From the April 2023 Issue - "Annuity Versus Annoyance"
Subscription revenue is a hot topic in office printing. It’s driven by a desperate need for those who make and sell office MFPs to backfill falling revenue in a world where placements, prices and pages are experiencing rates of decline that will only accelerate. But it’s easy for that kind of yearning on the part of MFP vendors and dealers to cross the line, from serving an actual customer need, to annoying or even antagonizing the people who buy and use their products.
I recently learned of an important cautionary tale for the “subscription economy.” And it comes not from the world of office equipment or even computer technology. It comes from the automotive industry. Since last summer, Tesla has found that a decent number of its car buyers are willing to pay monthly subscription fees for software that enhances their driving experience. Indeed, some automotive market forecasters are bullishly predicting that Tesla by 2030 could earn more profit — perhaps three times as much — from customers paying monthly software fees rather than from the initial sale of the car itself.
Basically, Tesla is on the way to creating a lucrative automotive business model that’s eerily akin to Xerox’s development of usage-based copier charges back in the 1960s. And while Xerox’s click charges had to cover significant tangible costs — actual supplies, parts and field service labor — Tesla’s model only has to cover development of software that’s sent over the airwaves to millions of its cars. Talk about a cash cow!
Just like Japanese copier vendors saw Xerox’s wildly successful business model and copied it, every other car manufacturer today is busy trying to emulate Tesla’s software subscription business. Here’s a personal example. I receive a survey every month or so from the market research folks at Toyota. They typically ask me about features I’d like or use on my next Lexus. And most of those surveys over the past couple of years have focused on some combination of software features. Which would I want? What would I be willing to pay? How I’d prefer to pay.
But there may well be limits to the subscription software pot of gold in the auto industry, as BMW found out several months ago. BMW in Korea, Germany, South Africa, the UK and some other markets began offering heated seats in some cars for an $18 monthly fee. BMW apparently thought they were doing customers a favor. Subscribe in the winter when your tush is cold. Don’t subscribe in the summer when it’s not necessary. But reportedly, owners’ responses to this “generous” offer were overwhelmingly negative. Apparently, BMW owners felt they had a god-given right to a toasty tuchus whenever they want it and at no extra charge. BMW was seen as greedy. Just because they could charge for a feature didn’t mean customers would simply turn the other cheek and pay for it.
Some observers in the auto market have wondered aloud whether this was a one-off flub unique to BMW, or if it was a sign of the much dreaded “subscription fatigue.” This is the idea that consumers are reaching a saturation point when it comes to the number of subscriptions they have, and how much they’re paying each month, versus the utility they get from those subscriptions. One of the few surveys on this topic in the auto market was done last summer. It found three-quarters of respondents had no interest in paying a monthly fee or annual subscription to unlock features in their cars. People said they expect safety and comfort features to be included up front in the price of a car.
Other research indicates 75% may even be low when it comes to most car owners’ disinterest in subscriptions. And even the small minority willing to subscribe don’t want to pay more than around $20 per month in total on their cars.
So what’s the relevance of this to office MFP vendors and dealers? For starters, hardcopy OEMs and dealers who want to add software subscription features to hardware that costs thousands of dollars tend to see themselves as providing cool application software. But customers may see it negatively as an asymmetric means by which an OEM or a dealer seeks to extract more money from them each month by exposing capabilities that are already inherently there in that pricey product they’ve paid for (or leased). This divergence would seem to pose a risk for companies pitching speed licenses or enhanced scanning, even for a one-time fee.
There’s also a consumer versus business dichotomy. A consumer’s decision to subscribe to a service to add certain features to one’s car is personal. Adding a communal software subscription to an office MFP is a bureaucratic and even technocratic decision. And while many people love their cars, few would say the same thing about a copier. Businesses, I hope, are much more likely than consumers to consider the annual or lifetime cost or ROI for those payments.
Adding more and more monthly cost to a shared device that’s being used less and less sounds like a risky bet. And while these automotive subscriptions coincide with the switch to completely new electric car technology, it’s a harder sell to layer a monthly subscription onto an MFP that hasn’t perceptibly changed or improved in many years..
From the March 2023 Issue - "Talk About Pie in the Sky"
A couple of things caught my eye this month when perusing Canon’s Corporate Strategy Conference presentation on its printing biz and the company’s take on its prospects for office MFP sales. Canon doesn’t believe its hardware sales will taper off, and it expects to increase its market share over the next three years owing to the competitiveness of its products. I’m hard-pressed to take this kind of optimism at face value.
Canon is only the latest office MFP vendor to explicitly state or otherwise imply that it anticipates growing its share of the A3 office MFP pie over the next few years. The explanations vary. Xerox is counting on pent-up post-COVID demand coming its way. Sharp hopes to leverage the bump it’s gotten from Foxconn’s manufacturing might. Kyocera will do it by strengthening and expanding its product line. And Epson believes the time is finally right for inkjet in the office. But I’ve yet to hear a single vendor say it expects to see its share of the office MFP market go down.
I’m also not seeing much “meat” to back up these platitudinous proclamations. As a result, this all strikes me like a lot of pie in the sky at a time when I’d expect to see more humble pie being consumed across the office MFP industry. In other words, I believe this business is overdue for a harsh reality check, and needs far more straightforward strategizing and action.
First, it’s critical to remember these various vendors’ presumptions about growing market share don’t necessarily translate into any individual company growing its office MFP business. In a shrinking office MFP market, all it takes for a vendor to grow its share is simply to have its sales shrink less than the other guys. Of course, one never hears vendors put it that way because it’s not a very palatable message to share with anxious investors or nervous partners.
Second, it’s problematic for multiple reasons for vendors to extrapolate their 2022 year-end post-COVID sales trajectory into 2023 and beyond. Starting in Q3 and continuing into Q4, the industry finally started seeing its product supply logjam break. Chip shortages lessened, manufacturing lockdowns in China eased, and global logistical challenges improved. So vendors were able to begin seriously reducing their backlogged orders for office MFPs. And that dropped some serious revenue in their respective pockets in those months. But those backlogged orders should be filled by mid-year at the latest, and that year-over-year revenue bump will have played out.
Third, there’s the fact that market share is measured in units, and not all units are created the same. The office MFP market is continuing to experience a shift in placements away from traditional A3 devices, in favor of A4 products that are less expensive. Growing one’s unit market share with more diverse placements of A4 and A3 devices — rather than an overwhelming preponderance of A3 models — will further reduce hardware revenue. Nor can vendors count on premium page pricing for many A4 devices.
Fourth, vendors implemented double-digit price hikes last year, both for hardware and for post-sale contracts. While the higher prices were intended to offset higher costs, inflation is gradually cooling. And there’s little reason to believe vendors will be able to boost revenue with markedly higher prices once again this year.
Fifth, for export-driven Japanese hardcopy vendors, the dramatic decline in the value of the yen in 2022 — an average drop of 20% against the dollar from 2021 — boosted revenue a lot, even if those top-line results didn’t help the bottom line. This year, the yen is likely to strengthen a bit against the dollar. So foreign exchange won’t provide any upside.
Sixth, there’s the growing likelihood of a global recession hitting some time in 2023. That can only be bad news for hardware sales and page volumes, while stimulating even more DX.
Seventh and most impactful for both revenue and profit is the downward trend in page volume and high-margin click-based revenue. Vendors have largely acknowledged that the 20% or so drop in page volume in US offices (and somewhat smaller declines elsewhere) barely rebounded in 2022. The 2021 boom in purchases of ink and toner for home devices also petered out. And companies are continuing to invest heavily in paper-killing DX projects. So the industry is facing page volume that’s falling at a faster clip in 2023 and beyond than before COVID.
And if all this weren’t enough, vendors are facing another critical reality check. They’re struggling to obtain revenue growth in most non-print businesses — IT services, managed services, DX, software and the like — to offset the declines in hardcopy revenue, let alone grow the entire company. And the profit margins for these adjacent businesses are below the historic profit levels on which hardcopy empires were built.
Sure, the office printing business could experience a “dead cat bounce” moment in the first half of 2023, with order backlogs clearing and additional employees back in offices part of each week. But any reprieve will be temporary. My bottom line? It’s foolhardy for any vendor to anticipate 2023 will deliver much of a recovery.
We’re all familiar with the expression “something doesn’t add up.” It mean’s there’s no reasonable explanation for a situation. I’ve been seeing that mindset among hardcopy vendors when they describe their experience with office page volumes since COVID arrived, But then it dawned on me. This isn’t really a case of bad math when we look at office printing page volumes in 2023. In fact, what we’re seeing really does add up. Or I should say it decrements down as expected.
Let me explain by mixing a trio of avian metaphors. So before COVID flew in as a black swan event in 2020, what was happening in office printing was already a cautionary tale of the canary in the coal mine. And now the print page volume chickens have come home to roost.One thing on which we can all agree is that the COVID pandemic triggered an abrupt and massive reduction in office printing that hit A3 MFPs particularly hard. The decrease in pages was on the order of 25%, with variation across devices, countries, organizations and vertical markets.
Then for a year or more there were reasonably legitimate differences of opinion as to what portion of that decline might prove permanent, and how many pages would return and when. Well, closing the books on 2022 has provided us with an answer. At best, only about a fifth of the COVID-driven drop in office pages in 2020 has returned. Most vendors now agree — at least privately, if not always publicly — that the remaining 20% of lost pages aren’t coming back.
That’s proven to be a hugely difficult development for those who make and sell office MFPs to accept and move on from. But guess what? We’re pretty much going to be in the same spot in 2023 with office pages relative to 2019 that we would have experienced had the pandemic never materialized. Permit me to explain.
So if you go back to the half-decade prior to COVID — so we’re talking 2015 through 2019 — office printing page volumes were declining at a rate of about 1% to 3% annually in the US and other developed economy markets. For A3 office MFPs, the decline in pages was at the higher end of that range. And many makers of these devices were expecting that rate of decline would hasten over the next five years, with annual declines of 4% to even 6% quite possible for 2020 through 2025. Not all vendors were saying this in public, but they were certainly discussing it internally. Prudence dictated they must.
So if we take 2019 as the base year, and if the volume of office printing had fallen 5% or a bit more annually thereafter, then the number of pages printed in offices in 2023 would be down roughly 20%. Instead, what we experienced was that office pages fell around 25% in 2020 and then rebounded slightly — perhaps 3% in 2021 and maybe again 2022 — with a flat 2023. And that results in the same 20% drop from 2019 through 2023. Welcome to my aha moment!
Yes, the office side of the printing business most definitely lost a major chunk of page-driven revenue after the pandemic hit. That’s despite the minimum charges built into service contracts and pretty significant increases in click prices. But from the perspective of what to do next, office printing vendors this year find themselves pretty much where they would have been with pages had COVID never happened.
As economists annoyingly like to say, “Let bygones be bygones.” What this means is that past business disruptions, lost revenue and profit shortfalls can’t be recovered. They’re certainly not immaterial. But only future outcomes should be considered today when making rational decisions and new plans.
Against this backdrop, it’s particularly annoying and frustrating to see that office printing vendors have in general achieved relatively little — certainly not enough — in terms of diversifying away from their dependence on centralized office printing. Yes indeed, the financial hardship wrought by COVID has slashed the resources available for this task over the past three years. But the magnitude of what needed to be accomplished was obvious well before the pandemic.
Sadly and ironically, certain printer companies still opted to spend vast sums of money — even money they sometimes borrowed — to buy back their own shares. One can only imagine what a different set of investment priorities could have achieved, particularly at Xerox and even at HP.
Now, most hardcopy vendors find themselves having to diversify even faster because of their failure to do so adequately in previous years. And they must due it now with fewer resources — thanks to the pandemic — and with a compressed time frame. One can understand why investors might be less than accommodating.
Moreover, hardcopy companies clearly ought to have far less confidence today when contemplating the trajectory for print volumes over the next five years than they ever had during the previous five years. And there’s every reason now to expect that COVID and the aftermath that is still unfolding will cause further unprecedented downward pressure on office printing beyond what has ever before been experienced.
The reasons for the about-face on solutions in the MFP world are numerous and intertwined. They reflect the interplay between complex technological change and evolving business dynamics, overlain by unique MFP industry mores.
One important reason so little gets said now about software and solutions in the office MFP business is that hardware vendors have largely abandoned anything that resembles end-user marketing. And the marketing that dealers do is local, low-profile and piecemeal. You can’t just blame it on the pandemic either. A decade ago, most MFP makers were already less than mediocre in their marketing, messaging and communication. COVID worsened things by accelerating the decline in office printing and slashing whatever marketing budgets had previously existed.
It’s not that all the various embedded Java, web services and hybrid application platforms have been retired. Support and compatibility for these platforms is still present in almost every office-grade A3 and A4 MFP. Nor is it the case that these platforms have remained absolutely static over the past decade. However, the main development effort that’s continued has been focused on enabling support for simple apps and connectors, and integration with the cloud.
This approach is technically more attuned to today’s IT world, and it’s also a better fit for hardware-centric MFP vendors and channels that aren’t very adept at selling complex solutions and are looking for ongoing subscription revenue. There’s also more opportunity in the market — among SMB clients, enterprise workgroups and much of government — for relatively simple apps that connect to existing cloud solutions, versus complex applications that drive DX.
Indirectly — but also intentionally — this shift in focus is aligned with MFP vendors’ predilections when it comes to software and solutions. As much as these companies tried for years to convince themselves, ISVs, dealers and customers alike that they wanted networked MFPs to serve as gateways or portals for scan and print solutions, that was never fully accurate or honest.
Part of the problem was that MFP vendors pretty quickly realized there were three kinds of ISVs, each with its own challenges. First, there were the big name software companies that had zero interest in working with MFP vendors, let alone integrating with their proprietary platforms.
Second, there were a handful of capable but still small ISVs that were very interested in working with MFP companies. The old eCopy, NSi, Equitrac and DocuWare, plus PaperCut, YSoft, Square 9 and a few others provided real value for a subset of MFP customers. But these ISVs didn’t expand the overall MFP market; their cross-vendor solutions obscured the underlying MFP brands; and they weren’t able to generate substantial new revenue for MFP makers. And Kofax’s purchase of the old Nuance Imaging unit quieted what had been a major voice in the world of MFP solutions.
Third, MFP companies were also pursued by a small swarm of other tiny ISVs that naively assumed these big old vendors would turn their mom-and-pop shops into larger, more lucrative businesses. However, companies like Prism and Drivve had no ability to help MFP vendors generate much business, although that also meant these ISVs couldn’t upstage them in the market.
As a consequence, MFP vendors reverted to what they’d always valued most ... control and self-sufficiency. Despite years of evidence to the contrary, MFP hardware companies fancied themselves as capable software developers. The shift to the cloud and apps made that more feasible technically. A consolidating cloud market also meant MFP vendors had fewer but far more impactful targets for their connectors. And those cloud storage/application companies were well-known and had multiple millions of users.
But as they say, “the more things change, the more they stay the same.” MFP hardware vendors and dealers in 2023 find themselves still searching for that big revenue and profit payday in the market for MFP-connected software.
On the plus side, MFPs app are easier to sell, and the revenue doesn’t have to split with ISVs. On the minus side, apps are now expected rather than a point of differentiation, and customers want them to be inexpensive or even free. The result is that the fervid quest among MFP sellers for software subscriptions and new sources of annuity revenue remains more of a strategic aspiration than a take-it-to-the-bank reality.
In turn, this goes a long way toward explaining the rising interest in the MFP business over the past few years in the next “shiny new object,” whether that’s DX, IT services or something else.
The hardcopy business is far from immune to this dynamic. We’ve gone from a single Xerox 914 copier, one original HP LaserJet printer, and Canon’s seminal Bubble Jet printer to a world with hundreds of different, often barely differentiable devices. HP currently sells 162 inkjet and laser printers just in the US, and Epson America has 194 consumer and business inkjet models. Meanwhile, Canon USA is selling 28 different imageRUNNERs, and even relatively tiny Toshiba shows 43 e-Studio products on its US web site.
While we’ve certainly witnessed a significant slowdown in the time between printer product launches in recent years — particularly in the A3 office MFP sector — we’ve seen only the most tentative steps toward making fewer models.
Kyocera has been rolling out speed licenses that enable dealers to purchase and stock a small number of A3 TASKalfa MFPs and then configure the speeds to meet customers’ requirements as needed. HP and its dealers are doing the same thing for end users on the newest A3 LaserJet Enterprise MFPs. Toshiba TEC has taken a small step to reduce the number of models in its recent A3 e-Studio refresh. And Fujifilm now offers only half as many individual A3 monochrome Apeos MFP models as A3 color Apeos MFPs.
But it’s way past time for vendors to pull back to somewhere between then and now that’s consonant with an industry past its prime and on the decline. Consider that Tesla — the world’s most valuable auto brand by more than a factor of two — did $83 billion in sales in 2022 with only four models. Nissan had 10% lower sales of $74 billion but it had 17 models ... just in the US.
Hardcopy vendors say they want to be trusted advisors to businesses and conscientious suppliers to consumers. But throwing as many products into the market and seeing what sticks is the antithesis of what they ought to be doing. In fact, it’s frequently downright offensive and often off-putting to their would-be customers.
Look no further than printer makers’ own web sites. Not a single one does an even mediocre job presenting the entire product line; clearly differentiating the various series of models; or guiding shoppers to choose the best products for their specific needs. On most vendors’ web sites, it’s a woefully painful chore just to figure out the latest models versus the old ones, let alone to see what’s available where and how. Trust me ... I do it every month!
There’s an urgent need for printer vendors to streamline operations, cut costs, free up resources, and invest much more in diversification in the face of declining demand. Moreover, the actions vendors can take are known and immediately available.
The first step is for every vendor to determine what exactly a reasonably streamlined product set will look like two, three or five years into the future. I’m not talking about eliminating one slower-selling product or dropping an unneeded finisher. The industry has to think BIG ... or should I say small? I see a future with perhaps two-thirds or half as many models as today in a few years.
Vendors need to eliminate models from existing product lines. Focus on fewer speeds, fewer configurations, fewer accessories and options. It’s a no-brainer to reduce the number of B&W machines to better follow and lead customers toward more lucrative color print devices.Then they’re are business model changes. Office MFP vendors and their channel partners must aggressively adopt speed licensing. In addition, the faster that office printer and MFP vendors embrace subscriptions, DaaS, PaaS and even good old MPS, the sooner they’ll broaden their control over product selection. And the easier it will be to shift to leaner product lines.
For the consumer and SMB markets, vendors need to reconsider making so many versions and configurations of every product to exploit regional, channel or customer niches. Too often, vendors are convinced there’s incremental revenue, but they ignore the incremental costs.In return, there are a breadth of benefits from having fewer models and simpler product lines: more efficient factories; leaner product management; easier marketing; reduced inventory; simplified procurement; more manageable logistics; reduced training; smoother support; fewer driver and firmware updates; lower product returns; and even a reduced carbon footprint.
We’re well on our way to a world of fewer print devices and models. Do you want to drive that process, or will you be driven by others?
If it feels sometimes these days that the global hardcopy industry in the 2020’s is facing challenges of nearly biblical proportions, you’re not far off. It’s almost as if we’re confronting the apocryphal Four Horsemen of the Apocalypse. Interestingly, none of these horsemen has originated within the printer world. Each has arrived as an unplanned and unprecedentedly disruptive exogenous event, albeit against a backdrop of an industry that was already in decline. And while these developments are certainly revelatory, their combined outcome is much more likely to be recessionary, rather than rapturous.
First, there was the white horse of pestilence in the form of the global COVID-19 pandemic. We already know how that played out. Office printer placements plummeted, with A3 sales hurting even more than A4 sales. Office page volumes dropped 20% or more, and there’s precious little hope for much of that ever coming back. Vendors and channel partners saw revenue contract significantly, and profits falling even more precipitously. Yes, sales of low-end inkjet and laser units and their pages ticked up, but not nearly enough to offset the massive declines elsewhere. And hybrid work arrangements and huge investments in DX have gone from niche to the new normal across major swaths of the economy.
Then came the red horse that brought unprecedented logistics and supply chain problems. Hardcopy vendors found themselves unable to produce and deliver to customers sufficient quantities of products in multiple segments and categories. Not only was this precisely at a time when post-pandemic sales opportunities were on the upswing, but these ongoing challenges are unlikely to be fully resolved for another year.
Ask anyone in or around the printing industry about these first two horsemen, and they’ll assure you their eyes are wide open. They’ll insist they’ve got a plan to deal with this altered reality. But I believe — and honestly I fear — that their actions indicate otherwise. I’ve yet to see efforts to evolve and diversify that have sufficient breadth, realism and urgency to do the job.
Then there are the other two horsemen. They’re equally obvious, but with both of these the hardcopy industry hasn’t yet come close to fully appreciating the impact and the increased downside risk they portend for printing.
We’ve witnessed the arrival of the black horse of political destruction and war. Russia’s completely amoral invasion of Ukraine has been massively disruptive to the global order, with ever more dire effects yet to be felt across Europe this winter. Additionally, for the first time in a century, we’re seeing a naively vile embrace of fascism in parts of Europe and even in the US. Then there’s growing worry over how and when China might seek to reabsorb Taiwan. Then there’s the perennial torpor when it comes to meaningfully fighting the ever-worsening global climate crisis and all that entails. Any one of these items could send the global polity into dangerous disequilibrium, and I shudder to think what havoc would ensue from big disruptions in multiple domains.
On top of all this, we continue to experience the pale horse of economic danger, disruption and distress. The combination of persistently high inflation, climbing interest rates, slowing economic growth, wild swings in exchange rates, and a possibly imminent recession is something the world has not experienced in more than five decades. Moreover, the last time this all happened, the hardcopy industry was entering an era of unprecedented growth. But now printing is on a precipice, facing unprecedented risk and a declining market.
It pains me to say this, but hardcopy vendors today seem unprepared for the consequences of such economic upheaval. Thus far, vendors and sellers have been able to pass on to their customers much higher prices for printing hardware, supplies, parts and service. That’s certainly helped the industry in the near term. But it’s difficult to fight price elasticity, especially in an industry in which demand is already declining. So today’s higher printing prices will likely translate into even lower printing demand tomorrow.
The same is true of higher interest rates, especially in the A3 side of the business. Combining higher hardware prices, higher click charges, and higher lease rates makes for substantially higher monthly payments on A3 products for which demand has tumbled since the spring of 2020. And an outright recession — even one that might turn out to be shallow and short — would significantly exacerbate the already ample challenges facing all facets of the printing industry.
This economic turmoil also makes it far more difficult and risky for hardcopy vendors now to belatedly execute the kind of massive business transformation and diversification they’ve spent more time talking about than acting upon for the better part of the past decade. Now the responses from printer vendors need to be even more comprehensive, nearly fail-safe in their design, much better coordinated, and more quickly and expertly executed. Sadly but inevitably, not all hardcopy companies will make the transition. Some will simply fail to survive in their present form. But who? That’s the question.
From the August 2022 Issue - "Less Bad Doesn't Equal Good"
No vendor says more and does more than HP to reduce the environmental impact of the printers it makes and sells. From using recycled plastic and redesigned packaging, to tree planting and cartridge return programs, HP has been ahead of the curve and the competition for 25 years. But it’s a gargantuan leap to claim — as HP did at its Amplify Executive Forum — that printing is a plus for the environment. That’s the argument HP made for why people should stop using or just ignore those little “Think before you print” green footers at the bottom of e-mails.
I’m all in favor of the eco-conscious actions HP and other printer vendors have taken to lower or offset the carbon footprint of their devices. But let’s not fool ourselves. Limiting the deleterious impact of printers and printing doesn’t magically transform the hardcopy industry into a force for ecological good. As practical and beneficial as printing is, it does produce substantial negative environmental consequences. Moreover, there are a lot of additional things vendors could be doing to further ameliorate the ecological harm associated with making, delivering, using and disposing of printers, MFPs and AIOs.
