I recently published an open letter to the address verification industry, a group to which I’ve belonged professionally for over 20 years. In it, I critiqued our lack of innovation over the years and suggested another way: making global address verification better by using local intelligence.
As hoped, the letter spurred a lot of interesting dialogue. In hopes to keep the conversation going, I’m posting a series of blog entries that dig deeper into the themes of technology, address data and how we can meet the needs of our most demanding customers.
Let’s start with some of the history that made me aware of the problems we have in the address verification industry.
In 2008 I received a call from an executive with a prominent eCommerce company. He had been piloting a cross-border initiative in which customers from other countries could order from his website and he would ship their products directly from a U.S. distribution facility.
The experiment was not going well, he told me. Deliveries were getting lost, shipped back, or just taking longer to arrive than he (or the customer) expected. The problems stemmed from addresses. “Could you help me?” he asked.
I had worked in the address data industry for 15 years at that point and was currently Chief Operating Officer for a leading provider of generic global address verification services. We had accumulated a massive database of addresses which we licensed mostly from national postal operators. It covered 240 countries and territories. We solved the very problems the eCommerce executive was describing. Or at least we thought we did.
I asked him to send me some address files, and I’d have my team run them against our database.
When the results came back, I was pleased. We had cleaned up his files nicely and our analysis said he could confidently ship his packages to nearly every address. But when I called him back to share what I thought was good news, he just sighed.
“No, this won’t do at all,” he told me. “You’re quick to tell me to ship, but I happen to know these addresses are incomplete. You’re asking me to put my packages into the postal stream and trust that the local infrastructure to do the dirty work to get it delivered.”
He had conducted the same test with other “generic” global address services, and they all came back the same. As hard as I tried, I didn’t have a good response to his points.
“When you figure out how to solve that last mile problem before I ship,” he concluded, “give me a call. But for now what you have just isn’t good enough.”
His criticism stung, but it wasn’t entirely unfair or inaccurate. Since the dawn of our industry in the 1960’s, we global generic address companies had struck a Faustian bargain with our primary customers – direct mail businesses and the vendors that provided them support. If we could supply them a good enough service for a cheap enough price, the bargain went, they would license our address data. But if we raised the price for any reason, they would just stop using us.
It sounded brutal (and it was), but it made sense for the problem they wanted us to help solve. They sent mailers en masse. These were inexpensive cards and envelopes that often went out in batches of many thousands at a time. It often didn’t matter if some percent of them didn’t get delivered. It was a volume game with everyone operating on tiny margins. Our job was not to get every envelope delivered. It was more of an actuarial calculation: if they could use us to cull out some small percentage of the bad addresses, the pennies they spent on us would save them at least that much in postage costs.
And then we had our dirty secret: our False-Positive Bias. If we could verify an address to a locality level, confirming, for example, that the street existed even if the number was wrong – we would call the result reliable and advise the customer to send it.
Because we knew most countries have impressive last mile delivery infrastructures. If you can get mail to the locality level, the people in the post office were really good at fixing your mistakes and getting the letter where it needed to go. It would take longer to get there because it had to go through exception processing, but the direct mail customers were generally okay with that. As long as the right percentage got through and our prices stayed low enough, the Faustian bargain held.
At the time the eCommerce executive contacted me, over 70 percent of our revenue came from customers related to direct mail. We were beholden to their requirements, and to be candid, we weren’t making very high margins ourselves. This was not exactly an environment conducive to innovation.
Without investing in a lot of improvements, we were never going to be good enough to satisfy the eCommerce industry’s needs. Their requirements were based on precision and spend – they expected every package to be delivered…and quickly! Mis-delivery cost them shipping and product losses and slow delivery cost them customers. The “good enough” approach that defined the generic global address industry – that False-Positive Bias – wouldn’t cut it.
For the next couple years I watched eCommerce trends closely. I saw cross-border shipping accelerate, growing rapidly quarter over quarter even while the address problem persisted. They hadn’t yet found good alternatives to meet their needs.
There is an opportunity here to do something useful, I remember thinking to myself, if only we can find a way to take the local intelligence that’s so good in delivery and apply it earlier in the chain of events for shipping packages. We needed to find a way to apply local intelligence in the address verification process. Before a package ever leaves the warehouse.
Two years later, during a trip to Brazil, I finally saw a way forward. More on that in my next post.