E-Stamp leaves the Net postage business

In a major strategy shift, the online postage service pioneer plans to phase out its Internet postage business and will cut its work force by approximately 30 percent.

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In a major strategy shift, online postage service pioneer E-Stamp said Monday that it plans to phase out its Internet postage business and will cut its work force by approximately 30 percent.

Gartner analyst Peter J. Grant says that barely a year after its launch, E-Stamp has become a classic dot-com failure--a case of a start-up that simply could not present a compelling value proposition to consumers.

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The company said the move is part of a plan to shift its business into the more lucrative market for supply-chain management software, with an emphasis on providing shipping and logistics products and services.

As part of the transition, the Mountain View, Calif.-based company will reduce its staff by approximately 30 percent, or cut about 36 jobs.

In recent months, E-Stamp has worked to diversify its services in an effort to gain share in an increasingly competitive market against rivals such as Stamps.com and Pitney Bowes, which has been making an active push online.

Demand for supply-chain management software, which automates a company's back-end logistics processes such as fulfillment, order management and inventory control, has grown increasingly popular as more companies look to the Web to simplify that process and reduce the costs and mounds of paperwork involved.

E-Stamp still faces a struggle to fine-tune its business model amid growing pessimism among investors. The company has laid the groundwork for its move into the Web-enabled supply-chain management area through its recent acquisitions of Infinity Logistics and Automated Logistics, two privately held e-commerce logistics companies.

Meta Group analyst Gene Alvarez said the move by E-Stamp to turn its back on its core Net postage business is indicative of the uncertain future for many players in the highly competitive market.

"Online postage, in terms of its future, is pretty much dying on the vine," said Alvarez. "Although E-Stamp was a great alternative to the registered postal machines, it has been more of a cultural flop than a technology flop."

Shares in E-Stamp, considered a pioneer in the young Net postage market, have traded as high as $40.38 in the past year. E-Stamp shares closed Friday down 6 cents, or about 17 percent, at 28 cents.

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E-Stamp shifts strategy
Robert Ewald, CEO, E-Stamp

The company's strategy shift was partly driven by low customer interest in the Net postage business and an overall dismal climate for Net-only businesses, the company said.

Strong competition from larger players including Pitney Bowes, which has a lock on the metered mail market, and the U.S. Postal Service's program of selling stamps through the mail have also prevented E-Stamp from gaining momentum and customers, Alvarez added. "Market pressures to perform financially have also caused (E-Stamp) to cave in," he said.

And while E-Stamp is making an aggressive effort to target the lucrative market for Web-based supply-chain management and logistics software, Alvarez cautioned that the company is facing yet another highly competitive and crowded market.

Although outsourced logistics is still of interest, the dwindling number of dot-coms that would have needed it the most is a big concern going forward, he added.

E-Stamp is encouraging its Net postage customers to migrate to Neopost Online's Simply Postage service. In an effort to offer a smooth transition to its customers, E-Stamp has partnered with Neopost to provide customers with a comparable service.

Neopost has special offers available to all former E-Stamp customers who migrate to its Simply Postage products. Customers will be notified of the offers via email and direct mail, the company said.

E-Stamp, which won approval by the Postal Service in August 1999 to provide postage via the Web, said it ceased shipments of its Net postage starter kits Nov. 24. Customers may continue to buy postage until Dec. 31, and the company said it plans to give customers support and accept postage returns through March 1, 2001.

As of the end of its third quarter, E-Stamp said its cash and cash equivalents totaled approximately $40 million.

Just last month, rival Stamps.com laid off 240 employees as part of a plan to streamline its operations. Like E-Stamp, the company has seen its shares take a beating on Wall Street with its once high-flying stock languishing below $3 per share.