[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
       EXAMINING INNOVATIVE POSTAL PRODUCTS FOR THE 21ST CENTURY

=======================================================================

                                HEARING

                               before the

                   SUBCOMMITTEE ON FEDERAL WORKFORCE,
                    US POSTAL SERVICE AND THE CENSUS

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 22, 2014

                               __________

                           Serial No. 113-118

                               __________

Printed for the use of the Committee on Oversight and Government Reform


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                      http://www.house.gov/reform


                                 ______

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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland, 
MICHAEL R. TURNER, Ohio                  Ranking Minority Member
JOHN J. DUNCAN, JR., Tennessee       CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona               GERALD E. CONNOLLY, Virginia
PATRICK MEEHAN, Pennsylvania         JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee          MATTHEW A. CARTWRIGHT, 
TREY GOWDY, South Carolina               Pennsylvania
BLAKE FARENTHOLD, Texas              TAMMY DUCKWORTH, Illinois
DOC HASTINGS, Washington             ROBIN L. KELLY, Illinois
CYNTHIA M. LUMMIS, Wyoming           DANNY K. DAVIS, Illinois
ROB WOODALL, Georgia                 TONY CARDENAS, California
THOMAS MASSIE, Kentucky              STEVEN A. HORSFORD, Nevada
DOUG COLLINS, Georgia                MICHELLE LUJAN GRISHAM, New Mexico
MARK MEADOWS, North Carolina         Vacancy
KERRY L. BENTIVOLIO, Michigan
RON DeSANTIS, Florida

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                    Stephen Castor, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

 Subcommittee on Federal Workforce, U.S. Postal Service and the Census

                   BLAKE FARENTHOLD, Texas, Chairman
TIM WALBERG, Michigan                STEPHEN F. LYNCH, Massachusetts, 
TREY GOWDY, South Carolina               Ranking Minority Member
DOUG COLLINS, Georgia                ELEANOR HOLMES NORTON, District of 
RON DeSANTIS, Florida                    Columbia
                                     WM. LACY CLAY, Missouri


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 22, 2014.....................................     1

                               WITNESSES

Mr. James P. Cochrane, Chief Information Officer and Executive 
  Vice President, U.S. Postal Service
    Oral Statement...............................................     4
    Written Statement............................................     7
Mr. David C. Williams, Inspector General, U.S. Postal Service
    Oral Statement...............................................    18
    Written Statement............................................    20
Mr. Will Davis, Chief Executive Officer, Outbox, Inc.
    Oral Statement...............................................    24
    Written Statement............................................    25
Mr. Seth Weisberg, Chief Legal Officer, Stamps.Com
    Oral Statement...............................................    30
    Written Statement............................................    32
Mr. Patrick Eidenmiller, Director of Engineering and Technology, 
  M-Pack Systems
    Oral Statement...............................................    40
    Written Statement............................................    42
Mr. Todd Everett, Chief Operating Officer, Newgistics, Inc.
    Oral Statement...............................................    53
    Written Statement............................................    55

                                APPENDIX

May 8, 2014 Heritage Foundation Article, ``Why the Postal Service 
  Was Right to Side With Junk Mail Over Outbox.'' Submitted by 
  Rep. Clay......................................................    76
Exhibits from Patrick Eidemiller, M-Pack Systems.................    81


       EXAMINING INNOVATIVE POSTAL PRODUCTS FOR THE 21ST CENTURY

                              ----------                              


                        Wednesday, May 22, 2014,

                  House of Representatives,
                 Subcommittee on Federal Workforce,
              Committee on Oversight and Government Reform,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 9:00 a.m. in 
room 2154, Rayburn House Office Building, the Honorable Blake 
Farenthold [chairman of the subcommittee], presiding.
    Present: Representatives Farenthold, Lynch, Norton, Clay, 
Neugebauer, and Issa.
    Staff Present: Molly Boyl, Majority Deputy General Counsel 
and Parliamentarian; Adam P. Fromm, Majority Director of Member 
Services and Committee Operations; Mark D. Marin, Majority 
Deputy Staff Director for Oversight; Jeffrey Post; Majority 
Senior Professional Staff Member; Sarah Vance, Majority 
Assistant Clerk; Peter Warren, Majority Legislative Policy 
Director; Kevin Corbin, Minority Professional Staff Member; 
Julia Krieger, Minority New Media Press Secretary; Juan 
McCullum, Minority Clerk; and Mark Stephenson, Minority 
Director of Legislation.
    Mr. Farenthold. Good morning. The committee will come to 
order.
    As is traditional within the Oversight Committee, I would 
like to start by reading our mission statement.
    The Oversight Committee exists to secure two fundamental 
principles. First, Americans have the right to know that the 
money Washington takes from them is well spent. Second, 
Americans deserve an efficient and effective government that 
works for them.
    Our duty on the Oversight and Government Reform Committee 
is to protect these rights. Our solemn responsibility is to 
hold government accountable to taxpayers because taxpayers have 
a right to know what they are getting from the government.
    Our job is to work tirelessly in partnership with citizen 
watchdogs to deliver the facts to the American people and bring 
genuine reform to the Federal bureaucracy. This is the mission 
of the Oversight and Government Reform Committee.
    At this point, I would like to recognize myself for an 
opening statement.
    Today, we examine recent efforts by a number of private 
sector companies and startups to develop innovative postal 
products. While the Internet has been a boon for the national 
and local economies, it has been a mixed blessing for the 
Postal Service.
    First class mail volume is down more than 33 percent from 
its peak in 2001 and continues to drop. Our package volume is 
growing rapidly thanks to e-commerce. Americans are rapidly 
changing how they communicate with one another and the Postal 
Service has struggled to adapt. However, that does not mean we 
are living in a post-U.S. Postal Service world.
    The Postal Service still has a vital role in our economy in 
our Nation affordably connecting even the most remote parts of 
the country. That is why innovation in the Postal Service is so 
important. We need an infrastructure in this country for moving 
matter, not just bits of data.
    The Postal Service and private sector companies have begun 
efforts to create new innovative postal products to preserve 
existing mail volume and create new demand for mail and 
possibly streamline the way mail is handled.
    Every aspect of the current operations of the Postal 
Service is targeted and includes innovations in design, online 
purchasing, e-commerce and greater consumer targeting for 
advertising.
    Today, I am looking forward to hearing from private sector 
companies and discussing with them their efforts to develop new 
postal products and services. Specifically, what problems, if 
any, have they encountered along the way in working with the 
Postal Service to develop and implement these innovative 
products.
    Now, if ever, is the time for the Postal Service to embrace 
innovations presented by private sector companies. Private 
sector companies are more than willing to spend billions of 
dollars to implement new products and designs that can help 
bring future revenue to the Postal Service.
    The tech community often uses the word disruptive. 
Disruptive is not necessarily a bad thing. It is a change. When 
my wife was in her Junior League days, she used to refer to 
that is the way we have always done it. We have to be very wary 
of falling into the trap of that is the way we have always done 
it.
    If companies continue to be shut down or steam-rolled by 
the Postal Service bureaucratic red tape before they have a 
chance to get off the ground, future innovators will look 
elsewhere to present their fresh ideas.
    In addition, I hope to hear success stories from private 
sector companies that work with the Postal Service and how 
future and how future entrepreneurs and innovators can create 
more marketable and open environments in the Postal Service. 
There is need for innovation, whether it is clusterboxes for 
secure package delivery or better access to postal databases 
like changes of address, there are many areas ripe for 
innovation.
    My fear is as a government watchdog and taxpayer, without 
reform and innovative new postal products, the American people 
are going to be left footing the bill for a taxpayer bale out 
of the Postal Service. That is the last thing we need right 
now.
    I look forward to hearing from our panel and believe there 
really are smart ways the Postal Service can lower its costs 
and improve its service through innovation and private 
partnerships. I hope we can bring them to light today and find 
a way to move the Postal Service closer to Internet speed.
    Mr. Farenthold. Before I recognize Mr. Lynch for his 
opening statement, I ask unanimous consent that our colleague 
from Texas, Mr. Neugebauer, be allowed to participate in the 
hearing. Without objection, so ordered.
    Mr. Lynch, your opening statement, please, sir.
    Mr. Lynch. Thank you very much, Mr. Chairman.
    I want to thank you, first of all, for holding this hearing 
to examine the development of innovative postal products and 
services by the United States Postal Service. I would also like 
to thank our panel of witnesses, some very innovative 
individuals, for helping us with this work.
    In November 2013, the Postal Service entered into a 
strategic partnership with online retailer, Amazon.com to test 
Sunday package delivery in select markets, otherwise known as 
seven day delivery. The Amazon pilot program has proven widely 
successful and is the primary reason why the Postal Service has 
recently demonstrated the ability to grow revenue in the face 
of its most difficult financial position.
    In its quarterly financial report released on May 9, 2014, 
the agency reported a revenue increase of $379 million over the 
same reporting period last year, its third straight quarter of 
revenue growth due in large part to $252 million or eight 
percent increase in shipping and package revenue.
    In light of these results, Sunday package service has now 
expanded to several other cities across the country and the 
agency is working to establish similar partnerships with other 
companies. This serves to illustrate that the agency can 
experience positive financial results when it capitalizes and 
builds upon what it already does best, utilizing an 
unparalleled and universal mail network that is driven by a 
hard working, dedicated workforce to deliver the mail now seven 
days a week.
    It is an example of innovation rather than degradation of 
existing postal products and services. We would be well served 
to take a similar approach as we continue to undertake the 
critical task of reforming today's Postal Service.
    As evidenced by the markup yesterday in the full committee, 
Chairman Issa continues to put forth a variety of misguided 
proposals that presume we can enhance the financial viability 
of the Postal Service by degrading the very services that have 
come to define the agency in the eyes of the American people.
    I simply do not agree that we can reform the Postal Service 
for the better by eliminating the current six day mail 
delivery, by mandating a wholesale conversion of door delivery 
addresses to curbside, clusterbox or sidewalk delivery or by 
asking postal customers to pay a so called legacy fee in order 
to retain their door delivery service.
    Such proposals would only place the Postal Service at a 
greater business disadvantage and severely damage its long term 
viability.
    Instead, we can encourage the Postal Service to build upon 
its existing postal products and services in order to further 
set itself apart in the mailing industry. I commend Ranking 
Member Cummings for his strong and continued leadership in this 
area and I am proud to co-sponsor his legislation, H.R. 2690, 
the Innovate Delivery Act.
    This thoughtful and alternative approach to postal reform 
would establish a chief innovation officer within the Postal 
Service to lead the development of innovative postal products 
and services that fall in line with emerging information 
technology and changing market trends.
    It would also require the chief innovation officer to 
ensure that such products maximize revenue for the Postal 
Service. Postal innovation will be a key and necessary 
component to meaningful postal reform package and mail 
delivery. I understand there are a variety of perspectives on 
how best to facilitate that innovation in a matter that will 
place the Postal Service on more solid financial footing.
    Accordingly, I very much look forward to discussing the 
issues with our witnesses. I look forward to your input.
    I yield back the balance of my time.
    Mr. Farenthold. Thank you, Mr. Lynch.
    Members will have seven days to submit opening statements 
for the record. We will now recognize our panel.
    Mr. James P. Cochrane is the Chief Information Officer and 
Executive Vice President of the United States Postal Service. 
Mr. David C. Williams is the Inspector General for the United 
States Postal Service. Mr. Will Davis is Chief Executive 
Officer of Outbox, Inc. Mr. Seth Weisberg is Chief Legal 
Officer of Stamps.com. Mr. Patrick Eidenmiller is Director of 
Engineering and Technology at M-pack Systems. Mr. Todd Everett 
is Chief Operating Officer of Newgistics, Inc.
    Pursuant to committee rules, all witnesses will be sworn 
before they testify. Please rise and raise your right hand.
    Do you solemnly swear or affirm that the testimony you are 
about to give will be the truth, the whole truth, and nothing 
but the truth?
    [Witnesses respond in the affirmative.]
    Mr. Farenthold. It is my understanding the House will have 
votes around 10:40 and it will be a rather long series of 
votes. I want to get everything covered. If we can get it done 
by 10:40, you all do not have to sit around here for over a 
hour while we go vote and I might be able to make an earlier 
flight back to Texas.
    It would be a win-win if you abided by the timer that gives 
you five minutes for your testimony. We will then ask 
questions. Your entire written statement is placed in the 
record and available for this committee and others to review.
    Mr. Cochrane, you are recognized for five minutes.