Whether these things are popular or feasible is a whole other matter. That’s because these options do one of three things. They alter the lifecycle economics of a printer. They favor certain technologies and products, which has huge competitive implications. Or they hurt a vendor’s financial results by causing fewer printers to be sold, fewer prints to be made ... or both.
Ironically, the biggest ecological upside for the printer industry — declining demand for printers and printed pages — is entirely exogenous. This industry peaked over a decade ago and was declining at a few percent per year, but it went off a cliff with the pandemic. Upwards of 20% of all pages disappeared. Few of those pages are coming back in offices, and those pages printed at home have barely made a dent in the decline.
With massive IT investments going in DX destined to work their way through the global economy for years to come, the expectation is that print volumes are heading now for bigger and faster annual declines than before COVID. Like it or not, fewer pages means fewer devices and a smaller carbon footprint for the industry.
Putting this massive external trend aside, what can the printer industry do to further reduce its deleterious impact on the environment? One huge step would be to foster a switch from toner to ink as the preferred print technology. That kind of substitution quietly continues to happen at the boundary between low-end desktop color laser devices and SOHO/workgroup inkjet AIOs, particularly in emerging markets and as hybrid work arrangements have spread and become entrenched. But clearly, inkjet has utterly failed to win the battle in nearly all offices, big and small. As a fallback, however, the industry must accelerate the shift from laser engines to less power-hungry LED engines, and it must embrace new low-melt toners more broadly.
There are other things vendors can change in their products. Smaller printers have a smaller carbon footprint when they are manufactured, transported, used and disposed of at the ends of their lives. A3 devices — particularly everyday office MFPs — need to become the exception, rather than the rule. That means designing updated A4 models that are fully comparable in their features and capabilities. In addition, vendors must make duplex capability standard and build in print release capability. Both of these actions would be far more forest friendly than after-the-fact tree-planting programs.
Likewise, when it comes to supplies, the industry must finally abandon use of wasteful all-in-one toner cartridges; more broadly utilize long-life photoconductors; expand the use of refillable ink tanks and toner tanks; and limit the sale of cartridges that contain very little toner or ink.
Then there’s a massive issue no one in the industry ever mentions. Regardless of the size, type, technology or features of printers and MFPs, these devices need to be designed, manufactured and promoted for longer use. That’s one of the easiest and most effective ways to reduce a printer’s annual carbon contribution, especially when recent and new models are much more eco-friendly than old ones. As we all know, the technology, speed, features and capabilities of today’s devices have already plateaued. So let’s keep using what works longer.
One of the best ways to enable this closed-loop cycle is to leverage the industry’s nascent embrace of “printing-as-a-service.” When sellers shift to delivering prints at a fixed monthly subscription price, their economic incentives flip. Long-lived and/or remanufactured machines become the best way to go, and customers who are no longer buying boxes shouldn’t really care. So please go out there and REALLY go green.
From the July 2022 Issue - “So Google This!"
Sometimes all it takes are a couple numbers to get my brain turning and churning. That was the case this month with an innocuous reference in a July 26 press release in which PaperCut touted a big win at Google for its print management software. Google is adopting PaperCut MF to replace its own cloud printing infrastructure. So kudos to PaperCut. But what jumped out to me in the announcement wasn’t the win itself. It was the matter-of-fact statement by PaperCut that the “complex print environment” at Google encompasses “approximately 200,000 employees and nearly 3,000 printers across all of its offices globally,” By the way, that’s about 170 offices.
Some quick math tells you that each Google office averages just 18 printers, and each printer serves 67 people. I have to assume PaperCut knows how many printers Google has, or at least the number of printers its software will be used to manage. But the number of Google employees is a bit inflated. As of June 30, Google’s parent company, Alphabet, had 174,014 employees, with about 90% of them working at Google. That’s roughly 157,000 Google employees, which is closer to 52 employees per printer.
But here’s the thing. The most commonly cited statistic for the average number of employees per printer in US businesses is 4.4. This isn’t a recent number, but it’s so far off from the scenario at Google that I’m left wondering. Has the world of business printing changed that dramatically over the past several years? Or is Google fundamentally different in its use of printers and printing? And if that’s indeed the case, is Google an inconsequential outlier, or is it a worrisome harbinger of things to come in office printing?
Let’s dissect these possible explanations for the huge difference between the relatively large number of employees per printer at Google (52 to 67) and the small number of employees per printer (4.4) that passes as common wisdom.
Despite spending a fair amount of time sleuthing, I couldn’t track down the precise origin of that widely referenced 4.4 employees per printer statistic. The earliest reference to it I found was from 2004. Back in those early years of MPS, there was a lot of thought and talk about what constituted an optimal deployment of printers and MFPs. So I’m guessing this number probably came from a hardcopy industry analyst. But it’s been years since I’ve heard anyone in the industry care much about the ratio of people to devices. So even though this 4.4 figure is pretty old, it’s surprising how often it still pops up.
So was this statistic ever accurate? Perhaps. Does it still hold true? Maybe, at least for some swaths of the market. But after perusing more Reddits, subreddits and threads on this topic than I care to recall, I’m struck by two things. First, the number of users per print device in US offices is really all over the place. But second, the numbers do indeed tend to skew surprisingly low, from around 1 to maybe 10 or 20 people.
Of course, Google isn’t just any company. It’s $1.5 trillion market cap is the third largest in the US after Apple and Microsoft. So what goes on at Google matters ... a lot. But with 52-67 Googlers sharing each printer or MFP, the company is an outlier. And there are very plausible explanations for that. Google is phenomenally rich. It earned $76 billion on $258 billion in revenue last year. That means Google’s profit in 2021 was 2.5 times the average revenue of all US Fortune 500 companies. So with its massive size and nearly a 30% net profit margin, Google can spend vast amounts on technology, automation and “DX” that reduce the use of printing. It’s also a young company. The median age of Google employees is 30 — a full decade younger than the US workforce. And younger people inherently print less.
On the other hand, Google isn’t a let’s-go-virtual-and-everybody-work-from-home company. There’s also no indication Google purchased thousands of printers for employees to use at home during the pandemic. Moreover, after two years of COVID-induced work flexibility, Google in April mandated — with very few exceptions — that all of its employees work in the office at least three days a week. And an anonymous Google executive was quoted saying, “We’ll get everyone back into the office eventually.” However, that may take three or more years.
Meanwhile, according to the 2022 Office Space Report, 46% of businesses in July were using less than half of their available office space, and only 11% were using all of their available office space. But Google appears to be an extreme counter example. In the past five years, it spent $37 billion on office space and data centers. And in just the past twelve months, Google has bought or opened massive new office buildings in Silicon Valley, Manhattan and London that had a combined price tag in excess of $4 billion.
What all of this says to me is that Google continues to grow by leaps and bounds. The company remains a huge proponent of having employees return to its offices for at least 60% of the work week. But printers presently have a surprising small role in what might seem to be a fairly traditional work culture. And one can only assume the role of printing at Google will decline further. So as goes Google, so goes the world?
From the June 2022 Issue - “A Mathematical Impossibility"
I took calculus my last year in high school. And although a got an “A,” I realized that was as far as I wanted to go with math. Fortunately for me, the insights I want to share this month require nothing more than a pen, a piece of paper, and the calculator on my phone. That doesn’t mean the math isn’t impressive, but depressive would actually be a more appropriate descriptor.
We all know pages are the lifeblood of the hardcopy industry, and the fundamental overall volume of computer-printed pages coming off home and office devices plummeted by at least 15% during the worst of the pandemic in 2020. It bounced back some in 2021, will decline at a low single-digit rate this year, and will drop at an increasingly faster clip in 2023 and beyond.
Total hardcopy device placements were actually stable in 2020, and they fell just a few percent in 2021. But that’s obscured a massive shift in placements, away from expensive A3 devices, to the least expensive A4 inkjet and laser products.
So here’s where the math comes in. In a global printer market in which pages and placements are both falling, why is every hardcopy vendor indicating its print-related revenue will stay flat or more likely grow a few percent annually over the next two to four years? It doesn’t add up! The market’s shrinking, but everyone’s growing?
Either vendors don’t believe their own talk track about how the world of printing was fundamentally altered — and not in a good way for most of them — by COVID and the big increase in hybrid work. Or they do believe it, but every single vendor is somehow convinced it’s going to take a lot of market share from every other vendor in a declining global hardcopy business. That latter inane supposition is reinforced by the fact that two of the largest A3 office MFP vendors (i.e., Ricoh and Fujifilm) are on record saying they expect to generate hundreds of million of dollars in revenue from new OEM sales.
As best as I can tell, every vendor is expecting some level of hardcopy revenue growth in the current fiscal year. The growth rates seem to range from 1% for Xerox, to 18% for Epson. Canon is also anticipating a banner year. Ricoh, Fujifilm, Konica Minolta and HP are expecting to be toward the lower end of the growth spectrum. Kyocera, Brother and Toshiba TEC are likely to be somewhere in the middle. And it’s anyone’s guess for the enigmatic Ninestar, with its divergent Lexmark and Pantum businesses.
After the present year, things are a lot messier. Japanese hardcopy vendors publish and update midterm management plans that typically cover three years, and some put out occasional longer-term visionary plans. But these documents have increasingly become exercises in irrational obfuscation. It’s rare for such plans to provide anything but barebones financial targets, and they routinely gloss over how various parts of the business will perform in quantitative terms.
But it’s not like this is a completely new phenomenon. Sure, COVID was a classic “black swan” in 2020; gauging the pace and magnitude of recovery in 2021 was supremely difficult; and global logistics and supply issues have unexpectedly wreaked havoc in 2022. But a distinct propensity toward overly optimistic revenue forecasts was endemic in the hardcopy industry well before these past thirty atypical months.
Sadly, the lack of sufficient realism and basic honesty about the trajectory of these companies’ respective hardcopy revenue streams is associated with another series of mathematically impossible calculations. I’m talking here specifically about how overestimating future printing revenue causes vendors to underestimate the magnitude of new non-print revenue they need to build or buy in order to continue growing their overall sales and profits. And the more a particular vendor depends on hardcopy, the more deleterious it is when that vendor overestimates its future printing revenue.
For the sake of argument, let’s say revenue across the combined home and office printing industry will decline 5% annually over the next three years. So if a company gets a measly 5% of its revenue from hardcopy (like Sharp), its non-hardcopy revenue three years from now will need to grow just 1% in order to offset that decline and keep the top line flat. But what if a company get’s half of its revenue from hardcopy (like Canon)? Its non-hardcopy revenue three years hence will have to be 14% higher to offset that drop. And if a company gets 90% of its revenue now from print-related sales (like Xerox), its non-hardcopy revenue three years from now will have to skyrocket 128% just to stay even!
The sad little secret is that the minimalist strategies hardcopy vendors are pursuing to grow non-hardcopy revenue are unlikely to deliver the additional money they require. So far, I’ve seen only two exceptions. Fujifilm’s intentional investments in healthcare and pharmaceuticals have indeed been transformative. And HP has experienced fortuitous upside from a likely short-lived boom in PC sales. This also implicitly points to the absurdity of printer vendors spending billions of dollars to buy their own shares, rather than investing in business development or acquisitions. But that’s a math story for another time.
From the May 2022 Issue - “Ten Uh-Oh’s from That 20% Blow"
As I editorialized earlier this year (“The Recovery That Wasn’t” in February), there’s growing consensus among hardcopy vendors that office page volumes — which plummeted about 20% in the first year of the pandemic — hardly bounced back in 2021. And office printing is likely to stay flat in 2022, then resume its decline in 2023, and fall at a faster rate than before COVID.
However, hardcopy vendors have been far more circumspect (or muddled) when it comes to sharing their thoughts on the future pace of new MFP and printer placements, particularly in the office market. I’m more a prognosticator than a forecaster, but I can’t help but think there are some pretty powerful reasons to believe that 20% fewer pages likely correlates to 20% fewer devices that will print those remaining pages.
For the sake of argument — and absent countervailing claims from printer vendors — permit me to proffer what I believe are ten concerning corollary consequences that are likely to ensue.
1. Present as Prologue. The widespread shortage of devices most vendors have faced for nearly a year has given the industry a preview of a world in which substantially fewer office MFPs and printers are sold. Sadly, it’s far from clear this abrupt and massive dislocation has caused the majority of industry participants to adjust their thinking and plan for the future. Yet a lower level of office hardcopy sales that many claim is temporary may well become permanent.
2. Bad A3 News Isn’t Great A4 News. The pandemic accelerated the shift in offices from centralized A3 devices to distributed A4 devices, but there’s good reason to believe the 20% drop in office print volume will be bad news all around for new placements. HP has seen no big A4 surge. It’s just that A3 is suffering even more.
3. Know When to Hold ‘em. With machines in short supply, and printing demand way down, more customers are grasping the idea that holding on to end-of-lease machines they now own can be a good thing. Plus, MFP technology is moribund, and new models cost a lot more now.
4. The Bigger They Are. Some of the largest A3 vendors — Ricoh, Konica Minolta, Fujifilm, Xerox — have experienced the sharpest downturns and weakest recoveries in placements of new office devices. Many of these same vendors are the most dependent on office printing, and they’ve yet to prove they can successfully diversify in a big way. Meanwhile, smaller vendors like Kyocera and Toshiba TEC have bounced back. Hmm.
5. The Backlog Blues. Vendors have pointed to their massive, growing hardware backlogs for the better part of a year, promising it’s just a matter of time before those orders are billable. But one really ought to be wondering how solid those billions in backlogged orders really are. Customers can cancel at any time. And the longer the backlog lasts, the more likely companies will realize how fundamentally their need for new machines has declined.
6. Nothing Succeeds Like Excess. Think about what this downward demand dynamic means in terms of excess manufacturing capacity; too many dealers, sales reps and service techs; and surplus offices and employees. Keep in mind as well, most of these assets and people can’t easily be redeployed for new purposes, whether that’s IT services, ECM, DX or something further afield. That means a “big shrink” is coming.
7. Do I Have a Deal for You. Put aside the immediate impact of inflation and today’s tight product availability. The bigger question is where will we be a year from now in terms of pricing? With way too many vendors, dealers and salespeople competing for 20% fewer sales opportunities, street prices for new printers and pages can only go in one direction. And that’s down.
8. Loyalty Schmoyalty. With hardware inventories low and product availability uncertain, old affiliations are under tremendous strain. Customers who really need new machines now may abandon historic supplier relationships in favor of a different brand, branch or dealer. Dealers with costs to cover and customers in need may shift between brands they sell or add a new brand to assure availability. And these tough realities are one more threat to traditional small-time dealers and single-line dealers of any size.
9. The Fear Factor. Despite the stodginess and aversion to change that’s long characterized the office printing business, all this “stuff” going on is forcing a minority of vendors and dealers to belatedly and hurriedly consider alternative business models that are uncomfortable and risky, whether that’s greater use of e-commerce or shifting to subscription-style printing plans.
10. DX Marks the Spot. Unfortunately for the industry, things are likely only to get worse. The growing pipeline of recent, ongoing and future investments in digital transformation (“DX”) will deliver redesigned procedures and processes that eliminate more and more printed pages. And while some in the industry are convinced they can hop on the DX gravy train as a new business opportunity, any DX revenue will be offset — or more than offset — by DX-driven reductions in new printer placements and future pages.
From the April 2022 Issue - “Win, Lose or Draw"
The overriding goal of every publicly-owned company is to maximize shareholder value by generating as much profit as possible. Companies can do that by growing revenue, improving profit margin, or some combination of the two. But growing the top-line is tough in the hardcopy industry when placements for most kinds of printers are falling and the number of printed pages is declining. This has forced hardcopy companies to enter adjacent markets, win more business from competitors, and perpetually cut costs. But each of these tactics eventually runs out of steam, leaving management with no other choice but to somehow grow revenue.
To get a sense of how well hardcopy companies have been handling this challenge, I went back and compared growth in total revenue and print-related revenue over the past decade for a dozen companies that make and sell most of the world’s consumer, office and production printers. More specifically, I calculated the percentage change in revenue from 2011 to 2021. Both years were interesting and in some ways parallel. The world in 2011 was emerging from a global financial crisis, and the world in 2021 was slowly coming out of a global pandemic.
I want to emphasize that the focus was on total revenue and secondarily on printing revenue in each of the two years. The idea is that each company’s printer business faced downward pressure over those ten years. But it’s the duty of management to respond by building or buying new sources of revenue that more than offset the declines in printing or other areas. And of course, one big real world caveat is that revenue growth by no means guarantees higher profit.
I was amazed by the wide range of revenue performance — from nearly a 70% drop, to an almost 40% increase — and by the way that the results were sort of clumped into three groups. What I call the “winners” were six companies that grew total revenue over the past decade by an average of 26%. What I call the “losers” were four vendors for which total revenue dropped over the same period by an average of 46%. And I put in the “draw” category the other two companies whose total revenue was unchanged (OK, down by around 1%) from 2011 to 2021.
On the other hand, while it’s true that the changes in revenue were relatively similar for the printer companies in these three clusters, the individual companies in each group still carried a lot in terms of the size and direction of their hardcopy businesses, and the efforts they undertook — or did not — to growth their revenue.
The four “losers” and their respective revenue declines from 2011 to 2021 were Xerox (-69%), HP (-50%), Ninestar’s Lexmark (-50%) and Sharp (-17%). In each case, much of the drop came from getting rid of sizable underperforming non-print related operations, and those decisions were not necessarily wrong or bad. Even with fresh management, Conduent’s revenue has fallen 31% since Xerox spun it off in 2017, and HP Enterprise revenue has dipped 8% since HP split it off in 2015. Sharp’s financial distress left it no choice to shrink under Foxconn’s ownership, while Lexmark had clearly demonstrated it had little hope of ever running a thriving software unit.
For three of these companies, big declines in hardcopy revenue were a major factor in their overall revenue declines. Print-related revenue dropped 22% at HP, 31% at Xerox, and 46% at Lexmark. Xerox and Lexmark have also remained pure-play hardcopy businesses that continue to experience ongoing declines in revenue, with little expectation of any big turnaround. Conversely, HP’s revenue has risen 32% since it spun off HP Enterprise, and Sharp’s revenue has climbed 23% since Foxconn took control in 2016.
At the other end of the spectrum, the six revenue “winners” and their respective top-line increases in the past decade were Brother (+39%), Kyocera (+38%), Epson (+29%), Toshiba TEC (+23%), Konica Minolta (+16%), and Fujifilm (+13%). This is a diverse group of companies in which hardcopy has generated between 19% and 88% of revenue. With the exception of Fujifilm, these companies managed to grow their printing revenue between 11% and 50% from 2011 to 2021. Fujifilm was the outlier ... the only vendor that managed to grow total revenue over the past decade (by 13%), while experiencing a drop (of 21%) in its printing revenue. M&A-driven diversification has been Fujifilm’s winning strategy.
That left Canon and Ricoh as the “draw” vendors, with their respective 1-2% revenue declines over the last decade. Those numbers incorporated a 12% drop in Canon’s hardcopy revenue and a 2% increase in Ricoh’s hardcopy revenue.
So to recap, the revenue losers among hardcopy vendors saw their top lines shrink during the past decade because their printing revenue fell. The revenue winners grew their top lines primarily because they managed to boost their printing revenue, and generally not because they successfully diversified. And those in between, experienced modest changes in their total revenue and in their printing revenue. Here’s the gotcha. While growing revenue drove higher total revenue in the last decade, that strategy won’t work in the next decade. ... Food for thought.
From the March 2022 Issue - “Ignoring China at Your Own Peril"
Japanese and US hardcopy vendors have had their corporate hands full with falling demand, security concerns, changing work styles, a global pandemic, and an urgent need to diversify. But I’ve yet to hear a single vendor speak of another growing problem: the threat posed by existing and new Chinese printer competitors. Long established hardcopy vendors who ignore or downplay this threat do so at their own peril.
Start with Ninestar, the Chinese vendor with the greatest print revenue. Ninestar had $3.6 billion in sales last year from Lexmark and Pantum, as well from its non-OEM supplies business and printer chip business. That’s more printing revenue than Kyocera, Sharp or Toshiba. Ninestar is also number five in printer placements behind HP, Canon, Epson and Brother. And quite ironically, a growing list of competitors — Ricoh, Xerox, Konica Minolta, Fujifilm, Toshiba, Sharp — bolster Ninestar’s sales by OEM’ing its devices.
While Pantum’s lineup of mostly low-end A4 monochrome laser products is nothing special, and the company is horrible at marketing and communications outside of China, Pantum still managed to sell more than 1.5 million printers and MFPs in 2021. Placements were up 50% in China and up 60% elsewhere. A decade after launching its first printers, Pantum’s revenue grew more than 70% last year to about $610 million, with more than a 17% net profit margin.
Meanwhile, although Lexmark has lost some of the visibility and scale it had back when it was a US public company, it still delivered more than $2.1 billion in revenue for Ninestar last year.
However, it would be wrong to think of Ninestar as the beginning and end of China’s own hardcopy industry. Lenovo — the world’s top seller of PCs for four years in a row — has for more than two decades OEM’d a line of mostly A4 monochrome laser printers and MFPs that it sells alongside its PCs in China. In recent years, Lenovo has even developed a couple of utilitarian A4 mono laser platforms of its own. And its sales are higher than you might think. In fact, IDC in Q2 last year had Lenovo in the #5 spot in terms of global shipments, with almost 400,000 units. And all of those sales came just from China.
Ningbo Deli, which has been in the printer business for just three years, is gaining some traction in the Chinese hardcopy market. In the last year, Deli has expanded from its two original A4 monochrome laser platforms, to add a faster second-generation B&W engine and its own inkjet AIOs. And Deli is also OEM’ing A3 MFPs from Canon and A4 color models from Brother.
Meanwhile, two of China’s largest IT companies are now active in the Chinese printer market.
Xiaomi — the world’s #3 maker of smartphones behind Apple and Samsung — launched its first inkjet printer barely two years ago. In partnership with an obscure Chinese inkjet technology firm called Hanntu, Xiaomi this month debuted its first ink tank AIO. And Xiaomi also continues to exploit an almost unheard of OEM sourcing deal for one of HP’s AIOs.
And then there’s Huawei, China’s largest IT company and one of the world’s biggest tech vendors, with $100 billion in sales in 2021. Last fall, Huawei launched its first hardcopy device in the form of a desktop A4 monochrome laser MFP.
And it’s not just products. A major factor in Lenovo’s success selling its printers in China — where it has a 40% share of the domestic PC market — derives from its massive distribution network with thousands of sales points, the majority of which are exclusive distributors of Lenovo products. Deli and Xiaomi have their own equally impressive sales channels across China. Deli’s stationery products are available in 45,000 Chinese stores, and Xiaomi plans over the next three years to double to 20,000 the number of stores it has in China. And neither company has come close yet to exploiting those channels fully to sell printers.
Right now, Ninestar is the only Chinese hardcopy vendor with appreciable sales outside of China. But who’s to say that’s set in stone? Lenovo sells its PCs and other products globally. Ditto for Huawei. Xiaomi last year got half of its revenue from outside of China. And Deli sells its stationery products through a network of more than 50,000 retailers in 100 foreign countries.
These five Chinese printer vendors also have massive scale and resources. Huawei, Lenovo and Xiaomi generated $200 billion in sales last year, while Deli had over $3 billion in revenue. So these five Chinese hardcopy vendors together have more than double the revenue of the five largest US and Japanese printer vendors.
The time is ripe for one or more of these Chinese vendors to attack and expand. Global demand for low-end inkjet and B&W laser printers hasn’t been this strong in a decade. Hardcopy vendors whose sweet spot is the office have been weakened financially, and they’re desperately trying to diversify beyond print. They aren’t in a position to make big new investments in lower-end segments of the hardcopy business. And printer features and designs are past mature, so the technological barriers to product line expansion are low and falling. The bottom line? Watch out!.
