E-Stamp Versus Stamps.com: Let the Battle Commence

Computergram International, Sept 27, 1999

Six weeks on from approval by the US Postal Service for their online postage stamp businesses, E.Stamp Corp and Stamps.com are waging a war of words about whose business model is the best. E.Stamp, based in San Mateo, California, thinks it has the advantage at the moment, as it's been selling its product ever since the August 9 approval ceremony at Ben Franklin Hall, the US Postal Service headquarters in Washington, and in that time has built up 10,000 customers. It has now passed the Postal Service's second approval checkpoint, which enables it to go onto the next stage of supporting up to 100,000 customers. But Stamps.com, from Santa Monica, whose "pure internet" strategy appears to be more in line with industry trends, says it already has nearly 100,000 pre-registered customers signed up for its service, now scheduled to commence in October after a number of delays.

E-Stamp, currently still a private company but heading for its IPO, announced a set of new distribution partners on Wednesday that will take its products into the retail channel, along with an investment from Deutsche Post and Deutsche Telecom that heralds its entry into international markets. Ingram Micro Inc is to distribute the E-Stamp starter-kit, which includes the software and a hardware-based electronic vault security device for $49, via its Staples, Bestbuy and Office Depot outlets, and through CDW catalog sales. (Users get a $25 rebate on postage, which helps cut the cost). Digital River Inc will sell the kit through its web site partners, including Walmart and PCZone. And LinkShare Corp will sell the E-Stamp product through its affiliate small businesses program. E-Stamp itself will continue to sell direct through its web site and through mailshots, but doesn't have a direct sales force of its own.

Postal Service regulations make things more complex, however. Users must install the E-Stamp software onto their PC via CD-ROM, and must also attach the hardware security device, supplied by Dallas Semiconductor Inc, to the PC's parallel port - a somewhat clunky procedure compared with Stamps.com's all web-based approach. Also, UPS regulations stipulate that if users discontinue the E-Stamp service, they are obliged to return the electronic vault to prevent fraudulent use, or face a $500 fine. It is after all, says E-Stamp, effectively a license to print currency.

E-Stamp says that unlike Stamps.com, it can go through the retail channel because it has something to sell. The Stamps.com model calls for free software to be downloaded from the web, and all transactions are carried out online from the secure web site. Billing is monthly, and there is a minimum charge of $1.99 per month for low-volume consumer customers, or $3.99 for business customers, plus a 10% fee for each transaction. E-Stamp charges the 10% transaction fee at the time of each purchase, rather than monthly, taking its charge from the credit stored in the electronic vault. It says that small business customers feel comfortable with the retail model, and don't want to be online all the time they are doing their postage. Stamps.com points out that, as of Thursday, it had 94,072 pre-registered users as proof that its model is the more popular. But E-Stamp says its users are "active users" and says a pre-registered customer is not yet a real one, just an email address. And it says that Stamps.com must seek further approval from the Postal Service before it moves beyond 10,000 customers.

Meanwhile, Stamps.com has signed a deal with Lotus Development Corp to put an icon on the Lotus Organizer Release 6 toolbar. Organizer has an installed base of 42 million worldwide - though presumably only the US users will find any use for the icon.

Where the E-Stamp model does currently make more sense is in the European market, where dial-up internet customers still pay telephone charges by the minute for the time they are connected. That makes buying stamps over the web a very expensive business. Germany is the largest market for postal services outside of the web, and although European post offices are generally considered to be between two and five years behind the US on the technology curve, Europe has been observing the roll-out of internet postage in the US with interest. Deutsche Post International and T- Venture, a wholly-owned venture-capital subsidiary of Deutsche Telekom, have made equity investments in E-Stamp totaling $5m, and the company will use the money to seek approval to expand its business internationally. Not to be outdone, Stamps.com says it's already established international offices in Vienna and London, and claims to be looking to the future, when the cost of internet connectivity will inevitably come down in Europe. It also sees China and Asia as major opportunities. "We will be wherever the web model fits" says Stamps.com.

Why has Stamps.com delayed the launch of its service? It originally said it would be ready "shortly" after the August 9th approval date. Then it posted up September 27 as the official launch date on its web site. Yesterday, the company issued a press release saying availability was now scheduled for October. E-Stamp speculates that the delays are due to scalabilty issues, because all customers must converge on the Stamps.com servers to purchase stamps. Using its words carefully, Stamps.com has gone some way towards confirming this for ComputerWire. "We've been surprised by the demand for the service. We just want to get it right." The company refused to discuss the details of its server capabilities, which are almost certainly hosted by a third party, but did say it was using Microsoft operating system and SQL Server software.