Is the U.S. Postal Service obsolete?

The United States Postal Service is one of America's oldest institutions, in one form or another dating all the way back to Ben Franklin's day. Today, however, the financial viability of the USPO is in serious question.

According to a report (PDF) released this month by the Government Accountability Office (GAO), the Postal Service is in deep trouble. Mail volume has decline from 2007 to 2009 and, in 2009 alone, mail volume dropped by "a record 26 billion pieces, while revenue dropped nearly $7 billion."

All this brings rise to the question posed above, should the U.S. Postal Service stop carrying letters altogether? Is the Post Office obsolete?

Next: Anyone with a computer understands the problem »

Anyone with a computer understands the problem

Most of us don't send First-Class Mail letters anymore, with the possible exception of when we pay some bills. Sure, around the holidays, we might send out some cards, but even then, we're sending more and more electronic cards and less of the old paper variety.

There's also the issue of disadvantaged Americans without access to the Internet. The Internet is a fact of life now and even the very poor will have to get online or risk being even further marginalized, Post Office or not. This is a very serious problem that goes well beyond the Postal Service, because being online is now a virtual necessity to participating functionally in our society.

The loss of First-Class Mail revenue is a brutal problem for the Postal Service, because "this mail is highly profitable and generates over 70 percent of the revenues used to cover USPS overhead cost". Yep, income from the one type of mail that pays the bills is dropping because no one uses it anymore.

First-Class Mail income dropped 19% since 2001 and the USPS expects it to plummet another 37% in the next 10 years. Don't expect advertising mail to save the Post Office's bacon, either. Revenue from advertising mail has remained flat, although it's profitable. And while the GAO doesn't say this, it's clear to any of us who watch online trends that advertising postage revenue won't remain flat -- it's going to drop like a stone since more and more advertising is going digital.

Next: The competition is free »

The competition: free

As the Postal Service keeps trying to increase rates to make up for the huge losses, more and more companies will be forced to do more and more communication online, instead of through the mails.

Back in the days before the Internet, the software company I worked at used to do both promotional mailings and upgrade notifications via snail mail. We did an upgrade once and it cost us more than $100,000 just to tell people we had a new version of software. Nowadays, software developers just post a note on Twitter or their Web site or -- worst-case -- send an email to the opt-in subscriber list. Each option is basically free.

This is the competition the Post Office is facing: $100,000 or free. Free will win.

For a while, the PO used to make bank from consumers paying their bills. But as more and more Americans pay their bills electronically, this source of income is also drying up for Big Letter.

Essentially, the Postal Service is screwed. They've been pitching rate increases and trying to find ways to cut costs and cut employee compensation. There's a problem here, as well. First, the PO is required by law to provide salary packages pretty much on par with what the "private sector" would pay for comparable work. So the Postal Service can't cut employment costs by all that much.

Even more of an issue is the number of employees they have. At the end of 2009, they had about 712,000 employees on payroll, making them the largest civilian federal agency. Downsizing would mean shooting up the jobless numbers, a statistic our politicians can't stomach.

So the U.S. Postal Service is stuck. They're losing money hand over fist, they provide a service that's essentially a buggy-whip business, they can't cut salaries, and they can't cut head count.

At least this time it's not China's fault.

Next: One approach that'll freak people out »

Could Finland have the answer?

There is one approach that's interesting: emulate Finland. Finland is running a test in the southern part of the country. Their idea is to skip the whole letter carrying process altogether, scan in all mail, and distribute the scans online.

On one hand, the idea could save a lot of time, money, and even save pollution. On the other hand, privacy advocates are freaking the frak out. Can you imagine how the right wing would react in this country if the Postal Service, under the Obama administration, announced that you'd no longer get your mail in your mailbox, but instead everything was going to be scanned in?

Glenn Beck's brain would explode. Rush Limbaugh would need a whole new series of prescriptions. Sarah Palin would need to write notes on both hands. It'd be insane.

Technically, this is workable here in the United States. One company, Earth Class Mail already does this. For $20 or $40 a month, depending on the plan, they'll scan in all your mail and you can download it from their site. This is ideal for highly mobile consumers and those who travel a lot, but it does come with a lot of privacy concerns.

That said, if the Postal Service offered something like Earth Class Mail as a free service to voluntary customers, it'd likely reduce their costs considerably. And if the USPS employed a freemium model, where basic scanning was provided free of charge and all sorts of neat upsell services were provided in addition, the service might find a way to both reduce costs and make a profit.

Maybe. The bottom line is this: the Post Office was an important service in Ben Franklin's time. It might well be an anachronism today. Like print newspapers and magazines, the potential demise of the USPS may well be another unintended side effect of the Internet.

P.S. Somewhere inside Google, you gotta know some egghead's figured out the answer to this problem and the Google Post Office will come out in beta real soon now.