                       WITNESS STATEMENTS

                 STATEMENT OF JAMES P. COCHRANE

    Mr. Cochrane. Good morning, Chairman Farenthold, Ranking 
Member Lynch and members of the subcommittee.
    Thank you for calling this hearing on examining innovative 
postal products for the 21st century.
    My name is Jim Cochrane and I serve as Chief Information 
Officer and Executive Vice President of the United States 
Postal Service. I oversee the integration of technology 
innovation in all aspects of our business.
    During my 39 years with the Postal Service, I have 
developed a broad perspective on the business, how we serve the 
marketplace and our customers. This business acumen is 
essential as technology now plays a foundational role in 
virtually every postal product and service.
    Emerging technologies, while exciting, oftentimes also 
challenge us with their potentially disruptive effects. 
Effectively traversing this emerging disruptive continuum is my 
responsibility and a matter of survival for the Postal Service.
    The Postal Service operates one of the largest technology 
infrastructures in the world. It is supported and co-developed 
by some of the most respected technology companies, as well as 
many small businesses that bring fresh insights.
    Our goals are simple. Every day we focus on how we can 
innovate with technology and new partnerships to generate 
revenue, reduce expenses, deliver consistent and reliable 
service, and a world class customer experience.
    Though our goals are simple, our business model is both 
complex and diverse. For nearly 40 years the Postal Service 
workshare programs have shared the responsibility for 
efficiency and innovation with business partners. This 
collaborative model is guided by the premise that our profits 
and brand are in hand when our partners are profitable and our 
joint customers receive an increased value proposition.
    Printers, software vendors, mail service providers, 
transportation companies and parcel integrators, all play a 
vital role and together, we have built an industry around the 
market needs.
    Disruption in the highly competitive package market is an 
excellent example of how customer's demand evolved and we 
adapted. Driven by e-commerce and in particular, free shipping, 
there has been a dramatic shift to more ground-based solutions.
    Parcel select is an innovative product developed to answer 
that market demand. It is a workshare program that leverages 
the world class processing and transportation network of 
consolidators such as Newgistics with the unmatched reach of 
our delivery network providing a great customer solution.
    Parcel select also enabled the concept of coopetition where 
UPS and FedEx are traditional competitors, provide network 
logistics and the Postal Service provides the last mile 
service, creating a win-win for shippers and consumers.
    The package market is continuing to change. The new norm 
involves same day delivery, Sunday delivery, parcel lockers, 
delivery customization and constant real time tracking. 
Consumers are demanding these new services without an increase 
in costs, requiring that we adapt or face irrelevance.
    The Postal Service is helping businesses make mail more 
valuable, engaging and interactive through intelligent mail 
barcodes and financial incentives for mobile optimized mail for 
creating both the digital reflection for hard copy and a 
digital action for response.
    We are building new digital products that will leverage our 
brand of privacy, security and trust. We welcome creative ideas 
from individuals, companies and entrepreneurs regarding new 
business concepts and technologies.
    Our unsolicited proposal program provides the public a 
venue to submit new technologies and ideas to advance the 
mailing industry. In order to be adopted, these ideas must 
align with the Postal Service mission, have a clear path to 
profitability and generate postal revenue. They must not damage 
our respected brand or conflict with existing products or 
services.
    The Postal Service receives ideas from a variety of 
sources. Some of these ideas are not new concepts, some are 
already being pursued internally and some cannot be adopted 
because of restrictive laws.
    The role of the Postal Service in American life and 
business is changing at a rapid pace. More than ever, systems 
are using a wide range of technologies to communicate, transact 
business and shop. Ever changing technology presents the Postal 
Service with opportunities. But our success is dependent in 
part on how fast we can evolve. We remain guided by our charter 
to bind the Nation together and our commitment to provide the 
value and service upon which American businesses and consumers 
depend.
    The Postal Service continues to make great strides in 
adapting to the changing mailing and shipping needs of the 
country. However, our efforts are severely limited by an 
outdated, legally restrictive business model. We have the 
responsibility to provide and fund universal service for our 
Nation but we do not have sufficient authority or flexibility 
to efficiently carry out that mandate.
    We therefore absolutely need comprehensive postal reform 
legislation to return us to financial viability. Such 
legislation should provide us with clear authority to offer new 
products and services that allow us to take full advantage of 
our current infrastructure and competencies.
    Further, we urge Congress not to make the Postal Service 
task even more difficult by placing further restriction on our 
ability to innovate and compete. The Postal Service competes 
vigorously but we also compete fairly consistent with our legal 
obligations.
    Mr. Chairman, we look forward to continuing to work with 
you and the subcommittee to accomplish meaningful postal reform 
legislation and continue to deliver innovation to the American 
public.
    I would be pleased to answer any questions you might have. 
Thank you.
    [Prepared statement of Mr. Cochrane follows:]

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    Mr. Farenthold. Thank you.
    Mr. Williams.

                 STATEMENT OF DAVID C. WILLIAMS

    Mr. Williams. Mr. Chairman, Mr. Lynch and members of the 
subcommittee, the postal industry has a long history of working 
with the private sector and others to spur innovation.
    Historically, mail transport fueled the fledgling railroad 
and airline industries. Postal applications also stimulated 
advances in handwriting recognition technologies. They acted as 
a platform for the private sector innovators in the electronic 
postage, presorting and mail order industries; and the Postal 
Service imposed the overlay of the Zip Code across the country 
to the benefit of businesses and researchers.
    Innovation is even more important in todays age of digital 
globalism of today. The ungovernable Internet has changed the 
world, but great opportunities and enhanced capabilities exist 
alongside awkward new systems and unfamiliar risks. Lastly, the 
forces of creative destruction have ravaged traditional 
communications and logistics systems.
    In this environment, the job of an infrastructure like the 
Postal Service is to support citizens and businesses as they 
try to compete and position themselves, while it also takes 
care to assure that efficient market forces prevail and are not 
undermined.
    To continue in this role, understanding the changing world 
and rapid adaptation are increasingly critical endeavors. The 
Postal Service faces the tricky challenge of modernizing 
traditional products as it provides support services for 
emerging technologies. Success will largely depend on its 
ability to innovate and embrace the innovations of others.
    As a result, the continual strengthening of the Postal 
Service's processes for innovation will be needed that include: 
seeking to understand the frustrations and supporting emerging 
needs of people and commerce; developing a comprehensive 
innovation strategy; clarifying the entry point for innovators 
and providing staff to join innovators in navigating the huge 
postal structure and remain with them until the proposal is 
resolved; strengthening its skills in assessing the financial 
viability of proposals; developing the ability to engage in 
rapid proto-typing of new products and operational innovations; 
and protecting its intellectual property and respecting that of 
others.
    When pursuing innovation, partnerships with the private 
sector and the government are important in bringing in new 
ideas and specialized competencies, for sharing risks and for 
leveraging the costs of research and development investments.
    There are several areas where innovation opportunities seem 
particularly rich. One is support for e-commerce, e-health and 
e-government transactions, at the front end by providing a 
portal for identity verification for individuals and e-
businesses and providing access to digital currency exchange 
instruments and at the back end, by assisting with packaging 
and shipment of parcels.
    Second is using micro-warehousing, virtual post office 
boxes and e-platform services to help small businesses and 
innovators with logistics and shipping solutions.
    Third is providing seamless physical and digital access to 
Postal Service network for the public and commerce by linking 
together its website, post offices and digitally-enabled 
carriers.
    Fourth is conducting digital analysis of the vast data now 
generated throughout the network for operational efficiencies, 
new revenue ideas and business intelligence.
    Together, these opportunities can tighten the integration 
of data streams and their supporting matter streams.
    The Internet, smart devices, search engines and cloud 
storage have laid the foundations for a changing world. An 
aspect of what will come next, atop this foundation, will 
likely be an ecosphere that continues to be ungovernable and 
chaotic with endless challenges, learning curves, and 
substantial creative destruction.
    The ability of society to propel rather than retard 
progress in these areas will depend in part on the competency 
of the postal infrastructure to support American commerce and 
citizens through the coming era that will combine and deploy 
major new technologies that include: additive manufacturing, 
also known as 3-D printing; the Internet of things, linking 
ubiquitous sensor nets; augmented realities and smart devices; 
big data analytics; advanced robotics that incorporates machine 
learning; and nanotechnology.
    The world posts were slow to grasp and adapt their role in 
the early phases of the digital age and were partially 
constrained from doing so legally. The next phases of this age 
of technology will likely be more disruptive than we have seen 
to date.
    The Postal Service must be highly agile and develop an 
intuitive sense of its changing role and the new challenges 
facing American businesses and citizens. A key aspect of the 
ability of the Postal Service to transform must include 
stronger competencies for embracing and implementing 
innovation.
    Thank you, Mr. Chairman.
    [Prepared statement of Mr. Williams follows:]

