On Internet and the Post Office

The news that the post office will stop mail delivery on Saturday will further hobble traditional companies that are competing with internet offerings and help digital-only companies in their fight against the incumbents.

Netflix and video distribution

On first glance, one would assume that Netflix would be hurt by such a move. The company, after all, has built its initial business on delivering plastic DVDs via mail. But when you see that the company spent $600 million last year shipping those disks, it is easy to figure out that Netflix will see a drop in its cost base as a result of the post office’s move.

As has been clear over the last couple of years, Netflix sees the DVD by mail business as a legacy and is putting more of its efforts in migrating those existing customers to streaming offerings. The cost of streaming, which equals only a few cents per stream, is substantially lower than that of delivering DVDs, thus increasing margins for the company, even as it invests heavily in securing rights to new content and creating original offerings. And while Saturday delivery may hit some existing customers, they are largely the ones that borrow 8-10 DVDs per month, a group of users who actually cost Netflix money instead of generating any revenue so a loss of those customers may only have a positive impact to the company’s bottom line.

Print vs. Web

Another business that may be deeply impact by the recent announcement from the post office service is the magazine business. As print magazines continue to fight digital offerings, their job is getting more complicated.

So magazine news cycles will either have to close earlier during the week, which makes them less able to react to news, in order to deliver their offering by Friday or find alternative means of delivery. In New York, for example, Bloomberg BusinessWeek, New York magazine, and others have started piggy-backing on newspaper delivery services to get their print product in the hands of readers. These types of services come with an added cost to the publishers as they transition large number of customers over to alternative delivery services.

The largest impact may be in forcing those magazines to hasten their transition to digital media, pushing more of the subscribers to tablets, mobile phones, and web services. Along the way, the model of print ads that has been more lucrative than digital ones may end up going the way of the dodo. Once upon a time, print publishers looked at digital as a freebie and gave away their inventory to advertisers, in an attempt to entice them to buy more print ads. As a result, advertisers got used to paying lower costs for electronic media and seeing higher value as they could more easily measure the impact of that advertising. Now, as print publications are forced to make the shift to digital, they will see a larger squeeze on their margins.

A generational divide

The end of Saturday mail delivery may actually be part of the broader demographic trend that shows an aging population for printed-matter consumption. Generations that have grown in the internet age are seeing less and less utility in mail services as most offerings have moved online. Whether it is news delivery, bills, or promotions, most of what ends up in our mailboxes now has a digital equivalent.

This sits at the core of the challenge for the USPS moving forward: its traditional service is no longer relevant in the digital age and its alternate services, package delivery, sit in an area where the likes of UPS and Fedex are offering fierce competition.

So while the end of Saturday delivery will save the post office about US$2 billion a year, it does little to diminish its trouble moving forward.

Where to next?

With such trouble ahead for the post office, the question now is what it should be doing next. And here, the example may actually be coming from abroad, more specifically from France. The French post office, La Poste, may provide a footprint for what USPS could do moving forward. Walk in any of their branches and you will be faced with something that looks more like a Kinko-Fedex or a Best-Buy: the French post office now offers banking, mobile services, digital document handling (including safe-keeping and escrow of digital data), email, online access, printing and, oh yes, mailing services. The group also offers services to manage and hold stock for online merchants. These are merely transition of their existing model to the digital world and may be what the USPS needs if it hopes to reach break-even or profitability in the future.

Previous Post
Old TV hits streams: Available, at a cost
Next Post
Protecting our electronic infrastructures
%d bloggers like this: