Why Zapmail ulitimately went zapped

1984 FedEx ZapMail Commercial Advertisement

How did it work

Industrial Analysis

FedEx is an international company with headquartered in US in express service industry. In the express market, the service providers are considered to be key players. Globally, the big competitors of FedEx are United Parcel Service (UPS), DHL and TNT. 

Based on the Porter's five forces analysis, we got conclusion that the failure of ZapMail was caused completely by the internal decision making mistakes.

Porter's five forces analysis

The express industry continued to increase till the year of 2009, when the potential new player entered into the market. There are possibilities that companies are diversifying their products by starting operating in the express industry. Or, an entirely new company with reputable brand enters into this market. It is quite hard to grab customers for new entrants from the long established companies. 

Context Influence

The industry and market

The global express industry market is dominated by four competitors： UPS, FedEx, DHL and TNT. These four have occupied more than half of the global market. 

Success of Overnight delivery

In 1973, when FedEx was founded,  the U.S. Postal Service and UPS provided the delivery services which would take several days to get the packages to the destinations. FedEx began to ship overnight which greatly reduced the delivery time. It was a great success in delivery industry. FedEx has controlled from 6 packages to more than 50% of the overnight delivery market worldwide.

Influence of Internet

The innovation of Internet has changed the world and reshaped the delivery service. Fred Smith has realized that growth of digital communications would significantly impact on FedEx’s overnight-delivery business. He was right. Electronic document delivery then became a great threat to FedEx. And the overnight market matured rapidly as well as the competition.

Non-standard fax machines

Fax machines were produced and used before 1984. At that time, quality of fax was poor and fax machines were expensive.  Very few companies acquired. 

The  world-wide delivery market growth and competition forced FedEx to search for new ways to expand market share.  Fred Smith then invested $100 million over 4 years to launch ZapMail.

FedEx developed its fax network by using specially designed fax machines and high-quality leased telephone lines. The quality of fax became better and price was affordable. The cost was $35 for up to 5 pages. With ZapMail, FedEx could deliver document within two hours. Compared with overnight delivery, time was shorter.

Industrial & Market Influence

More competition in the market appeared and searched for new market.

The zapmail project failed and cost FedEx nearly USD 317 million during two years’ service. The closure of the service cost the company another USD 340 million pre-tax write off. 

It was a big mistake. However, under earlier situations, it seemed to be a good innovation. There were triggers for this failed innovation.

a. Increasing competition in the industry, UPS, DHL, TNT.
b. The success of overnight delivery won FedEx in the market.

To be “absolutely, positively”, the founder of FedEx Fred Smith promoted the strategy to deliver within two hours. 

ZapMail preparation and launched

Fedex didn’t anticipate the rapidity with which enterprises would embrace fax machines during 1980s, obviating the need for zapmail almost before it launched.
Reality:
1. FedEx invested a big amount of capital in purchasing high-quality fax machine;
2. Big investment on the satellite network;
3. Huge capital on marketing and advertisement on TV was quite attractive;
5. Heavy workforce and big service center
6. Out of date fax machines

Closure of ZapMail project

ZapMail is actually a service instead of a product. A service is that buyers can own by themselves. In this case, rivals are not limited to other express companies, but also the fax machine manufacturers. Back in 1986, since the revenue kept lost since the launch of zapmail, Fedex had to stop the project under the capital pressure as well. It never happened for Fedex to have break-even. Meanwhile, the service center had to be closed and employees were re-arranged within Fedex. Fax machines purchased were re-sold to others as well.

Follow is the porter’s value chain analysis

“Indeed, many of the risks associated with an innovation stem not from the innovation itself but from the infrastructure into which it is introduced.”--(cited from Week 5 Readings, Innovation Risk: How to Make Smart Decision, Harvard Business Review, April 2013)

Document The technology forecasts done by FedEx(cited from annual report) 

Staying Ahead In the Information Age  

Market researches clearly indicated the need instantaneously move documents from one desk to another regardless of distance. ZapMail is a major step in that direction. This new service delivers reproductions of documents door-to-door almost anywhere in the country within one or two hours from customer contact. The quality of reproduction is extremely faithful to the original-achieved by combing state-of-the-art digital scanning and electronic transmission technology. 

The technologies are then used in concert with our nationwide ground courier force. We pick up the document (for the customer may took it to a Federal Express facility), transmit it from one ZapMail machine to another, and deliver it. 

ZapMail puts us far ahead in an industry that is under increasing pressure to move documents even faster and with total reliability. We expect that ZapMail will find a ready market among customers who do not have compatible, rapid communications equipment-or have none at all; and it will appeal to those who need a duplicate of the document rather than text only. 

Our retail-oriented Business Service Centers will play a large role in providing ZapMail service by reducing the delivery time and cost for customers who bring documents to us. By the end of fiscal 1985, over 300 Business Service Centers will be in place across the country. In addition to ZapMail and other classes of Federal Express service, each center will offer high-quality copying. There is also the added convenience of extended hours. (Annual report, 1984) 

Why the technology forecasts were inaccurate 

Although FedEx held a lot of confidence and expectation to ZapMail, this business discontinued only two years after it been launched. 

According to the concept of product’s life cycle( see figure 1), ZapMail may already failed in the introduction period. This failure proved that the technology forecasted were inaccurate. 

