Pitney Bowes Inc.

1902–1927

Pitney Bowes Inc. (PB) is the world's largest manufacturer and supplier of postage meters and mailing equipment. The company originally built its reputation on its postage meter invention and other paper-mail processing products, but has been expanding its scope to keep up with the electronic information age. With respect to product development, PB's main areas of focus now lies in traditional paper mailing systems, electronic billing and mailing systems, and computer software solutions. The company also provides business support services and financial services to customers worldwide. PB remains the world's leader in the production and leasing of postal meters, which are used by postal services in countries around the world. PB controls about 85 percent of the U.S. postage meter market, and about 60 percent of the entire world market. More than a quarter of the firm's revenue derives from its non-mail-related businesses.

The Early Years

Pitney Bowes' beginnings can be traced to the year 1902, when Arthur Pitney patented his newly created postage-stamping machine. He then spent the next 12 years fine-tuning it and attempting to gain acceptance and financial backing for the product from the postal service. Pitney's machine offered a solution for the U.S. Post Office, which was confronted with the impracticality of the adhesive postage stamp in the face of the increasing volume of mail. The postage-stamping machine would stamp the mail at its source, while also keeping track of the amount of postage used. This method helped save labor and also decreased costs for both the postal service and the businesses using the machine. Although the machine achieved impressive results when tested by the post office in Pitney's hometown of Chicago in 1914, ultimate approval did not come until after World War I.

Meanwhile, in New York, Walter Bowes's Universal Stamping Machine Company was doing brisk business with the U.S. Postal Service, providing stamp-canceling machines on a rental basis. Bowes also had some international success, selling his machines in Germany, England, and Canada. In 1917 Bowes moved his operations to Stamford, Connecticut, a location which evolved into the company headquarters for years to come. Although Bowes's machine was profitable, he worried that Pitney's similar invention would render it obsolete. Thus, in April 1920, the two men decided to pool their resources.

The merger of Pitney's American Postage Meter Company and Bowes's Universal Stamping Machine Company created the Pitney-Bowes Postage Meter Company. The day after the merger officially took effect, Pitney and Bowes succeeded in pushing legislation through Congress to allow all classes of mail to be posted by meters instead of stamps, and the Pitney-Bowes postage meter was licensed for use throughout the postal system.

By 1922, PB had branch offices in 12 cities and 404 postage meters in operation. In the same year, Bowes's previous international experience paid off and PB's postage meter was approved for use in England and Canada. PB experienced early growing pains, however. As the meter gained exposure in the early 1920s, demand for the machines began to outpace the company's ability to manufacture, distribute, and service them. Also, it was thought in many quarters that PB enjoyed a government-created monopoly. Thus, in its first decade of existence, PB's scope of operations was limited by government regulation--lobbied for by PB's competition--restricting PB from reaping the advantages of its technologically superior product.

Expansion Efforts in the Early and Mid-1900s

In 1924, Arthur Pitney retired from the company after a dispute with Bowes and started a company of his own, manufacturing postage-permit machines to compete with PB's meters. Even without Pitney, the company name remained Pitney-Bowes, due to the recognition factor the name had earned throughout those first four years. After the cofounder's departure, however, uncertainty reigned at PB, and Walter Wheeler II, Bowes's stepson, was promoted from New York branch manager to general manager in Stamford in an attempt to utilize new leadership and find new direction.

PB's share of the market was still uncertain because of the postal service's equivocation on postal regulations. Permit mail required counting to assess fees, while metered mail did not; but the postal service, wary of establishing a monopoly for PB, required all mail to be counted. Although PB's future hung by a thread during the early and mid-1920s, by 1927 the company had 2,849 meters in operation and branches in 20 cities. Finally, after a Congressional hearing at which Arthur Pitney testified by letter against preferential treatment for the system he invented, a bill to impose uniform regulations on permit and metered mail was killed in the Senate. The postal service was free to exercise its preference for the more efficient, reliable, and safe postage meter. From that point on, first-class mail was posted only by meter or adhesive stamp.

