Believe it or not, 2012 was a positive year in the office printing industry. Sure there was no shortage of doom and gloom, which make for a good headline or scare tactic, but amid the challenges, something very encouraging happened. After years of dealing with the obstacles facing the printing industry in a tactical manner, this year it appears that more vendors actually came to accept the changes that are taking place and started to strategically change with it. That’s a good thing.
So with that, I give you my take on the office printing industry’s major trends and events of 2012. It’s not all good news, but it’s what happened.
The Secular Paper Cliff
It’s official. Printing behavior is changing, page volumes are falling, and a lot of pages are not coming back.
Really, this does not even count as news or analysis at this point. Even the manufacturers are now coming out and saying it in public, rather than around the water cooler. However, we have yet to pinpoint how fast and how far this decline will go, and if there is a steeper drop waiting in the future. And that’s the problem.
I’m far from a secular decline denier, but I do not count myself as part of the ‘print is dead’ crowd, and I feel that the challenges facing the print industry have been misrepresented. In the last four years the industry faced the worst recession in decades, the emergence of MPS, a pair of devastating natural disasters, and the tablet and cloud computing boom. Each of these severely impacted print volumes and industry financials, and although MPS will continue to drive declines, only information and communication alternatives such as tablets and cloud technology stand to have a lasting impact on print behavior.
The fact is, it’s too early to tell what impact these technologies will have, but it is not too early for vendors to calmly wrap some strategy around a range of scenarios, while continuing to invest in maintaining a profitable or even growing imaging business. I guarantee that rash moves to diversify from print pose a lot more immediate danger to our industry than the actual secular factors impacting it.
The Diversification Race Heats Up
The race to diversify from print reached a fever pitch this year as manufacturers’ investments and messaging continued to migrate towards services and solutions.
Of course, many manufacturers’ diversification initiatives have been under way for some time, but there was a major difference this year. With the exception of a handful of regional channel acquisitions, nearly all of the key investments made by print industry vendors targeted companies from outside markets. Meanwhile, a number of vendors that still generate the vast majority of their revenue and profit from print, adopted a stark change in Wall Street-facing messaging intended to solidify their identity as a services and/or solutions-oriented company.
We certainly can’t argue against the need to expand to new and adjacent products and services, but this year added even more proof that there is a fine line between strategic diversification and questionable strategy. There are billions of dollars in combined acquisition-driven goodwill charges and write-offs to prove it.
The diversification race certainly isn’t going anywhere, but it stands to reason that the most successful vendors will be those that make the smartest moves, not the biggest. And until then, it will probably be a good idea for vendors to continue to embrace their print divisions in their messaging. Their clients, employees, and resellers are listening.
MPS Grows Up
Although far from mature, the MPS market certainly seemed to move in that direction this year.
For starters, the role of MPS in a dealer or branch’s sales arsenal shifted from serving as a differentiator to a standard offering. At this point, most mid- to large-size dealers and all direct sales organizations have made MPS a core part of their business and many expanded their respective flavors of MPS to support a range of client types.
Meanwhile, increased adoption on the supply side had a similar impact on the addressable MPS client base, as many of the remaining “unoptimized” large and mid-market companies were signed to their first MPS engagements.
These two trends brought a change in tone among many industry players as conversations shifted from forecasting the growth that MPS promised, to proclaiming the sales and service model commoditized.
The idea of MPS commoditization was certainly not received as good news, considering that MPS has been touted as a key growth driver for years and it wasn’t too long ago that the folks now proclaiming MPS commoditized spent their days debating its definition.
Here is the good news… There is still plenty of room to grow within MPS, even if each MPS deal will effectively result in less revenue for the industry as a whole. Regardless of a lack of differentiation between the various MPS programs, there are still many companies that are operating largely unmanaged print environments and no shortage of existing MPS engagements that could benefit from more substantial document and workflow solutions.
In fact, as long as your products do not dominate the unoptimized install base, MPS still represents significant growth opportunities. This is especially true if your company’s response to commoditization is innovation.
The Direct to Dealer Transition
After years of vendors aggressively expanding their direct sales presence, the last 18 months brought a quick change in direction for a number of OEMs. Facing a new set of financial and secular challenges, manufacturers began to redefine the type of client and market that is appropriate to support directly, leading to a handful of very notable transfers of direct sales forces and install bases in rural and tertiary markets to independent dealers.
Although situational direct-to-dealer transitions have taken place for years, this trend gained momentum in the second half of 2011 as Xerox transitioned its smaller and regional direct accounts to its more scale-appropriate Global Imaging Systems subsidiaries, and Canon UK transferred accounts in southwest UK to major dealer Annodata.
This trend gained momentum in 2012 as Ricoh almost immediately transferred its branches and commercial accounts in four Mississippi and Alabama metros to RJ Young, followed by similar transfers in Saskatchewan to WBM Office Systems, Canada’s Maritime region to Office Interiors, and in Minnesota to Metro Sales. Although more isolated, Canon also contributed to this trend, selling its Halifax, Nova Scotia branch to local dealer Xtra Document Solutions.
After years of lamenting their perceived role in subsidizing OEMs’ unsustainable direct sales operations, dealers quickly latched on to these events. It was a confirmation that their complaints were not unfounded and a sign that the power was on its way back to the channel.
They had a point. Over the years, many vendors’ direct sales investments were largely driven by the promise that any short term sacrifices made to grow their presence and install base would eventually be justified by ongoing click annuities and future incumbent sales advantages. In line with this strategy, the last ten years have brought a procession of branch openings into smaller metros, very aggressive acquisitions, painful organizational integrations, and drawn-out install base conversions. Meanwhile, many direct organizations matched their geographic migration with a similar expansion of their target markets, which for some direct sales groups now range from any company that could afford a single copier all the way up to the largest enterprises, while offering prices that dealers could only dream of.
