Is It Time for a Postal Service 2.0?

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Ultimately, the efforts were abandoned amid lack of demand, says USPS spokeswoman Sue Brenann. "There wasn't enough interest in some of these products at the time, and they weren't making back enough money to cover their costs," Brennan says. "After the e-commerce bubble burst, the decision was eventually made to go back and focus on core products."

These days, demand for some of those core products is on the wane, and once again USPS isn't making enough money to cover costs. Volume is down in first-class mail, which includes bills and letters, and "standard mail," a category that includes catalogs and sales pitches. Volume peaked at 213 billion items delivered in 2006 and decreased 5% by the end of fiscal 2008. In 1990 the average number of pieces of mail delivered per capita was more than 750. By 2007 it was 650, according to a USPS study released last year. "The Postal Service is coming up against what is a difficult business model to maintain," says Ruth Goldway, a commissioner on the Postal Regulatory Commission, the Postal Service's official watchdog. "First-class mail is supposed to pay the lion's share of overhead costs and allows you to fill the delivery network with other mail. You simply can't do that when you're losing volume."

Increased dependence on e-mail and other digital messaging systems accounts for part of the drop in demand for postal services. The recession isn't helping, either. Mortgages and the paperwork they generate used to account for a large slice of mail volume. And now more banks, phone companies, and other heavy users of the postal system are stepping up their reliance on electronic delivery methods to control costs.

Another startup looking to digitize paper mail is Zumbox, which launched a service this week that gives registered customers a free electronic mailbox that's linked to their street address. Zumbox President Glen Ward says the company plans to bill advertisers for the right to enhance documents with additional features. For instance, a power company might embed a video public service message, or a charity might add a "donate now" button to a solicitation. "Rather than paying 50¢ or a dollar on printing and postal costs to send out bulk mail, advertisers could pay us 5¢ per street address to send digital equivalents to our customers," Ward says. "It's probably something the Postal Service could have done on its own, but hasn't."

If the drumbeat for reform gets loud enough, maybe the U.S. Postal Service will consider these or other attempts to modernize more seriously.

Hesseldahl is a reporter for BusinessWeek.com.