From the February 2022 Issue - “The Recovery That Wasn't"
A character in English writer Ian Fleming’s Goldfinger shares with James Bond this astute observation: “Once is happenstance. Twice is coincidence. Three times is enemy action.” So this month I asked myself a question. What does the fourth time mean? My hope is that the fourth time is the charm in this case, an overdue call to action for the office printing industry and for all of the vendors who serve this challenged market.
The fearsome foursome of which I’m speaking is the number of leading hardcopy companies in the past few weeks that have independently concluded and publicly communicated how they no longer expect to regain much, if any, of the 20% drop in office printing page volume that was triggered by the pandemic and solidified by shifts to more hybrid-type work environments.
This is a huge development, especially for those vendors and others in the industry who not so long ago were focused primarily on when — rather than if — the hardcopy industry would see a return to pre-pandemic levels of office printing. A year ago, even the most cautious vendors and industry observers were positing that office print volumes would relatively quickly climb back to 90% or 95% of pre-COVID levels, and then gently decline at a fairly modest single-digit rate. No one anticipated this would all happen in 2020. But there was consensus that 2021 would be a year of significant recovery, with a return to some semblance of normalcy in 2022. Alas, vendors have closed their books on 2021, and a startling dose of reality is belatedly taking hold.
The first hint came when Xerox announced its Q4 results in late January. Not only did Xerox fail to regain any of the massive 23% drop in revenue it experienced in 2020, management made clear it expects the printing business will continue to shrink in the coming years. That was also consistent with the 19% goodwill impairment charge Xerox took at the end of last year. Then just weeks later, at its first Investor Day in three years, Xerox matter-of-factly stated that it now expects its print volume in 2022 will remain for the third year at 80% of what it was in 2019.
Ricoh and Konica Minolta had already backed off their optimistic views of how page volumes would rebound in 2021 well before announcing their respective fiscal Q3 earnings this month. Instead, the two vendors said their office print volumes in Q3 were running 20% and 19% below pre-pandemic levels. Both companies are still hoping office print volumes improve to perhaps 85% of pre-COVID levels in Q4. And both will pin down a forecast for FY2022 when they report their FY2021 results in April. However, we expect Ricoh and Konica Minolta will err on the side of caution when it comes to actually counting on much of an uptick in office printing.
And then there’s HP. In discussing its otherwise very solid fiscal Q1 results and FY2022 expectations, HP said it now believes office print volume this year will be 80% of what it was before COVID. This is the most direct, negative and nonchalant HP has been when discussing this critical topic over the past two years.
Based on these attestations, it seems the most prudent prognostication for the industry going forward is to accept that one-fifth of office page printing disappeared in 2020, it didn’t come back much at all in 2021, and it isn’t going ever to return. There will only be more declines, and the rate of decline will accelerate as hybrid work patterns mature into the new norm, and as the cumulative impact of investments in DX make for less and less printing every year.
Even over a short duration, this trend makes for a very bleak picture, with office printing volume one-third lower in 2025 than it was back in 2019. And with an accelerating rate of decline each year, it’s quite likely that business print volume by the end of the decade (i.e., 2029) will have contracted by half from the 2019 level, with double-digit annual declines thereafter.
Several other points emerge from all of this. For starters, there’s the question of whether hardcopy vendors are “sandbagging” their page forecasts in order to deliver numbers that surpass low expectations. That’s possible, but not very likely. And it only really matters this year and next. Nonetheless, Xerox did bait investors, noting that for every percentage in pages it does recover, it would add $40 million in revenue.
Second, this depressing dynamic is bigger than fuddy-duddy A3 office MFPs. LaserJets are nearly irrelevant in the A3 market, yet HP has hopped on the “20% drop ain’t coming back” bandwagon. That means the A4 leader believes its own office devices and pages are following the same track.
Third, there will still be winners and losers, and it may already be too late for some. Vendors for whom printing is a small piece of their business may call it quits (think OKI). Vendors with no other credible businesses on which to rely, may well collapse or fade to irrelevance (think Kodak). Where possible, vendors will shift their focus to consumer inkjet or industrial printing, which for now are faring better than office printing.
Replacing office printing revenue and profits with other services or software is a tough slog. And an ever-weaker office printer business may not be able to fund a lot of badly needed diversification.
From the January 2022 Issue - “When Just-in-Time Just Isn't Enough"
We’re two years into a COVID-altered world, and companies are still grappling with some of the biggest unforeseen secondary effects of the pandemic. At the top of the list for almost any business is how to manage just-in-time (“JIT”) supply chains. And while almost every manufacturer has been affected by component shortages and breakdowns in logistics, printer vendors face some particular challenges and extra burdens as they seek to respond and to move forward.
Perhaps unfairly, COVID has gotten most of the blame for everything, from semiconductor shortages, to backed-up ports. But the real culprit is the way companies have upended their operations to embrace JIT business models over the past several decades. So while it was COVID that triggered the current global mess, a broader range of catalysts are likely to cause similar and more frequent bouts of disruption in coming decades unless companies make some changes.
As the Guardian went on to explain, businesses have gone too far in embracing — or ignoring or downplaying — risk at the expense of building greater resilience into their operations. So going forward, companies that want to avoid a repeat of the supply, transportation and logistical issues of the past year will have to adjust so they can minimize the consequences and recover more quickly from unforeseen disruptions. And this goes far beyond COVID. There will be other pandemics. There will be political disruptions. And storms, wildfires and floods will be more frequent, more numerous, and more extreme.
So what does it really mean for a company to become more resilient? I look at it as bolstering “The Four P’s.” That means holding more inventory of parts and finished products, which in turn requires more places to store that extra stuff and more people to manage that extra stuff. And each of these extra things requires spending more money. So that means diverting cash flow away from other things ... like R&D, compensation, M&A, marketing, repurchasing shares, etc. But these extra expenditures also have an upside. They will enable companies to continue selling products and receiving revenue during times of turbulence or disruption. However, improving JIT resilience presents extra challenges and more complexity for hardcopy vendors.
For starters, total printer placements and total printed pages have been declining now for more than a decade. So we’re not talking about making big improvements in a growing industry. Moreover, COVID has accelerated the old rate of decline, probably permanently. And while there have been some exceptions — inkjet AIOs and low-end laser devices — the uptick in those sales has been far short of what’s needed to offset broader sales declines, and those sales may be transitory.
Second, even though some hardcopy vendors reaped exceptionally strong profits and profit growth in 2021, these companies are also under more pressure than ever before to diversify away from printing. And that takes cash, whether it’s for new hires, product development, M&A, or plant and equipment. So how do vendors invest in making a legacy printer business more resilient at the expense of taking actions that lessen dependence on a shrinking market?
Third, even as hardcopy vendors do invest in diversifying beyond print, they also have to adjust their plans and realign their investments within the printer business. Most notably, that means shifting from A3 to A4 devices. And that entails changing R&D, technology, manufacturing, partners, distribution, sales and support. It also means drastically reducing the number of different hardcopy devices and accessories.
Fourth, as much as the consumables-driven annuity business model provides the majority of revenue and profit in the printing industry, each toner or ink cartridge is another opportunity for the JIT model to break down. And that’s magnified by the plethora of MFP and printer models that require an ever-growing list of supply items.
And fifth, in the global market for semiconductors and other critical components, most hardcopy vendors and the vast majority of their products are of middling to minor significance. Individual A3 platforms and higher-end A4 devices simply don’t sell in great enough numbers. We’re talking tens of thousands of units, versus tens of millions. So printer vendors take a back seat to more valuable customers, especially during times of scarcity. That same dynamic also plays out when companies rely heavily on contract manufacturers and/or OEM suppliers ... which may explain Xerox’s uniquely awful problem obtaining an adequate supply of devices.
The bottom line? You can add JIT complexities and cures to the long list of things overburdened hardcopy vendors need to address in 2022.
From the December 2021 Issue - “Is MFP Scanning Due for a Redo?"
Hardcopy vendors have long had a love-hate relationship with scanning. Despite periodic “now we get it” moments, they’ve tended to view it as a loss leader that’s technically demanding in terms of product development; burdensome for its dependency on software partners; and ultimately incapable of delivering monetary clicks to pay for all that work and investment.
To date, the preponderance of scanning on MFPs has been mundane, with an emphasis on scanning to e-mail, oneself, a network folder, or a cloud file repository. Only occasionally have MFPs been used to capture documents for input to an ECM system or as part of a workflow connected to a complex line-of-business solution.
But the confluence of four recent developments indicates scanning on multifunction printers may be entering a new era with new opportunities.
1. Diversification Desperation. The last two years were disastrous for the hardcopy industry and for most printer vendors. Pages drive 55% to 75% of revenue and an even greater portion of profit in the printer business. But office page volumes fell 20% in 2020; the recovery in 2021 was partial and scattered; and ongoing annual declines of 5% or perhaps even 10% in 2022 and beyond are likely. Vendors have gone from concerned, to frightened, to panicked. But some are finally taking concrete actions to lessen their dependence on placements and printed pages.
Ricoh is an interesting example. In Japan, Ricoh in the first half of this fiscal year got 41% of its revenue selling digital services, and 25% of that revenue came from “scrum packages.” These are Ricoh-developed customizable software frameworks for vertical markets or horizontal business tasks. And they almost always involve MFP scanning as an on-ramp for high-value solutions. Ricoh offers 154 scrum packages, and one out of five Ricoh MFP customers in Japan has already bought at least one package. And now Ricoh is promoting this same approach in Europe and other markets, although notably not in the US.
2. The DX Dynamo. Digital transformation, or “DX,” encompasses almost everything we used to define as good old business IT. That is, it’s “the integration of digital technology into all areas of a business, fundamentally changing how you operate and deliver value to customers.” DX was already big and growing, and then it got a major boost from the pandemic and hybrid work.
IDC in November estimated that $1.3 trillion was spent on DX in 2020, and that will more than double to hit $2.8 trillion in 2025. That’s a whole lotta money. Moreover, most DX projects entail designing paper out of business systems and digitizing what paper there may still be. That’s bad news for MFP printing; good news for MFP scanning. But keep in mind, DX drives capture; not the other way around. And scanning is the least critical and hence least remunerative part of DX. So it’s in-depth DX experience and expertise that will control selection of capture devices, solutions, services and vendors. Without countervailing efforts and investment, MFP makers will find themselves at a big disadvantage in the DX sweepstakes.
3. The Subscription Economy. The business of making fixed monthly payments is forecast to grow from $650 billion in 2020, to $1.5 trillion in 2025. Sure, a whole lot of that is Amazon Prime and Netflix, but that consumer dynamic — with people now comfortable paying a flat fee per month for lots of different things — is increasingly migrating over to the boring hardcopy business.
It took a decade, but HP’s Instant Ink is doing a half-billion dollars in annual sales. And just about every printer vendor is trying to figure out the economics of a convenient monthly payment. One way to change the conversation with customers is to make scans — or certain added-value scanning features — an enticement to sign up for a subscription or to opt for a pricier one.
Ironically, stodgy old Xerox may actually be on to something here. Its new Workflow Central provides multiple scan-related added-value services, like translation, redaction and audio conversion. And while it uses per-process rather than per-month pricing, Xerox is making a good case for a pay-as-you-go sub. And the fact that it works on your phone or PC, too, is a big plus.
4. Smartphone Reality Check. Smartphones are central to the way we live and work. But for all the value they provide, they’re lousy scanners. Look no further than HP’s now defunct Tango smart home printer to understand that photographing a page — let alone snapping pics of multiple pages — isn’t a passable substitute for scanning paper on a platen or through a feeder. The idea that work-at-home folks can live with just a printer and don’t ever need to scan is a nonstarter. And that’s good news for companies that make lower-end desktop MFPs and AIOs.
Nonetheless, these fancy new offerings can’t mask the fact that document capture is increasingly a commodity offering. That means commodity pricing and profits. So even this modest renaissance for MFP scanning is unlikely to generate enough revenue or profit to make up for the slide in MFP placements and prints this industry has relied on to strive, thrive and survive..
From the November 2021 Issue - “Won the Battle But Lost the War"
The good news for the laser printer industry is that it triumphed in the decades long battle against inkjet in the office. Unfortunately, team laser doesn’t fully comprehend it’s already lost a far larger, more determinative technological and economic war, and inkjet is the ultimate winner.
It’s no one thing. There’s the recent turnaround in home inkjet printing, although that’s kind of small potatoes and could well be short-lived. Inkjet also retains a meaningful share of the low-end business printer market, particularly in developing economies. Then there are inkjet presses, which are making impressive strides against both laser and analog devices. The prospects remain solid for a whole range of large, wide and grand format inkjet printers. And we’re still in the early growth stages for industrial inkjet devices that print labels and packaging.
In fact, revenue from traditional and emergent inkjet markets will surpass revenue from laser printing later in this decade. But the real win for inkjet printing goes far beyond that. It lies in the multiple diverse ways the underlying deposition technology that’s fundamental to inkjet printing will be used in a broader array of future products and applications, from textiles and tiles, to wall paper and ceramics. Those products and more will together backfill and then eventually surpass a declining “marks on paper” printer industry.
In stark contrast, electrophotography faces two fundamental and insurmountable obstacles over the coming decade. First, the laser printer market — as measured both in devices and pages — is in inexorable long-term decline. Neither the recent boost in sales of low-end laser MFPs and printers, nor the growth in low-end placements in emerging markets, will change that. In fact, the pace at which the global laser printer industry will decline has been hastened by COVID, and the fundamental changes the pandemic has brought to where and how work gets done.
Second and perhaps less obvious, electrophotography is a dead-end technology. Sure, there are some color laser devices for printing labels and certain types of packaging, but laser industrial printing is a decidedly niche market. More significantly, there are very few adjacent or even further afield applications for electrophotography. Nor are there significant new uses for the underlying technical components or ancillary technologies waiting in the wings that will offset the decline in the core laser printer market.
So what does this all mean? Foremost, it means the financial return generated from hundreds of billions of dollars and trillions of yen invested over multiple decades in laser printers and laser printing is decreasing. And the rate at which that value is decreasing will only accelerate. It’s not only because of falling demand. There are simply too many vendors with excess production capacity and too many models chasing that declining demand. That spells increased price competition and lower profits over time.
It also means laser printer vendors are less attractive acquisition targets, either to each other or to other buyers. OKI is an overlooked but telling example. It’s hardcopy business — built on technologically innovative LED printers that generated close to $1 billion in annual sales in the 2010’s — has elicited little or no interest from any hardcopy vendors, other companies, or private equity. It basically has zero residual value, and will likely just disappear in a few years.
OKI’s experience ought to be of concern to every laser-centric, hardcopy-dependant company that’s been hoping consolidation will come to the rescue. Toshiba TEC could easily be the next test case, but it probably won’t be the last.
The same fundamental dynamic also poses a grave threat to much bigger and more important hardcopy vendors, particularly Xerox, Ricoh and Konica Minolta. The profits that keep them in business — and that fund their desperate attempts to diversify — are critically dependant on laser printing. Moreover, these vendors rely on the most threatened segments of that market. So is it any wonder that the respective market caps for these three major companies have fallen 80%, give or take, over the past seven-ish years?
Meanwhile, hardcopy companies with footholds in one or more segments of the extant inkjet market at least have a chance to tap new opportunities in printing and beyond. To differing degrees and with varying results, nearly every vendor over the past few years has shifted its inkjet focus, from production/commercial/graphics printing, to some kind of industrial printing. Over the medium term, there’s room in the market for all of them. But it’s much less clear that growth in traditional and industrial inkjet revenue can offset shrinking document printing revenue.
And then there’s HP, which is in a league of its own. HP is targeting industrial printing as well, but it’s also leveraging its vast inkjet know-how for new opportunities that are much further afield in digital manufacturing and microfluidics. Others claim to be doing the same, but they’re way behind. HP isn’t a sure thing in the inkjet sweepstakes, but the company is investing pretty heavily, and it appears to be gaining traction in new businesses that are more promising for a printer vendor than DX or ECM or IT services..
From the October 2021 Issue - “Let's Play Pretend"
My granddaughter will soon be a year old, and I’m looking forward to watching her in 2022 enter that wonderful stage when toddlers begin to pretend and engage in all sorts of imaginary fun and make-believe antics. But until then, I’m gonna ask my MFP vendor readers to step in, find their inner child, and fill that void by engaging in some let’s pretend games of their own.
The particular game I have in mind is one I’d describe to my little granddaughter as “Let’s Pretend We Care!” But when presenting this game to my adult readers, grandpa would instead call it, “Pretend You Give a Damn.” The you here means you executive, management and operational folks in the MFP vendor community whose increasingly lame efforts at communication — or the lack thereof — are making grandpa want to grab a drink before noon and swear up a storm.
Grandpa’s saltiness, sarcasm and stress have been building for a few years, but this month was a real doozy. A big part of what I hope is my value-add in this industry is to scratch below the surface, try to explain what’s going on, and highlight what’s important ... in my not-so-humble opinion. In turn, that necessitates that I compare what vendors are saying, not saying, and ought to be saying. So gimme a break.
Everywhere I turned this month I was confronted by unreported news, confusing announcements, and confounding pronouncements. Frankly, it’s gotten to the point now where too many vendors too often are embarrassing themselves, and alternately insulting or frustrating their stakeholders ... not to mention this old grandpa.
So in the interest of being didactic but not pedantic, here are pointers about six key areas in which I’d like to see hardcopy vendors partake in a rousing game of “Let’s Pretend We Care!”
Let’s Pretend We Care About Hardware. As much as vendors collectively swear they’re way beyond the mundanity of devices, hardware is still what drives the industry and pays the bills. And that will be true for years. So for starters, please announce all new products, especially when they’re important for what they do for customers, or they’re noteworthy for that vendor ... like when Xerox expands its home product line with multiple models from a new supplier.
Also, when vendors announce “updated” products that replace previous models, it’s expected said vendors correctly and kind of specifically highlight what’s new, rather than just reiterating all that’s not new. And if there’s nothing new — listen up Epson, Canon and Muratec this month — vendors ought just admit it. Or if that’s too boldly uncomfortable, perhaps they ought rethink why said products are being launched.
Let’s Pretend We Care About Software and Services. When announcing non-hardware stuff — whether it’s an app, an application, a SaaS’y cloudy thingamajig, or a managed service — that actually needs to be done with more detail, clarity and specificity than for a device. No one can see it or touch it, so please go the extra mile and say exactly what it does, why that matters, who it’s for, where you get it, how you deploy it, what it costs, and so on. Yes, this month that means I’m talking mostly to you, Toshiba and ECI.
Let’s Pretend We Care About New Businesses. We can all agree the far-off future for printer vendors isn’t printing, so it’s super-duper important for vendors to go above and beyond when announcing new non-printing or printing-adjacent stuff. But please, focus on the tangible bits and bobs, and not just the ethereal “we’re changing the world” mumbo-jumbo. And as with hardware, it’s as much about business details as it’s about the technology. I really hope you’re listening, Xerox.
Let’s Pretend We Care About a Strategy. Pretty please, when you’re introducing a new strategy — either as a singular bit of news or in the context of an earnings announcement or some other update — pretend you’re back writing a paper college. It’s about exactitude and details; not ambiguity. So connect market developments to what you’re doing. What will it achieve? And don’t foist on the world embarrassingly vapid “vision” blather, like Brother did this month.
Let’s Pretend We Care About Honesty. There’s a huge gap between what vendors say privately or amongst themselves about the printing business, versus what they say publicly. You all know the world is never going to be as it was before the pandemic. Neither placements nor pages are going to revert to pre-COVID norms ... which weren’t great anyway. You don’t need all the answers. Just don’t sound like an idiot in denial.
Let’s Pretend We Care About the Basics. It’s not just about press releases and tweets. Regular or even intermittent but structured communication with stakeholders — including press and analysts — is essential and easy. There’s simply no excuse for the near silence of the past two years from most printer vendors most of the time.
So ... even if you really don’t care about your company, customers, shareholders or industry, at least pretend you give a damn. Better yet, get back to basics with lots of good old consistent, clear, concise, coherent, complete, compelling communication. Or this grandpa’s gonna go on a bender!.
From the September 2021 Issue - “Too Much, Too Little, Too Late"
I get it. Desperate times call for desperate measures. And the office printing business — especially the A3 MFP part of it — is in the midst of desperate times that at best will be only slightly less desperate in the next few years. But that doesn’t explain why office MFP vendors keep deluding themselves into believing that content-related software is somehow an easy-breezy way to get more revenue from existing customers, or to take the company to new heights beyond plain old printing, peripherals and pages.
I’ve been publishing The MFP Report for more than a quarter-century. And for the entirety of that time, selling software for document management or content management or workflow or whatever you call it has been a wouldn’t-it-be-great fever dream in the office MFP world.
At a very superficial level, I can see why. Companies that make office MFP hardware and companies that develop document management software are both in the business of helping customers make better use of information. But that overly simplistic assessment doesn’t translate very well into an actionable strategy or attainable outcomes that justify hardcopy vendors’ ongoing lust for selling ECM applications.
Step back and ask yourself. What do MFP vendors need ECM software to do? I don’t mean technically; I mean financially. COVID has accelerated the decline in the office MFP business. Depending on the vendor, ECM software needs to help offset anywhere from $300 million to $3 billion in former hardcopy revenue. MFP companies can’t juggle a half-dozen big initiatives outside their core business. So each of these initiatives has to offset a sizable chunk of that shrinking hardcopy revenue within just a few years.
In fact, I’d argue that content management — or any other credible initiative to help diversify meaningfully beyond hardcopy — must be able to generate new sales equal to at least 10% of a vendor’s pre-COVID hardcopy revenue three years from now. Otherwise, ECM will be just an immaterial piece of the business. So depending on the size of the vendor, that’s between $100 million and $1.5 billion in ECM-related sales.
And don’t talk to me about synergy. Content management doesn’t boost MFP placements or pages. It’s separate from IT services. And it’s a small part of digital transformation. MFP customers may well be ECM software prospects, but there’s already an expert channel doing a pretty decent job selling content management. No one is waiting for MFP companies to jump into the fray. And any MFP vendor that seriously expects to generate a whole lot of new ECM revenue is going to have to create a distinctly separate and very well-funded content management business.
There are only three ways any MFP vendor can get into content management software. They can either make it, buy it, or partner up. Sadly, none of these approaches is up to the task.
When it comes to the “make” option, the record is pretty darn thin. And the test case is Xerox with its DocuShare imbroglio, which after 25 years is generating $25 million in sales. Canon’s imageWARE Document Manager has never come close to that, and Fujifilm’s DocuWorks and Sharp’s old Sharpdesk are just desktop viewers.
When it comes to the “buy” option, the twin failures of HP acquiring Autonomy (and Tower before that) and Lexmark purchasing Perceptive (and a dozen other software firms) are legendary. Sure, DocuWare is doing OK so far inside Ricoh, but it’s still barely a blip in terms of backfilling print revenue. Ditto for Canon’s acquisition of ALOS/Therefore; Ricoh buying DocumentMall; and Kyocera’s purchases of Ceyoniq, Optimal, Everteam and DataBank.
There are just four ECM software companies anyone could buy that have enough heft and revenue to be financially transformative for an MFP vendor. OpenText has $3.4 billion in revenue. Hyland’s sales are near $1 billion. Box has close to $800 million in revenue. And NewGen, has $1.6 billion in sales. Any of these would be a very risky deal for which there’s no successful precedent in hardcopy. As for the rest of the ECM world, there are a few $50-$100 million companies like M-Files, Laserfiche and iManage. They could have a material impact only for a small MFP vendor. And then there’s all those perpetually small developers that don’t matter.
That leaves ECM partnering. Yes, Konica Minolta and Kyocera have allied themselves with Hyland and done OK-ish with their relationships. But the revenue upside is abysmally inadequate compared to what these vendors need in order to offset declining print revenue. Meanwhile, other MFP vendors are still partnering for tiny niche ECM applications — like Square-9, Prism, Drivve, DocStar and Corelan — that do almost nothing to grow their own revenue. The only winners are these otherwise inconsequential software firms.
