Pitney Bowes (PBI)

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-	[[Image:Pbi divisional pie chart.jpg|700px|thumb|<ref> [http://www.sec.gov/Archives/edgar/data/78814/000093041308001359/c52528_10-k.htm#A010 PBI 2007 10-K, page 11]</ref>]]	+	[[Image:Pbi divisional pie chart.jpg|700px|thumb|<ref> [[stock:Pitney_Bowes_(PBI)/Filing/10-K/2008/F3468262#A010#A010 | PBI 2007 10-K, page 11]]</ref>]]
	Total revenues for 2007 were $6.129 billion. Revenues have grown steadily since 2003, although the 6-7% gains in 2006 and 2007 showed a slight slow-down from the 8-11% gains that the firm saw in 2003-2005. <br/>		Total revenues for 2007 were $6.129 billion. Revenues have grown steadily since 2003, although the 6-7% gains in 2006 and 2007 showed a slight slow-down from the 8-11% gains that the firm saw in 2003-2005. <br/>
-	[[Image:Pbi_net_income_v_revenue_03-08.JPG|700px|thumb|<ref> [http://www.sec.gov/Archives/edgar/data/78814/000093041308001359/c52528_10-k.htm#A010 PBI 2007 10-K, page 9] </ref>]]	+	[[Image:Pbi_net_income_v_revenue_03-08.JPG|700px|thumb|<ref> [[stock:Pitney_Bowes_(PBI)/Filing/10-K/2008/F3468262#A010#A010 | PBI 2007 10-K, page 9]] </ref>]]
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	PBI's U.S. Mailing division, which best represents PBI's original core postage meter business, accounted for more than 38% of the firm's total revenues in 2007, when it posted revenues of more than $2.34 billion. PBI controls 80% of the domestic postage-meter market and 65% internationally.<ref> [http://www.smartmoney.com/barrons/index.cfm?story=20060103 Putting a New Stamp On Pitney Bowes, Smartmoney.com, 01/03/06]</ref> High barriers to entry faced by potential competitors protect this market share; since postage meters essentially print money, governments tightly regulate this industry and limit the number of providers.		PBI's U.S. Mailing division, which best represents PBI's original core postage meter business, accounted for more than 38% of the firm's total revenues in 2007, when it posted revenues of more than $2.34 billion. PBI controls 80% of the domestic postage-meter market and 65% internationally.<ref> [http://www.smartmoney.com/barrons/index.cfm?story=20060103 Putting a New Stamp On Pitney Bowes, Smartmoney.com, 01/03/06]</ref> High barriers to entry faced by potential competitors protect this market share; since postage meters essentially print money, governments tightly regulate this industry and limit the number of providers.
-	However, growth in this division's revenue is stagnant - it actually dropped 0.17% from 2006 to 2007. <ref>[http://www.sec.gov/Archives/edgar/data/78814/000093041308001359/c52528_10-k.htm#A010 PBI 2007 10-K, page 11] </ref> This lack of growth is due to the fact that [[Commoditization of PCs|use of computers]] has increased dramatically since the 1990s, and as a result, businesses are increasingly using [[internet advertising]] as a less expensive substitute for brochures and catalogs sent through the mail.	+	However, growth in this division's revenue is stagnant - it actually dropped 0.17% from 2006 to 2007. <ref>[[stock:Pitney_Bowes_(PBI)/Filing/10-K/2008/F3468262#A010#A010 | PBI 2007 10-K, page 11]] </ref> This lack of growth is due to the fact that [[Commoditization of PCs|use of computers]] has increased dramatically since the 1990s, and as a result, businesses are increasingly using [[internet advertising]] as a less expensive substitute for brochures and catalogs sent through the mail.
	====PBI's growth strategy undermines its competitive advantages.====		====PBI's growth strategy undermines its competitive advantages.====
-	The rise of [[E-Commerce]] has significantly decreased the demand for PBI's postage meter services, so PBI has reacted by rapidly expanding into other areas (see the list of divisions in business overview above). Although PBI has invested significant capital in its own research and development ($186 million in 2007 <ref>[http://www.sec.gov/Archives/edgar/data/78814/000093041308001359/c52528_10-k.htm#A002 PBI 2007 10-K, page 4] </ref>), its expansion has thus far been accomplished through $2.5 billion in acquisitions since 2000. These purchases have included a wide variety of companies, including [http://www.mapinfo.com/ MapInfo] (location intelligence), [http://digitalcement.com Digital Cement] (customer relationship management), [http://www.ibisconsulting.com/ Ibis Consulting, Inc.] (electronic legal discovery services), and [http://www.g1.com/ Group 1 Software, Inc.] (mailing efficiency software), among others.	