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Zooming into a fresh model: Westlake Village firm has new funding, strategy, CEO

By   /   Thursday, June 9th, 2011  /   Comments Off on Zooming into a fresh model: Westlake Village firm has new funding, strategy, CEO

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Zumbox, the Westlake Village company working on a digital mail system tethered to physical addresses, has a new $9.7 million round of funding, a new CEO with a track record of success and a new business model that doesn’t depend on electronic junk mail.

Zumbox is a tech startup that came out of stealth mode in early 2009 with a digital mail system that differs from e-mail. The free-to-use system is curated, meaning that Zumbox controls who gets in and can send you mail, compared with the Wild West of e-mail.

You must retrieve a PIN number from your physical mailbox, tethering your corporeal address to your virtual one. The system doesn’t open and scan your mail. Instead, it works with the people who send your bills to divert a file that would be printed on paper into your Zumbox.

The company was built on the basic idea that while most of our correspondence now takes place electronically, billions of dollars are spent every year sending paper. Paper persists because it meets some need, either for mailers or consumers, that e-mail doesn’t. If Zumbox could pinpoint that need and come up with an electronic solution, it would have a home run on its hands.

But that has proved harder than it sounds. Zumbox is now on its third CEO and its second big round of funding. For the first part of its life, Zumbox focused on giving direct marketers — the polite name for people who send junk mail — a way to target recipients geographically.

Zumbox raised an $8 million Series A round in 2008 and 2009, and founding CEO Maury Friedman handed the baton off to Donn Rappaport. Rappaport was the founder of ALC, a data marketing services company — the polite name for the people who track your habits and sell that information to junk mailers.

The business model back then was for Zumbox to sell eyeballs. Inboxes were free, and Zumbox would let billers, governments and nonprofits send mail for free in order to build up a user base. But advertisers would pay 5 cents per digital “letter.”

Users could opt out of messages from each new marketer, but in the end it was still spam with a stop button.

“We still feel that the advantage we have [over e-mail marketing] is geo-targeting — it’s very specific,” Glen Ward, then the president of Zumbox, told the Business Times in 2009.

Now, Ward and Rappaport are out — no mention of them remains at Zubmox’s listing of its current leadership — and John Payne is in as CEO. Payne is the former CEO of publicly traded Stamps.com. While there, he pushed the company to its $65 million initial public offering and a $365 million secondary offering co-managed by Goldman Sachs and Salomon Smith Barney.

Payne has a new strategy, and in late 2010 Zumbox disclosed a $9.7 million round of fundraising that he’ll use to execute it. Zumbox will now focus on what Payne calls “transactional mail.” That means account statements, important bills, tax correspondence, late notices and “all of that very valuable stuff that you actually want to have happen,” Payne told the Business Times.

People still get a lot of transactional mail on paper for two reasons, Payne said: They are afraid the companies they do business with will only keep e-statements available online for a few months, and they don’t want to hunt down documents across dozens of sites.

Payne says he discovered that what people really want is a digital equivalent of a filing cabinet for important mail.

“We did this really creative thing — we went and talked to our customers,” Payne said. “When you talk to our customers and American citizens about their mail, what they basically tell you is that they don’t want a better place to get junk mail. What they do want is a secure, authorized way to deliver their transactional mail and a place to store it forever.”

So that’s what Zumbox will now provide. It will make money by charging the big mailing companies to access its users. Governments and billers will no longer get to use the system for free. But the idea is that they will still save money compared to paper. Zumbox has signed some of the transactional mailing industry’s biggest players: DTS Output and Crawford Technologies, big senders of commercial transactional mail, and GovDelivery, a big sender of government transactional mail.

“In rough numbers, the transactional mail industry spends almost $60 billion a year in the U.S. sending almost 40 billion documents to consumer households,” Payne said. “The mailers pay us a little bit to avoid paying a lot for paper and ink and postage.”

With a new business model ironed out, Payne is hoping that the wave of cost-cutting inspired by the financial crisis spurs big mailers like credit card companies to get serious about their paper suppression programs, which he said have stalled at about 20 percent of customers.

“For a long time, people had been just accepting high levels of spending on sending paper to people,” Payne said. “What used to not be a very focused effort is now a very focused effort to reduce costs.”

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