So — in the words of Johnny Mathis and Deniece Williams — all of the palavering and wishing among office MFP vendors regarding content management is “too much, too little, too late to ever try again.” It’s time for each MFP vendor to realize that paltry ECM partnerships will never make a material contribution to revenue. So either buy one of the big ECM software firms, or move on.
From the August 2021 Issue - “Pick Your Poison"
In the course of publishing The MFP Report for more than a quarter century (yikes!), I’ve found myself on the editorial page cycling back to certain themes because they’re of critical importance to the industry ... and because vendors haven’t adequately addressed the fundamental issue. So I keep trying to find a way to cause discomfiture in the hope of spurring new action.
One of the top recurring themes is the need for vendors to significantly grow their non-hardcopy business in order to offset shrinking printing revenue and to reduce exposure to the growing peril confronting this industry. Moreover, actions that might have been seen as way ahead of the declining print curve in the pre-COVID era are no longer sufficient in a world where rapid changes to printing norms are increasing the level of risk and raising the stakes for vendors.
As I see it, companies can respond in five ways. Oddly, the first and most time-tested option has been to take actions that actually expand dependence on hardcopy, rather than diversifying away from it. Vendors have long taken comfort in growing their footprint into adjacent types of printing — from A3 to A4, or vice-versa; from relying on resellers, to adding dealers, or the other way around; or moving up into graphics, large format, commercial or industrial printing.
Until recently, this has paid off for some vendors, but it’s also sucked up resources and management attention that could have gone into far more broad-based diversification. And it’s lulled companies into falsely believing they really were reducing their exposure to the risks of hardcopy.
The second option is for vendors to acquire companies outside the printing industry. This, too, is a timeworn strategy. It’s why Xerox bought ACS. It’s why Lexmark purchased a string of ECM and capture software companies. It’s why the old HP paid billions for Autonomy. It’s why Ricoh and Konica Minolta have acquired multiple IT services providers. And it’s why Kyocera has purchased several ECM companies.
A key challenge with this approach is the lack of any great examples of success, assuming one defines success to mean the acquisitions have provided significant diversification away from printing, and they’ve positively contributed in a material way to revenue and profit. Instead, Xerox bombed with ACS and opted to spin it off. Autonomy was a huge, costly embarrassment. All of those software deals pushed Lexmark into selling itself. And neither Ricoh, Konica Minolta nor Kyocera has dramatically lessened its dependence on hardcopy devices, pages and services.
The one possible contrarian example is Fujifilm, which has indeed done well with a series of pharmaceutical, materials and healthcare acquisitions. While those purchases leveraged and replaced the old film business, Fujifilm’s dependance on print is the same as two decades ago.
The third strategy is for vendors to grow their non-print businesses organically, without M&A. Indeed, this has been the de facto or fallback strategy in recent years for several companies. It’s basically what Canon and Xerox have done to build out their IT services and solutions business, and its what Ricoh has done in Japan and in the US (since the mindSHIFT debacle). And it’s what HP has done with 3D printing and microfluidics. Perhaps not surprisingly, these vendors haven’t yet managed to materially lessen their dependence on printing.
The fourth option is to throw in the towel and sell off the hardcopy bits or the entire company. But as we’ve noted, there’s a massive disconnect today between what a seller may want and be willing to accept, versus what a buyer — if there indeed is one — is willing to pay.
In fact, there’s little reason to believe a company not already in printing wants to buy a hardcopy vendor or line of business. And private equity may not come to the rescue. Indeed, a printer business that’s small, poorly run, rapidly contracting, or otherwise uninteresting won’t garner much interest from either PE or another hardcopy company. Just look at Panasonic, Dell or OKI. They simply pulled the plug on printing.
Finally, there’s the option of doing nothing. Of course, it’s easy to confuse this choice with the aforementioned option of seeking new organic growth while not doing enough to make that happen. However, that pretty much seems to be what companies like Sharp, Toshiba TEC and Brother have been doing in the print world for several years. But it only works to the extent a company has significant other growing businesses, and can just cash cow its old hardcopy unit. Incidentally, repurchasing one’s own shares to me is worse than doing nothing. Just saying.
So ... what’s the takeaway from all of this? I’m sorry to tell you, but none of the options is easy or inexpensive. Every one of them is fraught with risk, and there’s little evidence in the annals of the hardcopy industry that pursuing any particular one of these strategies will quickly deliver meaningful financial gains or strategic upside. And the risk of failure is also pretty high. But unless a hardcopy vendor is already positioned well outside of printing, the option of doing nothing simply isn’t viable. So pick your poison.
From the July 2021 Issue - “Dealer Deal Doldrums"
The business of selling office MFPs has for years been charitably described as “mature” and “predictable.” But oh how quickly and dramatically things have changed in just the past eighteen months. Nowhere is that more evident than in the business of buying and selling office equipment dealers. In short, if a dealer didn’t already get gotten while the getting was good, that’s too bad. Because the game of getting gotten easily and lucratively is gone for good. Got that?
This isn’t to say that absolutely no dealers are being acquired these days. But for sure, the pace of transactions has slowed to a trickle. The size of the dealers being acquired is trending smaller. And those old premium prices appear to have come down closer to just one times revenue. Look no further than what Xerox has revealed about what it’s been paying recently for dealers.
However, it’s too easy to blame all of these changes on the dreaded COVID. The pandemic has certainly disrupted the office equipment business, but I see COVID as an overdue catalyst that’s merely hastened underlying trends and transitions for the MFP industry. And those negative developments make buying a dealer less relevant and more risky today and tomorrow than just two years ago. And all of this means fewer deals, smaller deals, and lower prices.
So here’s my dozen not-so-delightful but decidedly deducible reasons why deals for dealers are in the doldrums, and will likely remain so.
1. Fewer Pages. Pages drive revenue and especially profits. Pages went way down last year, and they’ll never fully coming back. In fact, the pre-COVID rate of decline has only accelerated.
2. More A4. The shift from A3 console devices to A4 desktop printers and MFPs got a big boost from the pandemic. So that trend has gone from annoying to really threatening. Dealers and their vendors bailed on A4 years ago, and it’s too late for a big comeback. So say hello to less money.
3. The Inkjet Wild Card. I’m not talking about those big A3 inkjet failures. I mean all of the inexpensive AIOs people bought by the millions over the past year for work-at-home and study-at-home printing. With a shrinking pie of pages, any loss to at-home devices is very bad news.
4. Big “D.” Dealers and vendors are finally getting more serious about diversification in order to be less dependent on print devices and pages. That means most of their precious M&A dollars won’t be spent simply buying more of the same.
5. Empty Pockets. Office MFP manufacturers are a lot poorer from the pandemic. So even if they do want to buy dealers, they’ll be constrained.
6. The US Is on a Short Leash. For reasons that aren’t fully clear, Japan’s office MFP vendors (especially Ricoh and Konica Minolta) aren’t showing a whole lot of love for their US sales companies. Combine that fact with a steeper drop in devices and pages in the US from COVID, plus a slower hardcopy recovery here, and there’s not much reason to buy US dealers.
7. Against the Tide. Although manufacturers have been buying the occasional US dealer in recent times, several years of vendor acquisitions were more than offset by the boatload of branches Konica Minolta disgorged in just one quarter in 2021. And that latter trend could even accelerate as more and more MFP vendors really begin to comprehend the massive fixed costs associated with their bloated direct operations in an era of hastening industry contraction.
8. Consolidation is Coming. No one can say exactly who it will be or when it will happen, but pretty much everyone’s betting on one or two incumbent A3 vendors getting bought. And that will mean shedding dealers. Not buying them.
9. Forget About Fujifilm. Fujifilm sans Xerox once seemed anxious to enter the US, which could have meant buying dealers. But no more.
10. Wither Xerox? Xerox has spent more than any vendor buying dealers in recent years. But Xerox has also been injured the most by COVID, it’s been the slowest to recover, and it really has to diversify. So there’s good reason to believe Xerox’s dealer acquisition engine will sputter.
11. Professional Payback. Private equity and other professional investors and lenders have financed a big chunk of US megadealers’ dealer deals. But that kind of money is neither patient nor understanding. So don’t be surprised if those big money wallets snap shut real soon.
12. Macro Matters. The US economy looks bullish right now, but it could change in an instant. Meanwhile, inflation is up, and the recent era of unprecedented cheap money is likely coming to an end. None of these developments will be good news for hardcopy vendors or for their channel partners over the next few years.
Oh, there’s one more. So let’s call it a baker’s dozen. There’s a surfeit of small dealers with mediocre financials and weary owners who really want to cash out. But these lower-rung dealers are the least desirable ones of all for anyone to ever want to acquire. Sadly, many of them will fade away before ever getting bought.
From the June 2021 Issue - “Duty Doodie"
You know that feeling you get when you step in something “bad” but you don’t want to look at the bottom of your shoe? That’s how I feel when printer vendors mention duty cycle ratings. It’s like “Why didn’t I look where I was going. Now I’ve stepped in it, and I have to clean up this mess!”
The latest one I stepped in was Brother’s new INKvestment series. The $89 and $99 AIOs have a 2,500-page monthly duty cycle. But the $149 and $199 models — which share the same basic industrial design — are rated at 30,000 pages per month. I don’t care how much the pricier models might have been hardened, beefed up or whatever. No one can convince me it translates into a monthly duty cycle that’s a dozen times higher. And if that weren’t enough, the “recommended monthly print volume” ranges from less than 1% of the duty cycle, on up to 40% of that figure.
I really don’t want to pick on Brother. Because every vendor does it, and they’re all equally to blame for playing this silly game. Yeah, I know I’m not the first person to address this topic, and I won’t be the last. But at a time when lots of people are buying personal AIOs or home printers — and in an era when companies are justifiably skeptical of what technology vendors say — why do we tolerate this embarrassing charade?
Vendors and others in the hardcopy industry like to portray duty cycle in quasi-scientific terms. You know, it’s some precise, engineering-driven examination of how long a machine in a single month can produce good quality output before certain nonreplaceable parts crap out. But the whole thing is smoke and mirrors, at least in terms of giving buyers any useful information.
Start with the fact that there are absolutely no standards for calculating duty cycle. It’s like when every vendor used to make claims about how many pages one could get from an ink or toner cartridge. At least the hardcopy industry finally developed ISO standards to guide those calculations. And that was over a dozen years ago. In contrast, the ongoing lack of standards for determining duty cycle means that numbers from different vendors can’t be accurately compared. Moreover, the people that make and sell MFPs and printers tacitly acknowledge this fact.
But these same folks have a fallback position. They’ll claim that duty cycle ratings are at least a decent way for customers to select the right model within a single company’s product line. But that’s just more doodie. Almost every print device made today is based on a platform that’s used to make several additional models with different speeds. Look at Xerox. It’s mainstay AltaLink color MFP lineup includes five models with speeds that span 40 ppm. The 30 ppm machine has a 90,000-page duty cycle, and the 70 ppm product has a 300,000-page duty cycle. But under the hood, they’re basically the same.
Some vendors try to avoid stepping in it by using other measures alongside or instead of duty cycle, but the issues are all the same. Look at Ricoh. Its new IM series of A3 monochrome MFPs have speeds that span 35 ppm. The “maximum monthly volume” is 15,000 pages on the 25 ppm MFP, and it’s 50,000 pages on the 60 ppm machine.
And there are other anomalies that show these monthly endurance measures to be even more illogical, misleading or useless.
Try this one on for size. All things being equal — as they very often are with printers or MFP s that share a platform — why shouldn’t the faster model actually have a lower duty cycle than the slower one? After all, the same parts are being pushed much harder and faster. Ask yourself this. Is a car going to last longer when driven at 50 or 95 miles per hour?
Here’s another thought puzzle. Is an office MFP with a 100,000-page duty cycle more likely to last if it prints 105,000 pages in a single month and then 20,000 pages every other month, or if it prints 95,000 pages month after month?
Or how about this one? If the duty cycle reflects the fact that nonreplaceable parts wear out, isn’t the cumulative number of printed pages over the life of a machine going to be more important than how much is printed in a single month?
Even more telling is how hardcopy vendors actually utilize these duty cycle, maximum monthly, or recommended monthly figures. It’s all marketing! I’m not aware of any vendor, dealer, branch or reseller that links these figures to a warranty. The numbers are purely a customer inducement (“See how sturdy my nice machine is!”). The numbers are no guarantee (“I promise my machine will perform great up to this number!”). Some sellers may include a page limit in a service contract, but no one stands behind the duty cycle.
What often ends up saving hardcopy vendors and their partners is that most personal and office print devices are never ever operates anywhere near their “duty cycle.” In fact, the A3 office MFP business model pretty much depends on the idea of selling the customer a faster, bigger, better machine than they really need.
Regardless, isn’t it time that printer and MFP vendors clean up this mess? Develop a standard or kill it. It’s their duty. ... Or should I say doodie?
From the May 2021 Issue - “So Which Kind of 'Normal' Are You?"
People are already tired of hearing “The New Normal” being used to describe every recent business and societal change. Some new normal things aren’t really new; some are contradictory or mutually exclusive; and it remains to be seen whether they stick around to become the norm.
So I’m offering a different spin, at least as it pertains to the printer business. As I’ve been examining statements, assumptions, plans, and implicit thinking among hardcopy vendors over the past few quarters, I’ve realized no single label encompasses the breadth of perceptions and responses to COVID-19 and its aftermath. Instead, what I’m seeing is an evolving hardcopy universe in which each vendor’s direction (either purposeful or de facto) reflects three key things.
First, there’s the matter of the vendor’s dependence on hardcopy and the segments (i.e., products, technology, channels, partnerships, geographic regions) in which the vendor is active in the printer industry. In the short run, these are immutable, except to the extent a vendor might curtail or even close some parts of its printer business. Over the longer term, of course, vendors can adjust their hardcopy offerings and their business model through internal development, OEM sourcing, partnership, or acquisition.
Second, there’s the extent to which a vendor believes the pandemic has fundamentally and permanently changed the print environment. It’s particular to look out for vendors who are merely giving meaningless lip service to the idea that things have changed. And it’s equally critical to determine if a vendor is looking backward (“we had a bad year because of the pandemic”) or forward (“there’s no going back to the past”).
And third, there’s the extent to which a printer company is altering its business in response to the changes it perceives in the post-pandemic work and computing environments. This can entail launching new hardcopy initiatives, accelerating other print-related efforts, or supplementing its printer business with unrelated ventures.
Applying these criteria leads to me believe each printer vendor has a particular perception of what “normal” now looks like. I call these perceptions the new normal, the old normal, and the non-normal. The terms are a shorthand way to describe how vendors are responding in decidedly different ways as they move past a single traumatic year and into the future. And keep in mind that what a vendor says it wants to do may be contradicted by what it’s actually doing.
Viewed through this lens, what I find most ironic (and disheartening) is that so few printer vendors are really on a path to fully embrace and exploit the defining characteristic of the new normal. I’m referring here to vendors that are fully adapting to a significant increase in hybrid work and work environments that are characterized by greater decentralization, more collaboration, a concomitant reliance on cloud solutions, and a greater emphasis on IT cybersecurity. While none of these trends is completely new, each one has been accelerated by the pandemic and will be even be more determinative in the post-pandemic era.
For now, I’ve placed only three printer companies in the “new normal” category: HP, Epson and Pantum. I’ve put them in this category as much or more because of where they somewhat fortuitously happened to be in the hardcopy industry and in the printer product pantheon prior to the pandemic. To a large degree, they were in the right place at the right time.
Epson and Pantum have benefitted in very different markets with very different products and on a completely different business scale. The common thread is they made low-end devices that grew more popular as the pandemic surged.
Then there’s HP, which is truly in a class of its own. HP was already broadly based in terms of products, technologies, channels and markets. It was especially dominant in two key product segments: low-end inkjet AIOs that appealed to people newly working and studying from home; and A4 laser printers and MFPs that are better suited to buy, use, deploy and support in post-pandemic offices than traditional A3 MFPs. And while HP was also in the right place at the right time, it has done far more than any other vendor to latch onto the “new normal” and make itself the standard-bearer of change in printing.
Moving on, I’ve placed just two vendors — Ricoh and Konica Minolta — in my “non-normal” category. Both companies saw the proverbial writing on the wall for their mainstay A3 office MFP businesses long before COVID. But the pandemic has really hastened their expansion into not-so-adjacent IT services. It’s a gamble, but both are committed, and neither sees an alternative.
And then there are all of the “old normal” vendors. That’s pretty much everyone else, including Canon, Xerox, Fujifilm, Brother, Toshiba, Sharp and Lexmark. These companies have said relatively little about any fundamental changes in printing. Instead, they’ve focused mostly on how the pandemic helped or hurt specific parts of their businesses in 2020. And now they’re trying to triangulate when and how fully their old business might return. And that’s not a strategy.
From the April 2021 Issue - “Never Mind"
Emily Litella must be pulling double duty these days, directing strategy at both Fujifilm and Xerox. You remember good old Emily. She was one of the inimitable characters dear departed Gilda Radner played in the early years of Saturday Night Live. She’d be there in the Weekend Update segment, railing against some editorial position, only to have totally misconstrued the topic, after which she’d conclude “Never mind.”
April was a big “never mind” month for Fujifilm and Xerox. Both companies backed off pretentiously portentous plans to grow in previously off-limits portions of the globe with their own branded printing products. But as Emily Litella would angrily have asked, “What’s all this talk about growth?” Apparently, execs at Fujifilm and Xerox had been talking about “groans.” That’s the sound management quietly makes when reporting the latest quarterly hardcopy results.
Don’t get me wrong. I’m all for the occasional mea culpa or a change of heart. But what we saw in April was top Fujifilm and Xerox management effectively backing off prior high-profile this-is-how-we-grow-in-hardcopy utterances by acting as if such words had never been spoken.
It’s not that I ever bought into what Fujifilm and Xerox were hyping. A lot of what they put forth as “strategy” was barely plausible. And some of it wasn’t at all credible. I said so when I assessed and wrote about what they were doing. It’s not like I lost my mind or abandoned my inherent skepticism. But I did believe they believed what they were saying. At least, I believed they believed what they were saying would guide what they would do, for better or worse. And I certainly expected them to say when their plans or views had abruptly changed ... and why. Silly me.
In the context of this internecine imbroglio, Fujifilm has to be held to a much higher standard than Xerox. It was Fujifilm that got things rolling in early 2018 with its convoluted offer to buy Xerox. That’s been the catalyst for everything since. More importantly, it was Fujifilm that spent a hefty $2.3 billion in late 2019 to buy Xerox’s stakes in Fuji Xerox and Xerox International Partners. It was Fujifilm just months later that opted not to renew the long-standing Technology Agreement. And it was Fujifilm that just this month paid out another $100 million so it could use the Xerox name for two more years.
It’s worth remembering the huge promises Fujifilm pretends now to have forgotten. In November 2019 and again in February 2020, management said that big payment to Xerox would make its annual hardcopy revenue $2.8 billion higher in FY2024 than it was in FY2019. That amounted to a 35% increase in a declining global market. And if you factor in year-by-year growth, we’re talking perhaps $8 billion in cumulative new revenue over five years. Not bad!
But the devil was always in the details ... or the lack thereof. Half of that uptick was to come from new OEM sales, although it wasn’t clear who was shopping for such big deals. And the agreement with Xerox restricted the list of potential Fujifilm OEM customers. But ... pish posh. Fujifilm was also never clear where the other half of that new revenue would come from. But it did emphasize that after the Technology Agreement lapsed — just on March 31— it would be free to sell lots of Fujifilm printer products worldwide. That would produce big new revenue in the Americas, EMEA and South Asia.
Now we have Fujifilm’s Vision 2023 plan. And that massive revenue upside? It’s all gone. Poof! Fujifilm Business Innovation will be lucky if its revenue three years from now is flat, even when compared to its poor pandemic-pummeled FY2020 numbers. There was no explanation. There was also no evidence of big new OEM deals, even as OEM sales to Xerox have plummeted. And there was a halfhearted statement about maybe at some point selling in parts of Europe and some emerging markets.
The situation at Xerox is different but also dysfunctional. The company — and specifically its two biggest investors — said lots of silly things back in 2018 and 2019. The biggest whopper was that Xerox would easily find huge new riches by selling its products into Fuji Xerox’s then exclusive territories across Asia. All that was needed was for Xerox to sell its Fuji Xerox stake and not renew the Technology Agreement. Xerox did the first, and Fujifilm did the second.
At least Xerox never ascribed a particular value or time frame to its elusive pan-Asian dreams. And Xerox has come out of the past 17 months with $2.4 billion of Fujifilm’s cold hard cash. Also, as a result of that $100 million it just got in April, Xerox has postponed for two years any “plan” it may ever have had to become a global vendor. Apparently, that tiny 0.7% assured uptick in revenue over the next two years was worth much more to Xerox than the opportunity to sell its products to the other half of the globe.
But it’s not like Xerox is doing anything terribly productive with all that Fujifilm money. By the end of December, Xerox will already have spent half of it to bribe shareholders with more buybacks and dividends. That’s what a company does when it can’t figure out how to create or buy new businesses in order to stop it from shrinking.
From the March 2021 Issue - “Production Reduction"
To put a riff on a seminal jingle from the old Schoolhouse Rock TV show ... “Production reduction. What’s the seduction?” For the past year, the hardcopy industry has been obsessed with figuring out what the impact of the so-called “new normal” will look like when it comes to printing in offices and homes. And rightfully so. But surprisingly less attention has been devoted to determining whether or how the aftermath of COVID-19 will affect the ongoing prospects for production, graphics and commercial printing.
Let’s face it. Hardcopy vendors were already accustomed to living with an office printing business in slow but perpetual decline. And they saw the production market as an opportunity for growth to help offset that weakness in offices. But the production printing hype has been ahead of reality for some time. High-end digital printing revenue growth has been plodding along in the low single digits, although some vendors have bested that by taking share from other manufacturers. Meanwhile, hardcopy vendors have remained mesmerized with the idea that the 90% of commercial printing still done on analog presses will ultimately be a big win.
So here we are now, a year since COVID-19 mushroomed into a global pandemic. And for months most vendors and observers have glossed over the fact that — as bad as general office printer placements were in 2020 — sales of new high-end print devices and page volumes on existing production machines have been consistently worse, with an unclear path back.
Look no further than recent results from three production print leaders — Xerox, Konica Minolta and Ricoh — who’ve each provided information on certain aspects of their high-end businesses.
Start with tried-and-true Xerox. Its high-end equipment revenue plummeted 25.9% in 2020. That was slightly more than the 25.7% drop in its midrange equipment revenue. In part, that reflected a 42% drop in Xerox’s high-end color installs and a 13% decline in its placements of high-end B&W units. And this was after Xerox’s production equipment revenue had dipped a bit in 2019, a year when Xerox placed 4% fewer color devices and 14% fewer B&W machines.
Then there’s Konica Minolta. No vendor has relied on production printing as a critical driver of growth more than this company. But in the first nine months of FY2020, Konica Minolta’s Production Print revenue was down 21% year-over-year. That was almost 60% greater than the 13% decline in its Office Print revenue. And while Konica Minolta’s office MFP installs were down an average of 15% in the first nine months of FY2020, the corresponding decrease in its installs of production machines was 38%.
It was pretty much more of the same at Ricoh. The company’s Commercial Printing revenue in the first nine months of FY2020 was off 26%, versus a 23% drop in Office Printing revenue. And Ricoh’s Commercial Printing placements dropped an average of 33% in the first nine months of FY2020, as compared to a 21% decline for its office MFP placements.
Then there’s that little matter of pages. Xerox hasn’t explicitly addressed this topic, but Konica Minolta and Ricoh have. And the message is even worse than it was for hardware. Production print pages have dipped further and faster than office pages during the pandemic, and production print volumes have been slower to recover.