+	The rise of [[E-Commerce]] has significantly decreased the demand for PBI's postage meter services, so PBI has reacted by rapidly expanding into other areas (see the list of divisions in business overview above). Although PBI has invested significant capital in its own research and development ($186 million in 2007 <ref>[[stock:Pitney_Bowes_(PBI)/Filing/10-K/2008/F3468262#A002#A002 | PBI 2007 10-K, page 4]] </ref>), its expansion has thus far been accomplished through $2.5 billion in acquisitions since 2000. These purchases have included a wide variety of companies, including [http://www.mapinfo.com/ MapInfo] (location intelligence), [http://digitalcement.com Digital Cement] (customer relationship management), [http://www.ibisconsulting.com/ Ibis Consulting, Inc.] (electronic legal discovery services), and [http://www.g1.com/ Group 1 Software, Inc.] (mailing efficiency software), among others.
	PBI does not have the same competitive advantages or market dominance in these areas as it does in its postage meter segment. Other companies, already dedicated to these other markets, are more established in their respective specialties and have existing relationships with customers. The success of PBI's expansion strategy will depend on PBI's ability to acquire companies that are already well-established and can maintain a niche in their markets. All of PBI's divisions (except U.S. Mailing) grew their revenues in 2007, including 71% growth for its software segment (see breakdown above).		PBI does not have the same competitive advantages or market dominance in these areas as it does in its postage meter segment. Other companies, already dedicated to these other markets, are more established in their respective specialties and have existing relationships with customers. The success of PBI's expansion strategy will depend on PBI's ability to acquire companies that are already well-established and can maintain a niche in their markets. All of PBI's divisions (except U.S. Mailing) grew their revenues in 2007, including 71% growth for its software segment (see breakdown above).
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	| align="center" style="background:#f0f0f0;"|'''% Revenue Growth Since 2006'''		| align="center" style="background:#f0f0f0;"|'''% Revenue Growth Since 2006'''
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-	| '''Pitney Bowes Inc.'''||6130||7.0%<ref> [http://www.sec.gov/Archives/edgar/data/78814/000093041308001359/c52528_10-k.htm#A010 PBI 2007 10-K, page 9] </ref>	+	| '''Pitney Bowes Inc.'''||6130||7.0%<ref> [[stock:Pitney_Bowes_(PBI)/Filing/10-K/2008/F3468262#A010#A010 | PBI 2007 10-K, page 9]] </ref>
	|-		|-
	| [[Neopost]]||1324||2.4%<ref> [http://www.neopost.com/investors/regulated_information/periodic_information/annual_reports/Reports2007/Reference_document_2007.pdf Neopost 2007 Annual Report] </ref>		| [[Neopost]]||1324||2.4%<ref> [http://www.neopost.com/investors/regulated_information/periodic_information/annual_reports/Reports2007/Reference_document_2007.pdf Neopost 2007 Annual Report] </ref>
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	| [[Iron Mountain (IRM)]] ||2730||16.2%<ref>[http://216.139.227.101/interactive/irm2007/ Iron Mountain, Inc. 2007 Annual Report]</ref>		| [[Iron Mountain (IRM)]] ||2730||16.2%<ref>[http://216.139.227.101/interactive/irm2007/ Iron Mountain, Inc. 2007 Annual Report]</ref>
	|-		|-
-	| '''Pitney Bowes Inc.'''||2714||14.7%<ref> [http://www.sec.gov/Archives/edgar/data/78814/000093041308001359/c52528_10-k.htm#A010 PBI 2007 10-K, page 9] </ref>	+	| '''Pitney Bowes Inc.'''||2714||14.7%<ref> [[stock:Pitney_Bowes_(PBI)/Filing/10-K/2008/F3468262#A010#A010 | PBI 2007 10-K, page 9]] </ref>
	|-		|-
	| [[Bowne (BNE)]] ||851||2.0%<ref>[http://www.bowne.com/ir/annualreports/2007/pdf/Bowne_2007_Annual_Report_10-K.pdf Bowne & Co., Inc. 2007 Annual Report]</ref>		| [[Bowne (BNE)]] ||851||2.0%<ref>[http://www.bowne.com/ir/annualreports/2007/pdf/Bowne_2007_Annual_Report_10-K.pdf Bowne & Co., Inc. 2007 Annual Report]</ref>

