22,200O