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  • ZIP codes revolutionized businesses

    Set up mostly for mailing, it eventually became a way for companies to organize and analyze socioeconomic numbers
  • Before email or cellphones or even the fax machine came a revolutionary advance in how people get information to the right destination: the ZIP code.
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  • Before email or cellphones or even the fax machine came a revolutionary advance in how people get information to the right destination: the ZIP code.
    Fifty years ago this week, the U.S. Postal Service rolled out the codes to make it easier to sort a surge in post-war mail.
    Instituted during a summer when Harmon Killebrew blasted 45 home runs for the Minnesota Twins, the humble addition of five digits to every address in the United States turned out to be momentous, and not just for the Postal Service.
    "The post office built this system of little geographical areas and laid it down on a map of the United States and it made sense for delivering mail," said Jay Coggins, an applied economist at the University of Minnesota. "And it turned out to be a very convenient way to measure all sorts of socioeconomic and health numbers."
    Banks and insurers now use ZIP codes to analyze mortgage risk and set premiums, real estate firms use them to organize listings, and retailers use them to decide where to build new stores. A recent analysis by the Postal Service's Office of the Inspector General and IBM estimates the annual value of ZIP codes at $9.5 billion.
    The largest benefits are enjoyed not by the post office or large-scale direct mailers, said Jeff Colvin, a research director at the Office of the Inspector General.
    "It was really people outside of that who used the division of the country into ZIP codes for all kinds of purposes to organize their own businesses," Colvin said.
    ZIP codes are now an integral part of 20th-century technology, such as credit card authorizations, and 21st-century technology, like mapping programs on smartphones. The U.S. Census Bureau churns out rafts of ZIP code-specific economic data.
    What's remarkable is that this was all an accident. In the early 1960s, the Postal Service just needed a better way to sort mail and was eyeing automated sorting. Before July 1963, mail was largely sorted by address. Mail volume exploded after World War II, and hand-sorting it all became nearly impossible.
    West Germany had just rolled out postal codes and achieved 80 percent adoption in one year, so Postmaster General Edward Day introduced the idea of ZIP codes at a conference in October 1962. Believing the new system needed heavy promotion, Day also introduced the cartoon character Mr. ZIP. The launch of the new system was met with grumbling by some companies, but it quickly caught on, thanks in part to the aggressive publicity campaign.
    By 1969, 83 percent of Americans were using ZIP codes, and in 1983 the Postal Service added four digits.
    The codes fill a specific need in geographic data analysis. Lots of research is done at the census tract and county level, said UM's Coggins. ZIP codes are in a research sweet spot between tracts, with between 1,500 and 8,000 people, and counties, which can include millions.
    "There's lots of work that deals with ZIP code areas," Coggins said.
    Timothy Taylor, managing editor of the Journal of Economic Perspectives based at Macalester College, calls ZIP codes "an open-source product for organizing data by geography." It's difficult to put a dollar figure on the value of the system, but it improves economic efficiency, he said.
    "If the ZIP code had been invented and maintained by a private company, and it was being licensed to other firms (including the post office), that company would certainly be worth a few billion dollars," he said in an email.
    That's not something postal officials had in mind in 1963.
    "Like a lot of wisdom, it was a lot of luck," Colvin said. "I don't think they thought through, or could have thought through all the extensive uses businesses and otherwise would make of the innovation."
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