The End of the Monopoly

The postal monopoly has ceased to exist. This is a bold statement given that no law has changed. However, the economic downturn has forced every sender of mail looks at their alternatives and many have found competitive alternatives from electronic and physical delivery options that are faster and more cost effective than the mail.

The shift in demand means that mail is now primarily a means to distribute advertising. Nearly all advertising has alternative modes of delivery and mail is used only if it provides a higher financial return than other advertising modes. But now two postal competitors, newspapers and United Parcel Service have found ways to chip away at the delivery monopoly that illustrates how little power the legal monopoly actually has.

The delivery of saturation advertising has always faced competition from local newspapers. While newspapers may find that their circulation, display and classified advertising advertising is declining, they have one bright spot in free standing inserts. Spending for free standing inserts grew by 4.6% in the first half of this year. At the same time spending on postage for delivery of saturation mail advertising (Enhanced Carrier Route) declined by 10%. Valassis and its competitors will prepare an advertiser's copy for delivery by mail or free standing insert depending on which mode the advertiser finds most cost effective. The shift in market share from mail to free standing inserts suggests that the Postal Service is losing market share and iits delivery prices are not competitive to newspaper delivery of the same copy. Further losses in this market may come as newspapers expand their delivery of "mini-papers" composed of 4 pages of newsprint surrounding coupons and other free standing inserts, most likely at prices below what it would cost Valassis to pay the Postal Service to deliver.

The competition from newspaper focuses on part of the hard-copy advertising market that has always fallen outside of the monopoly. The newspapers will try to skirt the monopoly slightly by targeting the "mini-paper" to homes that do not receive a newspaper. In this way they deliver two different items to specific addresses without having to put an address on any piece. Subscribers get the newspaper. Non-subscribers get the mini-paper.

Another assault on the monopoly on addressed advertising is coming from United Parcel Service which has just found another way around that restriction. Yesterday, United Parcel Service announced Direct to Door, a new product that delivers small boxes of advertising, at a price below the cost of direct mail. UPS offers the low price because it only delivers to addresses where it also delivers a parcel.

UPS's new product is attracting some of the Postal Service's best customers and more importantly customers that mail to some of the highest income and highest mail volume zip codes in the country. UPS's initial customers include Men's Warehouse, Finish Line, Williams Sonoma' s Pottery Barn and West Elm divisions, Sephora, and Zappos, an on-line shoe company owned by Amazon. As these customers use the higher prices regular standard mail products to reach their potential customers, UPS is competing against regular standard mail rates and not the lower enhanced carrier route rates.

UPS and advertisers are targeting recipients that buy over the Internet and more importantly likely buy higher priced products over the Internet. In this way, UPS goes after the key advantage that the Postal Service had over all other advertising media, the ability to target specific customers. UPS's effort along with targeted e-mail, Internet search and display advertising erode the value of the addressed advertising monopoly to the point where the value may be quite minimal.

So what services are left within an effective monopoly?

Most transaction mail no long is without competition. Few new bank, insurance, credit card, gym club, cell phone, or brokerage accounts have mail as the default option for paying or receiving bills and statements. Only health care bills, statements, and payments remain as nearly exclusive users of the mail and electronic records could eventually allow the health care industry to follow financial services and telecommunications into a paperless environment.

Mail delivered periodicals compete every day with in-store and Internet delivery of content. A subscriber has to actively want the hard copy now to receive the periodical. Many business and industry publications have illuminated hard-copy editions completely. For a periodical to continue using the mail, the mail must compete with alternative modes and increasingly have a customer willing to pay more to receive hard copy.

Non-profit mailers showed these past two years that even if their low-priced mail may not be price sensitive, it is highly sensitive to the economy. With tight budgets driven by lower levels of contributions, non-profits are looking at mail as a cost center and newsletters, solicitations, and other documents that used to be sent by mail are now sent electronically. For these organizations, mail at even non-profit rates do not provide sufficient value to justify the production and postage expense especially when e-mail, search engine advertising, social media can deliver the same newsletter or generate the same net-revenue. The mail that they still send must compete with the value that alternative media provide.

This leaves two parts of the mail stream where the Postal Service provides service with minimal concerns about competition: 1) correspondence, and in particular announcements, greeting cards, invitations, and holiday cards; and 2) transactions for those not connected to the web. This is a very small part of the Postal Service's $60 billion in revenue. Having a monopoly to protect these customers seems hardly worthwhile.