Konica Minolta reported its largely page-driven non-hardware Production Print revenue was down an average of 26% in the first three quarters of FY2020, versus a 22% drop in its Office Print pages. Likewise, Ricoh reported its non-hardware Commercial Printing revenue fell an average of 33% in the first three quarters of FY2020, as compared to a 21% decrease in its Office Printing pages. That’s gotta hurt. A lot.
Despite the worse track record for production printing, as compared to office printing, hardcopy vendors aren’t exhibiting the same level of angst about the latter. Partly, that’s because office printing is a much bigger part of their business. But that doesn’t seem to explain it all.
Look at Ricoh and Konica Minolta. More than any other hardcopy companies, these two are trying to accelerate a 90-degree turn in the office market, from placing MFPs, to delivering a panoply of digital services and solutions. But when it comes to production printing, both companies are looking at 2020 simply as a year of lost placements and pages. They simply presume the production print business will self-correct with a dose of new or improved hardware. And then there’s Canon, which is convinced production printing is “less likely to be impacted by paperless trends such as seen in office printing.”
The idea that commercial printing will automatically rebound is a very risky proposition. It’s not just that high-end printer placements and pages plummeted further and faster than office printing during the pandemic. It’s that key applications for high-end devices — from invoices and statements, to marketing materials and direct mail — are likely to shrink as digital transformation accelerates under the new normal. As much as having to handle twin crises is really tough, that’s exactly what hardcopy vendors must do ... right now.
From the February 2021 Issue - “The Power of Compound Disinterest"
Back in the day, I tried to offset my predilection for history and political science courses by taking quite a few classes in economics. And while that effort fell short of equipping me for the more serious and legitimate world of “business,” it still ended up serving me pretty well. To this day, I can recall various tools and laws of economics when I assess the mundane world of printing. One such dictum that comes to mind this month is the so-called “power of compound interest.”
This apothegm typically cuts two ways. On one hand, the power of compound interest comes into play when one puts money to work, and then watches it grow by earning interest that earns more interest. The inverse occurs when one borrows money, such as with a mortgage or a car loan that ultimately costs much more than the original paltry principal that was borrowed.
What I came to realize this month is how the pernicious power of compounding percentages works when something is shrinking, instead of growing, such as an office printing industry that’s seen its once gentle decline “goosed” by the exogenous impact of an unexpected pandemic.
Since last summer, the quarterly financial statements of three key Japanese office MFP vendors (Ricoh, Fujifilm and Konica Minolta) have honed in on the percentage of pre-pandemic (i.e., 2019) page volume as a singular means for communicating where they stand in recovering from the horrific economic effects of COVID-19. These vendors make about half of the world’s A3 office MFPs. And there’s good reason to believe other office MFP vendors are witnessing a similar trend.
What Ricoh, Fujifilm and Konica Minolta are reporting is disturbing. So first the good news. China is recovering quickly and seems to be heading toward a “new normal” that’s a lot like the “old normal.” Depending on the vendor, office print volumes in China in the last three months of 2020 were between 5% lower and 15% higher than in the same period in 2019. Things were also not all that bad in Japan, where print volumes in the October-December quarter were between 5% and 10% lower than in the same period during 2019. India and Southeast Asia seemed to be similar, with page volumes down 5% to 10%. And then there’s everywhere else.
Print volumes on mostly A3 office devices in Europe and Oceania were not bouncing back nearly as well in Q4. They were down somewhere between 15% and 20%. And then there was the US (or North America or the Americas), where office MFP print volumes in the last three months of 2020 were still trailing the level in that same period back in 2019 by 20% to 30%. Ouch!
These Japanese figures are also consistent with what Xerox reported for its October-December quarter. Its “post-sale revenue” — which is mostly from page volumes in the Americas, EMEA and India — was down 22% year-over-year in Q4.
But these are all rearview mirror figures. What about the future? So far, Ricoh is the one vendor that’s stated most clearly what it expect. And Ricoh says it’s now forecasting office printing “in the so-called new normal environment” will attain 90% of the pre-COVID level in 2021 and then “decline at a compound annual growth rate of 4% to 5% over the medium and long terms.” So kudos to Ricoh for having the guts to go this far. But there are some good reasons to believe this prognostication is optimistic.
Pages printed in offices — particularly on A3 devices — had already been declining for a few years by low single-digit percentages. So a slight acceleration in the rate of decline to 4-5% seems conservative after the massive changes wrought by the pandemic. This isn’t like travel or entertainment. There’s no reason to expect some burst of pent-up printing.
It also seems utopian to believe the post-COVID rate of decline in office printing will remain constant. Massive technological and behavior-driven transitions across an industry or an economy typically accelerate. So one could easily expect to see a 4-5% near-term annual decline become a 7-8% annual decline over the medium-term.
In fact, IDC has recently forecast daily office occupancy will be 30% lower in 2025 than in 2019 due to hybrid work styles. That’s in Europe, but there’s good reason to assume the US and other developed economies will be on a similar trajectory. In fact, one might look at the larger lingering downturn in pages in the US and Europe as something of a harbinger for other regions.
Moreover, as digital transformation (“DX”) becomes widespread, it would be overly optimistic to presume these former office pages will simply migrate to home-based printers. And to the limited extent that does happen, there are huge implications for which vendors will win and lose.
So ... let’s assume that office printing contracted 20% in 2020, and 2021 will see a post-COVID bounce back to 90% of the old 2019 level. Let’s also assume office print volume declines 4% in 2022 and then proceeds to shrink at a 1% faster rate each year thereafter. Where does that leave good old office printing less than seven years from now, at the end of 2027? ... With 40% fewer pages than in the “good” (but hardly great) baseline year of 2019. That’s the pernicious power and the potential pain from compounding percentages.
From the January 2021 Issue - “DX Is No Rx for Hardcopy Vendors"
Buckle up, brethren. This month’s earnest editorial is somewhere between a rant and a sliver of sagacious but cynical sermonizing. You should know by know I’m no fan of platitudinous palaver that gets passed off as exhortative encouragement. And also I love me some alliteration.
The latest didactic discourse circulating in the MFP industry that’s gotten my knickers in a knot is the proffering of “digital transformation” (or “DX” in slick abbreviated form) as a one-size-fits-all shortcut to an easily adjacent alternative future for the harrowed hardcopy hoi polloi. But color me skeptical for these five righteous reasons.
First, the biggest problem I have with all this DX stuff is trying to understand what it really means ... or if it means anything at all. According to the lowbrow wisdom of Wikipedia, digital transformation is “the adoption of digital technology to transform services or businesses, through replacing non-digital or manual processes with digital processes, or replacing older digital technology with newer digital technology.“ ... OK, I guess.
I also consulted a more reputable web site for CIOs (enterprisersproject.com) that says DX is “the integration of digital technology into all areas of a business, fundamentally changing how you operate and deliver value to customers.” Goody!
But tell me this. What exactly in the entire IT world of the past 60 years, would not qualify as DX? That’s what I thought. We’ve been doing it all along! So the latest IT trend promising to take vendors from the purgatory of printing to the promised plains of digital dynamism is so broad it encompasses anything one might ever do with a PC, a network, the internet, or the cloud. As far as I’m concerned, that means DX as a diversification strategy for desperate printer vendors provides little guidance and no guard rails.
That leads directly to my second point. Without some watchful winnowing, DX is effectively a clarion call to do anything and everything. And that very often means little that’s useful — let alone revenue-generating and profitable — ends up getting done. I’m convinced there’s no such thing as general-purpose DX expertise. So any company that’s serious about growing some sort of credible DX business, needs to do some soul-searching. What kind? For what problems? For which customers? Sadly, few vendors do this.
Third, printer makers talk about DX from both sides of their corporate mouths to their own detriment. On one hand, they highlight internal DX efforts that are designed to make their own operations smoother, easier and more efficient. I say, “Great!” But there was a time when that was simply known as good management. I’m also reminded each month as I peruse dozens of web sites that not a single MFP vendor has a fulsome world class digital presence. So that’s probably a good place to start, you know? It’s the old saying about the cobbler’s children and no shoes.
On the other hand, vendors also talk about providing a vaguely amorphous blob of DX in all shapes, kinds and sizes to their existing customers, as well as for lots of new prospects. The implication is that combining some internal DX expertise with a history of selling MFPs imbues that vendor with extra-special DX powers. But all too often, such vendors come across as asking, “How much DX would you like?” And the reply they’re expecting is, “I’ll take two.”
My fourth point derives from the way MFP vendors handle their participation in the DX market. As is almost always the case when MFP vendors pursue endeavors that are outside their core paper-based areas of expertise, they demonstrate absolutely no awareness of or interest in the real (i.e., non-MFP) competition. With DX, this is especially problematic. Because DX is broad and au courant, it seems like most IT companies today say they’re already providing it. Given the all-encompassing nature of what qualifies as DX, who’s to judge?
Fifth and finally, only hardcopy vendors look at MFPs as part of the solution, rather than part of the problem, when it comes to DX. They’ve yet to absorb, embrace and appreciate the repercussions of one supremely fundamental fact. More than anything else, paper is the mortal enemy of DX. In lots of instances, eliminating paper from what companies and their people do is the raison d’être for DX. Meanwhile, despite plaintive protestations to the contrary, hardcopy vendors are all about making and selling physical things (yeah, those “boxes”) that put stuff onto paper ... and occasionally capture stuff off of paper.
More to the point, the inherent business model, leadership approach, technical DNA, and sense of self that characterize every single hardcopy company in the industry are innately intertwined with those “boxes.” More boxes and more pages are good. Fewer boxes and fewer pages are bad. And bad requires creating new lines of business.
So does this mean printer vendors can never successfully provide DX and make money doing it? No! But there are a LOT of caveats. So select a few narrow areas of specialization. Separate DX from your MFP business. Study the competition as if your life depends on it. Cuz it does. Define, refine and communicate a non-MFP competitive edge. And then maybe you’ll have a shot.
From the December 2020 Issue - “Get a New Plan, Stan"
In the past two months, I’ve done deep dives into the respective three-year business plans of Ricoh and Konica Minolta, which quite obviously are two of world’s top hardcopy vendors. Ricoh had updated its year-old midterm plan, and Konica Minolta had delayed the March release of its new midterm plan. In both cases, it was the ruinous impact of the COVID-19 pandemic that caused the “change in plans,” so to speak.
Overall, I was struck by some similarities in the two vendors’ respective plans, keeping in mind that both are very heavily dependant on the hardcopy market, particularly the now shaky A3 office MFP business. Ricoh said it’s updated plan is designed to take it “from being an office automation equipment manufacturer, to being a digital services company.” And as best as I can discern, Konica Minolta’s new vision is “transforming our customers business by digitally transforming ours.”
Sadly, I was also flummoxed by the similarities in what was wrong, lacking, bad, silly, awkward, or just plain odd in these two plans. To paraphrase a line from “50 Ways to Leave Your Lover” — which was released 45 years ago this month and was Paul Simon’s only #1 charting solo single — “Make a new plan, Stan.” Or perhaps more to the point, figure out a new way to plan. Because what you’re doing right now? It ain’t working. It’s downright embarrassing! And I’m not just talking about Ricoh and Konica Minolta. It’s every printer company, whether you actually present a formal strategic plan to outsiders, or if you just keep talking as if you have a real plan, even though no one gets it. ... Hello, Xerox.
So here are eight rules I propose for developing and presenting a strategic plan that might convince a semi-skeptical and moderately intelligent person like me that you have a clue what to do.
1. Limit the do-gooder stuff. Please, please, tone down the “ESG” (environmental, social and governance) stuff. We get it. It’s important. You’re upstanding companies. It’s all very noble. I bet you love your mothers, too. But it tells me squat about what you’re doing to fix your stuff, or what I can expect. Neither do bland platitudes about maximizing shareholder returns, enhancing corporate value, improving competitiveness, or delivering value to customers. They’re a given for every company. Relegate it to an appendix.
2. Explain your mess. Fess up to the magnitude of your pandemic-worsened financial straits. Say how the future has changed. Better for you to frame it than to leave outsiders to their own devices and to draw their own conclusions.
3. Forget the “if not for COVID” crap. You lose all credibility by claiming or even hinting your business was gliding along nicely until the pandemic hit. It wasn’t. And such denial deservedly draws skepticism that you won’t face the facts and move aggressively to build a new future.
4. Scrap the implicit optimism. While there’s no need for protracted self-flagellation, don’t pretend all that’s needed are some minor tweaks and easy transitions. Skip the talk about when in the 2020’s your printer business will look like it did in 2019. It won’t. Everyone out there knows that! And it raises legitimate doubts about your commitment to diversifying your company.
5. Bite the bullet. Be exceptionally and exquisitely clear you understand the need for massive change. The only way out is to dramatically lessen your dependance on print. Period. Anything short of that is rearranging the deck chairs on the Titanic. This is also the time to be honest about your ability — or inability — to simultaneously grow revenue, increase margins, boost profits, maintain your dividend, and spend billions buying back shares, all while investing more in R&D, nurturing new ventures, and pursuing M&A.
6. Use some damn numbers! Qualitative promises aren’t worth squat. I want to see some real numbers, such as revenue, profit, investment, dates. And the numbers have to be concrete, line-in-the-sand targets ... not we’ll go from a percentage of this vague number to a portion of that unknown figure some year down the line.
7. Don’t gloss over the “how.” The best laid plans are meaningless without explicitly addressing HOW you’re gonna do what you say you’re gonna do. Things don’t just happen! Doing the same old thing? That’s what happens when you ignore the “how.” So are you going to make or buy a new business? What funds do you have? How will you gain new expertise, IP and talent? How do you intend to juggle a sunset hardcopy business and other emerging businesses under one roof? Above all, how can you convince me you’re credible and have a shot at new success?
8. It’s not all about you. I’ve yet to see one hardcopy vendor business plan that capably and convincingly addresses the fact there are competitors in every new venture, technology, business opportunity, and market that’s supposed to save the day and create a credible future. If you won’t explicitly acknowledge the competition — and explain why you’ll prevail — then you’re deserving of ridicule and are doomed to failure.
Call me arrogant. Call me unrealistic. Call me irresponsible. I don’t care. Just convince me I’m wrong!
From the November 2020 Issue - “Is the Clock Ticking for All-in-Ones?"
Frankly, it’s been quite a few years since I devoted much deep thinking to the whole concept of multifunctionality in the context of personal inkjet all-in-one printers. Yes, the products have evolved. The breadth of vendors’ AIO lineups has expanded and contracted as interest in home printing has waxed and waned ... with a lot more waning than waxing over the past decade or so. But with the renewed interest in home printing in 2020, I’ve been thinking more about what fundamental features are really necessary in an inkjet printer purchased for remote working and learning. And I’m not so sure multifunctionality is as critical as it used to be. Yikes!
It’s still amazing to remember what a boon inkjet AIOs once were for the entire global hardcopy industry. From the emergence of the first popular models in 1995, it took less than a decade for sales of inkjet AIOs to obliterate sales of single-function inkjet printers. And today, inkjet devices that don’t scan and copy account for only a tiny sliver of the personal printer market.
But might that soon begin to change? ... I don’t know. But big potential drivers that might transform personal inkjet printing seem to be coalescing. This was brought home to me personally just last week, as I swapped legal forms and documents back and forth with my adult daughter on the other side of the country. It was all smartphones and PDFs. This daughter is the oldest of my three kids. She was six when those first AIOs hit the market. She printed and scanned schoolwork on an inkjet 4-in-1 at home, and I sent her off to college with an AIO of her own. But after working at home for most fo 2020, she rarely if ever prints. She never scans, copies, or faxes. And she’s fine with that.
The vast majority of stuff these days begins and stays in electronic form. Printing isn’t part of the equation. Bills? Policies? Forms? They’re on some company’s web site if you need them. Your own stuff? It’s in iCloud or Dropbox or Google Docs, safe enough for occasional retrieval. If it’s not there, it’s on your phone, your PC, or a flash drive; on Instagram or Facebook; or attached to some e-mail. And on that rare occasion when one still needs to capture a bit of paper, one’s smartphone camera is more often than not today’s “scanner” of choice. And some walk-up MFP can probably be found ... as a last resort.
Forget the silver-lining and self-soothing surrounding the use of inkjet AIOs for remote work and at-home studies. These devices are being purchased for use in a far less document-centric world than a decade ago. It’s too soon to tell if these panic-purchased AIOs now in so many dining rooms will really be used that much. Ask me in a year. But to the extent they do get used, it’s overwhelmingly going to be for printing.
There are several reasons people buy new AIOs for occasional old-style print jobs. First, there’s the I-have-a-printer-at-the-office-so-I-need-one-at-home mindset. Second, lots of these AIOs are being expensed to companies who are resigned to equipping employees with the requisite “productivity tools” they think they need for remote work. So there are a lot of impulse buys someone else is paying for. Third, for those who believe they need a printer, an inkjet AIO is the least expensive product available, even if they’re often notoriously expensive to use. And fourth, there are almost no single-function inkjet printers out there, and the few that exist cost about the same as an AIO that does more “stuff.”
There’s also the matter of utility. AIOs have long had more capabilities than a simple inkjet printer, any they also evolved years ago into amazingly usable paper-handling appliances, if you will. It’s easy now to forget, but before there was an Apple iPhone or a Samsung Galaxy, there were multiple iterations of personal inkjet AIOs with ever-larger color touchscreens and pretty slick user interfaces.
But all that changed years ago. Now its the smartphone that’s at the center of one’s personal digital ecosystem. So why not take full advantage of that omnipresent, eminently capable device that literally everyone has today?
The AIO market has been moving in that direction, and HP has been at the forefront driving the transition. It’s all about the app. HP’s AIO Remote debuted in 2013 as a full-featured remote control app. That morphed into the HP Smart app in 2017. And that app keeps on getting smarter. It’s a rich handheld UI for HP’s AIOs such that one can skip the on-device touchscreen. The smartphone camera is the “scanner” with this app. HP even added mobile fax sending six months and three million “faxes” ago. And HP’s “Smart Tasks” are easier via app than AIO.
So in a phone-centric world, HP’s two-year old Tango may be the harbinger of tomorrow’s inkjet printing. Right now, pricing does not favor the Tango. It’s more premium-priced smartphone accessory, than mundane printer. And HP promotes the choice of cloth covers more than the Tango’s speeds or features. But there’s a kernel of an idea there for what a personal document handling experience may look like quite soon.
Oh. And in a world of ever-worsening hardcopy economics, vendors can build a Tango-type inkjet printer for less than a splashy AIO. And it still get just as many valuable clicks. So watch out!
From the October 2020 Issue - “COVID Is a Catalyst ... So Now What?"
I did equally well in nearly every class I ever took through high school, undergrad, and grad school. There were only a few exceptions. And the first and worst of those was sophomore year Chemistry in high school. Let’s just say that me and chem didn’t click. It was the only “D” I’ve ever gotten on a test, and I squeaked through with a “B.” So there’s not a lot that’s stuck with me from that class, but one thing that did is the concept of a catalyst in the literal scientific sense.
One introduces a catalyst to help speed up a chemical reaction. With the help of a catalyst, molecules that might take years to interact and produce something new and different do so in seconds. They’re agents of expedited change.
The same holds true when we speak of a catalyst outside the realm of science. A catalyst is something that arrives or arises — perhaps unexpectedly — and hastens change. That’s how I see COVID-19 in the global economy, in business, and more specifically in the hardcopy industry. COVID is the mother of all catalysts when it comes to speeding up the rate and direction of change in the world of printing. Unfortunately for the industry and for those whose livelihoods depend on it as presently constituted, the catalytic nature of this pandemic is not being fully or adequately appreciated ... at least not yet.
Nowhere do I get that disturbing feeling more than when I’ve devoted time every three months this year to go through each hardcopy vendor’s quarterly financial results and commentary.
As an industry, we’ve long spoken and wondered and watched for signs of any deviation from the collective presumption of a protracted, very slow, nicely gentle, and easily manageable decline in printed pages. But I’ve long believed this presumption was at odds with a little thing called reality. Of course, I’m cynical and a bit cranky by nature. But then came COVID. And now we should all be more cynical, more cautious, and more concerned. So why then do so many printer vendors seem not to be? It’s like Alfred E. Newman is in every boardroom, and the management mantra is “What, me worry?”
I’m being charitable when I say the general reaction among vendors to the pandemic’s wrenching impact on the hardcopy industry has been schizophrenic. Yes, every vendor by now has uttered the words “new normal” to describe a future state of business that’s still emerging. The problem is their “new normal” looks a lot like the “old normal,” except that it’s supposedly full of new opportunities that are easily exploited by current printer companies and existing products.
As a result, hardcopy companies — particularly MFP vendors and especially when speaking to jittery investors — have reduced the massive scope and magnitude of the COVID-induced challenges they now face into a simple question of how many quarters it will take before things (i.e., financial results) get back to pre-pandemic levels. The consensus seems to be “not this fiscal year” ... but just you wait.
Konica Minolta was a tad more specific and conservative. It said office page volume would be back to 90% of the pre-pandemic level by early 2021, stay at that level for another year, and in 2022 resume a gentle 3-4% annual rate of decline. I don’t buy it.
Whatever the “new normal” turns out to be over the next year or so, I do know it won’t be identical to the “old normal.” More people are going to be working remotely more of the time than was ever the case pre-COVID. And while a fair number of this year’s instant work-at-home folks did run out and buy a low-end printer of some sort, that was largely a gut reaction to unprecedented change.
With substantial numbers of work-at-home workers becoming the permanent new norm, employers are going to be rapidly prioritizing “DX” (i.e., digital transformation) to streamline and optimize the way people work remotely. And right at the top of that list will be figuring as fast as possibly how to design out paper and old remnants of paper-based processes. Not only will this affect those working remotely, it will do the same thing for those who return to offices. That means less paper in offices, less paper at remote locations, a lot less paper everywhere!
And I’m not even considering the likelihood the global economy will experience a double-dip recession next year; or how the economy will digest all of that surplus office space and the excess commercial space left empty by small businesses that didn’t survive the pandemic. None of that bodes well for printing.
Meanwhile, office MFP makers are glibly claiming all sorts of “adjacent” opportunities are within easy reach to backfill the anticipated teensy-weensy decline in pages and devices they’re foreseeing. It’s the usual suspects ... IT services, ECM, workflow automation, even DX. But there are already strong competitors out there with greater domain expertise. So scaling up these revenue sources is really tough. And even when MFP vendors have attained some scale, profitability is disappointingly anemic.
So I may have been a so-so chemistry student, but I can spot a catalyst. And COVID is one big catalyst.
From the September 2020 Issue - “Never Let a Good Crisis Go to Waste?"
As with many aphorisms, it’s not at all clear who first coined the phrase, “Never let a good crisis go to waste.” But that person had clearly never met today’s hardcopy industry executives. Facing the combined onslaught of the COVID-19 pandemic, a global economic crisis, and a generational disruption in printing norms, the “leaders” of nearly every hardcopy device manufacturer in the world have responded with nothing. Crickets.
Initially, and perhaps for even some time thereafter, industry executives could be forgiven for not coming up with clever stratagems or taking bold action in response to these crises. And I suppose one could make a case for hunkering down and waiting to see if “this too shall pass.” But September marked six months since COVID-19 was officially declared a global pandemic. And from everything I hear — or more accurately what I don’t hear — nothing much has changed yet in the C-suites of most printer companies.
Yes, these vendors have intermittently paid lip service to the portent of “a new normal” that cannot yet be known fully or with complete confidence. But printer companies have in their public actions and words largely maintained a demeanor of steady-as-she-goes. It’s as if time were on the side of our industry, when it’s not.
I don’t doubt hardcopy execs have been meeting and talking and investigating options internally about how they ought to respond to pandemic-driven disruption. But that’s not enough. And what’s more difficult to fathom month after month is the near complete absence of proactive communication coming from the upper ranks of nearly every print-related company in the world.
