We have written about International Post Corporation, a fascinating case study of an industry sector – in this case, the postal industry– seeking to offer digital services and enter the digital market in the face of fierce online competition. As noted previously in this blog, MIT Professor Marshall Van Alstyne and Tulane Professor Geoffrey Parker recently conducted an in-depth study for MIT’s Center for Digital Business and IPC, applying historical context and the concepts of platforms and two-sided networks to offer a roadmap and options that postal operators could follow in their move toward digitization. The white paperA Digital Postal Platform: Definitions and a Roadmap, and our subsequent blogs offer ten recommendations for posts to follow. Others may find that the recommendations apply to their industry or business as well.
I was fortunate to speak recently with Parker and Van Alstyne, as well as Jane Dyer IPC’s director of markets and communication, about the research and their plans going forward. Here are excerpts from the conversation.
Q: What universal challenges do postal operators face as a legacy organizations grappling with digital competitors and what is unique about these challenges?
Marshall: First-class mail has been declining for some time due to digital communications such as e-mail and mobile technologies. Meanwhile, bulk mail has declined as advertising shifted to Google, Facebook and other online communities. As a result, traditional sources of revenue have declined. We sought to determine whether we could create a digital business model for posts and what it would look like. We asked how posts can compete given that many other organizations are in the same markets, including some large, entrenched players. While the public sector is somewhat unique, those issues are found in many sectors.
Geoffrey: The concept of trying to mobilize and build a vibrant digital ecosystem was new for many of these organizations. Some hadn’t looked at the competitive landscape as it really is. Historically, digital technology meant identifying contractors or getting a deliverable for their traditional service, so getting past that was a big challenge. Also challenging was their structure and the fact that many are regulated monopolies accustomed to a command-and-control approach to business versus collaboration and community-building.
Jane: These are huge companies, with IPC’s 24 members alone collectively accounting for over €300bn of business per year. IPC members represent postal operators from Asia Pacific, Europe and North America. Collectively, they deliver 80% of global mail volumes. Many are the largest employers in their national market, with big legacy networks, and yet their business is declining. They are interested in e-commerce, but their perspective has always been how to replace the high margins of physical mail operations — not as a way to get into new businesses, as platform economics suggests. This research opened the minds of the CEOs and it is changing their strategies as a result. It’s a huge win.
Q: How did you approach these limitations? Must posts change to survive?
Marshall: There is a wide variation about how great the perceived threat is; the leaders are fine but the laggards are still proceeding slowly; some still deny a problem exists. We provided definitions of platforms and of openness that speak directly to the types of business models they need to adopt: whether to own assets or contract them out. We discussed a range of topics: competitors, the conundrum of privacy, protected posts and pricing strategies.
Jane: Some will stay ahead of the curve by varying fixed costs – by focusing on re-structuring physical operations such as using part-time help, downsizing or eliminating retail operations. But this report was about addressing the role of digital business, and that’s difficult. You can’t simply apply digital technology to a closed domestic network and expect it to transform the business.
Geoffrey: We hope we added value for them by explaining how to set standards and what a standards-coordinating body looks like. We examined how to share infrastructure so it’s not a lose-lose situation. And then we looked at how to launch the plan. What does it mean to mobilize consumers and to develop technology to add functionality to the business?
Q: Do you expect members will adopt the recommendations? Are they receptive and how difficult will it be for them?
Marshall: There were various levels of receptiveness and ideas on how to address the problems. One isolated post opposes digitizing business altogether. At the other end of the spectrum are those who are prescient and want to get ahead quickly. Some of the most forward-looking in this area are the German, Italian, Nordic, and Swiss posts. Some are more willing to use government resources than others to compete, but they all understand they can’t retrench or compete on the same terms as in the past. Ironically, coalition building and cross-marketing can make them better off -- but will they do this? A handful, yes, but it’s not as effective without critical mass.
Interestingly, it is possible to apply insights from the digital world back to the physical world. For example, once you have the physical infrastructure and staff, you can open the platform to third-parties for tasks like having postmen checking on elderly parents or meter reading instead of utilities doing this. There are also ways to innovate by using retail space to sell commercial goods and services, subsidized by private enterprises. New business models and revenue streams can emerge by using a combination of digital and physical resources.
Q: What are the next steps?
Jane: IPC is taking the findings to member CEOs in May and asking them to build a business case around the recommendations. They are embracing the idea, but it’s one thing to embrace and another to implement these changes. We will test the concepts with members and hope that we will have three to five that will work cooperatively. Many are already changing their strategies and domestic markets: collaboration and coopetition would be even better.