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    Mr. Farenthold. Thank you.
    We will now move to some of our private sector folks, Mr. 
Davis with Outbox.

                    STATEMENT OF WILL DAVIS

    Mr. Davis. Thank you, Mr. Chairman.
    Innovation is in the title of the hearing today, heard of, 
and spoken about at least a dozen times in earlier testimony. I 
feel the need to go a bit off script. A movie is the only thing 
that comes to mind. A favorite of my daughter is the Princess 
Bride.
    There is a scene in there where Inigo Montoya is caught up 
with a band of criminals and there is a criminal mastermind 
that keeps using the word inconceivable, inconceivable when all 
his plans don't go as planned. Montoya looks at him and says, 
You keep using that word. I do not think it means what you 
think it means.
    That is a bit how I feel today about the word innovation. I 
do not think it means what you think it means. The reason for 
this is because innovation, at its heart, is disruptive. It 
destroys things. It kills jobs.
    If you think that is too bold a statement consider this 
fact. In 1926, the S&P Index was formed. The average ten year 
at that time of companies on the Index was 60 years. Today, it 
is less than 15. In fact, since its inception, there is only 
one company that remains on the S&P Index and that is General 
Electric one single company. All those other companies are gone 
or destroyed.
    But for all of its destructive capabilities, there is 
almost a salvific effect of pursing innovation. It is an even, 
narrow road; it is the narrow path of putting off old business 
models and secure cash flows and grasping for something that is 
uncertain.
    The promise of innovation comes in the form of new jobs, 
new marketplaces for every job, every company. For every market 
that is destroyed through embracing innovation, two more pop up 
in its place in markets, ideas, new concepts and new workforces 
that simply could not have been fathomed.
    What happens in that disruptive process is incumbents 
usually fail. They usually die off and go the way of all those 
other companies on the S&P 500. So as we talk about innovation 
of the Postal Service, we have to understand that truly 
embracing it means a fundamentally different Postal Service.
    It means that in 10 years, it looks almost unrecognizable 
from the Postal Service today but that does not mean it is 
worse off. In fact, it does not mean that jobs have to be 
destroyed within the Postal Service. It means that new ones can 
be created.
    Make no mistake, innovation will come, disruption will 
come. In that regard, it is a bit like junk mail, it is coming 
whether you like it or not. As we talk about innovation and 
embracing it, we need to understand it means hard, fundamental 
core changes to the business model, embracing it means 
destruction but it also means new markets, new jobs and new 
opportunities.
    Thank you.
    [Prepared statement of Mr. Davis follows:]

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    Mr. Farenthold. Thank you.
    Mr. Weisberg.

                   STATEMENT OF SETH WEISBERG

    Mr. Weisberg. Thank you, Mr. Chairman.
    I am from Stamps.com, a leading PC postage company. PC 
postage is Internet-based software that allows customers to 
print their own postage using their existing computer and 
printer. Stamps.com serves over 500,000 registered customers 
primarily small businesses.
    In 1999, we became the first company to offer a software 
only PC postage solution, enabling customers for the first time 
ever to print real postage from any Internet-connected PC and 
standard printer.
    Just seven years ago, PC postage accounted for $250 million 
in annual postage sale. Last year, it accounted for over $3.25 
billion in postage sold. Stamps.com postage growth alone was 
more than 35 percent year over year. That is consistent double 
digit growth every year, even through the heart of the 
recession.
    Virtually all the Priority and Express growth surge in 
recent years is generated through the PC postage industry 
channel. A recent study shows revenue through the industry PC 
postage channel costs two cents per $1.00 of revenue compared 
to 47 cents per $1.00 through a USPS-owned retail outlet.
    PC postage produces secure, sender-identifiable mail which 
is important for security against biological or other attacks. 
PC postage provides customers with cutting edge technology 
without the Postal Service having to pay for research, 
development, support or maintenance.
    Stamps.com has launched an enterprise service targeted to 
organizations with multiple geographic locations. It features 
enhanced reporting that allows a central location such as a 
corporate headquarters greater visibility and control over 
postage expenditure across their entire network of locations.
    An e-commerce merchant with multiple stores can use 
Stamps.com to consolidate all their orders so they can ship 
them out with one click, they can directly import all their 
order data from the most popular online marketplaces and 
shopping cart software and then automatically print the 
shipping label. All the shipping data, including the USPS 
tracking, automatically posts back to their web store.
    Stamps.com also automatically keeps the buyer informed, 
orders the carrier pick up, sends an electronic manifest to the 
Postal Service and generates a scan form so all the carrier 
does is scan the form once and all the packages are 
automatically in the Postal Service's computer system.
    PC postage is based on a public-private partnership with 
the Postal Service regulating industry participants. Our 
products must complete extensive USPS testing and evaluation in 
the areas of operational reliability, financial integrity and 
security.
    The Postal Service also partners with the industry to 
achieve mutual win-win goals of improving the customer 
experience, increasing revenue and minimizing costs. For PMG, 
the CIO sitting on this panel and so many of the dedicated 
Postal veterans who have ably worked with us for many years 
deserve much credit for the success story that is the 
partnership between the Postal Service and the PC postage 
industry.
    We believe public-private partnerships are the best path 
forward as technology innovation becomes increasingly important 
for the future. Having the Postal Service create its own 
technology is not the best approach. Instead, it should provide 
incentives for industry innovation. This allows customers to 
pick the best technology solutions for their needs.
    PC postage provides jobs for the industry and the Postal 
Service. Every package produced is ultimately delivered by a 
city or rural letter carrier. Growth in PC postage means more 
packages to deliver, more letters to deliver and more volume to 
service.
    Thank you for the invitation to testify today.
    [Prepared statement of Mr. Weisberg follows:]

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    Mr. Farenthold. Thank you, Mr. Weisberg.
    Mr. Eidemiller.

                STATEMENT OF PATRICK EIDEMILLER

    Mr. Eidemiller. Good morning, Mr. Chairman and members of 
the subcommittee.
    My name is Patrick Eidemiller and I am Director of 
Engineering and Technology for M-pack Systems.
    We are a small startup company that produces a better 
pharmacy package called m-pack, the future of prescription 
packaging. M-pack was invented by 71 year old navy vet named 
Dick Lee. This is m-pack, the flat pharmacy box. This is a 
traditional ground box.
    M-pack has many advantages but most important are this vial 
is tamper evident, this bottle is not. This bottle of water is 
tamper evident; this prescription is not. Our entire drug 
supply chain has more security in this than we do in this.
    We also have a lot more label space so it is much easier to 
read. Lastly, it is much more space efficient and much more 
compact. M-pack is made in the United States in Erie PA. We are 
adament about U.S. production.
    We have another advantage and that is the reason I am here 
today. The USPS provides a favorable rate for what is called a 
machinable flat. This is a machinable flat; this is a parcel. 
The over the counter rate for this parcel is $2.20. The over 
the counter rate for the machinable flat is $1.56, so there is 
a 29 percent savings to the taxpayer for every prescription 
medication mailed in the United States if it is classified as a 
machinable flat.
    Realizing what we had with the flat vial and considering 
the U.S. Government is one of the largest users of 
prescriptions by mail, we saw an opportunity really to save the 
taxpayers' money and provide a better and safer vial through 
the mail and through the post office.
    Working with the Henrietta manufacturer in New York, we 
developed this envelope which meets all mechanical requirements 
of a machinable flat. We tested it on test equipment in Ft. 
Worth, verified that it worked and received our approval on 
June 17, 2011 that our flat mail piece had been approved.
    Over the next 18 months, we continued to improve and refine 
our product to look like this, smaller, lighter, and cheaper. 
More weight is more costly, we took two ounces out of this 
envelope. We put together a package that we could 50 a second; 
this one was 15 per minute. We put in 18 months of work to go 
from this to this.
    We resubmitted our package plus some of the internal 
improvements that occurred to us. We also wanted to retest. Our 
packages were rejected, not only this new package but the 
existing one as well. We were shocked. This had been approved 
once. It was for a completely different reason. It was not the 
fact that it doesn't meet the mechanical requirements of a 
machinable flat which is bent like this, bent like this. It was 
that a box in an envelope was not a machinable flat. That is 
why we were rejected.
    We were shocked. We had already been approved. We went 
back, I sent a letter to Gary Reblin. I love the flat rate box 
and use them all the time and we thought we had a sympathetic 
ear. We were referred back to Mail Standards and got a very 
curt response that basically said, ``Thank you especially for 
your persistence. Unfortunately, this piece with its current 
content qualifies as a parcel. If you change the contents, 
please contact us again.''
    If we change the contents from this to this, please contact 
us again. The entire point, I'm sorry, is not this; the point 
is this. This is a better, safer vial but because of the shape 
it is 29 percent cheaper.
    We felt frustrated by our entire experience with the post 
office. We went to the post office for a reason. The post 
office provides value, the post office is the only agency that 
can legally place prescription drugs through a mail slot or in 
the mailbox and not leave it on our doorstep. That is an 
important factor.
    We want to work with the post office. We asked, we begged, 
we pleaded. We will change our package, we will test it at our 
expense. We want to use the post office and it fell on deaf 
ears.
    We went to the private sector, UPS and they said, you know 
what, we will take it, no questions asked, because we know how 
many of these we can put on an airplane, it is very safe, a 
second day service at a dollar apiece. That is why I am here.
    Thank you, members of the committee.
    [Prepared statement of Mr. Eidemiller follows:]

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    Mr. Farenthold. Thank you very much.
    Mr. Everett.