Absent formal external communication that says change is indeed afoot, outsiders looking at a hardcopy company — i.e., customers, channel partners, strategic allies, suppliers and, yes, industry press and analysts — are all left with a nagging feeling that nothing is going to change, or that any change will be a long time coming. If that’s the message executives really want to be putting out there, then keep up the “good” work.
So far, the exceptions have been truly rare, and none has been beyond reproach. More than any other hardcopy vendor, however, HP has done the best. In fact, the more HP communicates, the better it gets. That’s because there’s both a corporate learning curve and a cumulative impact.
For example, HP in recent months has hosted welcome but predictable Zoom calls on its new channel partner program, and for upcoming printing hardware, solutions and services. In addition, HP recently held an online “Innovation Summit” that was specifically and very intentionally focused primarily on what the company is doing beyond PCs and printers. In this specific case, the focus was on digital manufacturing (i.e., 3D printing) and applications for microfluidics technology. Interestingly, both of these endeavors derive from HP’s inkjet print technology.
Moreover, in every one of these online events, HP has shared observations of what it’s seeing in the market, and what customers are doing with and asking of their HP printers. Now, if HP could only integrate those qualitative tales with the quantitative stuff it shares with Wall Street each quarter. Now that would be a real story!
Brother and Epson have also reached out effectively to the press/analyst community. And they did a yeoman’s job, but only as far as they went. In both cases, the emphasis was strictly on the companies’ respective results with a very small subset of their printer products ... those for US dealers. Neither said anything about the rest of the company or its products and channels, or offered a global perspective or hinted at corporate plans.
Kyocera in the US has also periodically kept press, analysts and others abreast of its business response to the pandemic. But it’s mostly been in general terms and only for the here-and-now.
At the other far end of the spectrum is poor old Xerox, which seems to have struck meaningful interaction from its business arsenal. A company that once set the gold standard in hardcopy industry communication now does the bare minimum. There’s a quarterly call with Wall Street to try and explain OK earnings and plummeting revenue, with promises of further belt tightening and vague but not very credible hints at just-you-wait-and-see diversification initiatives.
As for every other Japanese and Chinese hardcopy company, they’ve shared nothing more — and I do mean nothing — besides the requisite quarterly financial results coming out of HQ, and an occasional product-related press release or call. And with the exception of Ricoh-owned DocuWare, MFP-related software companies are following this same script, minus the financials.
Gee folks, it’s really not that hard. You don’t need all the answers and a new vision in 90 days. How about just admitting that times are tough, and say you’re working on much-needed changes? Even a simple “stay-tuned” will buy some time. Meanwhile, get on Zoom. Say what you’re seeing. What’s changed? What’s working? What have you learned? What are you doing differently? Keeping mum? It’s really not the way to go!
From the August 2020 Issue - “Ready for the Not So New Normal?"
They say if you hang around long enough, history repeats itself. Well I’ve been producing The MFP Report now for almost 25 years, and that’s the feeling I got this month when I read through the cautiously giddy remarks from HP executives during the company’s call with Wall Street analysts to discuss HP’s fiscal Q3 results. It was inkjet mania and a printer in every pot circa 2000.
When I started publishing The MFP Report at the end of 1995, consumer inkjet AIOs were a novelty ... the latest and greatest “next new thing.” They went from being a curiosity, to taking over the consumer and SOHO inkjet printing market in just a decade. The entire inkjet printing sector rode those twin home computing waves: skyrocketing Internet usage and digital photo printing. Then came PC saturation, smartphones, and social media. And just like that, consumer inkjet AIOs and home printing headed to the crapper.
I can certainly understand HP’s pandemic-driven lust for “the great consumer inkjet printing comeback” It also makes sense for HP execs to latch onto the only part of the company’s hardcopy business that didn’t perform awfully during what we hope was the worst COVID-19 quarter.
And in fact, HP reported that in the May-July fiscal quarter, its inkjet hardware revenue rose almost 7%; its inkjet hardware units were up over 3%; and sales of inkjet supplies “increased.” Additionally, HP’s Instant Ink subscriber base is on track to grow 50% in under a year, from less then 5 million users at the end of 2019, to almost 8 million by the close of FY2020 in October. In comparison, HP’s commercial (i.e., LaserJet) hardware in fiscal Q3 posted a 32% drop in revenue, with placements down 37%. And HP had to spin the fact that MPS pages were down “only” 25% in July, after crashing 40% in April.
But it was more than that. HP executives for the first time we can recall explained to Wall Street that “from a system perspective, the consumer print business is more profitable for us than the commercial print business.” This is in spite of much lower hardware prices and lower margin dollars up front for inkjet AIOs. And HP also reminded us it has a bigger share in consumer inkjet printing than in the much broader commercial laser business, in which there are lots more competitors.
In fact, HP even went out on a wobbly limb. HP said — while it currently has no plans to change its much-vaunted A3 product, channel and business strategy — it might conceivably shift some of its core focus to the consumer side if the overall office market continues to trend lower. Wow.
But this is where HP may need a strong swig of reality. For starters, this one better-than-expected inkjet quarter meant HP’s fiscal Q3 consumer hardware revenue was up a whopping $40 million from the prior year. And it was still down 4% from Q3 two years ago. Moreover, the awful laser business in fiscal Q3 pushed HP’s commercial hardware revenue down by a staggering $428 million from Q3 last year. So that little inkjet boomlet clawed back a whole 9% of the laser bust in fiscal Q3 when it comes to hardware revenue. HP really has to hope those few extra folks who bought a few more AIOs during the pandemic will print a whole lot for many years to come.
But the question arises. Is a theoretical consumer inkjet market resurgence just an HP thing, or is it an industry phenomenon? Let’s say the evidence is mixed.
Epson last month said its hardware revenue for home and SOHO inkjet printers fell 14% in the April-June quarter. And Epson’s supplies revenue for those same kinds of inkjet printers rose 15% due to higher ink sales. Canon reported its inkjet placements in the April-June quarter were up 9%, and its inkjet revenue was up 14%. Canon said its revenue for AIO hardware and ink increased at similar rates.
Then there was Brother, which is the last man standing in consumer inkjet printing beyond the big three. It didn’t see any improvement. In fact, Brother reported its inkjet hardware revenue fell a staggering 37% in the April-June quarter, and its inkjet supplies revenue declined 23%.
Moreover, Epson and Canon seem to be looking at recent better-than-expected inkjet hardware and/or ink sales as temporary, driven by more working and studying at home during the pandemic. Both vendors see a couple or so more quarters of inkjet upside, then a return to sort of “normal” home printing results. And Brother will continue to remain largely on the sidelines when it comes to home inkjet printing. As a result, I’m not seeing any kind of strategic rethinking whatsoever among these three Japanese companies when it comes to their consumer inkjet biz.
So either HP will end up being the lucky contrarian in the group. Or this will prove to be yet another in a long line of family squabbles in which an old competitive streak rears is its head, with HP’s scrappy “we invented it” inkjet folks lashing out at HP’s staid “we built it” laser folks.
Personally, I like unexpected industry drama. It makes for better coverage. But if I were a betting man (and I’m not), I’d guess any “new normal” is going to involve relatively small and declining amounts of home inkjet printing. We’ll see who’s right.
From the July 2020 Issue - “From MAGA to MIGA ... What a Mess!"
Just like when attending a dinner party, I try in The MFP Report to avoid commenting on political topics. But sometimes the parallels between the political sphere and the business of printing are just too uncannily close to ignore. And that’s why I think it’s time for me to pursue a great new sideline venture — making red baseball caps emblazoned with “Make Imaging Great Again.”
In the midst of the COVID-19 pandemic, hardcopy vendors seem to be singing the same tune. That is, the “new normal” that will emerge when the pandemic soon subsides will be very different in the world of printing than in the rest of the global economy and even in other parts of the IT industry. Printer makers are assuming that next year’s hardcopy landscape will look much like it did in the “good old” pre-pandemic era.
I see this aspirational presumption as highly unlikely and very dangerous to the industry. But that’s also where I see the congruity between MAGA and MIGA. I look at MAGA in the political realm and what I call MIGA in the printing industry as fundamentally sharing many of the same attributes. I refer to them as the “Seven R’s.”
1. Retrograde. MIGA-minded vendors aren’t merely wistful with their hopes that the post-pandemic printing world goes back to the old normal. They consciously want this to happen, to the point of dragging their feet to ensure it does. Frankly, it doesn’t matter if their actions are proactively intentional or simply reflexive.
2. Rose-Colored. It would be one thing if MIGA- minded printer companies were looking back at their recent business history with a sense of sober reality. But they’re not. In the midst of this disastrous pandemic and global recession, last year’s not-at-all-so-great environment and less-than-wonderful results are now already regarded longingly as “the good old days.” I guess compared to an awful 2020 and a questionable 2021, a mediocre 2019 looks pretty darn good.
3. Reactionary. MIGA-enthused vendors don’t appear to be looking backward with a simple sense of “oh wouldn’t it be nice to see a return to normalcy.” Rather, they’re chock-full with an almost self-righteous indignation. It’s sort of like, “How dare this pandemic throw a monkey wrench into my plans for a very slow and predictably protracted transition to a less print-intensive but still very welcoming environment!”
4. Rationalizing. The presumption that the pandemic is a mere bump in the road back to the status quo ante is purely self-serving. Publicly, most vendors aren’t debating the magnitude or implications of how demand for printers and printing may be altered. Rather, vendors are simply positing in a pseudo-objective manner whether the return to a 2019-type hardcopy business will take place later in 2020 or sometime in 2021. Basically, that’s what vendors need to have happen, so therefore it must happen.
5. Recalcitrant. For the most part, hardcopy vendors aren’t reaching out much. You’d think they’d have a lot of time on their hands and plenty to think about. But there’s a definite obstinacy in the way they see their situation. It’s like they fear being told anything that will burst the bubble. Only in occasional, unofficial, private conversations do vendors admit how fearful they are about the impact of the pandemic.
6. Rapacious. This isn’t exactly a new characterization of hardcopy vendors. They still want everything they’ve always had with printing: devices, pages, prices, channels, and business model. At the same time, they want the doors to swing wide open in adjacent areas of the IT ecosphere, as customers roll out the red carpet, new partners beat paths to their doors, and competitors bow down in obeisance. Let’s call it what it is — a wildly overdeveloped sense of entitlement that’s ultimately self-defeating, especially in the vaguely-defined and well-saturated market for “digital transformation.”
7. Remiss. The flip side of that unwarranted feeling of entitlement is that hardcopy vendors aren’t willing to do the work needed to be worthy of customer interest, channel acknowledgment, or competitive respect. As a result, printer makers neglect the basics, while expecting all of the rewards. They lazily assume there’s an easy shortcut. What makes this even sadder and more frustrating to observers like me is that this isn’t a new development. It’s ingrained in the history and the very DNA of the industry. That’s why there’s such a poor track record for vendors who’ve leveraged their printing prowess or profits to successfully diversify and become significant contenders in their newly chosen domains.
I’m not saying every single hardcopy vendor aligns perfectly with each of these Seven R’s, but there’s definitely a lot of commonality. Perhaps the only moderately good news is that the closer people in these organizations are to actual customers — whether in dealerships or direct sales — the more likely they see the writing on the wall.
The bottom line? The hardcopy world is long overdue for a major wake-up call. If a global pandemic and worldwide recession haven’t already done it, nothing will. So either put on your MIGA hat, reminisce and complain; or roll up your sleeves and work like mad. Cuz you can’t do both!
From the June 2020 Issue - “Strange Bedfellows"
The coronavirus crisis has definitely made it much more difficult for individuals to pursue the urge to merge, but the pandemic is giving hardcopy vendors new reasons and a greater sense of urgency when it comes to considering pairing up, partnering up, or getting acquired. Unless Q2 and the rest of 2020 prove to be miraculously more beneficent to printer companies than anyone expects, this trend should only accelerate.
But with hardcopy companies less sure of the future cash cow annuity from printing, private equity firms may no longer be an exit option for vendors who want to cash out. The economy will likely also make it harder for a printing company to bully its way into an acquisition with borrowed money or to perpetually buy back shares. So we might be seeing a new era in which hardcopy vendors have to do things the old-fashioned way. You know ... run the business, partner, maybe merge. Yikes! There are already some early hints of what might happen.
Last month, Sharp announced it’s spinning off two huge parts of its business. No, printing was part of those deals, but who knows what might be next? Then there was Toshiba TEC, which basically said the only options for its hardcopy business are to partner up with another vendor or sell it to someone else ... i.e., no to the status quo! Then this month, Konica Minolta turned to Brother to sell A3 bizhubs in New Zealand. Yeah, it’s small and far off, and there were some unique circumstances, but it shows how vendors are having to consider entirely new options.
It’s also hard to ignore Xerox. Despite the company’s abandoned effort to forcibly acquire, absorb and run HP, Xerox’s activist investors actually have little interest or affinity for the printing business. One has to think they’d be happy to sell Xerox in a heartbeat. The only question is whether the price they’d want reflects the iffy fortunes of a pandemic-weakened company that has no credible plan for the future.
Then there’s Fujifilm, Xerox’s former fellow fraternal twin. Fujifilm need little in terms of printing products or technology, but it does need distribution ... lots of it, in lots of places, and fast. That most likely points toward channel acquisitions, but one can’t rule out Fujifilm buying another MFP vendor for its channel and MIF, with the upside of eliminating a competitor. However, the company and price would have to be right.
As for HP, it’s recently been making an interesting point about the pandemic that has some validity. HP contends that vendors who are competitive in all major hardcopy product segments (consumer, SMB, enterprise, graphics, industrial) and across all channels (retail, online, reseller, dealer, direct) will be distinctly advantaged ongoing.
If one accepts this premise, there are interesting implications. The only other vendor with comparable product and channel breadth is Canon. Ironically, HP and Canon also exemplify the powerful upside that can come from massive long-term product and channel collaboration.
Conversely, every other hardcopy vendor competing in selected product categories and channel segments would need to seriously consider whether, when and how to partner or buy what it lacks. The pressure is greatest on those vendors who already depend very heavily on printing for a huge chunk of their revenue and an even bigger slice of their income. These criteria point to four top candidates that could be primed or pressured to acquire ... or be acquired.
Epson and Brother are rooted in lower-end products and mostly mass market channels. Epson’s had some success with high-end printers, and Brother is doing OK with industrial printers. And both have attacked the office market. But their print revenue still isn’t very diversified. Ricoh and Konica Minolta are on the opposite side of the industry. They’ve moved slowly into adjacent products and services, but that rate of diversification won’t rescue them anytime soon from the tempestuous vicissitudes of printing. So who should look at whom? And who really has the requisite financing and acumen for a deal?
And what about the rest of today’s hardcopy vendors? Put aside China for a moment. So we’re talking about Toshiba TEC, Sharp, Kyocera and OKI. And I suppose you can throw in RISO and even Sindoh. They’re all generally smaller and much less consequential as measured by some combination of overall size, printing revenue, hardcopy product breadth, channel footprint, and geographic market coverage. The big challenge is that for the most part, they tend to duplicate what would-be hardcopy buyers already have in terms of products and channels. So the most likely matrimonial options for any of them could be a union with Epson or Brother.
China is a real wild card. The only Chinese vendor with a global hardcopy presence is Ninestar (i.e., Lexmark/Pantum). Other Chinese printer vendors — Lenovo, Deli, Aurora and more — have pretty small sales, narrow product lines, and little print technology that’s owned or compelling. What they do have is a domestic market with relatively high sales and growth, plus the ability to use that as a base for an international push. So they too could end up buying other vendors.
Yup. We’ll see some strange bedfellows indeed..
From the May 2020 Issue - “Don't Follow This Bouncing Ball!"
Frankly, it was easy not to remember the forgettable advertising efforts Xerox began putting forth last August, just three months before its ill-advised HP acquisition imbroglio became public.
“Color is the cornerstone of our story – let us help you tell yours.” That was the tag line for the Xerox campaign. But the first of several Xerox YouTube videos bore a title that was neither catchy nor productively searchable. “What’s the real color of a tennis ball? Science has the answer.” That video has gotten 12,800 views, which is just 2,000 more views than when we looked seven months ago.
Follow-on YouTube videos in this series — including one that was added in May — are about how Xerox digital presses handle clear, metallic and white inks. They’ve all gotten fewer than 7,000 views. None of these spots have anything resembling a call to action. Nor are they highlighted or even easy to locate on Xerox’s own web site.
All these videos and this “campaign” are about the esoteric Adaptive CMYK Plus print technology found in certain Xerox digital color presses. Yeah, it’s technically useful and even intriguing to some folks. But does it rank among the top ten (or one hundred) concerns or questions a typical customer has when it comes to buying from Xerox? And how likely is it this obscure “huh” kind of advertising will bring in new customers ... or drive significant new business? All “high-end” devices generate just 20% of Xerox’s equipment sales, although they do account for a larger portion of post-sale revenue. And this particular technology is found in just four models at the low end of Xerox’s high-end lineup.
So why am I bringing this up now? After I wrote a 300-word sidebar seven months ago, I had all but forgotten about these videos. But then I came across a May 26 article on a US web site called Campaign, which “is dedicated to celebrating creative excellence across the broad span of the communications industry.” The article carried a decidedly laudatory headline: “Xerox Shakes Off Legacy Cobwebs and Powers into Cultural Relevancy.” Wow. So I read it, of course. And my reaction was ... “Really?” Are we talking about the same forgettable videos? What a bunch of fluff!
The focus of the story was Xerox’s Chief Communications and Brand Officer, who oversees all global communications and marketing. She joined Xerox a year ago after stints at Netflix, Lockheed Martin and IBM. When she came to Xerox, she was reportedly told by the CEO, “Blow the place up.” But somehow those Adaptive CMYK Plus YouTube videos don’t say “KABOOM!” to me. In fairness, the Campaign article also said Xerox was all fired up and ready to go with even more stuff when the COVID-19 pandemic hit. Everything got put on hold. So we’ll have to wait.
In the mean time, Xerox has opted for “a more humble marketing strategy.” The company describes itself as having a new “sense of humility.”
Xerox? Humble? Really? Is this the same company that dumped all over Fujifilm to blow up a half-century long joint venture under which it sources nearly all its products? Is this is the same company that decided it could wing it with a new “strategy” held together by spit and hope? Is this that same not-so-strong company that decided it would borrow $24 billion in other people’s money to acquire a bigger and healthier HP, even though it could barely spell PC?
This is where the marketing hubris hits the fan. Marketing is a lot more than what marketing puts forth as marketing. But this article reads like no one in the Xerox marketing machine has picked up a newspaper, perused a business news site, or watched financial cable news back since Halloween. Someone needs to talk about the elephant in the room.
The REAL marketing message Xerox put forth in the REAL world from last November through May was its selfish, unrealistic, untenable and ultimately failed effort to buy HP in a hostile takeover with borrowed funds and with an embarrassingly unrealistic “plan” for the future. I venture to say some variant of that story has been read, heard or viewed by a lot more people — and would-be customers — than the 12,800 YouTubers who clicked on that tennis ball video. Might I suggest that Xerox’s CEO have a conversation with his Chief Communications and Brand Officer about the real power of the Internet?
To add insult to injury, Xerox since abandoning its hostile takeover of HP on April 30 has barely said a word about that fiasco or how it plans henceforth to make a compelling case to customers or investors. And that includes the crickets that were heard — or should I say that were not heard — when Xerox discussed its Q1 financial results on April 28. It was like “HP who?”
Meanwhile, Xerox has done nothing to diversify. It’s setting the downward pace in the printing industry when it comes to handling the impact of the COVID-19 pandemic. And it’s simply saying “Squirrel!” when pointing to 3D and software.
So yes, Xerox is certainly a very, very, very easy target to criticize right now when its comes to marketing and messaging. But the fundamental issue is much larger. It’s about what every hardcopy vendors says; what they so often don’t say; and what they actually do in the real world that speaks more loudly than any words they put out.
From the April 2020 Issue - “A4 Before It's Too Late?"
I can make a sadly strong case that interest in A4 models among MFP vendors reached a nadir in the months prior to the COVID-19 pandemic. Sure, every vendor has A4 models it makes, OEMs and/or partners to sell. Some have a better line than others, but most are so-so at best. But now — with the coronavirus pandemic decimating near-term results in the hardcopy business, and with fundamental changes in the economy threatening to accelerate the decline in printing — a question arises. Are A4 devices finally poised to have their day in the sun?
OK, let’s be clear. I’m not talking about A4 MFPs heralding some new era of growth and prosperity for print vendors. I’m looking at A4 models as contributing to a purely defensive strategy within the direct sales and dealer-centric side of the office printing industry (i.e., the A3 heartland). Just as with patients who are afflicted with COVID-19, triage has become the order of the day.
I’m under no illusion new A4 placements will come anywhere close to replacing old A3 units in terms of hardware revenue or page volumes. And it remains to be seen how attractive the ongoing click charges will be. But amidst the current devastation in the A3 business, I can point to eight reasons why promoting A4 products could be one way to salvage some office equipment revenue and profit as part of a larger effort to buy time that’s now so sorely needed for some majorly overdue diversification.
First, there are indications companies are amenable to buying more A4 products, although the early upside has been largely focused on inkjet AIOs for immediate work-from-home and study-from-home use. An opportunity for traditional A3 sellers is to guide all sorts of organizations to acquire fleets of more robust but still relatively low-end laser MFPs for home deployment.
Second, companies aren’t going to want copier salespeople coming into their offices. So that very high-touch but very expensive outbound sales force that’s been one of the industry’s biggest assets, is now one of its top liabilities.
Third, companies also don’t want people coming into their office space to simply to set up and install machines. “Contact-free delivery” isn’t now just for pizza. The right A4 machines will be shippable via UPS or FedEx, and easy to set up by IT support folks or even general admin staff.
Fourth, fast on-call service with a smile is now so yesterday. The new demand is for products that seldom require a service tech to visit. Simple A4 machines, user-replaceable cartridges, online preventive maintenance, and easy remote fixes are no longer things to dread or extol. They’re simply part of what we call the new normal.
Fifth, a huge and permanent shift toward at-home working will mean fewer offices, compact shared spaces, tinier places for equipment, and smaller numbers of people using each shared MFP. So ultimate durability, massive paper supply, and fancy finishing will have a lot less appeal. That’s good for A4; bad for A3.
Sixth, take all that office downsizing. Then layer on massive numbers of small business failures and a generally weak economy for some time to come. What do you get? Lots of repossessed A3 MFPs with nowhere to go. Think of the Great Recession ... but on steroids. So more customers will resist leasing a new A3 MFP when there are so many gently used machines.
Seventh, the massive SMB market — which is the lifeblood of the MFP dealer channel — is being affected broadly and negatively by the current pandemic. For a moment, let’s put aside all of those SMB companies that aren’t going to survive, and let’s consider those companies that will hang on, although maybe just barely. A lot of the them won’t have the creditworthiness and leasing capacity that once was taken for granted. So A4 machines that are cheaper to lease or can be more easily purchased outright will have a distinct advantage.
And eighth, more cloud and less printing — in both absolute and relative terms — could mean the scan function on an MFP will take on even greater importance than it already does today. And let’s face it. A decent A4-size MFP with a nice control panel and reasonable software or cloud integration will suffice for document capture. There are probably three people in the entire world who’ve ever scanned an A3 page.
This is not to say I told you so, but I’ve told you so ... frequently, repeatedly and annoyingly. So to all you MFP vendors who’ve underinvested in creating a complete, credible line of A4 color and monochrome MFPs, you have no one to blame but yourselves. Could you have foreseen this pandemic or forecast what it’s bringing to the economy, to traditional business norms, and to the global hardcopy industry? Hell, no.
