Stamps.com 2004 Annual Report Download - page 8

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The entire approval process for Stamps.com took approximately two and one half years. In March 1997, we
submitted our letter of intent to join the Information Based Indicia Program. From March 1997 through August
1998, we progressed through the first eight stages of the US Postal Service certification process. On August 24,
1998, the US Postal Service announced that we were approved for beta testing and our PC Postage service became
the first software-only postage solution approved by the US Postal Service for market testing. Between August 24,
1998 and August 9, 1999, we successfully completed the three-phase beta testing required by the US Postal
Service’ s certification process. On August 9, 1999, we became the first software-only PC Postage solution approved
for commercial release by the US Postal Service.
Approval of follow-on technology also requires US Postal Service approval. On July 17, 2002, we
successfully launched NetStamps™ and became the first provider of this technology. Approval for NetStamps™
followed years of development efforts, including a six-month beta field test. On November 29, 2002, we launched
our Plain Paper Shipping feature after significant development efforts. In 2003, we improved our shipping features
by adding Hidden Postage, Stamps.com package insurance, the ability to send shipment notifications emails with a
tracking link, the ability to print shipping labels for Express Mail® and Bound Printed Matter, and support for
additional USPS services such as Collect on Delivery (COD). Additionally, we enhanced the integration with
Microsoft® Office System 2003.
In July 2004, we received authorization from the USPS to proceed with a limited market test of a new form
of postage called PhotoStamps™ that coupled the technology of PC Postage with the simplicity of a web-based
image upload and order process to allow consumers and businesses to order fully customized postage. In September
2004, the USPS asked us to conclude our market test effective on October 1, 2004, to allow the USPS to conduct a
review of the limited market test results. We concluded the market test with more than 138,000 total sheets, or 2.8
million individual PhotoStamps™, ordered. As of the date of this report, the USPS continues to review the
PhotoStamps™ test results. There is no assurance that we will receive final approval or receive authorization for
further market tests for the new form of postage.
Our PC Postage Service Technology
Our servers are located in a high-security data center and operate with proprietary security software. These
servers create the data used to generate information-based indicia. These servers also process postage purchases
using secure technology that meets US Postal Service security requirements. Our service currently uses a Windows-
based client application, which supports a variety of label and envelope options and a wide range of printers. In
addition, our application employs an internally-developed user authentication mechanism for additional security.
Our transaction processing servers are a combination of secure, commercially available and internally-
developed technologies that are designed to provide secure and reliable transactions. Our system implements
hardware to meet government standards for security and data integrity. The performance and scalability of our
Internet Postage system is designed to allow many users to simultaneously process postage transactions through our
system. Our database servers are designed and built with industry-leading database technologies and are scalable as
needed.
Recent Developments
During 2004, Stamps.com focused on improving its core product software features and launching new
products to generate incremental revenue from its core customer base. With the new software features we have
continued to strengthen our recurring revenue stream by increasing its customer base and attracting new customer
segments. With the new product offers we have been able to capture incremental revenue from our existing
customer base while increasing customer efficiency and decreasing customer costs. Additionally, we reported our
first ever profitable quarter in the third quarter of 2004.
In January 2004, we effectively discontinued the Simple Plan price point for all new customer acquisition.
Legacy Simple Plan customers were not affected. Simple Plan pricing consisted of 10% of the postage printed with a
minimum charge of $4.49. Power Plan customers are charged $15.99 for unlimited printing of postage and access to
premium features. As we evaluated offering Power Plan only across all marketing channels, it became clear that
customer acquisition would not be negatively impacted by such a pricing change.
Also in January, our Board of Directors declared a return of capital cash dividend of $1.75 per share to
shareholders of record as of the close of business on February 9, 2004, paid on February 23, 2004. The total cash
dividend was approximately $78 million. As a result of this cash distribution, the exercise price of all active
employee stock options prior to the ex-dividend date was reduced. Outstanding options with a strike price greater