                   STATEMENT OF TODD EVERETT

    Mr. Everett. Good morning.
    Today, I will describe to the subcommittee how the U.S. 
Postal Service has partnered with and helped make it possible 
for my company, Newgistics, to develop innovative products 
responsive to the needs of the direct-to-consumer retailers, 
manufacturers, distributors and logistics service provides.
    Thank you, Mr. Chairman and members of the subcommittee, 
for allowing me to speak on behalf of Newgistics at today's 
hearing.
    My name is Todd Everett. I am the Chief Operating Officer 
of Newgistics. Newgistics is a privately held company based in 
Austin, Texas, with more than 400 people on our payroll. We 
were formed in 1999 on the premise that we could develop a 
better way for consumers to return merchandise to retailers.
    Today, we are a leading provider of technology-enabled 
solutions for direct-to-consumer retailers, manufacturers, 
distributors and logistics service providers. Our success is 
due in no small part to the Postal Service and its willingness 
to listen and work with private entities like Newgistics to 
develop innovative solutions.
    More specifically, we offer a national, integrated parcel 
delivery and return service for our customers. We are able to 
provide cost-effective, reliable and convenient shipping 
solutions by working with the Postal Service to provide last-
mile delivery and first-mile pickup.
    When Newgistics was founded, we viewed ourselves as a 
technology company that would provide information to retailers 
regarding returned packages. Soon, however, we evolved into a 
``returns'' logistics company, handling returns for retailers, 
making use of innovative technologies.
    We concluded that customers wanted to be able to return 
packages easily and retailers wanted to make their returns more 
efficient and cost-effective.
    Therefore, we developed a proprietary intelligent returns 
solution, making use of bar codes embedded in our Newgistics 
smartlabel. These intelligent bar codes provide us and our 
customers with detailed information that quickly enables our 
customers to manage their transportation and returns-processing 
resources.
    As we evolved, we discussed with the Postal Service the 
possibility of creating a new, convenient process for handling 
returns for large shippers of merchandise that made use of 
Newgistics smartlabel.
    Based upon our collaboration with the Postal Service, the 
USPS developed one of its most innovative products, the Parcel 
Return Service, also known as PRS. PRS is a Postal Service 
program under which approved providers like Newgistics are 
allowed to retrieve returned parcels directly from designated 
postal service facilities.
    Such early retrieval of returned parcels enables us to 
provide advanced data and customized return services to 
retailers.
    We found that the Postal Service was very receptive to 
working with us. Beginning in late November 2001, we had 
numerous meetings with the Postal Service. Following those 
meetings, in May 2003, the Postal Service sought permission 
from the Postal Rate Commission to test PRS.
    Approval was granted in September 2003 and testing began in 
October 2003. After two years of successful testing, in October 
2005, the Postal Service sought permission for PRS to become a 
permanent class of mail. The Post Rate Commission approved PRS 
on or about March 3, 2006. From that point, we were able to 
implement our returns solution, including Newgistics smartlabel 
in conjunction with the PRS program.
    Our intelligent parcel return solution developed in 
collaboration with the Postal Service simplifies the return 
process by offering consumers pre-paid return via Postal 
Service pickup at their home, workplace or drop-off at any 
mailbox or post office. That is, via our solution, packages 
enter into our system through the Postal Service's vast retail 
and collections network.
    Our solution also gives consumers returning their product 
confidence that their return will be handled expeditiously.
    In addition, our parcel return solution has enabled 
Newgistics to expand its product offerings to include parcel 
delivery, fulfillment and e-commerce solutions to our 
customers.
    Put simply, the Postal Service has been and continues to be 
a willing and important partner in our efforts to develop 
innovative solutions that bring significant value to our 
customers and their consumers.
    Likewise, we understand that PRS also has been successful 
from the Postal Service's perspective. Based on the most recent 
available data, the Postal Service's parcel return service 
continues to grow. In the USPS' fiscal year 2013, the Postal 
Service handled more than 50 million PRS packages, generating 
more than $120 million in postal revenue.
    Mr. Chairman and members of the subcommittee, thank you for 
the opportunity to testify at the hearing today.
    [Prepared statement of Mr. Everett follows:]