However, every single maker and seller of A3 office MFPs in the world should have known for years they were living on borrowed time in a business where A4 models can and rightfully should suffice. And what that means right now is that there probably won’t be room for everyone to give A4 the emphasis it’s due in a hardcopy industry that’s shrinking, turbulent and with a huge need for transformative investment. Sorry.
From the March 2020 Issue - “This Black Swan Has Come Home to Roost"
COVID-19 is being called the ultimate “black swan.” If you’re not familiar with that term, it comes from a seminal 2007 book of the same name by Nassim Nicholas Taleb. The book focused on the extreme impact of rare and unpredictable outlier events, which he called black swans. His idea was that society must prepare for and be able to respond to such unknowable events through a combination of “robustification” and “antifragility.” Look those up to learn more.
Something else about black swan events is sort of counterintuitive. They’re presumed to be rare, yet black swans somehow occur with surprising scope, variety and frequency. In the 25 years I’ve been publishing The MFP Report, we’ve been visited by the 2000 Dot-Com Bust, 9-11 a year later, the 2008 Global Financial Crisis, and now the COVID-19 Pandemic. And that doesn’t include regional events like the European Debt Crisis or the Japan Quake and Tsunami.
There’s a lot of legitimate debate as to how companies, governments and society can best prepare for and respond to the black swan events, but one thing is eminently knowable. It requires money; lots and lots of money.
So to me, it seems obvious that every company must store away cash or other safe and liquid reserves that can be tapped when something unexpected but awful inevitably happens ... again. Smaller companies are constrained in their ability to squirrel away cash, but this kind of financial plan should be part and parcel of what it means to be a large public corporation.
Unfortunately for the hardcopy industry, too many makers of printing devices have done mostly the opposite over the past decade — i.e., since crawling back from the last black swan. They’ve succumbed to immense countervailing pressure from regular investors, securities analysts, and self-styled “activist investors” to minimize cash and boost borrowing during a prolonged era of low interest rates. After all, what could possibly go wrong with that? Yeah.
Well, not to say “I told you so,” but I told you so. In an editorial I wrote just last July (“On Borrowed Time?”), I bemoaned the fact that hardcopy vendors weren’t planning for the most knowable of all black swan events: the inevitable economic downturn, a recession or even something worse.
And for years now — including in my January 2015 editorial (“Follow the Money”) — I’ve railed against the propensity of printing companies to spend their hard-earned billions on stock buybacks, instead of saving money or investing it in new revenue-generating business to diversify beyond MFPs and printers. Back then, I noted that several vendors in the previous five years had spent far more to repurchase shares than on R&D. Money spent on stock buybacks has also been a major factor in the collective inability of hardcopy companies to diversify. As I pointed out in my editorial last August (“Tick-Tock ... I Don’t Get This Clock”), the nine biggest and most print-dependant vendors had become even more dependant on a shrinking print industry than they were a decade earlier.
Heading into the COVID-19 crisis, the top dozen US and Japanese hardcopy companies had combined cash reserves of $27.5 billion. Fujifilm and HP had the most at about $4.2 billion. Canon and Kyocera were next, with around $3.8 billion, followed by Xerox with $2.7 billion, and then Ricoh and Sharp with somewhat more than $2 billion. Epson had $1.7 billion. Konica Minolta and Brother were in the range of $800 million to $1 billion. And OKI and Toshiba TEC brought up the rear with cash reserves between $300 and $500 million.
This sounds like a big cushion, but many of these companies could go through that cash quickly as the magnitude of pandemic-inspired losses mounts. And hardcopy companies have already suffered massive drops in their stock prices and valuations as a result of the economic dislocation from this pandemic.
But perhaps this latest black swan will bring some new thinking to the industry. Maybe this crisis will force vendors to embrace a new frugality and fiscal discipline. But based on some first steps, that assumption may well be unfounded.
Despite the growing pandemic, Canon in late February and early March spent $475 million to buy back shares. Ricoh announced on March 27 it would spend $910 million to repurchase its own stock starting April 1. And Fujifilm will have spent $435 million on share repurchases from February through April. But at least Fujifilm had a relatively strong stock price and cash reserves.
Meanwhile, HP has said nothing about whether it intends to go through with its February 24 plan to spend $15 billion in mostly borrowed money to buy back nearly half its outstanding shares. And it’s not clear if Xerox will continue spending lots of its precious cash flow (i.e., $1.3 billion in 2018 and 2019) to repurchase its own stock, the price of which fell almost 50% in Q1.
Yup. This pandemic-spawned black swan is going to show hardcopy vendors the penalty for not having saved and used their money wisely. SO much for robustification and antifragility. Ouch!
From the February 2020 Issue - “High-Functioning Addicts"
It’s amazing how random insights from other disciplines can have spot-on relevancy to completely unrelated dynamics in business. Take substance abuse, specifically the concept of the high-functioning addict. If you don’t think you know anyone in this category, just look around the printing industry. No, I’m not talking about alcoholics or drug addicts or even gamblers. I’m referring to the multiple addictions that characterize nearly every hardcopy vendor I know.
In the world of addiction, high-functioning addicts are those people who — for a while — are able to maintain their careers, homes, families, friendships, finances and lives, even while using drugs or alcohol routinely and excessively. These people have the same disease as someone on skid row or in a shooting gallery, but they’ve never been diagnosed. And they’ve never sought or received any kind of treatment. Yet we could still agree they have a problem. A big problem.
So what are the telltale signs one sees in functional addicts? Topping the list is making excuses for one’s behavior ... “That’s just the way things are in my world, my business, my family, my circle, etc.” And right behind that is denial. Big-time denial. Because high-functioning addicts are able to retain some semblance of normalcy, they believe they don’t have a problem, or that it’s just a small problem and time is on their side.
So do you think my hardcopy industry analogy is wrong, or perhaps I’m exaggerating? Well, then why can I so easily point to ten kinds of addiction that are rampant and endemic in our industry? And that’s just off the top of my head.
1. Optimism. Hardcopy vendors have a wildly inflated and unwarranted sense of optimism about their companies, their management, their products, their technology, their channel, their business model, and their ability to solve all problems with little discomfort and lots of time. Some vendors will admit privately that their challenges are growing, and that the clock is ticking, but this seldom translates into action.
2. Selfishness. Printer companies consistently and routinely judge their investments in new products and initiatives purely in terms of what they need to replace lost revenue. They’re demonstrably unable even to pretend they’re interested in customers’ real needs. And it shows.
3. Cheap Credit. Printer vendors are hooked on cheap credit and debt, whether it’s to fund equipment leases, new factories, or foolhardy ventures. But cheap credit sets a low bar for judging how to use money and time wisely.
4. Stock Buybacks. The absolute worst use of cheap credit has been the way so many hardcopy companies have wasted billions to buy back their own stock. With the industry facing so many challenges — and opportunities — repurchasing shares is ludicrous, especially when it’s done with borrowed money. It solves nothing!
5. A3 Devices. MFP vendors have worked themselves into a corner. A3-centric vendors are convinced they can’t take the revenue hit from flipping sales to equally capable A4 models. So they either sidestep A4, or the handicap their A4 models in terms of features, pricing or running costs. All of this ignores what customers truly need. Some vendor has got to bite the bullet, and a clear advantage could certainly accrue to that credible first mover.
6. High Page Costs. Sure, page costs have come down a lot, but they’re still high in so many ways, whether that’s color vs. mono, service pricing in a low intervention world, or retail pricing for cartridges. Pages are the lifeblood of the industry, but in a print-less world these high running costs must come down more.
7. Replacement. The industry is still wedded to the idea that old machines get replaced by new ones, routinely. MPS disrupted that for a while, but vendors have yet to accept that customers now need a lot fewer devices than ever before.
8. Straight Lines. The printing industry has long suffered from the mistaken belief that all technological and market changes occur at steady predictable rates. In reality, the things that kill your current sales — or that bring new opportunities — always take place on a curve, one with a kink.
9. Synergy. Hardcopy vendors are enamored with the concept of business synergy, whether between products, across channels and markets, or in M&A. But tapping into that synergy nearly always proves elusive. In this industry, technological synergy is a far better friend. It’s how every vendor today got into printing! And now it’s the best way out. Take a look at Fujifilm with pharmaceuticals or HP with 3D printing.
10. Inertia. The entire print business, especially the office MFP part, is awash in inertia. There’s an unwarranted sense of “why do it today, when you can put it off ‘til tomorrow.” It affects (or is that infects?) vendors, dealers, salespeople and even some customers. But the times, they are a changing. So get with the program or suffer.
And as with any addiction, the first step for hardcopy vendors is to admit they have a problem. Let’s take it from there and move forward fruitfully.
From the January 2020 Issue - “The Opportunity of a Lifetime?"
The most unlikely coincidences can sometimes prove fortuitous for all concerned. In the MFP world, look no further than what’s previously been the nonintersecting paths of Japan’s Fujifilm and regional dealer roll-ups around the US. It turns out these companies in 2020 could be the best thing that ever happened to each other.
The catalyst is what’s just occurred at Fujifilm. All of the attention in recent months on Xerox simultaneously disengaging from Fuji Xerox and going after HP has largely ignored what these events means for Fujifilm. But now we know. Fujifilm has informed Xerox it won’t renew the long-standing agreement that governed where in the world they could sell their products.
Xerox seems to have been caught off guard and has said very little about what it plans to do, but Fujifilm has been crystal clear. It plans to sell its popular range of MFPs, printers and presses — many of which also Xerox OEMs since it has so little product development capability of its own — on a global basis starting next April 1 in 2021.
But there’s one big hitch in the planned entry of Fujifilm Business Innovation into the Americas and EMEA regions. The company has zero sales footprint in these territories, and it needs to go from nowhere to everywhere in less than fifteen months. By my way of thinking, the easiest and best way for Fujifilm to do that in the US is to buy several of these all-dressed-up-but-nowhere-to-go regional megadealers. Or at the very least, Fujifilm needs to go woo, train, support and perhaps subsidize several regional powerhouses.
At first glance, this approach looks very one-sided. But Fujifilm isn’t the only one out there in MFP land that needs help. We all know there’s been a big increase in private equity and professional investment funding for MFP dealer acquisitions and consolidation. Look no further than companies like FlexPrint, Visual Edge, Marco and UBEO. Even Staples’ purchase of DEX fits this pattern. And there are several good-size self-funded dealers that are also doing lots of M&A, like Kelley, EO Johnson, RJ Young and Office1.
Especially with professional investors, the time comes when one must pay the piper. That’s typically in 4-7 years. Regional hardcopy dealers or IT services providers aren’t likely to go public, so that means selling the business to someone else. That could be a manufacturer, another investor, a business on the periphery of office printing, or another megadealer with really big aspirations.
As I editorialized back in September (“Irrational Exuberance”), these professional money people are buying good or even great dealers that already outperform their peers. And while these dealers have proven adept at serving yesterday’s shrinking MFP market, they’re in the very early stages of reinventing themselves for tomorrow’s less-print world. So I struggle to see a path or a time frame for a huge payoff for all of this private investment in the MFP dealer business.
But now here comes Fujifilm! While generally ignored in the US since the collapse of the film business more than a decade ago, Fujifilm has pretty much done the right kinds of things, while Kodak did almost everything wrong. So today Fujifilm is a company with roughly $21.7 billion in worldwide sales, $3.7 billion in net income, and $4.2 billion in cash in the bank.
Via the soon-to-be-rechristened Fuji Xerox, Fujifilm is doing about $9 billion in hardcopy revenue this year. That’s a bit more than 40% of its business, and print contributes over half of Fujifilm’s operating income.
Fujifilm spending $2.2 billion to buy out Xerox’s stake in Fuji Xerox and then announcing it will let its global agreement with Xerox lapse next spring says this company is serious about expanding into the US hardcopy market very soon with its own brand and its own products. And that indicates Fujifilm has both the need and the means to get really busy really quickly buying and/or building out a US sales channel.
The good news is that, unlike many of its hardcopy competitors, Fujifilm has a successful M&A track record. Most of its deals have been to diversify beyond printing and film, although Fujifilm will close shortly on its nearly $100 million purchase of CSG, which is Australia’s largest MFP dealer. That’s a good sign for big US dealers.
I’d argue as well that if Fujifilm is to have any shot at success in the US office MFP business, it won’t be able to follow the slow sign-up paths taken by other newcomers, like Lexmark, HP, Epson or Samsung. The stakes are too high and the market is too mature now, so time is of the essence. That bodes well for forging a new path.
It simply isn’t feasible for Fujifilm to sign a couple hundred or so local dealers across the US and/or build out a comprehensive direct sales operation. To me, that leaves just one approach. Fujifilm needs to buy multiple regional megadealers to obtain quick and capable national coverage. It can fill in the rest with distribution by signing up a smaller number of mostly larger dealers. Unless Fujifilm does this, I predict it will ultimately fail in the US MFP business. A presumably motivated vendor-buyer plus presumably motivated dealer-sellers? That could be exciting!!
From the December 2019 Issue - “Introducing Bissett's Law"
It was my younger son — a would-be international policy wonk — who introduced me a few years ago to Godwin’s Law. This simple Internet adage was first put forth back in 1990, and it was included in the Oxford English Dictionary in 2012. Godwin’s Law holds that in any online discussion of a topic, someone sooner or later will compare something or someone else to Hitler. And a key corollary to Godwin’s Law is that once the discussion has degenerated to the “Hitler” level, productive discourse has ceased.
What I’m calling Bissett’s Law is analogous. It holds that any discussion of the fate of a printing or imaging vendor will ultimately degenerate into some kind of cautionary comparison to Kodak, and how that ignominious company’s downfall was obviously foreseeable, easily avoidable, and likely to be repeated by the company in question. My aspirations for Bissett’s Law are admittedly humble but still highly relevant within the confines of the hardcopy world.
The most recent invoker of Bissett’s Law is Carl Icahn. The controversial shareholder activist played the Kodak card in 2018 when he railed against Xerox’s proposed sale to Fujifilm, and he used it again in December when castigating HP for its disinterest in being acquired by Xerox. But Icahn is hardly alone. Others have directed the “you’ll end up like Kodak” scold at companies as diverse as Intel, Cummins, Proctor & Gamble and Hilton. It’s the business equivalent of Mom yelling, “You’re gonna put your eye out with that thing!”
But what should one — especially one coming from the printing world — actually take away from Kodak’s sad history of decline and failure? My admittedly far from exhaustive list of lessons includes the following ten cautions that are especially relevant to hardcopy vendors today.
1. Success breeds contempt. Kodak wasn’t blind. It saw the massive disruption coming its way from digital photography. But Kodak felt arrogantly entitled to dominate that successor market with its digital cameras and inkjet printers, and to bend the business model to suit its needs.
2. Big changes are seldom slow or steady. While Kodak saw the writing on the wall for film, it believed the change would be slow and linear, playing out over ten to twenty years. But in reality, once a big technological transition gets underway, it happens a lot faster than expected.
3. A big flawed acquisition can be disastrous. Kodak looked to pharmaceuticals as one of its vague ideas for diversification, so it bought a troubled Sterling Pharmaceutical in 1988 for $5.1 billion. That was triple Sterling’s revenue and equal to almost 40% of Kodak’s revenue. But Kodak ended up selling Sterling in pieces within just a few years for half what it had paid. And it was the last big deal Kodak was ever able to do.
4. Little deals yield tiny results. Kodak also bought a string of small technology companies between 2003 and 2008, but they did little for its sales or profit. And Kodak had no effective ideas or means to leverage those investments so as to create its next big thing.
5. Adjacent opportunities are further than you think. Finding a market close to one’s current business is never as easy or obvious as it sounds. And adjacent markets often have different business models and their own dominant incumbents, as Kodak found out with digital cameras and inkjet printers.
6. Technological adjacency matters more. A company that’s built its business and reputation on a solid technological foundation, will have better luck finding new uses for its core IP and R&D expertise than by looking for quick and easy ways to exploit current customers or sales channels. Look back at Fujifilm instead of Kodak.
7. The next big thing may well have very different financial dynamics. Kodak kept seeking cookie-cutter replacements for the film business and couldn’t wrap its mind around the idea of having to adjust to new business models and to very different financial norms in new arenas.
8. Hiring an outsider CEO is no easy answer. New blood and fresh ideas can quite possibly be good, but an accomplished outsider CEO with little in-house credibility or with an agenda of his own is seldom the solution for a company that’s used to domination in its own troubled world.
9. Stock buybacks can’t build a future. During a dozen years starting in the mid-1990s, Kodak spent over $5 billion to buy its own stock. And the company still planned to buy back up to 25% of its shares as late as 2008. But Kodak desperately needed that money to build or buy a way to diversify and thrive in a post-film world.
10. Every brand has a life span. The bruised, battered and bankrupted Kodak name is still one of the 100 most recognizable US brands. ... So what! That’s meant diddly for Kodak’s ability to survive or deliver tangible value to the market.
To its credit, one wrong-headed thing Kodak did not do was to double down on the old film business. Kodak never tried to purchase Fujifilm. And Fujifilm had the good sense not to try and buy a waning Kodak. Would that Xerox’s current leadership had the same foresight vis-á-vis HP today.
From the November 2019 Issue - “High Apple Pie in the Sky Hope!"
Prepare for a rant. This issue of The MFP Report was tough to write. As much as many readers might think I relish my role as a print industry curmudgeon and all-purpose doomsayer, I’m more than that guy who likes to say “No!” But I’m just tired of printer vendors whose so-called strategies and plans are the business equivalent of Frank Sinatra singing “High Hopes” in a forgettable flick from the year I was born. That’s the song about “that little old ant” and the treacly chorus goes, “But he's got high hopes, he's got high hopes. He's got high apple pie, in the sky hopes.”
It’s not me who’s changed for the worse. It’s the industry. Two-dozen years ago this month, when I produced the very first issue of The MFP Report, what I enjoyed most was the excitement and optimism of the era. It was all about how fast analog copiers and fax machines and single-function printers were going to morph into this booming business of powerful MFPs and fancy AIOs. These changes were driving amazing expansion in an already growing world of print.
Not every vendor succeeded, and not every product was a winner. But companies worked amazingly hard to grow even faster and to jockey for position. Despite the overriding optimism, vendors were generally cautious and almost always diligent. Their strategies, plans and tactics were surprisingly detailed and grounded in reality. Fluffy slogans, fatuous promises, and unachievable targets tended to be the exception.
Not so today. More often than not, hardcopy companies can barely elucidate a “what” in their superficial business plans. You can pretty much forget about anything that might resemble a “how.” And don’t even bother looking for a “how much” or a “how long” or a “what if.” Who needs those boring niceties, when instead companies can talk about workflow and business transformation, about cloud and subscriptions, about IoT and AI, and about digital first and synergies?
These are the things that drive me absolutely batty. OK, I’ll be the first to acknowledge that I’m an inveterate skeptic. By the way, that’s quite different than being a cynic. I simply and quite rightfully expect that the high-paid executive talent placed at the helms of multibillion-dollar public printing companies should do as good a job as pimply teenagers on a high school debate team when it comes to arguing a point, defending their actions, and winning over naysayers.
I think part of what’s changed is the nature of being an executive in a large public company these days. Humble is definitely out. One must always pretend to have the answers. And all that matters are the next few quarters. So forget about innovation, temporary sacrifice, and building long-term value. Executives — as much as their companies — are all about building a brand and gaining attention. So messages have to be short, catchy and cool. Who cares if nearly every sound bite from nearly every company in a particular industry sounds nearly identical, and is devoid of anything like meaningful content?
Look no further than the stories in this month’s issue of The MFP Report to see what I mean. Vendors miss their quarterly numbers, but somehow they say they’ll hit their annual targets. Fujifilm spends billions on a printing deal but swears its core strategy is to diversify. Xerox waves a magic wand and poof ... there are oodles of imaginary MFP suppliers to replace bad old Fuji Xerox. And Xerox will also borrow a measly $25 billion to combine two troubled printing businesses and a mature PC business. What could go wrong? Then there’s Ricoh. After bombing with subscriptions for six years, the company swears the third time will be the charm. Konica Minolta and Workplace Hub? ... nuff said. There’s also Epson. No, it’s not the slim product line, the lack of dealers, or the absence of any raison d’être for joining the A3 office business that are problematic. It’s that customers don’t know how cool (literally rather than figuratively) Epson’s MFPs are.
This is what what the majority of hardcopy vendors have been doing for too many years. Every month implicitly they’re presuming we’re gullible or incapable of thinking, as they explicitly put forth tenuous claims that defy logic and have little grounding in fact or reality. Please, don’t serve us poo and call it chocolate pudding!
So is there any hope for hardcopy vendors? For the printing industry? Or for crotchety old me? Being the skeptic that I am, I’m really not sure. What I do know is that nothing will change until people — dealers, customers, financiers, partners, press and analysts — push back much harder and demand a lot more. Hardcopy companies and their leaders aren’t stupid, but they are scared and rightfully so. Vendors have reacted by simultaneously becoming too risk averse and too willing to make crazy moves that have little chance of succeeding. It’s a real conundrum.
Above all, I worry about the glaring sense of entitlement that’s implicit in the “plans” and “strategies” of too many hardcopy companies today. Yup, printing is a tough business, but so are lots of other industries. Hardcopy vendors need to earn the right to take sales from current competitors, create entirely new markets, or enter existing spaces. I wanna see a lot less high apple pie in the sky, and a lot more humble pie.
From the October 2019 Issue - “3D Goes from Fad to Dud"
There’s an axiomatic inverse relationship between breathless media attention in a particular new area of the IT world, and the revenue coming from that industry segment. All that early buzz causes lots of tangential IT companies to look for ways to glom onto a new trend. However, by the time that new IT business shows appreciable growth and delivers more significant revenue, those wanna-bes and the IT intelligentsia have already moved on to the next “next big thing.” And that’s the story of hardcopy vendors and 3D printing over the past half-decade.
Think back to 2014. 3D printing was all the rage in our supposedly adjacent world of laser and inkjet output, which in strangely relativistic terms was being called “2D printing.” Over the next year or two, MFP vendors in the US and elsewhere rushed to announce reseller deals with 3D printer makers. And MFP vendors like HP, Canon, Ricoh, Sindoh and Olivetti — and even tiny YSoft — previewed, promised or promoted an array of homegrown 3D print devices, from high-end to low-end. But fast forward just five years, and oh how things have changed.
The 3D printing market is doing very well, thank you. Wohlers Associates, which has been the top research firm in the field for 24 years, released its latest market data this past spring. They reported global 3D product, supplies and services revenue rose 34% in 2018 to just shy of $10 billion. That was more than triple the revenue in 2013, right before hardcopy vendors started getting all hot and bothered about the space. Wohlers also highlighted a 31% increase in the number of industrial 3D printer vendors last year, along with record (>40%) growth in sales of 3D print consumables. And Wohlers is forecasting 3D revenue will hit $35 billion in 2024.
Meanwhile, the number of hardcopy vendors developing or reselling 3D printers has plummeted. 3D barely warrants a mention these days in the plans, events or diversification strategies of most MFP companies. Those high-end products from Ricoh and Canon are more conceptual that remunerative. And the desktop models from Sindoh, Olivetti and YSoft are barely noticed. Likewise, only a tiny minority of dealers are actively selling 3D printers, and almost none sees that market as a real path toward diversification.
HP is the only 2D printer vendor spending big on 3D printing. Indeed, HP has set its sites on helping lead the “4th Industrial Revolution.” That’s “a far-reaching analog-to-digital shift that will completely transform the $12 trillion global manufacturing industry.” But success is not assured. HP first talked about 3D printers in 2013, but it didn’t ship its Multi Jet Fusion device (late of course) until 2016. Moreover, HP has never once attached any kind of financial figures to its 3D business, or ever discussed when and to what degree that business will become materially important in its overall results. Remember, it’s been fifteen years since HP entered the production/graphic arts printing industry. And despite some success, HP has still not released any specific financial metrics for that business. One can only surmise it’s still a tiny sliver of HP’s printing sales. And 3D is many years and many millions behind that segment.