Although the dealers’ “proof” mainly applies to rural and SMB-dominated regions, it really does appear that vendors have made a key adjustment to their goals for their direct sales operations, from driving market share growth to driving profit growth. Considering that servicing any size account costs 10% to 12% more through a direct branch, and SMBs do not provide the scale to offset these costs, right-sizing vendors’ direct sales target markets is a solid step towards achieving this goal.
Samsung Doubles Down
Samsung raised eyebrows in 2011 when it introduced its first homegrown A3 MFPs, but truly caught the attention of the office imaging industry this year with a number of very notable moves and announcements.
Samsung started 2012 with the surprise signing of Canon Business Solutions president, Tod Pike, to lead its EBD division in the US. By mid-year, Samsung more than doubled its A3 MFP assortment with the introduction of five completely new models, which it coupled with announcing a goal to become an A3 industry leader by 2015.
Of course Samsung has been a force in the laser printer and A4 MFP arena for some time, but analysts and competing vendors alike were quick to criticize both Samsung’s move to the mature A3 MFP market and its lofty market share target.
Indeed, given Samsung’s lack of a direct sales presence, limited channel, and role as many dealers’ A4 supplement, the vendor’s A3 push and market leadership goal was understandably hard to swallow for some. After all, there is a big difference between aiming for a balanced lineup and targeting a spot among the current A3 market leaders
However, it is clear that Samsung was in need of a major A3 push if it ever wanted to expand beyond its role as an A4 supplement brand and evolve from its SMB focus. Considering the fact that nearly every major “copier” vendor is aggressively pushing into the A4 space, Samsung was in no position to settle for traditional role.
Samsung has made some real advances since entering the A3 MFP space, as a decent number of dealers have adopted its new lines, even at the expense of their established copier brands. Samsung’s combined value proposition of low acquisition costs and lack of market saturation proved to be enough to persuade a pretty attractive list of dealers to take on the vendor’s unproven A3 line.
In fact, we have witnessed a number of members of the gap intelligence Dealer Program begin to sell Samsung’s new A3s, with a significant increase in sales this year. These are dealers that also carry A3 MFP lines from vendors like Canon, Ricoh, and Sharp, but are increasingly shifting more of their A3 sales to their Samsung lineups.
Sharp Gets Headlines the Hard Way
Sharp certainly garnered its share of headlines this year as ongoing yen pressures and the struggling LCD and solar markets drove severe losses and a string of very interesting reactions and rumors.
Many became aware of Sharp’s struggles mid-year when the vendor announced plans to sell a 10% stake to Taiwan’s Hon Hai, which was shortly followed by news of a painful and investment-halting $1.2 billion operating loss in its fiscal first quarter.
Although Sharp’s profitable copier unit was not to blame for the vendor’s financial struggles, it certainly felt the impact. By August, news that Sharp was shopping its copier division hit Japan’s Nikkei Business Daily, naming Kyocera and Toshiba as possible suitors, while Samsung’s name was whispered as a dark horse candidate. Sharp was quick to deny the claim, but damage was already done as competing vendors and dealers integrated this information into their own messaging when approaching Sharp’s current and potential resellers and clients.
Before long, Sharp Imaging and Information Company of America kicked its communication efforts into high gear, reaching out to its partners to assure them of its continued devotion to the MFP industry and beginning an unprecedented run of growth-oriented announcements. Since September, Sharp announced the signings of 17 new authorized dealers, outnumbering its “new dealer” announcements during the previous year by …17.
Given Sharp’s need to reassure its dealers and clients of its overall fiscal health, the vendor is certainly justified in following this strategy and is expected to continue to do so for the foreseeable future. However, although dealer signings and announcements may help support Sharp’s MFP growth and reputation goals domestically, what the vendor needs more than anything is a return to fiscal solvency in Japan.
HP Moves Inkjet Upmarket
HP gave its competitors and engine suppliers another reason to stay up at night this year with the introduction of the Officejet Pro X series.
Equipped with HP’s new PageWide Technology and a value proposition that promises ‘twice the speed at up to half the cost of comparable color lasers,’ the 42ppm Officejet Pro X represents an ambitious move into the SMB and mid-market arena from HP’s traditionally SOHO and consumer-focused inkjet group. For the first time since Edgeline, the Officejet Pro X provides HP and its sales force with an opportunity to target net new business and capture more B2B revenue with its homegrown inkjet technology.
Although recent Business Inkjet growth across the industry has been encouraging, questions still remain regarding the Officejet Pro X’s durability in demanding office environments as well as how resellers will accept this new technology. However, HP has plenty of motivation to make the new PageWide platform a success and no shortage of channel clout to push the new platform to partners.
Interestingly, after several years of OEM door-knocking, the addition of HP’s Officejet Pro X may become one of the best things that could happen to its main page-wide alternative Memjet. Although Memjet has been able to assemble a number of intriguing partners, its conversations and negotiations with the big name laser and inkjet players could take on a very different tone if the Officejet Pro X proves successful. HP certainly has a way of legitimizing new categories and technologies and it would not be surprising to see HP’s remaining inkjet competitors similarly take aim at the high speed enterprise inkjet segments going forward, either through R&D or a supply relationship. Considering that Brother continues to show off its 100ppm page-wide inkjet, HP may have company in this segment sooner than we think.
Until then, assuming that the Officejet Pro X performs as promised, HP’s greatest task will be to give its resellers plenty incentive to take on the unproven platform, as laser bias remains strong and change can be slow to take place at the channel level.