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    Mr. Farenthold. Thank you very much, Mr. Everett.
    We are going to break with tradition a little bit here. 
Normally, I would ask the first round of questions. Mr. Lynch 
has to go to another committee, so I am going to allow him to 
ask his questions.
    Mr. Lynch. Thank you, Mr. Chairman, for your indulgence. I 
appreciate that.
    I thank the members of the panel for their help. It has 
been a very interesting discourse thus far.
    When I think about the future, the next generation of the 
U.S. Postal Service, I tend to think about what they have going 
on in Switzerland. Pitney Bowes, one of our companies, has a 
system over there that they have rolled out. It is called a 
digital mail scan where I can pull up my mail. As it arrives at 
the regional mail facility, I can go on my secure website and 
see my mail before it is delivered. If I don't like what is 
there, I can click on it and say, do not deliver.
    Mr. Davis when you say junk mail is coming but not 
necessarily. It is not as inevitable as you think. You can 
click on it and then tell it not to deliver it. That is a new 
iteration for the Postal Service that is out there. I think 
that will be coming to the United States at some point.
    It would be a great thing for the environment because of 
the huge drop in mail volume because people won't be getting 
mail they don't want in their mailbox. At my apartment in D.C., 
that is 90 percent of what I get, circulars and stuff like 
that. If my wife and girs didn't get the sale information they 
get every day, I would probably save a ton of money.
    The volume will drop and that will be good for the 
environment. It will be a terrible thing for the Postal Service 
national letter carriers, it will drop the volume, but that is 
really constructive change. That is what we will have to deal 
with at some point.
    What the Chairman of the full committee has in mind is 
putting out about 1.5 million of these steel boxes in 
neighborhoods all over America, in urban areas, in towns that 
you must change 50 million door delivery addresses to 
clusterboxes so even if there are 100 addresses in a box, it 
comes to 1.5 million.
    If you make them bigger, put 200 in there, you can drop 
that to maybe 750,000. That is a huge, huge expense, even where 
it is feasible. Once we have 750,000 or 1.5 million steel boxes 
out there all over America, how much flexibility do you have in 
light of technological changes coming.
    Putting a steel box in the middle of the neighborhood and 
telling senior citizens, you can walk a quarter of a mile to 
get your mail, it is disruptive in a way but that is not 
innovation. That is going backward in time. Come on out and 
walk down to a steel box and get your mail. That is not 
creative. That is extremely costly and inefficient and it 
reduces our flexibility, I believe, in terms of what we are 
doing next.
    Mr. Issa. Would the gentleman yield so I could respond?
    Mr. Lynch. No, I am going to have to leave. You can talk 
about me while I am gone.
    Mr. Issa. My pleasure.
    Mr. Lynch. I am sure it is, Mr. Chairman.
    When I think about the idea, as well, of going to five day 
delivery, another bad idea but popular around here, the 
President supports it, the Chairman supports it, I oppose it.
    Most innovation tries to tie in with what society is doing. 
It tries to answer a need that is out there. Where I live, 
which is common in America today, we operate on a seven day 
schedule. All the stores that used to be open five days, long 
ago they went to seven days and now the post office, in the 
spirit of innovation, is going to close for two days every 
week. I think that is the wrong direction.
    Mr. Davis?
    Mr. Davis. You had a fabulous example of citizens in 
Switzerland being able to unsubscribe from junk mail. In fact, 
that technology existed in the United States for two years We 
brought that technology to the States with Outbox. In fact, we 
unsubscribed over 1 million pieces of junk mail for our users 
and were able to do it through the digital delivery and 
presentment of postal mail.
    We found even though they unsubscribed from volume, we can 
measure intent and intent is the holy grail for advertising. 
When we measured intent, we could know exactly what they 
wanted, what they preferred or not. That type of information is 
missing. That is why it is so unfortunate.
    Mr. Lynch. Reclaiming my time, all I am saying is want to 
empower the customer. The taxpayer is not involved. This is the 
postal customer that is picking up the tab. We don't give tax 
money to the Postal Service. They survive on the money they get 
from stamps.
    I want to empower the customer so they don't have to go to 
any company, they can see their mail when it arrives at the 
regional postal center and click off on it if they don't want 
it delivered. That I think is constructive change, it is 
innovative change and will take us to a whole new world.
    I think that would lower the cost and make it more 
efficient and improve the Postal Service.
    I am beyond my time. Thank you for your indulgence, Mr. 
Chairman.
    Mr. Farenthold. Thank you very much.
    Mr. Clay, did you have votes as well coming up?
    Mr. Issa. The gentleman from Missouri is always welcome to 
speak in this committee.
    Mr. Clay. Thank you, Mr. Chairman and Chairman Issa, I 
appreciate that.
    In 2011, the Inspector General for the Postal Service 
released a two part report on the Postal Service's role in the 
digital age. Included in part two of the report was the idea 
that the Postal Service expanding into hybrid and diverse 
hybrid mail services.
    Mr. Williams, can you briefly explain what the services and 
elaborate on why it may be beneficial for the Postal Service to 
expand into these areas?
    Mr. Williams. We believe that the ability to print the 
letter at the point of delivery would keep a lot of the mail 
out of the system--the idea of sitting on transports and fuel 
and crowding through the sorting plants would be a very good 
idea. It allows variation also among the regions where you 
could print different letters for different zip codes.
    Mr. Clay. In your opinion, has the Postal Service put the 
cart before the horse by closing the distribution centers 
before they have a real plan to go forward to lessen the volume 
of mail?
    Mr. Williams. I do. I think there is excess capacity inside 
those sorting centers but I don't believe it should, as you 
said, spring out in advance of seeing what the effect and 
impact of this.
    Picking the timing for innovation is devilishly difficult 
and if we present something that isn't immediately embraced and 
we have burned the ships behind us and closed off the 
possibility of using the other network, it would be a very 
serious mistake.
    Mr. Clay. The hybrid and reverse hybrid mail service sound 
similar to the business model of one of our witnesses here 
today. Mr. Davis, your company, Outbox, was a fee-based service 
that gave customers a choice to bypass physical mail, correct?
    Mr. Davis. Correct.
    Mr. Clay. If I am correct, your business model was 
dependent on the participation of the Postal Service, its 
infrastructure and customer participation, correct?
    Mr. Davis. Correct.
    Mr. Clay. This year, Outbox announced that it would 
terminate its digital mail operation through a bar code. You 
informed customers why Outbox was shutting down its service. In 
the post signed by you and your business partner, you mentioned 
that initial tests with the Postal Service showed positive 
signs of success and operational simplicity but the deal didn't 
work out. Is that correct?
    Mr. Davis. Absolutely.
    Mr. Clay. Additionally, you described your visit with the 
Postal Service's senior leadership as a Mr. Smith goes to 
Washington moment where senior leadership made it clear they 
would never participate in any project that would limit junk 
mail and that they were immediately shutting down your 
partnership. Is that correct?
    Mr. Davis. Correct.
    Mr. Clay. Mr. Davis, in developing your business plan, were 
you aware that advertising mail represented a significant 
portion of the Postal Service's volume and revenue?
    Mr. Davis. Yes.
    Mr. Clay. As a self sustaining entity, that has to generate 
revenue, were you aware that the Postal Service has a right to 
choose who it works with it based on its bottom line?
    Mr. Davis. Absolutely.
    Mr. Clay. Mr. Cochrane, the Postal Service has been quiet 
on this issue. Is there anything you would like to add?
    Mr. Cochrane. The concept of people collecting mail and 
digitizing has been out there for almost ten years. There are 
other companies in that space. The approach is one where people 
sign up and go to what we call commercial mail receiving 
agencies. It is very common and happens in buildings all over 
town here. It is very common in the business arena in New York 
and Washington.
    I think the challenge was that Outbox approached it a bit 
differently. They didn't want to have a commercial mail 
receiving agency, so that required them to go to the mailbox 
and pick it up.
    There are companies out there sustaining that business 
model and providing a digital image of mail pieces for their 
clients on a day to day basis.
    Mr. Clay. Thank you.
    Mr. Chairman, although I commend Mr. Davis and his company 
for the innovative solution, I think it is unfair to use this 
hearing to criticize the Postal Service for not being 
innovative and at the same time insist that it operate with a 
business mind set which is what it was doing in this case.
    In addition, I ask for unanimous consent to enter into the 
record an article dated May 8, 2014 from the Heritage 
Foundation, the Foundry Blog, entitled, Why the Postal Service 
was right to side with junk mail over Outbox.
    Mr. Farenthold. Without objection, so ordered.
    Mr. Issa. Would the gentleman yield?
    Mr. Clay. Yes.
    Mr. Issa. I would like to side with you in this case, 
surprisingly, that although it is a shame to see a for profit 
entity close because they are not making a profit, I do agree 
with you that when this is an innovation that should be on the 
list of innovations to the Postal Service because it falls 
squarely within their basic requirements, just as Stamps.com is 
an innovation the Post Office ignored, to their peril, one of 
the strange things you and I agree on is at a minimum, the Post 
Office ought to do all of its core jobs of revenue and revenue 
saving first, that the most important innovation in the company 
is to do the job they are paid to do well and innovatively.
    I think we have two witnesses here today from two for 
profit companies, one that is still thriving and one that isn't 
in this space, but they both are core functions of the Post 
Office that suffer from neglect.
    I share with you that in the Comprehensive Postal Reform 
Bill, we increase the innovation fund specifically because we 
hope the Post Office will innovate within its core in addition 
to outside its core.
    Mr. Clay. In your opinion, does it cry out for a public-
private partnership?
    Mr. Issa. I believe there are some core businesses the Post 
Office can and should own. They may use private enterprises as 
their contractors but I will say on the record here today that 
the job that Outbox proposed, if embraced by the Post Office as 
a core function, could far exceed the benefit.
    I think Mr. Lynch, although he disagrees with everything I 
stand for apparently in postal reform, including I have become 
a Luddite from the electronics industry, that is a first for my 
colleagues, but the fact is that when he talks about digital 
delivery in Switzerland being inevitable, he talks about a 
version of Mr. Davis' business plan that Switzerland has gotten 
ahead of us on.
    He seemed to muse that it would be bad for the base that he 
so much often cares about, but the fact is he is right. He is 
absolutely right that these innovations are either going to 
happen within the postal system or the postal system is going 
to miss it altogether and then be fighting for, as you said, 
its core right to decide not to participate for the business 
that may already have gone a long way.
    I couldn't agree with you more that your point was right 
on.
    Mr. Clay. Mr. Chairman, I think I may be having an out of 
body experience by agreeing with you so much lately.
    I see my time is up. I yield back.
    Mr. Farenthold. Thank you very much.
    We will kind of get back to the regular order here. I will 
go ahead and start with some of my questions.
    Mr. Davis, I think most of us up here know the story of 
Outbox. You took your time to give a very passionate speech 
about innovation which I enjoyed listening to. Can you in 
roughly a minute or so tell us what Outbox did and what 
happened?
    Mr. Davis. Absolutely. Outbox enabled our users to view 
their postal mail from anywhere, whether it is their I-phone or 