Postal Service had a $2 million budget surplus in fiscal 1939, largely due to the efficiency of the metered-mail system.

1929–1960

Pitney-Bowes began to grow and diversify, producing machines for stamping, counting, canceling, and metering mail. PB's 1929 profit of $300,000 represented a 100 percent increase over that of the previous year. The company expanded abroad as well, establishing cross-licensing and patent-sharing agreements with similar firms in Great Britain and Germany. Throughout the 1930s, government restrictions on the metered-mail business eroded, and Pitney-Bowes's field of operations grew wider. By the end of 1933 there were 9,620 PB postage meters in service.

The Great Depression meant retrenchment at Pitney-Bowes, as it did in most sectors of the economy. PB was fortunate to be in a growth industry and did not face critical financial difficulties, but its profits shrunk considerably during these years. The company was forced to cut wages by 10 percent and also suspended stockholder dividends. The union movement received a boost during the Depression, but found little support at PB, which had provided benefits to its employees for years. PB emerged from the Depression earlier and healthier than most firms, partly due to the nature of its product, and partly due to the leadership of Walter Wheeler. He became the company president in 1938.

Pitney-Bowes's success in the industry and the further relaxation of postal service restrictions on metered mail stimulated competition in the production of postage meters. Many small firms sought a share of the market, as did some heavy hitters, including IBM and NCR. Nonetheless, PB consistently kept ahead of its competition. Its development of the omni-denomination meter in 1940 was a breakthrough in the industry. Not only was PB prospering, with over 27,000 meters in service in 1939, but the U.S. Postal Service had a $2 million budget surplus in fiscal 1939, largely due to the efficiency of the metered-mail system.

Like most other large manufacturers, PB converted its plant to defense production during World War II. PB's wartime priorities, as established by Walter Wheeler, were maximum production of war goods, maintenance of meters in operation to handle American mail, and planning for postwar manufacture of new products. The production of postage meters was completely halted during the war. Instead, PB manufactured replacement parts for guns, aircraft, and radios, and was a four-time recipient of the Army-Navy "E" Award, given for excellence in wartime production.

Post-World War II Diversification

In 1945, anticipating the broadening of its product base, Pitney-Bowes Postage Meter Company shortened its name to Pitney-Bowes Inc. By the end of 1947, the number of PB postage meters in service had more than doubled to over 60,000 in less than ten years. PB expanded and modernized its plant and office space in Stamford to accommodate projected growth. Two years later, PB introduced a desktop postage meter, which brought small business customers within its reach. Further diversification continued with the acquisition of the Tickometer Company, whose namesake product counted paper items such as labels and tickets. PB simplified the Tickometer machine's design and promoted its use for many new purposes. For the most part, though, PB limited its diversification to fields related to those functions performed in mail rooms.

Throughout the 1940s and 1950s, Wheeler worked hard to maintain good labor-management relations and progressive incentive, benefit, and profit-sharing plans. This was reflected in a high rate of productivity at PB, and in the decision of the majority of workers not to seek union representation. The wisdom of this strategy was demonstrated by PB's continual outperformance of its competition during those years.

By 1957, however, due to the virtual disappearance of domestic competition, PB was faced with government antitrust action. The company cooperated fully with investigators. Wheeler even went so far as to prepare a 12-volume history of Pitney-Bowes and submit it to the Department of Justice. Wheeler maintained, as he always had, that it was PB's productivity, efficiency, and personnel relations that made it difficult for other companies to compete, not anti-competitive practices. PB eventually agreed to sign a consent decree that required the company to license its patents to any manufacturer who wished to compete, at no charge.

In 1960, when Walter H. Wheeler retired as president and chief operating officer, PB had 281,100 postage meters in service and metered mail accounted for 43 percent of U.S. postage. PB's gross income was over $57 million. Furthermore, products other than postage meters accounted for 20 percent of the company's gross income, a result of PB's increasing diversification measures.

