Communications of the ACM

Technology strategy and management

Can Services and Platform Thinking Help the U.S. Postal Service?

By Michael A. Cusumano
Communications of the ACM, April 2012, Vol. 55 No. 4, Pages 21-23
10.1145/2133806.2133814
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The United States Postal Service (USPS) dates back to a department created in 1775. In 2010, it had revenues of $67 billion and some 650,000 employees (down from 800,000 several years ago). But it has been in the news for years because of mounting deficits, including at least a $5 billion operating shortfall in 2011 and another $5 billion in annual obligations for retiree health benefits. The major "product" of the USPS is first-class mail. This is in a long-term decline as customers have switched to electronic substitutes. The worse news is the Postal Service expects first-class mail volume to continue dropping by nearly 50% over the next decade.¹

What we have here is an organization disrupted by technological change, especially in information technology. The problems began with fax machines, widely introduced in the 1980s, followed by Internet-based email, which became ubiquitous in the 1990s, and then online bill paying, which has risen from 5% in 2000 to approximately 60% in 2011, as well as other electronic means of communicating.² Even party and wedding invitations, birthday cards, and holiday greetings are now frequently distributed via email. The Post Office still delivers packages, and this business is rising a couple percentage points each year. But the USPS has to compete with efficient private companies, led by FedEx and the United Parcel Service (UPS). The Postal Service also delivers paper-based advertising (often called "junk mail"). While this market also continues to rise by modest amounts, it could decline as well in the future as more advertising moves to the Web or mobile phones.

The USPS has special problems, too. It is obligated by federal law to deliver mail to each address in the U.S. (some 150 million locations), a costly endeavor. The price of a first-class U.S. stamp is also the same whether the mail is going one mile or several thousand miles. Moreover, unlike private companies, the Postal Service faces limits in the types of businesses it can go into. But, since 2006, the USPS has been under increased pressure to operate like any other firm—that means it must be profitable or at least break even and can no longer rely on government loans.

The Postal Service is not alone in seeing customers move to new technology-based alternatives that are cheaper and faster. Book and music publishers as well as retailers, video rental shops, travel agencies, stock brokerages, and even consumer banks represent just a few industries disrupted by the Internet. But, the financial situation has become desperate for postal workers. In December 2011, the USPS proposed to cut regular mail delivery back to five days a week, from six days; eliminate most next-day first-class mail delivery; and close another 3,700 of its 32,000 post offices as well as more than half of its 487 mail-processing centers.² These and other measures scheduled to go into effect over the next several years are expected to eliminate $100 billion in costs and reduce headcount by another 100,000. Such drastic cutbacks may get the Postal Service on a sounder financial footing temporarily. But if the organization continues to cut costs as first-class mail declines, eventually the Postal Service and its infrastructure will wither away.

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Services and Platforms

We could simply ask private companies to deliver whatever physical mail and packages remain, though this would require a change in federal law and might also prove to be far more expensive. Sending a letter via UPS or FedEx today costs the same as sending a package and that is many times the price of a first-class stamp. But there should be another alternative, such as to grow revenues! One way to do this would be to leverage two related concepts I have been discussing in this column and in other publications for nearly a decade: services and platforms. For example, we have seen many different firms shift to offering value-added services as their basic products have become commoditized or outmoded (see "Finding Your Balance in the Products and Services Debate," Communications, March 2003). We have also seen firms utilize their physical or Web infrastructure as a platform for diversification and for establishing new revenue-generating partnerships with other organizations (see "The Evolution of Platform Thinking," Communications, Jan. 2010).^a

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The Postal Service is not alone in seeing customers move to new technology-based alternatives that are cheaper and faster.

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Sometimes we see value-added service offerings that are closely related or complementary to a company's basic product or standardized service, such as customized features, expert advice, training, or integration with other companies' products and systems. Other services may be unrelated to the basic product but still leverage the same customer demand in a kind of diversification or "economies of scope" strategy. We also see some companies offering service-like versions of their products, which provide additional convenience and potentially lower costs to the customer. These "servitized" products include Software as a Service (SaaS) and Cloud Computing applications instead of packaged software. We could also consider ZipCar's transportation by the hour a service-like substitute for automobile product purchases. iTunes is a service-like substitute for purchasing music and videos. Even Rolls Royce—with its Power by the Hour program—rents the use of its aircraft engines to airlines or leasing companies that prefer not to pay the full cost of buying the planes and engines outright. So the idea here would be for the USPS and future partners to offer a wide range of mail-related and unrelated services that either complement or replace physical mail products as well as leverage the postal network of offices and trucks and their customer traffic.