I-pad and they could tell us exactly what they wanted and what 
they did not want physically. It is a hybrid approach in that 
regard. Mr. Issa is correct in that.
    This is a fabulous idea, it should be adopted by the Postal 
Service. We started testing it in Austin, Texas with the idea 
that we would ask forgiveness, so to speak, before we asked 
permission because the rules and regulations are so onerous. We 
did so with great fanfare and we were shut down in that meeting 
with the Postmaster General and the senior team.
    In that meeting, we had a fundamental misunderstanding of 
who the customer is of the Postal Service. He said, your 
customer is not my customer. I said, Mr. General, what do you 
mean? He goes, my customer is the sender of mail that 
essentially pays me to place mail on the kitchen tables of 
every American every day.
    While true, that is not where the inherent value of the 
Postal Service lies. The value lies with its connection with 
every single American.
    It is my belief that large organizations and government of 
which the Postal Service is in part both, do not naturally tend 
to adopt innovation because it does disrupt them. It was my 
hope and my business partner's hope that we could test this on 
a small scale within the Postal Service but we were not allowed 
to.
    The only way we can do this is that we have a safe harbor, 
something within the Postal Service that allows it to be 
disrupted on a small scale in localities around the country to 
test new ideas. As I mentioned, our ability to give customers 
choice led to higher value, led to increased understanding of 
who the real customer is, the American people, and led to value 
opportunities that were beneficial for the end user and 
beneficial for our company and ultimately, the Postal Service.
    Mr. Farenthold. Thank you very much.
    Mr. Eidemiller, you mentioned that you were unable to get 
your product classified as a machinable flat and it actually 
became a parcel?
    Mr. Eidemiller. Yes, it was unclassified as a machinable 
flat and magically became a parcel.
    Mr. Farenthold. That is more of a competitive service for 
the Post Office. I think you mentioned the amount of postage a 
flat would take?
    Mr. Eidemiller. Yes. As an example, these are over the 
counter rates. This is a parcel rate for about four 
prescription vials, $2.22. This is the over the counter rate 
for a machinable flat which is $1.56.
    Mr. Farenthold. You went to UPS with your new redesign and 
you said they are delivering them for $1.00?
    Mr. Eidemiller. They made an offer and put it on the table 
of roughly $1.00. The challenge we have, when I brought them 
up, is we are a young startup and we are investing our effort 
where we have opportunities to generate revenue.
    While we think this is a great and wonderful idea, and year 
ago put a lot of emphasis in this, our business has pivoted 
slightly from that. After getting stonewalled by the Post 
Office a year ago, we got a lot of interest in bringing this to 
market and have had discussions with potential customers.
    UPS won't officially put a contract on the table until they 
have volumes, units and costs. They say, yes, we believe in the 
package, we know we can do it for about $1.00. I asked them to 
submit something for the record; they declined to submit 
something for the record. We have it orally.
    Mr. Farenthold. I get the impression you would rather use 
the Postal Service?
    Mr. Eidemiller. I would much rather use the Post Office. 
The Post Office has the infrastructure, the Post Office has the 
trucks, the Post Office can print this envelope into every 
mailbox in the United States, legally, safely, securely. UPS 
cannot do that; they put it on the doorstep. The volume is 
there, the business is there.
    This is a regular standard business sized envelope. As a 
machinable flat, this is 90 cents over the counter, drugs by 
mail for 90 cents--$2.22. There are hundreds of millions of 
dollars on the table.
    The only plausible reason I can see the Post Office has 
that we want it classified as this versus this is top line 
revenue because the top line revenue of a parcel is higher than 
a flat. In last year's strategic plan in 2013, I got this 
online, it says the Post Office makes three times more money on 
a flat than a parcel, three to one.
    The Post Office actually makes more money, if these numbers 
are correct, doing this at lower cost than doing this, three 
times more revenue. Why? It is very simple. It is easy to 
automate. We have proven we can automate this. Their only case 
is that a square box in an envelope is not a machinable flat. 
It meets every mechanical requirement of a machinable flat. We 
have tested it. We volunteered to work with the Post Office to 
prove it.
    Mr. Farenthold. I appreciate it. I am not going to draw you 
into the debate of whether or not it is a secure delivery 
location for your parcel would be of benefit to your company or 
not.
    Ms. Norton, we took two on your side of the aisle first, so 
if you don't mind, we will recognize Chairman Issa and then 
come back to you. Mr. Chairman?
    Mr. Issa. Thank you.
    This is an interesting and I won't use out of body as Mr. 
Clay did but it is an interesting turn of events when Mr. Lynch 
called me a Luddite and says there is an inevitability that we 
are going to do what Switzerland has done.
    Mr. Williams, I was madder than hell at your proposal. The 
idea that you are trying to be the Chief Innovation Officer and 
promoting banking within the IG's office is reprehensible. I am 
shocked that an Inspector General would go from the waste, 
fraud and abuse and inefficiency to promoting a specific 
agenda. I am disappointed.
    Notwithstanding that, the Post Office has every right to 
propose innovative activities, including postal money orders 
and other items, some of which are historic within postal 
systems here and around the world.
    However, I would hope that in the future you would be much 
more of an advocate, including people like Mr. Lynch who seem 
to find everything that reduces cost and allows the Post Office 
to break even and be more efficient for its customers, which as 
stated earlier, are the shippers.
    Mr. Lynch is not here and he proudly said I would talk 
about him after he left. Mr. Lynch is never going to be my 
partner in anything that reforms the Post Office and makes it 
more efficient because that is going to reduce labor. I am 
sorry to say but I think he is a lost cause on that. Mr. Clay 
and others are not.
    Let's go through the numbers quickly. Anyone can weigh in 
but Mr. Williams, you are a little bit in the hot spot here. 
The fact is six day to five day is in the shippers' best 
interest because it avoids another three cents per letter price 
increase and similar cost across the board, doesn't it?
    Mr. Williams. I am uncertain as to the three cents but I 
understand the principle.
    Mr. Issa. Looking at about $2 billion versus what the 
exigent price increase did, I am just using those, but even if 
it only saved two cents or one cent, isn't it true that in fact 
a reduction in cost that allows you not to have an increase in 
price is more likely to avoid a reduction in volume because the 
shipper ultimately, although sensitive to how often you 
deliver, is most sensitive to price, isn't that true?
    Mr. Williams. I think that is a very good proposition. We 
would need to find out what happens in reality but I certainly 
follow the train of thought.
    Mr. Issa. That is why the President has proposed that.
    Mr. Lynch spent a lot of time bashing steel containers. 
From a factual standpoint, isn't it true that 91 million homes 
do not receive in the door delivery, while 37.8 plus or minus a 
million do? That is the curb-cluster including apartment and 
condo owners all over America, rural delivery and so on, that 
91 million plus or minus do not get it to their door while only 
37.8 do?
    Mr. Williams. Yes, I agree that is the ratio.
    Mr. Issa. It is amazing for that ratio of more than two out 
of every three who were already part of the savings of not 
having to walk all the way to the door, simply less labor and 
that has been proven and calculated both by the Post Office and 
CBO, that labor savings for less than one third of Americans is 
billions of dollars and ultimately, question for you, those 
billions of dollars per year, a modest 15 million less than 
half of those being converted, is scored at over $20 billion in 
savings in cost to the Post Office.
    Let's go through the numbers. Your customer is the shipper, 
you all agree to that, whether you like it or not. The shipper 
gets a value both in secure storage and in avoiding cost 
increases?
    Mr. Williams. Correct.
    Mr. Issa. Where is the negative side, assuming it is a 
reasonable distance to go, that in fact these are secure 
storage and that individuals under the Americans Disability Act 
and the like will always be able to still get to the door 
delivery which is already based in law. If I am out in rural 
America but I am a shut-in, I can with no cost have the Post 
Office deliver to my door today, isn't that true?
    Mr. Williams. It is true. We did a study as well on this 
topic. We saw that the amount of savings was enormous depending 
on whether you picked an extreme model or one that was very 
moderate, there was a huge amount of savings Your proposal, as 
I understand it, is on the moderate side.
    Mr. Issa. We toned it down a lot so that we could say that 
more than half of all Americans who now get it to the door, if 
they don't believe it is feasible for them, would not see a 
change in the first ten years. We believe that communities will 
over time rush to have secure storage, not necessarily 
clusterboxes of a dozen or more. Often there would be two or 
four in a cluster, just practically at your front door.
    In fact, the ones we showed yesterday during our hearing, 
we specifically chose ones that ganged and a little larger 
because we want to be fair. In neighborhoods where it is hard 
to place a box, you will tend to have larger boxes while in 
suburban neighborhoods, it is pretty easy to do two or four at 
the curb between your neighbors.
    Mr. Williams. Both for places where the model is difficult 
to fit and for people with special needs, we saw there were 
considerations for a waiver. We think that is important to do. 
We think it could be a real game changer and save an enormous 
amount of money.
    We also want to know that those 37 million you pointed out 
aren't designed for people with special needs or special 
requirements or in places that are difficult to deliver. It is 
a historic accident.
    We like the fact that this imposes a comprehensive plan for 
the placement of those and the facilitation for people with 
special needs and neighborhoods where the model can't work in 
the classic.
    Eleanor, can I have your indulgence for about two more 
minutes? Thank you.
    Mr. Farenthold. Without objection.
    Mr. Issa. Thank you, Mr. Chairman.
    A couple of quick things. Mr. Cochrane, I think from your 
end the fact is that the Post Office, in my opinion, is 
uniquely positioned to provide a postal digital delivery system 
as an additional feature for a fee to the shipper. In other 
words, you may not know where they live but if I can pay half 
as much for a digital delivery only system and then the digital 
deliverer can choose to have a paper copy delivered and I only 
pay if that paper copy is delivered, that is a feature that is 
a variation of Mr. Davis.
    Technologically, from your experience, that is completely 
doable, isn't it?
    Mr. Cochrane. Yes, it is and we have a test right now in 
northern Virginia where all of our letter and flat sorting 
equipment involve cameras and we can take pictures of mail 
pieces. In our active test, you can get an email each day with 
an image of the actual pieces that we saw in our sorters that 
are going to arrive in your mailbox that day.
    That doesn't get into opening envelopes and opening but it 
is a first step towards giving people a digital image of what 
is going to come to their box.
    The risk side of that is what was discussed earlier. You 
have catalog mailers that are paying to get into the mailbox. 
If you are disrupting that to use the term, it does threaten a 
very extensive revenue stream for us.
    Mr. Issa. For example, these are hypotheticals, Mr. 
Williams, you have looked at a lot of the efficiencies. If a 
shipper says, I am going to give you x amount of these things 
and if a person declines, I am going to pay half as much. If 
the person accepts it, I am happy to pay the full fee. It could 
be a win-win. I could deliver you two-thirds as many pieces of 
printed material, it would be visible and usable by somebody 
digitally for half the price, while if delivered, let's say I 
want the coupon or whatever, I pay the full price.
    Actually to your customer shipper, you are expanding his 