1967–1991

Entering the 1960s, diversification became an even more important facet of PB's strategy. Because PB no longer had a monopoly in the postage-meter market, diversification into new product areas was necessary for company growth. In 1967, the company established a copier-product division whose first product was a tabletop office copier. Although PB was a latecomer to a market already dominated by Xerox, its copiers had two advantages: they were reasonably priced, and included excellent service packages. Service had long been a hallmark of PB's operations because the U.S. Post Office never allowed PB to sell its meters, only lease them. PB was responsible for the day-to-day operations of every meter it leased, so a large service fleet was already in place. This service team made expansion into other markets much more manageable.

The following year, PB acquired Monarch Marking Systems, which soon grew into the largest U.S. supplier of price marking, merchandise identification, and inventory control equipment and supplies. By the end of the decade, PB's sales of postage meters, while still growing, accounted for only just over 50 percent of its total sales. Pitney Bowes dropped the hyphen from its name in 1970.

The 1970s and 1980s

In the early 1970s, PB began to experience financial losses that stemmed from a joint venture with Alpex Computer Corporation to manufacture point-of-sale terminal systems. PB was forced to write off its 64 percent investment in the venture, at a loss of $42 million. More modest losses from this venture continued to mount for several years, due to disputes with the Internal Revenue Service over allowable write-offs and an $11 million lawsuit filed by Alpex.

By the late 1970s, however, PB was back on track. The company established leasing companies in the United States and in the United Kingdom in 1977 to support marketing efforts for its business products. This was a record year for the company, with both postage meters and price-marking systems posting record sales. In 1979 PB made a major acquisition, adding the Dictaphone Corporation and its subsidiaries Data Documents and Grayarc to the company, for a $124 million price tag. The purchase made PB the worldwide leader in sales of voice-processing and dictation equipment, while still enjoying a 90 percent controlling share of the postage-meter market.

In the early 1980s, PB made moves to solidify its standing as the country's leader in the mail-room and office equipment market. It first filled a gap in its copier line in 1981 by arranging a marketing agreement with the Ricoh Company of Japan to make its tabletop model available in the United States. This increased the number of copier models marketed by PB to eight. PB also received a $111 million contract from the post office to help further automate the handling of mail by developing computers to "read" envelopes and parcels. PB then entered the facsimile machine market in 1982, and soon became the leader in new placements of facsimile equipment. The company became one of the top suppliers of fax machines to large and medium-sized businesses in the United States, and began seeking new international markets by the late 1980s.

Keeping in line with company policy to compete mainly in markets in which it was guaranteed a prominent share, in 1987 about 80 percent of the company's sales were in industry segments that PB led. The Data Documents subsidiary, however, deviated from this standard, and was sold in 1988. The company also laid off 1,500 workers, underwent a costly retooling in 1989, and began to push more sophisticated mailing systems, like its Star system, which picked the most efficient carrier method for each package. In addition, PB got a boost from the U.S. Post Office, which began pushing big mailers to use bar-code envelopes.

The 1990s and Beyond

Entering the final decade of the century, PB saw its sales surpass the $3 billion mark for the first time in company history, topping off at $3.2 billion in fiscal 1990. Furthermore, the company's extensive sales force had earned PB a 45 percent share of the market for fax machines in corporate America. Following the course charted by that success, the company continued to penetrate the domestic market for business machines with the introduction of another line of copiers in 1991. This line of machines, the 9000 series, was targeted mainly at large businesses. The year 1991 also saw the introduction of computerized software programs focusing on automated freight management, address and mail list management, and medical records transcription.

1993–2001

The 1990s ushered in the "information age," which included an increase in communications by electronic means, in the form of both facsimile and electronic mail. PB attempted to keep pace with the world's new communication needs, shifting its operations from a mechanical base to that of computerization and software solutions. In order to ease the transition, the company instituted a program of self-directed work teams on both the production floor and in the management ranks. PB also trained its management and sales teams to become proficient in the use of computers. The changes helped to integrate the ideas and actions of everyone in the company, while also technologically enabling PB to more easily expand its scope in line with technological advances.

