June 14, 1995
Washington, D.C.
It's not sufficient simply to examine the Post Office, its structure, operations and management, and make a pronouncement of what is appropriate. Any discussion of postal operations must place them in the proper context, a context of rapid technological change. Without this broader view, we remain like the natives who discovered a car in the jungle: amazed at its wondrous features and creature comforts but, lacking roads, blinded to its true use. In this sense, the debate over the post office has broadened beyond the traditional confines of "natural" monopoly, competition and universal service.
The assorted telecom alternatives such as E-mail, faxes and PCs each are both actors and playwrights in this ongoing drama, at the same time signaling and causing changes in the way we handle coded information of all types. It's not just fax, or e-mail, or the Internet, or cell phones. It's the interplay of all these technologies, and they way they seed further change in every aspect of economic life, that make the Information Age.
Traditional models of analysis, based on yesterday's physical organization of society, are inadequate for understanding today's microprocessed virtual reality. The Post Office is, above all, about places and things. From its early history, when communication was slow and uncertain, through the development of the railroads, and into the late 20th century, the Post Office's government-defined niche has been transporting papers and packages from one box to another.
We must remember that the Post Office grew out of a time when mere communication was difficult at best. As Daniel Roper, the First Assistant Postmaster General put it, "With the population of the thirteen states extending into the vast inland territory, which the national safety required should be held against all European nations, it was imperative that the outlying settlements should be kept in touch with the Atlantic seaboard." The point here is that there was a very real need for communication, any communication, in large parts of the country. That communication was between places.
The very term "post office" reflects this focus on a fixed physical location where one could go to post a letter. When Roper, in his 1917 book, devotes an entire chapter to "The Post-Office Lobby," he writes about a "room or corridor for the free use and convenience of the people" and not, as we might expect today, about political concerns.
More significantly, today's postal operations grew hand in hand with the highest expression of centralized, Machine Age thinking, the railroad. From 1864 to 1917, as railroad lines used by the Post Office exploded from 22,000 miles to 234,000 miles, the number of postal employees grew from 572 to over 18,000.
Neither the Post Office nor the context in which it operated changed meaningfully until 1971. That year, just two years after man landed on the moon, Federico Faggin and his cohorts in what would soon become Silicon Valley invented the microprocessor, or computer on a chip.
Again here, a dose of historical context is illuminating. Some 400 years earlier, Gutenberg invented movable type. Within 40 years, the new printing technology had cut the cost of copying written information one-thousand fold. This development, more than any other, led to the development of scientific knowledge and, ultimately, to the Industrial Revolution.
By contrast, in the first 25 years after the invention of the microprocessor, the cost of copying written (or any kind of coded) information has dropped 10 million fold. Like the printing press, the microprocessor will take us from one age to another. But the technological jump-shift that brings the Information Age is already of a magnitude 1,000 times greater than Gutenberg's. And information costs continue to drop.
As microprocessor capacity exploded through the 1970's and early 1980's, little seemed to happen. Then, around 15 years after the dawn of our new age, things began to get interesting. Almost overnight, technologies which had been bubbling along for a decade or more seemed to explode. Fax machines, Internet nodes, cellular phones, electronic mail and countless other microprocessor-enabled communication technologies took off.
The growth rates themselves are so high as to be rendered almost meaningless. What real sense can be drawn from growth rates in Internet host sites in the range of 20% every three months, a pace sufficient to wire the entire world by sometime near the turn of the century?
During the next decade, computing power is expected to rise 100-fold and "bandwidth" (the size of the pipe that digital information, like e-mail, flows through) is expected to increase 1,000-fold. Current fiber optic research suggests that up to 1,000 billion bits per second is possible. That speed would allow you to transmit every issue of the Wall Street Journal ever printed in 1 second. Or a million channels of TV. That's per strand. If you need more, just add another strand. After all, fiber optic strands, not much bigger than a human hair, are made of sand. And they're already cheaper (including the switching devices at either end) than copper.
The list goes on. The 20,000 desktop video units in use in last year are projected to explode to 7 million units by the end of next year. Flash chips, an alternative method of data storage, are forecast by Dataquest Inc to grow from 250,000 shipped units last year to 8 million by 1998. Digital cash may be workable today, and certainly will be tomorrow. Torture this data for even a short time, and it will confess anything. Perhaps Mark Rosenker, VP of public affairs for the Electronic Industries Association, summed it up best when he said, "The business is smoking."
In sum, we are well on our way to a radically different, information based economy. While we can only guess at its ultimate shape, some clues have emerged. As Nicholas Negroponte put it in Being Digital:
The agent of change will be the Internet, both literally and as a model or metaphor. The Internet is interesting not only as a massive and pervasive global network but also as an example of something that has evolved with no apparent designer in charge, keeping its shape very much like the formation of a flock of ducks. Nobody is the boss, and all the pieces are so far scaling admirably.
