Stamps.com: Maintaining a Leadership Position 475postage meter without going to the post
office and standing in line.
The next day McDermott shared his frus-
tration with fellow students Ari Engelberg
and Jeff Green, and the three of them started
brainstorming. Why wasn’t it possible to
purchase and print postage using a PC and
an Internet connection? With a little research
they discovered that the U.S. Postal Service
(USPS) had already had the same thought.
The USPS had recently established the
Information Based Indicia Program (IBIP)
to test PC Postage™. The program planned
to use an Information Based Indicia (IBI), or
multidimensional bar code, that could be
printed on envelopes or labels. These indicia
would contain information such as the
amount of postage, zip code of origin, desti-
nation, mail class, and weight.
Later that year, McDermott, Engelberg,
and Green formed StampMaster, Inc. and
enrolled that company in the IBIP. In the fall
of their second year in the MBA program,
the three nascent entrepreneurs wrote a busi-
ness plan for their company, envisioning a
venture that would develop software which
would enable customers to print postage in
their homes or offices if they had a comput-
er, an ordinary laser or ink jet printer, and an
Internet connection. They submitted their
plan to 25 venture capital firms without suc-
cess. The potential funders were reluctant to
bankroll a start-up that was dependent upon
the Post Office granting a license. Further,
they would have to compete against Pitney
Bowes’ postage meter system. But after nine
months the three partners finally secured $6
million in financing from three venture capi-
tal (VC) firms, which allowed them to
assemble a technology team and start devel-
oping the software for their company.
In August 1998, the new venture received
USPS approval to beta test their software byINTRODUCTION
Jim McDermott, Ari Engelberg, and Jeff
Green are legends at UCLA’s Anderson
School of Management because the company
they created while they were MBA students
there in the late 1990s quickly became a
resounding success. A mere two years after
the trio graduated, their Stamps.com attract-
ed over $55 million dollars in its IPO. Since
that time the company has been a dominant
player in online postage, cornering as much
as 80 percent of the market. But the compa-
ny will face many new challenges in the next
few years, including new forms of PC
postage, new competitors, and old competi-
tors with a revamped strategy. Can
Stamps.com maintain its leading edge?WHO IS STAMPS.COM?Company History
In the spring of 1996 Jim McDermott, an
MBA student at the University of California,
Los Angeles, happened to run out of stamps
in the middle of the night while he was
preparing to send out resumes for a job
search. Even though McDermott lived
across the street from a post office, he was
stuck. In 1996 there was no way for an indi-
vidual or even a business to purchase postage
outside of regular business hours. Further,
there was no way to buy stamps or refill aCASE 5
Stamps.com: Maintaining a Leadership Position
Source:By Mimi Dollinger, Marc Dollinger, and
Christopher Tucci. This case is based on a case prepared by
MBA candidates Ping Chen, Beth Flom, Rachel Glube,
Margot Krikorian, and Karen Rothenberg under the supervi-
sion of Professor Christopher L. Tucci, distributed by the
Berkley Center for Entrepreneurial Studies at the Stern
School of Business, New York University. The earlier version
appeared in Marc J. Dollinger’s Entrepreneurship:
Strategies and Resources, 3rd. ed. (NJ: Pearson Education,
Inc., 2003.)