options. You could also have a no delete option that it must be 
delivered and he would pay full price. Those options aren't 
available today.
    I am not in northern Virginia in my local home when I am in 
the District, it is in the District but I would love to know 
digitally everything that is proposed to be sent to me so that 
I know to expect it and if it doesn't come, and it is an 
invoice or something, I would be prepared to say, I have a lost 
piece of mail. There is a huge advantage to that.
    I happen to be a to-the-door delivery in the District and I 
often get my next door neighbor's mail. I don't know what 
causes it but it happens pretty regularly. I take the mail and 
walk over and put it in my neighbor's chute.
    The reality is my neighbor doesn't know that she is missing 
her mail until it shows up and I am gone, as you know, for 
weeks at a time because I don't actually live here. They lose 
three or four weeks sometimes of mail. If they had a digital 
picture, they would know they didn't get it.
    All of these and more are what this hearing is about, Mr. 
Chairman. I want you to continue pushing for this innovation. 
Our broad proposal has additional innovation dollars.
    I would like to close, Delegate Norton, with one thing. I 
was in business for more than two decades exclusively and then 
I have been in business very modestly by comparison over the 
last 14 years. The one thing I know about business is the top 
and bottom lines are not uniquely different.
    You can increase top line but if it doesn't flow to the 
bottom line, it is of no value. You can make cuts and never get 
to a profit but it is a combination of the two.
    The Post Office has its current volume, billions of dollars 
of excess inefficiency that we all know can cut. Innovation, in 
the case of your product and others, depends on efficient 
delivery and the more efficient it is, the more promising it 
will be for innovative products.
    It amazes me that brown trucks go to any rural or suburban 
areas. I think they go there because they can't quite get as 
good a deal as they will be able to get from the Post Office if 
these innovations happen.
    Ms. Norton, I appreciate the extra time. There is nothing 
more important to me than to try to have all of you be a part 
of it.
    Mr. Davis, I appreciate your showing the way. My hope is 
even if they don't take it from you, they will in fact see the 
direction you gave as having value in some derivative product.
    Thank you, Mr. Chairman.
    Mr. Farenthold. Thank you very much.
    We now recognize the gentlelady from the District of 
Columbia.
    Ms. Norton. Thank you very much, Mr. Chairman.
    I must say I welcome this hearing on innovation in the 
Postal Service. I particularly welcome the private businesses 
who work with the Postal Service.
    I have often wondered about the perpetual identity crisis 
we keep the Postal Service in. It is a little bit private or 
maybe mostly private, chained to the Federal Government whereas 
the essence of being a private business where the government 
doesn't give you anything and you can go out and build for 
yourself all arise.
    Most of the downsizing that has been done in the Postal 
Service has been done by cuts. I would much prefer, as the 
Chairman just indicated, innovation to be the role to the 
future of the Postal Service. I don't believe there is any way 
out of that.
    Frequently, I see on television an innovative tool that the 
Postal Service is using, and I say, wow. I hadn't become used 
to that as a kid growing up and yet I do see those. I would 
like to ask about some of those, the new products in 
particular, since some of you have been involved with those 
products.
    One of the success stories has been the every door direct 
mail. I was interested that it apparently has helped the Post 
Office generate more than a billion dollars. Mr. Cochrane, is 
that correct?
    Mr. Cochrane. That is correct.
    Ms. Norton. Apparently this product has been a great 
success with the business community. I would like to know how 
the Postal Service understood that this was a product that 
would catch on with the business community and why it has 
caught on with the business community, and what they are doing 
to enhance a product that has had this success? Mr. Cochrane, 
are you the person who can best answer that?
    Mr. Cochrane. I am. Thank you for the opportunity to talk 
about a product that we are certainly very pleased with.
    It is an innovative product that was created to really 
leverage technology in some way. Though it is a hard copy piece 
of mail, what we have done is facilitate the ability for a 
customer to go to our website and literally pick a 
neighborhood.
    If you are a dry cleaner or restaurant, you can actually 
pick the neighborhood and the routes you want to see your piece 
of mail delivered to so you don't have to deliver it to an 
entire zip code.
    You can pick the neighborhood you know your customers live 
in. It has mapping that allows you to click on the routes, look 
at the streets and highlight the streets you want the mail to 
be created.
    There is a commercial version and a version that you can 
walk into a post office and pay right there at the point of 
service terminal, drop off the mail and we will deliver it in 
the next day or two.
    Ms. Norton. I take it you have a competitive advantage over 
your competitors with this particular service because of your 
own infrastructure? Do you have any competition with this 
service?
    Mr. Cochrane. With mail going into the mailbox, no, but 
there are maybe more sophisticated mailings, direct mail in 
particular, that place. I think that was some of the initial 
concern of our business partners, that this EDDM would force 
people to buy down from a more traditional mail piece.
    Our findings are actually the opposite. It has created an 
on ramp where someone begins with the very simple EDDM product 
and morph themselves up into more sophisticated mailers and 
start seeing the value of mail. They get a creative agency, 
start working with the commercial printer and expand where they 
are sending mail.
    It is really like a first step into mail in a very easy way 
that actually in many cases has helped mailers move into a much 
broader mail stream.
    Ms. Norton. Do they contract also where they send mail 
based on what they learn by going online?
    Mr. Cochrane. I think that is the issue, that they can pick 
where they want it to go to. It is a saturation type mailing 
when they pick a carrier route with 500 deliveries in that 
route will receive it.
    Ms. Norton. So it saves business money as well?
    Mr. Cochrane. Absolutely. Sometimes you will get a mail 
piece and it is from a dry cleaner three towns over, you might 
drive by five dry cleaners to get to the person that sent you 
the mail piece.
    This becomes a lot more targeted. Neighborhood mail is a 
good way to describe it. It really focuses on the area you are 
trying to reach.
    Ms. Norton. The Post Office has had fair success 
collaborating with others. Mr. Everett, Newgistics developed a 
product with the Postal Service, correct?
    Mr. Everett. We have worked extensively with the Postal 
Service.
    Ms. Norton. Did they reach out to you?
    Mr. Everett. I wasn't with Newgistics when the initial 
meetings were held but my understanding is we had an idea, 
reached out to them and it was aligned with some of the product 
ideas they had as well.
    Ms. Norton. Mr. Weisberg, your company has successfully 
collaborated with the Postal Service, I understand?
    Mr. Weisberg. Yes, we have.
    Ms. Norton. Who reached out to whom in that one?
    Mr. Weisberg. We reached out to the Postal Service 
initially?
    Ms. Norton. Mr. Cochrane, do you find you are pursued by 
businesses like Mr. Weisberg's?
    Mr. Cochrane. It is very flattering and I think it is just 
recognition of the presence we have, the fact that we are at 
153 million doors today.
    I was part of the early conversations with Newgistics and 
they did reach out to us and say, we want to do something with 
returns. They shared their business model with us and we were 
thinking of something in the same vein, so we went to a pilot, 
created a product over at the regulator, a temporary product 
and went for a regular full time product as parcel return 
service which at the time, ten years ago, was really when e-
commerce was starting to take off.
    One of the real barriers to e-commerce was ease of returns 
and the studies in market research were showing that was the 
thing holding people back. It was in everyone's best interest, 
the Postal Service, the retailers, to help facilitate a more 
easy return. We were proud to partner with them and I think it 
is a great success story.
    Ms. Norton. Could I just ask Mr. Eidemiller?
    Mr. Farenthold. Sure.
    Ms. Norton. As I came in, you were describing difficulties 
with the Postal Service. Is it the case that you went to UPS 
instead?
    Mr. Eidemiller. We spent over two years really believing 
the Post Office was the best solution. We still believe the 
Post Office is the best solution. They offer service that 
nobody else offers. At a certain point, being a fairly self 
funded business with limited amount of runway, you put your 
resources in areas that you believe in.
    After reaching a dead end with the Post Office, we 
approached UPS and they said, great, we love the package, we 
know how many we can put on our plane, we will give you a great 
rate for it. They are talking about $1.00 from origin to 
destination, second day service at worse.
    Ms. Norton. Mr. Cochrane, do you have a response to that?
    Mr. Cochrane. I'd like to weigh in on it. Thank you for the 
opportunity.
    The fact is that we have different automation. We have over 
10,000 pieces of automation in our network. It is a very 
complex network as I said in my opening. We do delineate and 
differentiate letters from flat type mail, catalogs, magazines 
in particular, and parcels. It is important that they go into 
the distinct streams they are supposed to so that it is not 
creating problems on our machines.
    That the boxes are inside an envelope doesn't necessarily 
make them a flat; it is a parcel and that is the reason why 
they were turned down to mail at flat rate because of the 
rigidity of the pieces and the need for these pieces to stay in 
the appropriate mail stream which is the parcel mail stream.
    We would welcome customers shipping those packages as 
designed. I think it is an innovative design. The whole concept 
that it secures the bottle and it is tamper resistant I think 
is a nice value set for pharmaceutical companies. We deliver 
well over hundreds of millions of pharmacy items on an annual 
basis. The issue is it is a parcel. At the end of the day, it 
has to be mailed as a parcel.
    Mr. Eidemiller. May I speak?
    Mr. Farenthold. It is Ms. Norton's time.
    Ms. Norton. I think this dialogue is informative.
    Mr. Eidemiller. May I offer rebuttal to his testimony?
    Ms. Norton. Yes, please.
    Mr. Eidemiller. My background is material handling and 
automation. Our two partners came out of Electric Com which was 
purchased by Siemens.
    The entire genesis around mpack was initially around their 
frustration with doing drugs by mail in a round bottle. They 
one day said, why don't we do it square. At the time they had 
done industrial automation at Columbia Records, BMG, the Record 
of the Month Club, cassettes. They were handling those 25 years 
ago at 300 pieces per minute, yet they couldn't automate around 
a vial through the mail.
    We had a long term professional relationship with the folks 
at Siemens so when we started this process and came up with 
this mailer, the first thing we did because all of us come from 
an industrial automation background, we know what non-debatable 
means, we know what machinable means. I have built a hundred 
distribution centers in my life.
    The first thing we did was to prove this with run through 
flats. We ran this through flats. We had a video we submitted 
with our application showing this running through the Siemens 
optum sorters in Ft. Worth before we ever submitted our 
package. We provided this with our submittal.
    It passes every mechanical test of a machinable flat. It 
bends this way, it bends this access, it follows every 
mechanical test in the DML. It sorts on the equipment at 300 
pieces per minute. We offered to retest at our expense, we have 
offered to change the mail piece at our expense. We want to 
partner with the Post Office. Hello, we have volume you can 
make money. Please work with us. I don't know what to do.
    Mr. Farenthold. Thank you very much.
    We have gotten to everyone. I have a few more questions so 
we will do a quick second round of questions and give Ms. 
Norton some more time if she wants it.
    Mr. Farenthold. Mr. Williams, in some of the innovations 
you talked about, you mentioned a virtual PO box. Can you tell 
