Stamps.com 2003 Annual Report Download - page 9

Table of Contents
Additionally, our service provides significant features and capabilities for shipping-focused users. First, customers can send shipment
notification e-mails to their package recipients letting them know that a package is on the way. Second, customers can track delivery status of
their packages with a single click from our software. Third, customers can add electronic Delivery or Signature confirmation without any
physical forms at a discounted rate. Fourth, customers can use Stamps.com insurance to insure packages without having to go the post office
and without having to complete any physical forms. Finally, customers can hide the postage amount on the shipping label using our Hidden
Postage capability. This feature allows customers such as auction sellers and online merchants more flexibility in what they charge their
customers for shipping and handling to ensure that they are covering all their related costs.
Industry Overview
According to the US Postal Service Annual Report, the total 2003 U.S. postage market was 202 billion pieces, or approximately $66 billion,
of which approximately $20 billion was represented by mail classes our software does not currently support (such as standard mail and
periodicals). Stamps.com customers printed approximately $100M of postage during 2003 which represents less than 0.2% of the total U.S.
postage market, and thus we believe that our market is in its very early stages of penetration into the overall USPS postage market. We believe
that we have a large opportunity to continue to convert users of traditional postage solutions such as postage stamps or postage meters to our
solution.
Our mailing and shipping service is targeted primarily to small offices, home offices and small businesses in the United States. The small
office, home office and small business markets represent a large and growing customer segment. According to a 2003 International Data
Corporation report, there were a combined 43.3 million small businesses and home offices in the United States in 2002. For 2002, International
Data Corporation reported that small businesses with less than 100 employees numbered 7.9 million, of which 77% had fewer than 10
employees. In addition, income generating home offices numbered 13.1 million and home offices used for corporate after-hours work or
telecommuting numbered 22.3 million. As of Dec 31, 2003, we had approximately 294,000 registered customers which represented less than
1% of the total SOHO market as defined by IDC. Thus, we believe there is still a large potential universe of small office, home office
customers that are not currently using a PC Postage service.
USPS Certification Process
All U.S. PC Postage products are currently required to complete extensive USPS 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 USPS prior to commercial delivery.
The USPS certification process for becoming a PC Postage vendor is a standardized, ten-stage process. Each stage requires USPS review
and authorization to proceed to the next stage of the certification process. The USPS has no published timeline or estimated time to complete
each of the ten stages of the program. The most significant stage is the ninth stage, which requires a vendor to complete three phases of beta
testing.
Our entire approval process took us 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 USPS
certification process. On August 24, 1998, the USPS announced that we were approved for beta testing and our service became the first
software-only postage solution approved by the USPS for market testing. Between August 24, 1998 and August 9, 1999, we successfully
completed the three-phase beta testing required by the USPS’s certification process. On August 9, 1999, we became the first software-only
solution approved for commercial release by the USPS.
Competition
We compete with mailing and shipping solutions available in the market today. These solutions include traditional postage meters and other
PC Postage services. We also compete with postage stamps and other forms of potage evidencing which are available at retail post offices, non-
post office retail locations (e.g. supermarkets), ATMs / Kiosks, and from other online sources such as USPS.com.
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