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Revision as of 02:16, March 26, 2010

Pitney Bowes Inc. (PBI) is the world's largest seller of postage meters, devices that allow companies to print postage on letters rather than using stamps. The company has over 2 million customers worldwide, and half of 2007 revenues came from the sale and operation of postage meters. This business is heavily regulated by national governments, since printing postage essentially amounts to printing money, and this creates high barriers to entry that protect Pitney Bowes' virtual monopoly in this business. PBI controls 80% of the domestic postage-meter market and 65% internationally.^[1]

While postage meters are in continual demand by any business that sends a lot of mail, direct mailing is being increasingly displaced by internet advertising, and this limits PBI's growth opportunities within its core market. To build revenues in the long term, PBI has turned its attention outside of postage meters into businesses such as document services, including letter production and design software, facilities management, and outsourced marketing.^[2] The firm has made $2.5 billion in acquisitions since 2000 in order to diversify beyond the postage meter business. Notable acquisitions in 2007 - when the firm spent $570 million buying other companies - included MapInfo (Troy, NY) and Digital Cement (Toronto, Canada). ^[3]

However, these businesses are relatively new to PBI, which has historically focused exclusively on postage meters since its founding in 1902.^[4] Industries such as document management, information intelligence, and legal services are not regulated by the government, and there are low barriers to entry which create competition in these markets - something Pitney Bowes does not deal with in the postage meter business. In these markets PBI is forced to compete with firms like Xerox and IKON Office Solutions (IKN) that have specialized in these businesses for longer and have established customer relationships. This presents a challenge to PBI as it builds an economic niche outside of its traditional dominance in postage meters.

Business Overview

PBI's biggest source of revenue is its U.S. Mailing division, providing 38% of revenues in 2007.

The company's 85 acquisitions since 2000, along with its international postage meter operation, make up the rest of PBI's business. PBI divides its offerings into two main sections, Mailstream Solutions and Mailstream Services. The revenue breakdown for each division is as follows:

Revenue (USD in millions)	2007	2006	% change
US Mailing	2346	2350	0
International Mailing	1070	1013	6
Production Mail	603	575	5
Software	346	203	71
Mailstream Solutions subtotal	4365	4141	5
Management Services	1135	1074	6
Mail Services	459	370	24
Marketing Services	171	145	18
Mailstream Services subtotal	1765	1589	11
Total	6130	5730	7

Total revenues for 2007 were $6.129 billion. Revenues have grown steadily since 2003, although the 6-7% gains in 2006 and 2007 showed a slight slow-down from the 8-11% gains that the firm saw in 2003-2005.

Trends/Forces

The lack of growth in the postage meter market hurts PBI's core business segment.

PBI's U.S. Mailing division, which best represents PBI's original core postage meter business, accounted for more than 38% of the firm's total revenues in 2007, when it posted revenues of more than $2.34 billion. PBI controls 80% of the domestic postage-meter market and 65% internationally.^[7] High barriers to entry faced by potential competitors protect this market share; since postage meters essentially print money, governments tightly regulate this industry and limit the number of providers.

However, growth in this division's revenue is stagnant - it actually dropped 0.17% from 2006 to 2007. ^[8] This lack of growth is due to the fact that use of computers has increased dramatically since the 1990s, and as a result, businesses are increasingly using internet advertising as a less expensive substitute for brochures and catalogs sent through the mail.

PBI's growth strategy undermines its competitive advantages.

The rise of E-Commerce has significantly decreased the demand for PBI's postage meter services, so PBI has reacted by rapidly expanding into other areas (see the list of divisions in business overview above). Although PBI has invested significant capital in its own research and development ($186 million in 2007 ^[9]), its expansion has thus far been accomplished through $2.5 billion in acquisitions since 2000. These purchases have included a wide variety of companies, including MapInfo (location intelligence), Digital Cement (customer relationship management), Ibis Consulting, Inc. (electronic legal discovery services), and Group 1 Software, Inc. (mailing efficiency software), among others.

PBI does not have the same competitive advantages or market dominance in these areas as it does in its postage meter segment. Other companies, already dedicated to these other markets, are more established in their respective specialties and have existing relationships with customers. The success of PBI's expansion strategy will depend on PBI's ability to acquire companies that are already well-established and can maintain a niche in their markets. All of PBI's divisions (except U.S. Mailing) grew their revenues in 2007, including 71% growth for its software segment (see breakdown above).

