Tuesday, April 29, 2014

The problem with no competition!

I have written about startups here at Lucky and Good and the ones that I have written about are the successful ones. 

How about a story about a startup that failed? [as of January 14, 2014]

This company was the idea of Evan Baehr and Will Davis (former Capitol Hill staffers and Harvard Business School graduates). Their idea was to create a service that would stop you from receiving junk mail [hardcopy junk mail in your physical mail box, not computer junk mail] and in the process you would receive all your desired mail [that is bills, letters, correspondence, etc.] in digital format, on-line or over you smartphone for only $4.99 a month.

These two got funding from Silicon Valley and Peter Thiel (Facebook and PayPal backer) and launched a test in the Austin, Texas market. According to all the reports I have seen these entrepreneurs were only limited by their ability to expand to meet demand. Users were all over them wanting to use the service. 

They named the service  “Outbox” and all they needed to expand the concept big time was the cooperation of the USPS.

The idea was pitched to the USPS with the following up-side for the USPS. The Post Office would receive the full benefits of stamped envelops without having to deliver those envelopes (one of the biggest cost to the USPS). That is to say that the USPS would never have to deliver a letter from New York to L.A. if it was known that Outbox was going to deliver it on-line. This would save the USPS a large chuck of money and they would still pick up the full profit from each stamp item that Outbox delivers.

Well, the USPS did not like the idea and told Evan and Will so at a meeting in DC. where Postmaster General Donahoe told the entrepreneurs: “You mentioned making mail service better for our customers; but the American citizens aren’t our customers—about 400 junk mailers are our customers. Your service hurts our ability to serve those customers” and “Your market model will never work anyway. Digital is a fad. It will only work in Europe.”

Interesting don't you think? Of course you must remember that the USPS is not part of the Free Market and so does not have to compete with anyone else. Of course the USPS is losing money every day but it does not have to worry about innovation and improvement to stay in business because it has the government's deep pockets backing it.

What do we learn from this? You are not the USPS's customer...unless you are one of the nations 400 “junk mailers” and the USPS does not have to worry about competition. 

Thanks to Mark J. Perry at AEI for pointing this out....


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