Becoming a Multi-modal Postal Company

Today, RR Donnelley announced a new mobile application for broker/dealers and financial advisors.  This application is part of a suite of digital products and services that RR Donnelly offers to the financial services industry.

RR Donnelley's significant presence in digital documents may be a surprise to many readers of this blog who only know of the company as the largest printer of documents that are delivered by mail in the United States.   Illustrative of this change is how RR Donnelley describes its business.

RR Donnelley is a global provider of integrated communications. Founded more than 145 years ago, the company works collaboratively with more than 60,000 customers worldwide to develop custom communications solutions that reduce costs, enhance ROI and ensure compliance. Drawing on a range of proprietary and commercially available digital and conventional technologies deployed across four continents, the company employs a suite of leading Internet based capabilities and other resources to provide premedia, printing, logistics and business process outsourcing services to leading clients in virtually every private and public sector. (Emphasis added)

In this entire description, the word "printing" appears only once.   Instead, RR Donnelley sees itself as a communications company and "printing" is only one modality to deliver communication.    RR Donnelley clearly envisions a world in which it is multi-modal provider of document delivery, whether by print, the Internet or through a mobile smart-phone.

RR Donnelley is clearly still primarily a printing company.  Most of the services described on its website relate to the process of taking communication concepts and turning them into printed documents.   In a similar fashion, RR Donnelley does not break out the revenue of its digital document business separately in its quarterly financial statements, suggesting that the revenue in that business is still not large enough to note separately.

The change in its definition of its business suggest that RR Donnelley understands that to continue to serve its print customer needs, it must be capable of providing solutions that allow the delivery and/or storage of documents digitally to reflect the demands of recipients.   Other firms that serve parts of the postal supply chain, such as Pitney Bowes, Canada Post, Deutsche Post, and Xerox, are making a similar transition.   For all companies in the "postal" business, the changing environment raises three questions:

• Is my company prepared to be a competitive multi-modal postal firm?
• What changes does my company need to make to remain relevant in a multi-modal world including acquisitions, divestitures, partnerships and mergers?
• What strategy does my company have to deal with legacy physical-delivery focused assets and divisions so that they can generate an acceptable financial return for as long as customers exist for that portion of our business?

Xerox and the Future of Mail

Today, Xerox announced the purchase of Affiliated Computer Services (ACS) in a move that Xerox investors clearly found troubling causing the price to drop by 14%. This move should trouble postal stakeholders as well as it sends a strong message regarding what "the document company" thinks about the future of printed documents.

Xerox's business currently is focused on three business segments: 1) equipment for producing / scanning documents in an office; 2) equipment for producing documents in production settings; and 3) document management outsourcing. With the merger, Xerox's reliance on the future of paper documents drops from 100% to 67%. (See Xerox's presentation on the merger.) Steve Gerbel, founder and president of Chicago Capital Management called the merger a "transformative fix." Xerox's presentation to analysts, clearly expects that its future growth will come from the merged company's non-document based business and over time "the document company" will not be as dependent on paper documents.

Why does this matter to the Post? Now, the leading firm designing machines, processes, and software to handle paper documents will now help their customers move the document based, mail-delivered processes to electronic, Internet-delivered processes. Xerox's decision to seek a way to continue to serve existing customers as they abandon documents to the Internet suggests that senior management no longer sees growth prospects in print. The thinking behind Xerox's merger decision should provides postal stakeholders worldwide a wake-up call about the long term prospects of hard-copy delivery.

While some of the 14% decline in Xerox stock, reflects the dilution of current shareholder's holdings, I would argue that the size of the decline also reflects a major revaluation of the value of Xerox's document based business. If the financial market now thinks Xerox's document based business is worth less today than it was yesterday, then the financial market could soon realize that it needs to rethink the valuation of the printers, paper manufacturers, mailing equipment suppliers, and the document-delivery portion of the publicly traded Posts as well.