Most immediately, we need to remove our existing bricks and mortar, paper and boxes paradigm and start thinking in terms of an evolving web of information technology. Electronic mail, for example, is sent to a virtual, not a real, address. You don't know where it's going when you send it. And, at the same time, you can be anywhere when you read it. Indeed, the technology exists today to check e-mail from an airplane, or a moving car, or a mountain-top, or even from the podium while delivering a presentation to a conference on the postal service. Olivetti is developing a system that, through a badge, can track where you are in a building, making the nearest phone ring.
In sharp contrast to the Post Office, electronic communication is erasing the very concept of place. Indeed, the virtual world is one not bounded by any of our traditional anchors; time and space are different, if not absent altogether, in a world of instantaneous global communication. The Information Age economy is an increasingly seamless web of overlapping communication technologies that don't really care where you are.
Unlike the Post Office's world of paper and mailboxes, Information Age communication is between people, not places.
The bugaboos of the Machine Age Post Office, time and distance, simply do not matter in a world of instantaneous global communication. The contrast to the early days of postal delivery, when it could take weeks to find out about wars, elections or other world affairs could not be more clear. For the record, the decisive turning point may have come on October 3, 1993 at 11:20 PM when CNN's Jonathan Mann said, "The attack on the Russian Legislature is about to begin, and we'll have that for you right after this commercial."
What does this mean for the Post Office? To begin, letter writing, like e-mail, is asynchronous. That is, we do not write at the same time, like a phone call or an Internet Relay Chat. But it is somehow different. Email has different customs, a different feel, and with its essentially instant delivery, different timing. We don't really know yet how it will evolve. Telephone replaced lots of letters, but not all of them. Both burgeoning voice mail and video mail may replace more. The country is 60% wired for digital telephone today, and will be 90% wired by the end of '96. But whether this enabling technology will finally make the video phone catch on is unclear.
More substantially though, the Post Office is affected on two levels. First, the competitive landscape in which it operates has evolved dramatically in just the last few years, and this process is accelerating geometrically. That the role of traditional paper-based, place-to-place communication will change dramatically is certain. Whether the need for mass paper transport will even exist is the 750,000 employee question. Would we still be building horse-drawn carriages if that business had been a government monopoly when the automobile became a part of American culture?
Already, estimates are that 50% of Atlantic and 30% of Pacific phone calls are fax. Gallup surveys suggest that faxes are 40% of phone charges at Fortune 500 firms. But both the rapid growth rates and the fact that faxes can substitute for either voice calls or letters makes true comparison to mail problematic. We do know that fax penetration of businesses has mushroomed from 3% in 1985, to 48% in 1990 to 97% this year. And telecommuting, possible only with a relatively paperless office, is growing perhaps 15% per year.
Less tangibly, an era of cheap information fundamentally alters the way information is disseminated. From today's centralized, mass broadcast of advertising, news, etc., we will see a continuing shift to consumer selected, pull-through information flow. Consumer tolerance for unsolicited bulk-mail advertising, for example, may decline dramatically. Similarly, the need for paper catalogs diminishes when more current, more customized, more useful information is available online. For a similar effect to be seen in first class mail, all that is needed is the inevitable, if slow in coming, shift to paperless offices.
At the same time, the Post Office is not immune to the organizational impacts of an Information Age economy. In an environment in which change has become so rapid that, for many information-intensive industries, the concept of "the present" hardly exists anymore, those companies that are slow to adapt will face an ever-widening gap between their performance and that of their peers.
The Internet provides a good example of the rapidly evolving information ecosystem which slow moving organizations like the Post Office are ill-prepared to face. First was the early Internet and its relatively obscure, hard-to-use UNIX applications of email and file retrieval. Then came a young grad student named Marc Andreesen and a program called Mosaic which allowed users to graphically browse an interlinked network of host sites known as the World Wide Web (or WWW). Within a year, more or less, the de facto standard Mosaic has been supplanted by a newer, faster product called Netscape. Today, Sun has released yet another generation of Web browser. Whether their animation and multimedia capable HotJava will become king of the WWW hill remains to be seen.
Even by Information Age, geometric standards, the growth of the World Wide Web is astounding. According to "The Internet Index," the number of commercial Web sites increased by 7% last week. And more money was invested in Internet companies by venture capitalists in the first quarter of 1995 than in all of 1994.
As the Chairman of Chrysler Corporation put it, "The large won't eat the small. The swift will eat the slow. Speed is everything."
At the Post Office, it takes 10 months or more for a simple price change.
