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Mailing It In: NetGram Poised to Revolutionize Postal to Email Market

By Tom Bunzel (tom bunzel@wwwiz.com)

           Five years ago, Robert Maxwell had an idea that was ahead of its time. This was before Microsoft had discovered the Internet, before Netscape had gone public and the Internet backbone could be measured in thousands of hosts, rather than millions.

          From within this mind space, Maxwell created a set of tools that revolutionized conventional mail delivery, based upon the Internet.  It was a simple premise: for any email address, a piece of conventional (snail) mail is generated and delivered.

          That was five years ago, when Maxwell founded NetGram while he was still working as a management consultant.  Sixty months, which is truly an eternity in Internet time.

          But suddenly Maxwell is an overnight success.  ``Angel" investors have put their faith in his vision.

Why? you ask.

Maybe it's because NetGram is poised to participate in a $62 billion market–mail delivery–by offering a significant value not generally attributed to its competitor (the U.S. Postal Service)–efficiency.

          Think about what it takes to write a real letter.  Paper, envelope, postage, labor, cost, effort to mail it, timing and a host of related potential complications.  Take it a step further and consider:  catalogs, brochures, invoices, and other similar mail products.

          Now think about sending an email.  Click–it's gone.  You know how easy that is.

          And similarly, with Maxwell's software, when you hit ``Send," your intended recipient receives a ``real" letter in the mail.  And you have simultaneously generated an email contact in a growing database for someone whom you could only contact via conventional mail before.  All this for a small fee–currently 59 cents per piece of mail generated.

          That's NetGram.

          Remember, the company has been operational since 1995.  So you might describe its stealth state as suspended Web animation–or perhaps hibernation.

          Maxwell acknowledges that it has been a long road.

          Even with significant success among small businesses, SOHO's and property management firms, Maxwell realized that he needed major funding to make the tools viable and reliable for larger businesses and his ultimate target, Fortune 500 companies. He had a winning technology, and a pending patent, but he was still ahead of his time.

By early this year, the climate had turned much more favorable.  The average businessman or woman now receives nearly 50 email messages per day–there are more email messages sent than phone calls placed.  Large businesses still use postal mail but many are investigating or implementing hybrid solutions.

          A Pitney Bowes study found 9.2% of all operating expenses of Fortune 500 companies accrue in the mailroom.  This convergence of the ubiquity of email and the need for efficiency convinced Maxwell that the time was right to attempt to find sufficient financing to market NetGram with a national focus.

          With American industry fully cognizant of the power of the Web and email, Maxwell knew that he could now offer businesses two powerful value propositions:

 

1)    The world's most efficient way to transport postal mail–fast to use and fast to deliver,

2)    A strategy and means to convert expensive postal mail customers to cost-effective email recipients.

 

Some of the larger service providers in the ``New Economy" wave had already paved the way.  Critical Path, for example, is a publicly funded company, which helps Fortune 500 companies manage their email–but it does not compete directly with NetGram.

          Instead, the more converts to email are created by such service providers, the more potential clients are also created for NetGram's email-to-postal mail scenario.

          Maxwell currently acknowledges that his tools still lack at least one important set of features–the mail that is generated is still text-only and not pretty.  Still, for many messages from ``Happy Mother's Day" to ``Invoice Paid," it does the job.

          Presently his developers are working 24 hours a day on the next set of features–to go beyond telegram to a more PDF-like format.  As of this writing, Maxwell felt that he was probably 60 days away from a scalable delivery system for attachments, address book importing and the insertion of a graphical logo into a letterhead of some type.

          Anticipating the need for this long awaited feature, Maxwell recommitted all of his resources to NetGram in June and devoted his energy to raising capital.  Amazingly, where other entrepreneurs were deterred by the events of last spring, when capital for dot-coms dried up, Maxwell saw this as an opportunity.

          He says the downfall of other applications online and the feedback of small customers pushed him over the edge to devote himself to NetGram again, full time. He sensed a ``change of direction of money coming into the Internet.  Valuations were coming down–investors were returning to real value companies.  It was a healthier stage."

          Maxwell also says he was encouraged by predictions like those of Sun CEO Scott McNealy that only 2% of the Internet was currently in place.  Since Maxwell had a proven business model, immensely popular with a small but vocal user base, he went back to the investors with whom he'd been in touch since the Stone Age of the Internet.

