Bad Bets

Canada Post is mandated by law to provide universal mail service for every person and every business in Canada that needs it. Although Canada Post provides mail service to 15 million addresses and accepts mail from millions of customers, its service and focus is far from universal. Canada Post's caters to its biggest customers while its small business customers get scant attention.

By charter granted by Parliament the post office has a monopoly on the delivery of letters in Canada. Private mail companies have tried to set up shop in Canada but none has successfully fought off legal challenges from Canada Post. Lettermail, or what Canada Post now calls "transaction mail," accounts for more than 50% of revenue. But letter volume has been dropping since hitting a peak in 2006, and now Canada Post is in a panic.

Big Bets Bite Back

Why is letter volume dropping? As email and the web have taken over as our primary means of written communication, we are all mailing fewer letters, post cards, and greeting cards, and we are paying our bills and placing our orders electronically. Businesses, big and small, are sending fewer invoices and statements by mail and switching to electronic means of delivery. The Internet is the biggest game changer to hit the post office since airplanes started carrying mail.

The steepest declines have likely come from the country's biggest mailers: the government, the banks, the credit card companies, and the utilities. Since at least 1970s Canada Post has catered to this market because it was a gold mine: it was profitable and it was protected from competition. Some of the biggest investments in automation over the years were designed to improve the efficiency of moving this kind of mail. Size restrictions were imposed to limit the kinds of packages that could be mailed as a letter so that mail would go through the machines without jamming and without the need for manual intervention and sorting.

Improved efficiencies achieved through automation is a good thing, of course. But it was done with just the big business mailers in mind, and it killed many small mailorder businesses that relied on fast and cheap first class mail (or letter mail) to move small packages under a kilo in size. Today those small packages must be mailed by expensive parcel services and the much higher costs are passed on to customers. If the cost of shipping jumps 400%, 500% or more, is there any surprise that the mailorder industry took a big hit?

Now Canada Post is seeing the writing on the wall as its protected letter mail business is falling. Its biggest customers are cutting back on letter mail when the thousands of small mailorder businesses that might have been in existence today could have filled the void.


To counter the erosion in transaction or letter mail, Canada Post began building a system for electronic bill and document delivery. A key feature of the service is that each electronic mail box is tied to a physical address. It is free to consumers, but mailers, the companies sending bills, pay a fee. After 10 years of development and $100 million spent, the service has less than 1 million active users, out of a possible 15 million physical addresses in Canada. Less than 200 companies and government agencies have signed up to deliver bills this way.

Canada Post does not reveal what revenue it earns from epost. It claims that revenue and the number of transactions are growing 20-30% per year; but epost revenue is buried in total revenue from all transactional mail, including letters and Admail. The fees it charges are not publicly known as it does not publish them.

Once again this service reveals a deep bias toward big business. Small- and medium-sized businesses cannot sign up to use the service to deliver bills to their customers. Reportedly, Canada Post is pursuing only the largest entities such as government, utilities and credit card companies.

Unlike physical mail, Canada Post does not have a monopoly in electronic bill delivery. If it cannot induce more people to sign up, then it will never become a total solution for the major institutional mailers, and bill delivery alternatives will be needed.

How important is it to have a total solution? Probably more than Canada Post realizes. Unlike its protected physical mail service, Canada Post has no inherent advantage in bill delivery that can't be overtaken by an upstart. One only needs to remember how Yahoo was humbled by upstart Google and was forced to disband its search engine development division; and it is now using search results from Microsoft's Bing service instead. Even now, three of the big banks are chasing the bill and document delivery market through Symcor Inc., a jointly owned financial service company. One should not underestimate the desire of the banks to control the whole bill delivery and payment experience.

If epost fails to secure market dominance, it could end up turning into one of Canada Post's worst bets ever. On the other hand, if Canada Post opens the service to all businesses in Canada, big and small, it just might achieve the market dominance that is needed to keep competitors at bay. Will Canada Post's top-down leaders ever see the light?