Meanwhile, PB worked to maintain its standing as the country's leading producer of mail-room equipment. In fact, its work in that area was honored in 1993, when the company was featured in the National Postal Museum in Washington, D.C., a recognition of numerous PB innovations throughout history. The company also continued to expand worldwide, nailing down deals with three other countries in 1994. PB introduced its popular Paragon mailing system in Germany, while it also began to aid China and Mexico in the modernization and automation of their postal systems.

The following year, PB sold its Dictaphone subsidiary to an affiliate of Stonington Partners, a New York investment group, for $450 million. The company also divested its Monarch Marking Systems subsidiary, selling it for $127 million. More sales and service offices were opened in Europe, and product development efforts utilizing new technology continued. An important introduction in late 1995 was a computerized mail tracking and accounting system called PostPerfect.

PB promoted a new chief executive in May 1996, Michael Critelli. The change in leadership came after a slump in the company's stock price, and a siphoning off of its customers to competitors. PB lost approximately 2 percent of its customers over the first nine months of 1996, and it was becoming increasingly apparent that the company would have to move fast to prevent further slides as electronic mail became more widely used. PB's customers were primarily large businesses. These big companies generated over 40 percent of all U.S. mail, and serving them had long made PB one of the most profitable business supply companies. But it was more difficult for PB to reach smaller businesses, and this is where new competitors began to see opportunity. By 1996 PB was making a concerted effort in this area, marketing smaller postage meters and cutting-edge electronic mail technology. By 1997 PB had developed software that converted mailing lists into addressed envelopes with postage printed on a personal computer. Other companies too, such as the California-based E-Stamp Corp., also developed such a system. Postal Service regulation made the implementation of PC-based metering slow, and technical problems abounded. Hand-addressed mail or mail bound outside the United States could not be simply metered using the software, and even the size and design of the metered mark (called the "indicium") was contentious. Yet the PC-generated indicium was capable of encoding far more information than a typical bar code, which could allow an individual letter to be tracked easily. PB, E-Stamp, and its European competitor Neopost Inc. vied in the late 1990s to come up with easy-to-use and efficient PC-based meters that could be utilized by any business large enough to have a computer. PB's outlook changed, then, from a near-monopoly company with little to worry about to a much more entrepreneurial enterprise trying to break a new market with new products.

Pitney Bowes also divested some businesses and acquired others. In 1997 the company sold part of its leasing portfolio to GATX Corp. for $460 million. Because PB had always leased its office equipment, it had gradually built up a business leasing other equipment for its customers, including large items such as airplanes, railcars, and barges. It sold off this portion of its business to GATX, a Chicago-based company that specialized in leasing transport, mostly because it did not fit with the company's core business model. In 1998 PB sold its subsidiary, Colonial Pacific Leasing Corp., to Capital Services, a division of General Electric. Colonial Pacific specialized in leasing equipment to small and mid-sized companies. Though the unit was profitable, PB preferred at this point to rid itself of businesses that were not closely related to mail and messaging. It also sold off a mortgage servicing company it owned, Atlantic Mortgage & Investment Corp., for roughly $490 million. PB had a record year in 1999, with revenue growing 8 percent, to $4.4 billion. The company's profits also grew sharply, topping $1 billion for the first time. The company bought two smaller firms in 2001, paying $24 million for Alysis Technologies Inc. in March, then buying a unit of Danka Business Systems for $290 million the next month. Alysis, based in California, made software for billing over the Internet. PB acquired the international business of Danka, which provided document management services. It made other international acquisitions too, buying the French mailing company Secap and some overseas business units of Bell & Howell's International Mail and Messaging Technologies. At the end of 2001, PB spun off its fax and copier division, forming a new publicly traded company called Imagistics International Inc.

By the end of 2001, PB seemed to have come through all the changes of the 1990s well, and was poised for more growth in the decades to come. Though the volume of regular mail had dropped due to the increase in faxes and electronic mail, PB had shown itself able to adapt its business. It had promising new markets in administering mail services for clients and in developing more and varied electronic mailing and bill-paying products. While about three-quarters of PB's revenue came from its traditional postage meter business by 2001, its non-mail business was growing quickly. The company expected to find more ways to serve its key markets even as technology altered the terrain.