Figure 1 

The reasons why the technology forecasts were inaccurate

Customer base

Business Innovation is abou new value, not new things.
Innovation is relevant only if it creates value for customers.-cited from Week 6 Readings,12 different ways for companies to innovation
From the technological perspective, it was a new way of delivering documents, however, at the beginning stage of the new business operating, FedEx didn't transfer it to customer value and get a stable customer base to support them and guarantee the business.

Product or Service

To some extent, FedEx regarded the document faxing as a kind of service rather than a product. It is reasonable that FedEx being confident with the cheap costs and convenience that document faxing can bring to its customers, but for the customers, they will thinking about the faxing technology in the same way, which may lead to an increasing number of customers thinking of buying a fax machine themselves instead of paying each faxing service for FedEx. (wenku.baidu.com)

Building networks for document faxing

Due to being unable to figure out the role of document faxing, it was hard for FedEx to build a operating network. At the same time when FedEx built its faxing operating network by investing millions of dollars, the individuals and companies who bought fax machines themselves also built another faxing network which wasn't noticed by FedEx. (wenku.baidu.com)

Who are the real competitors

In this case, another reason is that when FedEx made this strategic plans and risk forecast, it didn’t figure out all the kinds of rivals it may compete with. Unfortunately, for the documents faxing idea, its own customers can actually be its competitors, who can buy the fax machine themselves. (wenku.baidu.com)

Key factors that led FedEx astray

Recommendations on what should have been done in the hindsight 

Conclusion

$300 million lessons - where did it go wrong?

Innovation on Context

A Canadian former ice hockey player once said, "I skate to where the puck is going to be, not where it has been." The massive loss of FedEx was due to the biased forecast of direction of the technology. FedEx saw that the fax machines in that era are quite expensive and quality was not good.Thus, the company planned to establish its unique network with the proprietary fax machines, but FedEx ignored the booming of global fax context and digital transmissions. 

At the time of launch year of ZapMail, the fax machines were expensive and digital transmissions were undeveloped, but the society and scientific technology was going to move forward, within two years, fax machines dropped in price and improved in quality. The users found that it's quite cost-effective to buy a fax machine to apply the public network. It's no doubt that the one that with more users was the winner. FedEx had been focusing on the market of traditional way of electronic service delivery from one place to another place and not saw the market of potential value of fax machines. It's true that information technology can lead to a company with highly profits, but underestimating the development tendency often got the company itself caught up in the adversity. 

What can others learn from the mistakes?

Pre-launching preparation

As a process innovation, ZapMail was of great venture for focusing on service not a physical product. hence, it was difficult to do user research and testing, let alone feedback. By starting weak, even if ZapMail could solve the current problem of electronic delivery, it still couldn't move on to the growth stage for instant success and soon after declined. Actually, the potential problem of ZapMail was lack of sufficient and complete pre-launch testing before introduction to the market, which led to the uncertainty. As designers or marketers of service innovation, before inputting it into the market in a large scale, have to check the new design technology and delivery process, and continually make adjustment and improvement according to the results in the small and limited application range.

Long-term vision for value-added service industry

As a service producer, ZapMail was engaged in a risk that the high value-added service with high cost often attracted the customers' attention to the concept of making it by myself for saving money. In the value-added service industry, companies need to take a long-term vision no matter in operation or in marketing, Relying on the short-term opportunity only to tackle the current technical problem would finally a flash in the pan.

History always intends to glorify the successful model, not the failed one. However, failure is a crucial and inalienable part of the updating technology.Unexpected failures often could leave us the profound revelation.

References

* Required Readings


1. A lesson before launching. (1998).Telephony, 234(5), 26.

2. Christine Winter., (1986). Federal Will Drop Zap Mail

3. Coopersmith, J., (2009). Failure & Technology. Japan Journal for Science, Technology & Society VOL.18, PP 93-118

4. Coopersmith, J. (1994). The failure of fax: When a vision is not enough. Business and Economic History, 23(1), 272.

5. Eric Bonabeau (2003), Harvard Business Review: Don’t Trust Your Gut.

6. Eric K. Clemons(1995). Using Scenario Analysis to Manage the Strategic Risks of Reengineering, Sloan Management Review/Summer

7. Federal Express Corporation, (1985) Annual Report

8. Harvard Business Review,(2013).Innovation Risk: How to Make Smart Decision*

9. Leonard L. Berry, A. Parasuraman (1992). Marketing services: Competing through quality.

10. Mohanbir Sawhney, Robert C. Wolcott and Inigo Arroniz.(2006). Twelve different ways for companies to innovate.*

11. Paul B. Carroll & Chunka Mui.,(2008) Billion Dollars lessons. What you can learn from the most inexcusable of the last 25 years

12. Whaley, M. (2008). Billion-dollar lessons: What you can learn from the most inexcusable business failures of the last 25 years.

13. William Pride, Ferrel, (2010). Marketing.

14. Zapmail & Satellite systems. (2014).Fedex website.

Websites

http://club.ebusinessreview.cn/blogArticle-17878.html

http://wenku.baidu.com/view/4b5b7e84b9d528ea81c77914.html

http://www.xzbu.com/3/view-739106.htm

http://www.worldonip.com/thezapmail.htm