The second area in which the Post Office is affected is terms of the development of institutional knowledge. All organizations learn. The Learning Curve is a universal phenomenon that has been demonstrated in businesses as varied as chicken eggs and life insurance policies. As experience accumulates, inflation-adjusted unit costs fall. In the Information Age, as we have seen, the pace of change -- that is, the pace of organizational learning -- is accelerating.
Early on, the Post Office learned as well. During the fiscal year ended June 30, 1887, just under 1 billion pieces of mail were sorted for delivery on railway mail-cars, with error rates of 4/100 of one percent. By 1917, 14 billion pieces of mail were sorted with error rates as low as 2/100 of one percent (0.02%), or one error for each 6,366 pieces.
By the mid-20th century, though, the inevitable effects of monopoly, and the attendant elimination of the learn-or-die imperative of a competitive market, had taken hold. In recent decades, the inflation adjusted price of a first class stamp has remained relatively flat, not declined like virtually every other thing else. And service quality has deteriorated. A lesser-quality product at the same price, versus the information technology standard of higher and higher quality product at a lower and lower inflation adjusted, or even nominal, price. (Today's desktop computer has more power than the computers that traveled on the Apollo moon landing.)
In a competitive market, companies that fail to learn do not survive. In a protected environment, like the Post Office's, slow learning organizations face irrelevance, as nimble competitors in nearby niches innovate around, over and through the government protected monopoly. The emergence of the Information Age thus accentuates the shortcomings of any monopoly.
Already, just since 1971, the Post Office has lost two key markets: overnight mail and parcel post. According to the General Accounting Office, the Post Office's share of the parcel post market fell from 65% to 6% (in 1990) and for overnight delivery from 100% to 12%.
The question naturally becomes: Why hasn't this growth already supplanted the Post Office? The answer may lie an a phenomenon first identified by Professor Paul David of Stanford University. He observed that during 40 years after in introduction of electric motors into factories, productivity growth was relatively listless. It wasn't until the factories themselves evolved, adapting to individual electric motor driven machines from the central steam engines which early electric motors had replaced, that productivity surged.
A parallel can be seen today, with shipments of paper up 51% from 1983 to 1994, we clearly are not moving to a fully electronic office. As Bionomics author Michael Rothschild writes:
No one can say when all the critical elements of the Information Age infrastructure will come together. But it appears that we may be on the cusp of... completing the new office paradigm just as the unit drive motor completed the new factory paradigm of the 1920's. As communication technologies link the previously isolated power of microprocessors, the cost of delivering the right information where it is needed will collapse, allowing completely new work flows and organizational infrastructures to emerge.
Indeed, one early result of the Information Age has been information overload. Information has expanded more rapidly than our ability to process it. According to Fortune from 1987 to mid-1994, "information receptacles" (email, cell phones, pagers, fax, voice mail, answering machines etc.) exploded from 41 million to 149 million, even as we added 27 million new phone lines to an existing base of 143 million. Only recently have information filters emerged, products which help us prioritize and sort and respond to e-mail and the like.
As discussed above, we ultimately will see a shift to pull-through, rather than push, dissemination of information. In the meantime, John Seely Brown, head of Xerox PARC suggests:
It may be that we feel we're drowning in information because the information we're getting doesn't easily fit into our current mental models for understanding the world. The knowledge economy is fundamentally different from the industrial economy, and we haven't begun to come to terms with how different these two economies are.
Not surprisingly, the market is responding. Document management software (as well as text retrieval and workflow automation, which currently total over $1 billion per year) are projected to grow at 30-35% annual rate for the next few years. Similar trends are seen in video and teleconferencing tools, email, etc.
IBM's recent headline-grabbing purchase of Lotus Corporation appears to have been motivated by LotusNotes, a program which creates a so-called rich text environment in which documents, spreadsheets, graphics etc. are all integrated. It is also platform independent, that is to say that it doesn't particularly care whether Notes clients are on Windows or Macintosh or other systems. To many, LotusNotes appears to be the model, if not the emerging de facto standard for a truly paperless office.
In sum, while the distance between the paper-based here and the virtual there may seem great, the sheer magnitude of technological change and the relatively recent emergence of the Information Age itself suggest that the irrelevance of paper is a question of when, and not if. Already, since the invention of the microprocessor, a number of such "whens" have arrived with a rapidity that startled even the most forward thinking Machine Age minds.
The challenge for policy makers is first to recognize that the Information Age is here and that it differs fundamentally from the Machine Age. We must overcome what MIT's Mitchel Resnick calls "the centralized mind-set." Complex results do not have to come about from central control. Witness the Internet. From there, we can best establish the simple rules that will allow the Post Office to evolve in its own right. Adapt and succeed or fail to compete and fade away, either is preferable to the continued existence of a centralized, machine age Post Office in a decentralized, Information Age world.