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Microsoft, AT&T invest in E-Stamp

Both giants take ten percent equity shares and each will have a seat on the board of E-Stamp, which created a system for online postage-stamp purchasing.

E-Stamp, which has created a system for buying postage stamps over the Internet, will announce Monday that Microsoft (MSFT) and AT&T Ventures (T) have both taken ten-percent equity shares in the three-year-old firm.

Both companies will also get a seat on E-Stamp's board of directors. Financial terms of the deal were not disclosed.

E-Stamp's system, now under review by the U.S. Postal Service, uses a special hardware device attached to a PC to store purchased stamps, which can be printed onto envelopes, shipping documents, or labels.

"That's a major challenge, going through the approval process," said Ray Boggs, who runs the small business research program at IDC/Link. "For a startup, that has to be pretty frustrating."

Ultimately, selling postage over the Net will threaten Pitney Bowes, which dominates the market for postage meters in the physical world, Boggs noted.

Vernon Keenan, an analyst with Zona Research, believes that Microsoft may integrate E-Stamp's technology into future versions of its Office suite, Money personal-finance software, and Outlook email program.

But Greg Stanger, Microsoft's director of business development and investments, said, "I can't really can't comment on future products. The deal we have with E-Stamp at this point is an investment deal. Where it might go in the future is tough to say."

"E-Stamp has a leg up in this new category," Keenan said. "It's a real nice kickoff for them. It mainly validates the company, because this is the first outside equity investment it has had." E-Stamp has raised about $11 million from private investors.

The company, which has been working on its technology for three years, expects beta testing to begin by year's end in San Francisco and Washington, with a full rollout next year. E-Stamp is targeting the small-office/home-office (SOHO) market, a priority for the Postal Service.

The Postal Service is expected to certify multiple vendors for the Internet stamp program.

Last year, the Postal Service proposed standards for private companies to create Internet stamps, a Postal Service spokeswoman said in an interview this spring. The stamps, issued through secure Web sites, would contain two-dimensional, printable bar codes with encrypted information.

E-Stamp's revenue would come from licensing software and hardware for the new stamps, selling a subscription service, and charging transaction fees, E-Stamp president Sunir Kapoor said in a May interview. The company estimates that the complete system will cost less than $300 in the first year.

The E-Stamp system lets buyers use several secure payment options. Stamps are then stored in an "electronic vault" about the diameter of a dime and about three times as thick.