The introduction of shape-based postage pricing increases demand for PBI's services.

The US Postal Service changed its postage pricing system on May 14, 2007. The most notable change included was a transition from purely weight-based pricing to a new system that took the shape of the piece of mail into account as well. ^[10] Under the new regulations, postage will be cheaper for pieces that are more easily processed by USPS equipment. Letter-size envelopes will fare the best, followed by flats (e.g. manila envelopes) and then parcels. Due to these changes, customers - particularly large companies that regularly send large volumes of mail - stand to save lots of money by conforming to the most cost-effective shaping standards.

PBI will gain in two ways as a result of shape-based pricing. First of all, demand will increase for products like the Shape Based Sizing Template, which helps mailers compute the exact, correct postage for their mail according to the new, more complex shape-based pricing rules. Secondly, demand will also increase for machines offered by PBI that fold mail into the specific shapes that cost the least to send under the new system; for example, customers will be interested in machines that will let them change mailings that are currently formatted as flats into letter-shaped envelopes (which are now less expensive). ^[11]

Competition

As mentioned above, the postage meter business is tightly regulated by the government because the meters essentially print money. Only four companies other than PBI are licensed to produce and sell postage meters in the U.S.^[12] These companies' 2007 revenues and revenue growth are listed in the following table:

Company	2007 Revenue (USD in millions)	% Revenue Growth Since 2006
Pitney Bowes Inc.	6130	7.0%[13]
Neopost	1324	2.4%[14]
Francotyp Postalia	212	1.5%[15]
Data-Pac	N/A	N/A
Hasler Inc.	N/A	N/A

Note 1: Neopost and Francotyp Postalia figures were converted from euros using the 12/31/2007 exchange rate of 1.4603 USD per euro. ^[16]
Note 2: Data-Pac and Hasler Inc. are not public companies, so revenue data is not available.

The data above clearly shows PBI's dominance in the postage-meter market - its 2007 revenues were more than 4.5 times those of its nearest competitor.

The following table compares 2007 revenues and revenue growth between PBI and the companies that are considered its competition in areas other than the postage-meter market; in order to make a fair comparison, the figures listed for PBI don't include its postage meter segments but the figures for the other companies - which don't operate in the postage-meter market - are completely inclusive. However, analyzing Pitney Bowes' competitive position in markets other than its core postage-meter segment is difficult because the other companies in these areas are more specialized than PBI.

Company	2007 Revenues (USD in millions)	% Revenue Growth Since 2006
Xerox (XRX)	17228	8.3%[17]
IKON Office Solutions (IKN)	4168	(1.4%)[18]
Iron Mountain (IRM)	2730	16.2%[19]
Pitney Bowes Inc.	2714	14.7%[20]
Bowne (BNE)	851	2.0%[21]

PBI's growth strategy involves some internal R&D, but predominantly revolves around acquiring smaller companies that are already leaders in their respective specialties.
The data shows that PBI is still a newcomer to the document services market, but it showed higher growth than most of its competitors in 2007.

References

1. ↑ Putting a New Stamp On Pitney Bowes, Smartmoney.com, 01/03/06
2. ↑ Pitney Bowes Fast Facts, 2008
3. ↑ Pitney Bowes Fast Facts, 2008
4. ↑ Wikipedia:Pitney Bowes
5. ↑ PBI 2007 10-K, page 11
6. ↑ PBI 2007 10-K, page 9
7. ↑ Putting a New Stamp On Pitney Bowes, Smartmoney.com, 01/03/06
8. ↑ PBI 2007 10-K, page 11
9. ↑ PBI 2007 10-K, page 4
10. ↑ USPS news release #07-041, 5-07-07
11. ↑ Print Professional Magazine, New View, March 01 2008
12. ↑ USPS - Postage Meters
13. ↑ PBI 2007 10-K, page 9
14. ↑ Neopost 2007 Annual Report
15. ↑ Francotyp Postalia 2007 Annual Report
16. ↑ X-rates.com Exchange Rate Data
17. ↑ Xerox 2007 Annual Report
18. ↑ Ikon Office Solutions 2007 Annual Report
19. ↑ Iron Mountain, Inc. 2007 Annual Report
20. ↑ PBI 2007 10-K, page 9
21. ↑ Bowne & Co., Inc. 2007 Annual Report

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