          Many of these were now looking for exactly the sort of traditional business valuations built on a basic service model that characterized NetGram.  Having kept NetGram afloat with ``friends and family" money (which proved that he had ``Skin in the game"–or had put his own money where his mouth is), Maxwell was now able to attract seed financing from one or more ``Angel" investors who believed in his concept.

          With some advisors, Maxwell put together a business plan projecting revenues based upon an actual number–the 100 billion pieces of postal mail generated yearly in this country–and his company's anticipated ability to participate in that market.

          Of course, how much of that market would belong to NetGram was a key issue.

          How does NetGram work? Like many Web services, the user registers for a private username and begins to associate new email addresses with conventional mail addresses. 

          What if multiple users associate the same email address with more than one destination, like mom@netgram.com?  The system is smart enough to know the difference, and a letter to your mom will be printed and delivered to the Postal Service within 24 hours, generally by 4 p.m. on any business day.

          Don't forget, the messages are electronically distributed.  They don't need to be mailed from L.A. to get to New York by a week from next Tuesday.  They can be printed and mailed locally.  (Of course, they might still get there a week from next Tuesday).

          Users purchase NetGram postage in $10, $20, and $30 increments after sending a document into the system. A personal postage account is debited each time a document is sent to an email-related destination and billed to a credit card.

Remember, this product (the tools to implement the plan) was devised at a time when an email address for the most sophisticated users was still 34562,234 on CompuServ.

In some ways it's analogous to the net-phone phenomenon–a Web upstart invading a traditional (inefficient?) market and solving a key issue using Internet technology.

          So what else differentiates NetGram and makes it a potential rival in growth to its San Diego neighbor Qualcomm?  Remember, there's the little matter of the patent?

          It seems the patent on this simple yet potentially explosive means of mail preparation and delivery was officially issued to Maxwell in 1998, so that while others have now offered similar products and services, his company basically owns the rights to them.

          A patent confirms the ownership rights to a product or process so novel that no one has done it before.  That is the reason that before one generally undertakes the expensive and difficult application process, an exhaustive ``patent search" is required to give it the best chance of success.  Then, after the application, the patent is ``pending" while the government decides its merits, and finally–perhaps–it is issued.

          Even then patents are frequently challenged and may be invalidated.  It takes substantial legal resources to file and defend a patent; in Maxwell's case this was taken into account by offering an accomplished patent attorney an equity position in NetGram.  That the law firm accepted equity in lieu of fees speaks volumes about its belief in the technology and the patent.

          Significantly, from a funding perspective, NetGram's target market is decidedly ``old economy."  The business plan calls for the introduction of a proprietary technology in a service-based business in a huge market–remember that the Postal Service has annual revenue of $62 billion.  And just as the USPS earns revenue on every letter conventionally delivered, so does NetGram extract a small transaction fee for each piece of mail generated by an email message.

          This ``old economy" revenue model is well understood.  Everyone uses regular mail; now, five years after Maxwell filed his patent, nearly everyone uses email, and integrating the processes introduces efficiency into a system that is too often a logistical nightmare, and extremely expensive.

          Maxwell also admits that various other ``hybrid" mail services have been introduced, but claims that NetGram is the first to do it successfully with an email address attached to a unique postal address, and an email generating a conventional ``mailgram" from the Post Office.

          The company hit the ground running on May 3, 1995, when its Web site generated 22,000 Mothers Day telegrams from email messages (with conventional mail delivery).  It was named ``Cool Site of the Day" by Glenn Davis of Infinet, and sustained so many hits that it nearly overextended the state-of-the-art Intel 486 servers.  Maxwell says he learned the lessons of scalability, got back on line, and easily managed the lighter volume that continued after the Mothers Day deluge.

          Buoyed by this success Maxwell made a full-time commitment to the NetGram venture by moving it from Florida to San Diego in late 1995, hiring friends from his days as a management consultant as contractors and developers to build the tools to make the concept a reality.

          But when he tried to raise financing in that market climate, he found that he could not get above the noise.  Venture capitalists expressed little interest, focusing their attention on the glamour niches of streaming media and Internet tool providers for consumer oriented Web site development.