me what a virtual PO box is? At first blush, it sounds like 
what Mr. Davis was offering.
    Mr. Williams. Perhaps they are related to one another. Let 
me explain what it is.
    Today the Postal Service is limited in the number of post 
office boxes they can offer to our users. It is a small box and 
rigid so it is also limited in the number of things you could 
put in there.
    The idea we examined for the virtual post office box would 
allow people to--we can talk about classes of customers--it 
allows the customer to open a box that has no dimensions. It 
could be delivered to an address in the United States that 
people apply for.
    There are a lot of foreign customers that would love to buy 
U.S. goods but can't because they don't have a U.S. address. 
The virtual post office box would allow it to go there and that 
post office could combine it with other things going to that 
country and send it at a discounted rate. We think that would 
be good for commerce.
    It would also provide for small businesses and small 
innovators the ability to almost operate their business out of 
that virtual PO box. It would be temporarily stored, the items 
could then be sent out as directed by that business.
    Mr. Farenthold. You also talked about print at the 
destination of mail in response to an earlier question. Didn't 
we try that with mail grams and didn't FedEx try it with a fax 
type service?
    Mr. Williams. This is not something we have strongly 
advocated. We have followed its path more. It remains alive. It 
strikes me as a good idea and there are takers for it but this 
is also something I mentioned earlier in the meeting, picking 
the moment at which demand exists in this environment is very, 
very difficult. I would say it hasn't come in a strong 
compelling way to hybrid mail.
    Mr. Farenthold. I want to go to Mr. Weisberg for a second. 
You all are kind of a success story in working with the Post 
Office. Was UPS supportive when you started out and came with 
the product?
    Mr. Weisberg. When we initially started, it took a process 
of years of speaking with the Postal Service by us and other 
companies that wanted to do PC postage to convince the Postal 
Service to approve it and allow it to exist.
    There were people within the Postal Service who were 
encouraging and there were others who were discouraging.
    Mr. Farenthold. Do you have any suggestions for how we 
could change the process of getting innovative products like 
Stamps.com to be adopted by the Post Office?
    Mr. Weisberg. We do think it would make sense to add some 
protections to companies that come with new innovations to the 
Postal Service to make sure the Postal Service doesn't unfairly 
compete and launch its own products compared to what those 
companies do. We do very much support the concept of using 
public-private partnerships and having private industry players 
be able to come up with the best solutions that work.
    Mr. Farenthold. The Postal Service is actually kind of 
competing with you with their quick to ship product. That has 
to be a bit awkward in that they are your regulator and your 
competitor.
    Mr. Weisberg. It is a very difficult position to be in when 
you invest a lot of time and effort in an industry into 
launching products and you are regulated by the Postal Service. 
You have to provide the Postal Service detailed information 
about how your products work and then they launch a directly 
competitive product. That is difficult.
    Mr. Farenthold. With respect to Outbox, Mr. Davis, one of 
the things a service like Outbox has the potential to offer is 
targeted ads. I am an avid Internet user and I will shop for 
some dress shirts online. All of a sudden just about every site 
I visit has an ad for dress shirts on it. Highly targeted 
advertising is valued by advertisers.
    The Postal Service talks about advertisers not getting 
their product delivered but wouldn't a service like Outbox 
actually have more value to advertisers? A random catalog, your 
best hope is something on the cover strikes somebody's interest 
in the few seconds between mailbox and recycle bin?
    Mr. Davis. Absolutely. As I said earlier, intent spending, 
intent on brand affinity is the holy grail of all advertising 
so you can imagine a digital ad piece that is actually free to 
present so it is free to show that on a digital device to an 
end user and they can decide if they want to engage with that 
or not.
    We did some interesting tests with Kind Bar and with 
Starbucks Via packets, small sample sized products where we 
would present digitally an offer, would you like to try this 
new flavor of Kind Bar. In some of our tests, we had as much as 
50 percent engagement which is astounding for any digital 
advertising piece.
    People would say yes, send this piece to me, I want to 
engage Kind Bar and I want to try this new product. We would 
deliver it to their front door the next day.
    To give you an idea how much that is worth to a CPG, they 
average about $20 per sample product given to a new user of 
their product. There is an enormous amount of money currently 
being spent on sampling products. Right now they are 
untargeted. You see someone out in front of a grocery store or 
on the side of the road, here is a very powerful target tool.
    Mr. Farenthold. That advertising would be revenue to Outbox 
and not the Postal Service? Is there a model for something like 
this where the third party does it or is it something you 
develop the technology and sell it to the Postal Service and 
they do it? Was that kind of the feeling you got in your 
negotiations?
    Mr. Davis. Right. Well it is hard to unpack such a 
complicated web of interested politics and business models and 
mandates. At the end of the day, there could be winners and 
winners. It does not have to be winners and losers.
    It was our hope that if the Postal Service could not create 
this on their own or was too slow to do that, an outside third 
party company could develop it, spend private dollars to 
develop it and then either white label it or be a third party 
contractor with the USPS.
    Mr. Farenthold. Thank you very much.
    They have called our vote series. We have a little bit of 
time before we have to leave if Ms. Norton has some more 
questions.
    Ms. Norton. Just briefly.
    I am interested in what keeps the Postal Service from 
developing new and innovative products as a matter of course. 
We have spun them off as a private business and not always 
allowed them to act as a private business.
    Are there any issues or impediments that stand in the way 
of the Post Office doing the usual work of seeking innovations, 
particularly given its unique infrastructure, Mr. Cochrane?
    Mr. Cochrane. I think part of the challenge is the current 
law that we operate under. It is restrictive.
    Ms. Norton. Speak a bit about that law. What about that 
law?
    Mr. Cochrane. As an example, it says the products we are 
allowed to enter are postal products and it kind of put a bit 
of a box around things we can do. If we are approached by 
somebody with an innovative idea, some of these things are 
against the law, as I stated in my opening comments. Some of 
the things we are working on don't fit our model and some are 
just not legal in the current sense.
    As an example, we have very restrictive privacy rules. We 
have a lot of data on what goes into the American household 
with things like IMB and for good reasons, there are privacy 
statutes that exist.
    Unlike a lot of other private sector companies, we are not 
allowed to data mine that information. That is a restriction on 
our ability to market.
    Ms. Norton. That is a restriction that wouldn't be as 
controversial I think here. The Chairman seemed to buy into 
this restriction to postal products when he admonished I 
suppose Mr. Williams for daring to suggest that non-banking 
products might be suitable.
    I disagree with the Chairman on that. It seems to me we 
have information that if you look historically for the first 60 
years of the 20th Century, the Postal Service actually had a 
banking service used mostly by immigrants. There were savings 
accounts, limits on the amount of the savings accounts.
    There are postal facilities where there are no banks. In 
fact, banks have pulled out of many neighborhoods because they 
do much more digital than the Postal Service does. I don't see 
what is wrong with non-banking services. This is what I meant 
when I opened my last question with it is a little bit private. 
It is like a little bit pregnant. You just cannot do it in a 
market economy.
    Let me invite Mr. Cochrane and Mr. Williams to elaborate on 
some non-postal services that you think the Postal Service 
could enter into, thrive and fully compete with the private 
sector.
    Mr. Williams. With regard to the financial services, you 
are correct that the Postal Service was in the banking business 
for a large number of years worldwide. Many rural posts provide 
financial services. It provides about 14.5 percent of their 
income which helps them to continue to provide universal access 
and reduces the overhead for the post offices that are out 
there.
    We currently do provide financial services with money 
orders and other kinds of information services we do in remote 
areas for the customers. This idea was to update the money 
order into the digital age. We don't think it is good for 
citizens or for e-commerce to be cut off from one another.
    You can't use money orders to engage in e-commerce. As a 
result, as many as 68 million adults are cut off from commerce 
and commerce is cut off from them.
    It did look at what would happen if the U.S. Postal Service 
did as it used to do and as many other nations do today.
    Mr. Cochran. I would just say not on the financial sector 
but the Postal Service is in a period of significant change in 
our business model. I think that is well documented. As mail 
declines, particularly single piece, first class, we have 
shifted to do more and more parcel delivery.
    In the course of innovation, we have to take a look at 
ourselves and our network. We have a ubiquitous retail network. 
How do we use that in many ways to help us generate top line 
revenue.
    The last mile we have discussed a lot today but there are 
more things we can deliver. Think about the fact we have 
217,000 people out there today driving the streets of the 
United States, working hard and delivering product for mailers 
and shippers. There is a robust network of processing centers 
and transportation that I think you need to further leverage.
    Maybe the future grail is the one we talked about a lot 
today, the digital space. There are going to be places where 
the Postal Service needs to step forward and have a strong 
footprint in the digital space. In the information I sent in, 
we talked a bit about what we are doing with the government 
with FCCX to help authenticate.
    There is a lot of opportunity for the Postal Service to 
continue to leverage the brand, the trust, the security and the 
world class network that we have. That is where our innovation 
is focused, to use that infrastructure to generate revenue and 
keep providing great service to the American people.
    Mr. Williams. I do think it is probably important to add 
the law may be too restrictive and it might be good that you 
are looking at it, the 2006 law, but that law wasn't put in 
there to be mean spirited or hurt anyone. It was put in there 
to make sure the Postal Service doesn't drive the small 
businessman or innovator out of business.
    The challenge today is enormous and it is from horizon to 
horizon. The Postal Service doesn't need to go in where it is 
going to harm private enterprise.
    Ms. Norton. I would certainly agree when it comes to small 
business but I do not agree that the Postal Service shouldn't 
harm competitors in the same business or in a live business. I 
think that is the whole point of competition in a market 
economy.
    Mr. Farenthold. Maybe that is a topic for a future hearing 
in this subcommittee as to where we can go and find the right 
balance allowing the Postal Service to increase revenue without 
using some of their advantages I guess would be the right word 
as a government entity to harm the private sector. That would 
be a great hearing. We may do that in the future.
    I would like to thank our witnesses for being here. We were 
able to cover a very complex topic in a timely manner. I think 
we all have food for thought as to how we can move forward with 
modernizing and bringing new technologies to the Postal Service 
that are good for America.
    Thank you all very much for your time.
    We stand adjourned.
    [Whereupon, at 10:40 a.m., the subcommittee was adjourned.]


                                APPENDIX

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               Material Submitted for the Hearing Record

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