By LARRY KANTER
The U.S. Postal Service has long boasted that neither rain nor sleet nor dead of night will deter the mail. Neither will slow modems or bandwidth problems, if a Santa Monica start-up has anything to say about it.
Stamps.com allows Web surfers to download electronic stamps over the Internet and output them from a PC printer, in effect creating a personalized post office right in the home or office.
After downloading the company's free Internet postage software, customers can purchase postage from Stamps.com's Web server in blocks of $20, $40, $100 and $200, by using a credit or a debit card or via electronic transfer from a checking or savings account. The bar-coded postage then can be downloaded as needed, printed onto any envelope, label or letter that fits into a printer.
Stamps.com makes money by charging a transaction fee 10 percent of the total purchase for most customers. The service, which currently is being tested in Washington, D.C., and San Francisco, is expected to launch nationwide in May.
"Everybody hates going to the post office," said John M. Payne, the company's president and chief executive.
Stamps.com received a big boost last week, when it announced that it had raised $30 million from a group of investors that includes Microsoft Corp. co-founder and billionaire Paul Allen's venture fund Vulcan Ventures. Other investors include GeoCities Chairman David C. Bohnett, former U.S. Postmaster General Marvin Runyon and Loren E. Smith, former chief marketing officer of the U.S. Postal Service.
Company officials say the backing will help them target the approximately 30 million small and home-based businesses that spend between $50 and $250 a month on postage a sum that hardly justifies leasing a postage meter at a cost of between $30 and $120 a month, plus a periodic fee to reset the machine.
Payne figures these companies would be happy to pay Stamps.com between $5 and $25 for the convenience of simply downloading postage from the Web.
Stamps.com hardly has the market to itself. Palo Alto-based E-Stamp Corp., the French company Neopost and Connecticut-based postage giant Pitney-Bowes Inc. also have received approval from the U.S. Postal Service to develop Internet postage and are expected to unveil their own offerings this year.
Competition is sure to be fierce. Americans spend an estimated $44 billion a year on first-class postage, including $13 billion on stamps alone and spending on electronic postage will jump from almost nothing to $127 million in 2000 and $1.9 billion in 2005, according to Keenan Vision Inc., a San Francisco marketing firm.
Pitney-Bowes, which has been the largest supplier of postage-meters in the United States since the 1920s, with annual sales of some $4 billion, could be an especially formidable competitor, unwilling to cede market share to a feisty upstart.
But Stamps.com founder Jim McDermott insists that his company has an edge. All of the other offerings require a customer to buy or lease a separate hardware attachment to download postage, in addition to paying a transaction fee; E-Stamp's device is expected to cost $99.
Stamps.com, by contrast, stores the postage directly in an account on the firm's Web server, and requires no additional hardware. As a result, McDermott said, it is more convenient.
Not so, says Sunir Kapoor, chief executive of E-Stamp, which also plans to launch nationwide in the second quarter of 1999. He says E-Stamp is easier to use because unlike Stamps.com, customers do not have to be logged on to the Internet to print postage. Instead, postage is downloaded and stored in a dime-sized "electronic vault," which is plugged into the computer's printer port and can be printed without first logging on.
"Our research shows that customers want to use the Internet to purchase postage, but they want to print it off line," Kapoor said.
McDermott, 30, got the idea for Stamps.com one night in 1996 when he ran out of stamps. A former investment banker who was getting his MBA from UCLA, he was mailing out resumes for summer jobs. "I've got $2,000 worth of technology on my desk," he recalls thinking in frustration. "Why can't I just download stamps from the Internet?"
He brought the idea to fellow UCLA students Jeff Green and Ari Engelberg. The trio began creating a business plan, and in the course of doing research learned that the U.S. Postal Service had launched a program aimed at using computer technology to more efficiently deliver postage. Stamps.com, then known as Stampmaster Internet Postage, entered the program, eventually receiving approval to test its product in August 1998.
Despite last week's deal, the trio was unable to find financing at the outset. McDermott said he was turned down by every venture capitalist on Silicon Valley's famed Sand Hill Road. "It got to be comical," he said.
Eventually, the trio found a receptive ear at West L.A.-based Brentwood Venture Capital. Two other venture capital firms, Enterprise Partners and Forest, Binkley & Brown also signed on, with each of the three venture firms taking a 20 percent stake in the company.
Brad Jones, general partner of Brentwood Venture Capital, said he was attracted by Stamps.com's software-based approach to Internet postage.
"There are going to be a lot of people who do not want to use a separate hardware device," Jones said. "I think we've got a very big market ahead of us here."
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