Stamps.com 2001 Annual Report Download - page 7

Overview of Our Industry
Growth of Internet Commerce
The small office/home office and small business markets represent a large and growing customer segment. According to International Data
Corporation, there were a combined 41.8 million small businesses and home offices in the United States in 1999. For 1999, International Data
Corporation reported that small businesses with less than 100 employees numbered 7.5 million, of which 77% had fewer than 10 employees. In
addition, home offices numbered 34.3 million, of which 18.8 million were income-producing home offices, and the remainder were home
offices used for corporate after-hours work or telecommuting.
We believe that small businesses increasingly will rely on the functionality and pervasiveness of the Internet to reach and serve a large and
global group of end users. The reduced cost of selling and marketing on the Internet, the ability to build and serve a large base of customers
electronically, and the potential for personalized low-cost customer interaction can provide significant economic advantages. These benefits
have led to adoption of the Internet by small businesses and home offices.
Traditional Postage Industry and the Emergence of Internet Postage
According to the US Postal Service Annual Report, the total postage market was $62.8 billion in 1999, of which $40.4 billion was represented
by first class, priority and express mail with the remainder consisting of other classes of mail including periodicals, bulk and international. The
US Postal Service processed over 201 billion pieces of mail in 1999. The US Postal Service has experienced continued public demand for more
convenient access to US Postal Service products and services, and strong competition from overnight delivery services and online transaction
services. The US Postal Service also continues to experience loss revenue due to fraud committed using older technology traditional postal
meters.
In response to these challenges, in 1995 the US Postal Service announced the Information Based Indicia program, its first new form of postage
since the approval of the postage meter in 1920. Information based indicia are a new type of US Postal Service postage mark that contains an
information rich two dimensional bar code. Further, each bar code contains a 1028-bit digital signature to guarantee that each indicium is
unique and essentially fraud proof.
The goals of the Information Based Indicia Program were to enhance user convenience with a new access channel for postage that was available
24 hours a day, seven days a week, while also enhancing the inherent security of the postage to reduce the fraud committed using other forms of
postage. All Internet postage products, including any subsequent enhancements or additional implementation of a product, must complete US
Postal Service testing and evaluation to ensure operational reliability, financial integrity and security before becoming certified for commercial
distribution. The Information Based Indicia Program also aims to produce mail that is processed more smoothly in order to reduce US Postal
Service costs.
We believe that the Information Based Indicia Program has created an attractive alternative channel for the sale of postage, particularly to small
offices, home offices and small businesses. We believe that our current customers have chosen our service over other forms of postage such as
postage stamps or postage meters primarily to save time and to save costs.
The US Postal Service Information Based Indicia Program Certification Process
All US Internet postage products must complete extensive US Postal Service testing and evaluation in the areas of operational reliability,
financial integrity and security to become certified for commercial distribution. Each additional implementation of a particular product or
function requires additional evaluation and approval by the US Postal Service prior to commercial delivery.
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2002. EDGAR Online, Inc.