          After four months of running the business with limited resources, he went back to a job, but he had essentially proven the concept.  Even more important, a few hundred rabidly loyal and supportive users enabled him to keep NetGram going. 

          Small business owners and property managers loved it–they could communicate quickly and efficiently with customers who did not have email–by using email.

          Sales professionals with far reaching territories used NetGram to distribute price lists efficiently to a mailing list generated from email, but arriving at desks via conventional mail delivery.

          Things got interesting as the financial community got wind of what was going on, because other companies had similar ideas, but they didn't have the patent.

A ``finder" put Maxwell together with potential funding sources and it turned out that some other deals had gotten stuck when the financiers of his competitors became aware that Maxwell's patent was a hurdle in other companies' business models.  One rival had already apparently raised $2 million before someone realized that they might be legally compelled to deal with NetGram.

          Various entities now expressed an interest in NetGram, as did its competitors, some of which need to license Maxwell's technology. Others have offered as much as $6 million in stock or merger deals.  Like any entrepreneur with a strong belief in his vision, Maxwell is reluctant to sell or merge.

He's now funded for the short term since NetGram is up and running, with a patent and intellectual property protection. Having raised $180K he has commitments for $200K and expects to raise the half million dollars he thinks he needs to reach an institutional round with a venture capitalist.

          With the buzz about his patent spreading through this market niche, he has actually found the money raising experience ``surprisingly pleasant."

          Armed with some cash, Maxwell now feels confident that he can achieve the goals of the next phase of his business plan–attract the large companies that can most profit from the efficiencies of his system due to large investments in mailroom infrastructure.

          Up until now these deals seemed unattainable due to the myriad of gatekeepers and long sales cycles of Fortune 500 companies. But now Maxwell believes that his business will quickly grow beyond the smattering of SOHO's, Americans traveling or working abroad and foreign clients who have used NetGram to circumvent their local postal services by sending electronic mail to the United States to generate local mail deliveries.

          One of NetGram's interesting clients is a Boeing engineer who stays in touch with his ground-based staff by sending postal mailgrams from his laptop aboard a 747–he connects via modem to the airplane cell phone and uses NetGram to generate snail mail.

Then there are the church missionaries in Ecuador who are sending their newsletter to parishioners in the United States, communicating efficiently and inexpensively with their home church.

          But the bigger target is coordinated direct marketing–which is 20% email 80% postal mail and a huge $40 billion business.  With even online companies looking to traditional ways to drive customers to Web sites, the inevitable convergence of email with postal delivery is a potential mother lode for NetGram.

          At the same time Maxwell is readying ``NetGram 2.0" with PDF-like attachments and graphics capability, he is setting NetGram's sights on premiering a cutting edge product at a Direct Marketing Show in New Orleans this month.  Maxwell describes his offering as a hybrid for electronic and traditional direct marketing tools, which enable customers to go online to use simple templates to create graphically enriched documents that will translate efficiently into effective direct ``snailmail" pieces.

          For the show, Maxwell also anticipates some sort of database/file list import capability, so that addresses can be used from other sources, such as prior mailing lists.

          Imagine the difference between fulfilling a list via simple email, versus stuffing printed brochures into heavy envelopes manually and delivering them to the post office.

          So what about the U.S. Postal Service–that paragon of efficiency which has made rumblings lately about partnering with private companies to implement email to postal mail or other hybrid solutions?

          No, USPS officials have not contacted NetGram, but when Maxwell saw an announcement in the Wall Street Journal that the Postal Service was planning to implement an email to postal mail system similar to the one he has patented, Maxwell gave them a call.

          ``We just wanted to know whom it might be appropriate to contact," Maxwell says in his typical low-key way.  ``We think we're a great choice for them to get involved with–they said they would get back to us.  We haven't heard back yet.  Hard to say where that will go."

          Some of his investors probably have a pretty good idea.

 

Tom Bunzel works as ``Painless PC," a consulting and training facility in West Los Angeles, specializing in business, presentation and Web-authoring applications.  He can be reached at (310) 286-0969 or tom.bunzel@painlesspc.com. To find out more about Community Vision, go to http://www.painlesspc.com/cvi.html

 

 

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