Congress needs to respond here by loosening the legal constraints on the types of business into which the USPS can enter. The USPS leadership also would need to change the way it thinks about the network of post offices, mail trucks, and people. At present, these assets seem to be a costly liability that must be cut back—drastically. Reducing the scale and scope of the USPS, however, could also lower the potential value of the network as a service-delivery platform. The USPS should be able to use its vast infrastructure to create and deliver new products and services on its own as well as through partnerships. The USPS platform and future "ecosystem" of partners would resemble similar retail and service-delivery platforms such as at Amazon. com, which now sells everything from books to electronics and hosts a variety of small business partners and cloud-computing service users, or even Walmart, CVS, and Walgreens, which partner with different firms to provide a variety of products and services from their store locations.

My class at MIT did a brainstorming session and came up with a variety of ideas, several of which the USPS has already implemented on its own. In the unrelated to mail category, financial services such as banking (savings accounts in particular, which are not costly to maintain) and insurance (such as simple term policies or product warrantees) come immediately to mind. The USPS could provide greater access to its infrastructure to other businesses as well as other government agencies, local, state, and national—a potentially enormous market. For example, postal workers could conduct the census as they deliver mail, or process and deliver official documents, such as licenses and inspection permits, perhaps while offering notary services. Postal workers could become meter readers where this is necessary, or help the elderly pay utility bills through mobile payment devices. The USPS could put advertising on trucks or allow mobile cellphone operators to mount antennas. The trucks could carry air quality monitoring equipment.

There are also many possible value-added services related to mail and package delivery. The USPS could digitize and sort mail and then send it out electronically to customers who prefer not to have paper (this is already under way). Maybe the best way to charge for this would be like a SaaS or subscription service, related to volume. It could take a cue from UPS and offer advanced logistics consulting for its customers as well as handle business inventory and deliveries—become the logistics arm of local businesses. It already has alliances with FedEx and UPS for "last mile" deliveries instead of viewing these companies as competitors. The local post offices could also learn from Craig's List or Angie's List and go a step further. The offices could leverage the intimate knowledge they have of local customers and help them find local business services while helping local businesses advertise more effectively and reach the right customers.

The USPS could also create platform-based services that generate positive "network effects," that is, the services increase exponentially in value as more people sign on for them. For example, there could be a service that lets only registered users store and send paper copies of photos, greeting cards, or postcards through the mail to other registered users after sending them to a USPS Web site. The USPS would then print the photos and cards (or subcontract the printing) according to customer instructions and then deliver them. Another service could be similar to the above but target secure documents, stored electronically and valid only when delivered in physical form (official copies of birth and death certificates, marriage licenses, divorce documents, stock certificates, deeds, permits, contracts, and so forth). The USPS could create its own social media network by itself or through partnerships with firms such as Facebook. Registered users could send photos, postcards, and invitations to friends and family members. This service would generate network effects as more users and family members joined, which should allow the USPS to charge fees or monetize the service through advertising.

If these ideas sound strange to Americans, they should be familiar to residents of other countries. Post offices around the world provide all types of non-mail and mail-related services to their customers. Japan's postal network has been offering basic banking services for decades (though the financial services arm has been separated administratively from the postal arm). Germany's post office bought DHL and now competes in the international package delivery market. The Swiss postal service already has "digital mail"—it will scan your letters and send them to your computer as well as eliminate junk mail. Sweden's post office has an app that creates postcards from photos and allows users to send the postcards directly from their cell-phones, without stamps.³ The Indian postal service is also pursuing a variety of financial services that it would make available to poor rural customers.

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Conclusion

In short, a more creative services and platform strategy could help reverse the USPS's financial woes and provide a more positive way forward—generate new revenue rather than continue to reduce the scale and geographic scope, and thus the intrinsic value, of the network. While additional cuts in locations and headcount may still be necessary to get costs in balance with short-term revenues, the goal would be to halt the downward spiral of continually reducing the physical footprint of the USPS that ultimately could destroy its potential value as a service-delivery platform. How much would a bank pay for the privilege of locating ATM machines or customer service agents in every post office in the U.S.? Probably a lot, and maybe enough to solve the Postal Service deficit problem in one or two bold moves. At least, the services and platform alternative seems worth serious consideration.

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The Digital Library is published by the Association for Computing Machinery. Copyright © 2012 ACM, Inc.

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