Electronic Mail Fails to Deliver Expected Profit
“As to ZapMail,” Federal Express Chairman Frederick W. Smith told an interviewer in the current issue of Inc. magazine, “as best I can tell at the moment, there’s no question it is going to work. We know we’re headed in the right direction in terms of the market. The basic numbers are headed in the right direction. It’s now just a matter of when.”
Last week, Federal Express announced that “when” would never come--the innovative ZapMail facsimile service would be discontinued, and the company would take a $340-million pretax writeoff.
The company that “absolutely, positively” pioneered the overnight delivery service discovered that being a pioneer in electronic mail delivery was simply too tough and too expensive.
The ZapMail experience offers insight into both the technology of hype and the hyping of technology. It also helps explains the industry joke that electronic mail is the medium of the future--and always will be.
“Year in and year out, the use of electronic mail is growing,” said Jack M. Nilles, director of the information-technology program at the University of Southern California, “but it has never grown as big or as fast as we keep expecting.”
“I think the industry has had the correct expectation but the wrong timing,” conceded Thomas M. Malone, executive director of domestic product management for Telemail, the U.S. Sprint-GTE electronic mail service that carries a million messages a month.
Indeed, since the late 1970s, information industry market research organizations such as the Yankee Group, International Data and Arthur D. Little have consistently forecast explosive growth for electronic mail--predicting a multibillion-dollar marketplace by 1985, for example.
“The growth business of the information industry,” trumpeted one Yankee Group brochure.
Instead, the business of using computer and facsimile technologies to transmit messages electronically has grown in fits and starts, with diminishing expectations. Last year, 12 players in the computer-based electronic-mail market--including MCI Mail, ITT’s Dialcom, GTE Telenet and others--grossed less than $300 million.
MCI Communications Corp., with great fanfare amid the personal-computer boom, launched its MCI Mail in 1983--heralding it as “the nation’s new postal system.” MCI proposed to link the nation’s personal computers into mailboxes that would be connected through MCI’s network.
“With all those personal computers out there, we thought there would be a large residential market,” said MCI spokesman Gary Tobin. “It didn’t develop. . . . Everything started slower than we thought.”
Though backed by a multimillion-dollar advertising campaign and a $40-million network investment, the service never generated the volumes of use originally projected.
Six months ago, MCI folded its MCI Mail unit into the company’s main sales organization. The company declines to call MCI Mail a disappointment, nor will it disclose current revenue--except to say the service is “cash flow positive.”
There are many reasons why electronic mail has not delivered--some are technical, others are economic, but the most glaring is sociological. Electronic mail isn’t just a change in technology, it’s a change of behavior.
“Electronic mail is, for the most part, still difficult to use,” says Nilles. “It is more user-surly than user-friendly. It really involves a cultural change to get people to use electronic mail.”
Technically, systems that rely on computer-to-computer delivery require customers to invest in both hardware and software to assure that different machines can “talk” with one another. Federal Express discovered, to its chagrin, that while it could create an airline and a hub capable of delivering a package anywhere in the United States overnight, the technical challenge of assembling a high-speed facsimile satellite network ruined its cost projections.
As for MCI, the telecommunications concern discovered that a large base of personal computers wasn’t the cornerstone for America’s next postal service.
Few Have Needed Devices
Telemail’s Malone points out that, while millions of personal computers have been sold, only a small percentage of them are equipped with devices that permit computer-to-computer communications.
When Federal Express launched its ZapMail service in 1984 with a flashy advertising campaign and a $100-million investment in both satellite and facsimile technology, it thought for sure it knew what its customers needed.
“The customer research indicated that there was a great deal of interest if we could overcome the limitations of quality and ubiquity,” recalls Federal Express spokesman James Coleman. “That’s what led us to believe we had a unique opportunity.”
But Federal Express discovered that it was a victim of its own success: the company had established such a strong franchise in the overnight delivery business that its customers didn’t care to pay a premium for same-day delivery.
