In the midst of investing more than $1 billion in ZapMail, confident Federal Express Corp. executives enjoy talking about the early days of the company, only a decade ago, when times were so rough that one pilot en route to Federal's Memphis Superhub had to stop and pawn his watch to pay for jet fuel.
The reason for all the chatter about the early days at Federal Express is the similarity between the company's initial bet -- that people were willing to pay for highly reliable overnight delivery of packages and documents, and the company's recent launch of ZapMail, its two-hour document delivery service. In both cases, Federal made large initial investments to enter new industries where the long-term viability of the market, and the ultimate return on investment, were uncertain.
"Launching ZapMail is analagous to the initial launch of Federal Express," said Thomas R. Oliver, vice president of marketing. "This is a brand new, uncharted frontier. If you ask people what it was like in 1973 when Federal Express began, the same environment existed. There was a period of losing money in a new field that Federal Express believed had a tremendous future."
"This is similar to our first experience," said James L. Barksdale, Federal's chief operating officer, in a separate interview at the company's Memphis headquarters. "There were airplanes and pilots and there were trucks doing pickup and delivery, but putting them together created the new product."
With ZapMail, Federal Express is putting together an improved version of facsimile technology and its fleet of 10,000 vans. In the initial phase of ZapMail, the company is offering two-hour delivery, enabling customers to send high-quality duplicates of documents and drawings to recipients thousands of miles away in the United States.
Last week, the company filed an application with the Federal Communications Commission for authority to offer an international document transmission service between the United States and parts of Western Europe.
In this first phase, customers call Federal Express for a ZapMail pickup. A Federal Express courier picks up the document and takes it to the nearest Federal Express Imager I machine. The machine electronically transmits the document to the Federal Express facility closest to the recipient, where a high-quality duplicate is placed in a ZapMail envelope and delivered by courier within two hours. The price is $35.
By May 1985, Federal Express will lease 3,000 Imager II machines to some of its heaviest users. With the Imager II, customers can transmit and receive documents from Federal Express, eliminating the need for pickup, and in some cases, ending the need for delivery. In the third phase, Federal Express envisions firms with the Imager II machine sending documents directly to other companies that have the machine, with Federal Express leasing the machines and handling the electronic transmission. This step, however, is not viewed as critical to the overall success of ZapMail because Federal Express has its fleet of vans for pickups and deliveries.
The Imager technology and the fleet of Federal Express vans are designed to eliminate problems that have plagued businesses using previously available facsimile ("fax") transmission services. Those problems included poor quality, slow transmission and lack of compatible machines to send and receive documents.
In about five years, Federal Express expects 30 percent of its revenue to come from ZapMail. Within two months after Federal Express started ZapMail last July, the company carried 33,500 ZapMail messages in a month.
Federal Express' incredible growth in the overnight delivery business continued at 60 percent ahead of last year, despite increasing competition in that field. The company has responded to the increasingly competitive and crowded market by cutting prices. According to analysts, this has helped accelerate growth in a field where Federal Express already has an estimated 43 percent market share.
The company's ZapMail approach -- aimed at customers who want to send a copy of an actual document -- has been criticized by some analysts who believe long-term growth and profits in this market will be in high-speed data transmission services using computers and word processors. Western Union's Easylink and MCI Communications Corp.'s MCI Mail offer such high-speed data transmission services.
In MCI Mail, for example, a message can be typed into a computer that has access to the MCI system. The message may be sent through MCI to the recipient's computer or printed at a station near the recipient for hand delivery by a local courier. The service is less expensive than ZapMail but more difficult to use, particularly for lengthy documents. Nor can most users send charts and graphs as they can with ZapMail.
MCI Mail President J. Robert Harcharik said the service, which continues to lose money during its initial phase, has been used most effectively so far in situations where the sender wants to transmit a single message to hundreds or thousands of recipients. For example, a manufacturer who wants to send a single message to dealers can type the message into a computer in which a list of dealers' names and addresses already has been stored. With the push of a button, the manufacturer can send the message to thousands of recipients at a cost of only a few dollars for each recipient.
As the use of personal computers proliferates, MCI hopes the service can be expanded to substitute for the vast number of checks and invoices sent through the mail.
Federal Express believes managers will continue to need and want paper copies. The company's executives say they believe ZapMail will coexist with high-speed data transmission services such as MCI Mail. Analysts said they believe Federal Express is secretly planning its entry into the "computer mailbox" field, where growth is expected as offices are linked through computers, word processors and other computerized peripherals into one network.
Analysts note that Federal Express has applied for permission to launch two satellites in 1988, which would enable the company to enter the high-speed data transmission field if the market grows rapidly.
While Federal Express and MCI have conflicting views about whether the biggest profits will be in image transmission or data transmission, both have developed products that effectively capitalize on strengths developed in their core businesses.
At Federal Express, ZapMail takes advantage of the availability of Federal's fleet of vans between 10.30 a.m. when they finish most overnight deliveries and 2:30 p.m. when they start making most pickups for next day delivery. The MCI Mail system takes advantage of the tremendous investment the company has made in coast-to-coast cable primarily used for MCI's long-distance telephone service.
Nevertheless, Western Union, GTE, MCI and others in the electronic mail business continue to lose money both because the market is smaller than expected and because they face competition from companies offering office automation software that includes electronic mail.
While Federal Express expects ZapMail to generate considerable revenue, the company continues to emphasize the efficiency of its overnight delivery business, which keeps growing. Unlike competitors, which contract out some part of the delivery process, Federal Express achieves 99 percent delivery on the designated day. That record results from the fact that the company owns more than 60 airplanes and 10,000 vans, and employs the pilots and couriers who carry the packages, its top executives said.
A favorite story around Federal Express is that the company's founder, Frederick W. Smith, proposed the idea of sending high-priority packages and documents by air in a term paper for an undergraduate course at Yale University. The paper earned only a "C" -- but Smith's "C" idea generated revenue of $1.4 billion last year and net income of $115.4 million ($2.52 a share).
When the company announced larger than expected losses in September because of the high cost of launching ZapMail, the stock market reacted by pushing Federal Express stock down 6 5/8 points in less than a week, to 37 3/4. On Friday, Federal Express closed at 38 3/8, down 1/8.
Federal's clever, humorous television ads have worked well, according to the company's marketing chief. "Humor gets through people's indifference and gets them to pay attention. Humor works well for us because the underlying message itself is relevant," Oliver said.
The company will spend about $30 million on advertising this year, most of it on television, although the ZapMail campaign has been using both print and television. "The ZapMail message includes quite a bit more detailed information, and television is not a good medium for getting that sort of information across to people," Oliver said.
As the overnight delivery market has gotten more competitive, the company's initial advertising slogan, "When it absolutely, positively has to be there overnight," has been replaced by "Why fool around with anyone else?" The ZapMail slogan, "When overnight just isn't fast enough," is the latest addition to the award-winning campaign.