The other exception is Xerox, which apparently never got the memo that fatuous 3D news was out of style. There’s no other explanation for Xerox’s breathy claim that 3D printing is a key part of its “new” future, thanks to old PARC research and spending $4 million to buy a tiny start-up just in time to mention 3D printing at its February investor conference. Still, Xerox swears its 3D technology is “nearing commercialization.”
So what gives? Nomenclature is a starting point. The term “3D printing” hasn’t disappeared, but it’s increasingly being supplanted by “additive manufacturing,” or AM for short. It’s not just semantics. Words matter. And AM is indicative of where the technology will make a critical difference, and hence where it’s heading. GE calls AM “a broader and more inclusive term” than 3D, which is frequently and somewhat disparagingly relegated to lower-end devices that can slowly produce one-off, low resolution, low quality objects that are primarily ornamental. And unlike 3D printing, AM has no overt link to the shrinking, backward-facing world of 2D output.
The underlying dichotomy is borne out in the data. Wohlers said the number of companies making industrial (over $5,000) AM devices grew from 135 in 2017 to 177 in 2018. Meanwhile growth weakened in the consumer (under $5,000) end of 3D printing, with several vendors shutting down or exiting the market. Stratasys and 3D Systems, which both bet big on low-end devices, have seen their market caps fall 80% in five years, even as their actual sales have risen.
It’s clear now that, aside from the word “print” and some links to inkjet technology, there never was any real corporate or business synergy between the 2D and 3D worlds. Hardcopy hubris, combined with a desperate need for something new, caused many print vendors to dabble in 3D. But dabbling doesn’t cut it. In fact, those words should be etched over the entry to every hardcopy corporate headquarters. It’s good news now that most vendors never spent much on their 3D dabbling, but it was yet another detour from the path towards truly meaningful diversification.
From the September 2019 Issue - “Irrational Exuberance?"
The phrase “irrational exuberance” entered the vernacular in 1996. Then Federal Reserve Bank Chairman Alan Greenspan used it in a speech to describe a concern he had for the way the values of certain assets had recently been rising in the economy. At the time, he was referring mostly to early dot-com companies. These days, the 93-year old Greenspan seldom comments on the economy. But if he did, one wonders if he’d use “irrational exuberance” to characterize the growing rash of MFP dealer acquisitions.
In just the past three years, around 250 US dealers have been acquired. Many were purchased directly by larger dealers; some by hardcopy manufacturers. While the pace has surely hastened, it’s hardly a new development. But what has changed is the growing presence of professional investment funds and private equity money, either to buy key dealers or to fund avowed channel consolidators, such as FlexPrint, Visual Edge, Marco and UBEO. There’s also the potential for Staples/DEX to become a truly disruptive PE-funded force in the dealer channel.
It’s not that the (mostly US) office equipment dealers being purchased are weak companies, have bad management, or are delivering poor financial results. It’s actually quite the opposite. They’re typically the cream of the crop. And the valuations are certainly not all that exorbitant compared to many other kinds of IT businesses. Paying more than two times trailing annual sales for an MFP dealer is still exceedingly rare.
What increasingly concerns me is the basis on which purchasers are justifying their acquisitions, and the higher prices they seem willing to pay. The issue is not so much when a local dealer buys a small competing dealer or broadens its territory via acquisition. And it’s also not when a manufacturer fills a distribution hole or protects its current coverage by purchasing a dealer. My questions relate to the professional money that’s so aggressively funding this new era of roll-ups.
These types of investors and that kind of money are neither patient nor transformative. PE firms aren’t in the business of mentoring and molding. Their strategy rests on buying decent companies, slashing expenses, curtailing big new investments, perhaps loading the company up with debt, and then finding someone else to purchase the whole thing in five or so years. PE firms couldn’t care less who or what the buyer is. It could be new shareholders via the stock market; a related hardware, software or IT channel player; or just another channel roll-up company.
And there’s the rub. These professional money people are acquiring good or even great dealers that are already outperforming their peers, But this is a hardcopy industry that’s shrinking (slowly now, faster later), in need of massive investment and major transformation, and facing entrenched competition as it seeks to diversify.
Let me be brutally clear, without significant new money, fresh ideas, and a bit of luck, there’s little reason to believe most of today’s MFP dealers will be bigger or more valuable five years from now. And to the extent they are, it will have come mostly from doubling down on a declining industry and purchasing smaller competitors. All that only postpones the day of reckoning, and it makes massive change even more difficult. None of that’s a prescription for successful investing in the PE world.
I’d be more sanguine if there were evidence big swaths of the dealer community were further along the bumpy road toward becoming diversified players in the IT channel. But there are hardly any valid proof points out there. Perusing the latest data from the 34th Annual Dealer Survey in The Cannata Report puts the kibosh on any optimism in that regard.
These aren’t also-ran dealerships. The average one in the survey had $16.3 million in revenue, and 65% of them reported higher sales last year. But look at managed network services (MNS). For years now, it’s been hyped as absolutely the best adjacent alternative marketplace into which MFP dealers should invest and can diversify.
The Cannata survey found fewer than half of all dealers (44%) have even dabbled in MNS, and the majority of those who had (56%) derived less than 5% of their revenue from that business. Even the most accomplished dealers almost never got over 10% of their sales from MNS. The vast majority of dealers are taking a go-slow approach to MNS, either growing the business themselves (57%) or partnering with an OEM or another company that’s already doing it (45%). Only 19% said they had acquired an MNS provider to enter the market. Moreover, none of this says anything about whether dealers are making money in MNS, let alone MFP-style profits. Anecdotally, many successful midsize dealers tell me it takes several years in MNS just to break even.
And there’s the rub. I realize I’m the oddball here, but I just can’t believe today’s “smart” PE money is funding so many acquisitions of dealers who have proven supremely adept at serving yesterday’s shrinking MFP market, but are barely in the very earliest stages of figuring out how to reinvent themselves for tomorrow. I just don’t see the path or the time frame for a huge PE payoff down the line. So color me skeptical.
From the August 2019 Issue - “Tick-Tock ... I Don’t Get This Clock”
It’s been a dozen years since hardcopy device placements and printed pages peaked globally. And it’s been a decade since the Great Recession ended. So one might think hardcopy vendors — especially the biggest and most print-dependent ones — would have spent the past ten years steering their respective companies toward new opportunities. Unfortunately, one would largely be wrong to think the results from sound policies of diversification would now be evident.
After all, these vendors are public companies with a fiduciary responsibility to stockholders, and a moral responsibility to employees, partners, suppliers and communities. True, there have been two instances in which important hardcopy vendors did aggressively diversify. Xerox acquired ACS in 2009 to expand into BPO and IT services, and Lexmark bought multiple document capture and management software firms from 2010 to 2015. But both companies failed, and those deals were unraveled in 2017.
So I decided this month to get a better grasp of where hardcopy vendor diversification stands today. I looked at total revenue and hardcopy revenue for the nine largest print vendors that depend most significantly on hardcopy as a share of their business. I did this for 2008 — a decade ago and in the midst of the Great Recession — and for 2018 or the closest complete fiscal year. And what I found is cause for great concern, both individually for nearly every major vendor and for the entire hardcopy industry.
The nine vendors I evaluated were Brother, Canon, Epson, Fujifilm, HP, Konica Minolta, Lexmark (even though it’s no longer a separate company), Ricoh, and Xerox. I obtained revenue data from each company’s public financial reports. I converted yen values for the Japanese vendors to dollars using contemporaneous exchange rates. Yes, I understand the limitations of that approach. But since my focus was on hardcopy revenue intensity, rather than absolute revenue numbers, I think it was a reasonable approach.
For the most part, I used vendors’ own categorization of what constituted print revenue, including consumer, office, production and industrial print. However, it can be difficult to figure out what to do with revenue these vendors report for adjacent services and software, particularly revenue from IT services, BPO services, and ECM solutions. Suffice to say, I used my best judgment to try and produce data that was comparable.
First, the big picture. These top nine vendors did $125 billion in hardcopy revenue in 2008, which accounted for 49% of their combined total revenue. Those same vendors generated $91 billion in print revenue in 2018, representing 53% of their combined revenue. So over the past decade, their collective hardcopy revenue fell 27%, but their total revenue dropped 33%. So their collective hardcopy revenue intensity rose 4%. But the average hardcopy revenue intensity for the nine companies did drop by a slight 1.5%.
In other words — and very sadly — there is no indication from revenue that the biggest, most print-dependant vendors have done a whole lot to lessen their reliance on a clearly declining print industry. In fact, even the slight drop in average dependence on printing among these top vendors is more because their non-print revenue fell faster than their print revenue.
As one might expect, there was certainly variability among the companies. Basically, there were three clusters of vendors. Xerox and Lexmark are straightforward. They were both nearly 100% dependent on printing in 2008 and in 2018, despite what happened in between. And their printing revenue dropped more than 40% over the past decade.
Conversely, HP, Epson and Konica Minolta actually ended up more dependent on hardcopy in 2018 than they were in 2008. Of course, HP did split off half the company to form HPE in 2015, but its print revenue also decreased by almost 30%. Konica Minolta became more dependent on printing because its non-print revenue fell faster than its print revenue fell. And with Epson, its printing revenue was pretty much the same in 2018 as it was in 2008, but its non-print revenue declined 13% during that same decade.
Ricoh, Canon, Brother and Fujifilm did manage to reduce the portion of revenue they got from printing between 2008 and 2018 by 20%, 9%, 8% and 3%, respectively. But each case is different. Fujifilm achieved this by having its print revenue fall faster than its non-print revenue fell. Ricoh and Canon did it by boosting their non-print revenue, although much less than the declines they experienced in hardcopy revenue.
That leaves Brother, which was the only vendor on my list of nine companies that grew its hardcopy revenue — largely due to the purchase of Domino in 2015 — and also grew the non-print (albeit smaller) side of its business even more in dollar terms. So there’s one sort of success.
But from my admittedly jaded perspective, here’s the bottom line. The top print-dependent vendors have experienced a lost decade to meaningfully lessen their individual and collective reliance on a shrinking hardcopy industry. So how likely is it that they’ll get it right over the next decade?
From the July 2019 Issue - “On Borrowed Time?”
We all know that old saw, “Nothing is certain but death and taxes.” Well, I’m adding a third item to that list: RECESSION! And while most folks tend to make plans for dealing with death and taxes, few people — or companies — seem to plan for the eventuality of the next recession. Certainly, there’s no evidence that hardcopy vendors are planning for the next big downturn, and all the drama and damage it will portend for printing.
That’s too bad, but it shouldn’t come as a surprise. We’ve been on borrowed time. In July, the economic expansion that began a decade ago in June 2009 became the longest in US history. By some measures, the odds of a downturn are now the same as back in July 2007. That’s when the subprime debt crisis that brought on the Great Recession kicked into high gear. Depending on the forecast and what’s being monitored, the odds now are between 20% and 65% that the US will experience the first of two or more consecutive quarters of GDP contraction in the next year. And that’s how we define a recession.
Because today’s trade brinksmanship is the main catalyst, the coming recession will spread from the US to China and beyond. Even if it were to be shallower, shorter and less global than the Great Recession, the impact across the printing market could end up being more deleterious.
For too many in the hardcopy world, the Great Recession is but an increasingly distant memory. But it’s critical to recall the destruction that was brought down on printing. Through 2008, there had generally been a strong correlation between GDP and cutsheet paper sales, particularly in the US. When the economy grew, so did print volume; and when the economy contracted, so too did sales of cutsheet stock. That all ended in 2008, with some help from the Great Recession.
It’s now more than a decade later, and 2008 still stands as the peak for total printed pages in the US and worldwide. And not coincidentally, 2007 had marked the zenith for total hardcopy device placements. I editorialized about these terrifying twin peaks a decade ago (“Peak-a-Boo-Hoo,” May 09). I postulated back then that even a quick return to modest growth in placements would yield a lost decade before sales of hardcopy devices reached pre-recession levels. It’s clear now that was a pie-in-the-sky dream. In fact, such lofty levels of placements and pages have never again been reached. Instead, both key metrics have sloped downward ever since.
I’ll be the first to admit I have a mixed record with my warnings and predictions, but I’m going to take a bow for that old editorial. What I recommended for the industry and its players back in 2009 was spot on. I called it the “Four C’s.” My sage advice called for consolidation to eliminate weaker vendors and grow share in a stagnant market; culling to get rid of excess plants, people and sales outlets; creativity in developing new service and software revenue streams; and cash, which would determine who could manage to invest the most and hold on the longest.
Sadly, hardcopy companies haven’t done anywhere nearly as much as they needed to on any of these four fronts. That’s why I believe the coming inevitable recession will be extremely painful for this industry.
Currently, there are no truly successful hardcopy companies. Vendors like HP, Canon and Konica Minolta have at various times in recent years produced pretty good numbers on their top line or their bottom line, although seldom for both. But a couple or few good quarters has proven to be a poor predictor of what’s next. Look no further than the latest figures covered in the issue for some top MFP vendors.
The biggest missed opportunity is been that vendors have failed to make, buy or grow successful ancillary or unrelated businesses that materially lessen their dependence on hardcopy. All that’s saved these companies is that moderately well run hardcopy operations still throw off lots of cash. Sadly, way too much of that cash has been wasted on shortsighted stock buybacks and ill-conceived acquisitions. In short, the industry has wasted the fruits of an unprecedented decade-long economic expansion. And this must be seen for what it truly is — a failure of strategy, leadership and execution of the highest order.
So what should we expect a year or two or three from now, when we’re all in the midst of a recession? That long-promised vendor consolidation? It will be in full swing. But these won’t be marriages of strength; it will be the mediocre buying the weak. And there will be casualties. Some companies will close down their printing units, or sell them off at fire sale prices. Cash to fund belated diversification will be in short supply. Just a few vendors will hop over to become small makers of industrial or 3-D print devices.
Hardcopy technology providers and software partners are already heading for the hills. I expect their customers — and their ever-younger leaders and employees — will really step up efforts to transform workflows such that a lot more paper is eliminated forever. In the channel, most small dealers will vanish, while a few large dealers will leverage their hardcopy cash to buy a new future in some adjacent segment of the IT world. In short. It’s gonna be ugly. ... Real ugly.
From the June 2019 Issue - “Let’s Tame the Rapture Over Capture”
Those who make, sell and comment on office MFPs — and that includes yours truly here — have long exhibited a certain rapturous infatuation with the scanning function on said devices. Document capture has been seen, inter alia, as a foundational differentiator between MFPs and single-function printers; an overdue enabler for digital communication; a catalyst for application development and integration; and a springboard for improved business workflows and efficiency.
And to varying degrees, all of the above have proven to be true. Unfortunately for the industry, however, what’s also increasingly true is that there’s not a terribly large, growing or profitable return on all that’s collectively been invested in MFP-based scanning hardware, software, marketing, partnering, sales and support. And there’s good reason to believe things will only get worse, or at best they’ll stay the same.
There is some good news ... for customers and those who have to keep them happy. The ease of use, quality, speed and reliability of scanners on office-grade MFPs have never been better. Vendors are increasingly including or offering single-pass duplex document feeders that operate much faster than the print engines with which they’re paired. Good image enhancement and misfeed detection are less rare than they used to be. Smartphone-like control panels and one-button scanning are pretty much the norm. And integration with the cloud is almost a given. So the once canyonlike gap between MFPs and document scanners has narrowed appreciably.
However — and it’s a huge however — the volume of scanning in the front office faces stiff headwinds, even while the number of people who are happily scanning remains quite strong. Full disclosure ... this is my own qualitative, anecdotal, logical, but informed assessment. I don’t have reams of data to prove it. So humor me.
Walk-up scanning on a shared office MFP has always been an ad hoc affair, driven by simple communication, personal archival, and extracting or repurposing content. Each of these presumes that paper documents are the most convenient starting point. But not only is the volume of printed pages declining, it’s more likely now one can readily obtain the underlying digital file. It may be in a corporate ECM system, accessible from a line-of-business application, on the web, or simply in the cloud. And increasingly, one can view the document on a phone with a few taps. So scanning is relegated to handling exceptions.
This doesn’t mean that customers will tolerate poor scans or complex capture solutions. But they’re less inclined to pay for capture, or to pay for more advanced or specialized document capture solutions, connectors, apps and services.
We’ve been seeing evidence of this trend for several years. Yet MFP vendors have been telling themselves and their dealers to ignore the facts. So instead, the industry tells itself that rising revenue from more capable, more diverse and more specialized capture solutions is just around the corner, and it’s certain to backfill declining revenue from devices and prints.
But evidence to the contrary is in plain sight. Start with the fact that those early yeoman efforts from some dealers and branches to charge customers for their scans have failed almost universally. Then there’s the troubled track record of vendors and dealers who’ve sought to build profitable scan services businesses. What they found is that backfile conversion is a shrinking niche market. High-volume scanning is done on dedicated scanners, behind the scenes or offsite. And successfully operating a scan service is akin to running a fast food restaurant, with long hours, low wages, lots of staff turnover, low prices, and an elusive quest for consistent quality. Most often, a scan operation has to be run as a totally separate unit.
Then there’s the track record for developers of MFP-oriented scanning software. Look no further than the old Nuance Document Imaging unit, which is now part of Kofax. Nuance’s MFP capture software business was shrinking in absolute and relative terms for years. Rumors have swirled that the company at times had to resort to discounting or even giving away its capture software as a sweetener for deals involving its far more monetizable printing solutions. Meanwhile, the rest of Kofax — as well as capture stalwarts like ABBYY and OpenText — barely pay attention to MFP-related opportunities. And print-centric developers like YSoft and NT-ware have added basic capture capabilities simply as the cost of admission to sell their print solutions.
In the wake of these developments, MFP vendors and their channel partners have been left pursuing oddly bifurcated responses. Either they leap upstream into the world of BPO, ECM, forms processing and perhaps even RPA, where they typically lack expertise and a track record, while facing a host of competitors. Or they dive downmarket into a world of scanning apps, one-touch macros, and cloud capture connectors that may entice some customers but don’t typically generate a lot of new or profitable sales.
None of this is intended to mean there’s absolutely no business for MFP-based capture software. But what it does mean is that capture is no cure-all for what ails the office MFP industry.
From the May 2019 Issue - “So What’s a Bird in the Hand Worth?”
It was quite fitting that HP chose this month to announce its Neverstop Laser products, as May marked the 35th anniversary of HP launching the original LaserJet printer. But it was strange that HP didn’t mention the timing. Perhaps it’s because HP didn’t want to attract too much attention to the broader implications of its news. The Neverstop Laser devices don’t just alter the personal economics of printing. They could portend a fundamental departure from the annuity-based business model that’s undergirded the entire hardcopy industry for the past sixty years.
HP isn’t the first company to start chipping away at the traditional supplies-based revenue stream and profit model. That honor goes to Epson, which a decade ago introduced the first inkjet units with refillable ink tanks. But HP is the first to bring the disruptive economics of ink tanks into new laser devices with refillable toner tanks.
The impetus for this change is the same for inkjet and laser. More customers more often these days are choosing to sidestep the old norms that said it’s best to buy ink and toner made by the same company that built the printer, AIO or MFP you own. One pays more — a lot more — but it’s safer. There have always been customers who opted for lower-priced off-brand supplies, but lately that trend has accelerated. Look at HP’s wobbly printing results this fiscal year to appreciate the massive impact a tiny change in supplies can have on the top-line and the bottom-line.
It’s tempting to dismiss the Neverstop Laser initiative as another halfhearted HP response to this dynamic. After all, the three-year old LaserJet Ultra products were a reaction to the exact same trend. Yet they haven’t gone very far economically or geographically. But there are reasons to believe things will be different this time with HP’s new Neverstop Laser models.
For starters, HP has put quite a lot of marketing muscle behind the Neverstop Laser launch, even in the US and other markets where the products won’t be sold. There’s also the aforementioned supplies-have-once-again-tanked-our-numbers financial issues that are playing out inside HP. And then there’s the underappreciated lesson of what’s quietly happening over in inkjet printing.
Look at Epson. Those first “ME” ink tank models didn’t take the printing world by storm ten years ago. They were few in number, sold only in select markets, and a bit kludgy. But by FY2015, ink tank models were one out of every three inkjet AIOs and printers that Epson sold worldwide. Three years later in FY2018, ink tank models accounted for 58% of Epson’s inkjet placements. And that percentage is expected to reach 63% in FY2019, and 74% in FY2021. By the way, Epson’s total inkjet placement were also 10% higher in FY2018 than in FY2015 ... in a down market. Epson can thank ink tanks for all that.
Don’t you think that history and those outcomes are foremost in HP’s mind when it comes to these very first toner tank devices? I’m also inclined to believe there’s a critical mass of small business shoppers in many developing markets today who own ink tank AIOs or printers, and they’re now favorably inclined to consider similar laser devices.
But how the printing marketplace and vendors react from here on is now sort of a chicken-and-egg issue. Will HP be able to sell enough of its first four Neverstop Laser products? How soon will HP need to expand the number and range of models in terms of speed, color and capability? Will other vendors enter the toner tank business? And will their arrival be guardedly proactive or purely reactive? Competitors took way too long to respond to the global inroads Epson made with its ink tank products. Will laser vendors want to risk repeating that same mistake now with toner tanks?
There’s also something brilliantly devious about all this. Sure, these “tank” models cost more. But they come with a couple years of supplies, and the page costs after that are super low. I can’t help but think vendors are conditioning customers to get increasingly comfortable prepaying for more supplies. Who’s to say ink and toner won’t soon be sold like an extended warranty? The longer the period you opt for up front, the less you pay per page. And lest we forget, prepaid warranties are one of the most profitable items sold in retail markets. In a world of ever-declining print volumes, many buyers will tend to overestimate how much ink or toner they’ll ever use over the life of that printer, AIO or MFP.
Of course, it’s more than a little ironic that HP’s intentional lessening of the role supplies play in the annuity-based economics of printing is taking place at the same time the whole IT industry — including every MFP vendor — is desperately trying to create new annuity-based businesses. You can’t talk to an MFP company these days without some whiz-bang “as-a-service” initiative smacking you in the face, whether it’s SaaS-based ECM, cloud infrastructure, app subscriptions, usage-based scanning, or IT services.
So what’s the lesson? It’s twofold. There’s a need for and an opportunity for business model innovation at both ends of the hardcopy market. And office MFP vendors who overlook what’s happening downmarket do so at their own peril. So tanks a lot.
From the April 2019 Issue - “Soft Lies ... Hard Truths”
Every few years, factions in the hardcopy industry come up with what they believe to be a simple, obvious and brilliant idea. MFP vendors decide they ought to expand into the “adjacent” document management software market. This used to be seen as a way to go on the offensive and grow one’s “share of wallet.” But increasingly, it’s now seen as a defensive stratagem to counter falling placements, pages and prices.
But there’s one teeny problem. No proof points exist to support the idea that diversifying into document management software (or enterprise content management, cloud storage portals or whatever nom de guerre you choose) is a great move. Indeed, there’s plenty of evidence to the contrary — that the outcome will be somewhere between simply ineffective and downright disastrous. And the odds that an MFP vendor will bomb bigly in this software domain are now greater than ever.
It doesn’t matter if a hardcopy vendor’s particular document management solution is homegrown or acquired, or if it’s above or below par in scope or quality. Look no further than HP with Tower and then Autonomy, and Lexmark with Perceptive, Kofax and multiple others. There was no “1+1=3” with these deals, not for the incumbent hardcopy business and not for the acquired software entities. HP and Lexmark had to sell off or spin off the assets for far less than what they had paid and invested. And those software entities emerged smaller, weaker and with compromised independence. In fact, many relevant parts of these software entities are all but gone.
And there are other examples with less scale and notoriety, like Ricoh with Document Mall (Ricoh Content Manager); Canon with ADOS (Therefore); and Kyocera with Ceyoniq and Alos.
It’s not just acquired solutions that are problematic. Look at DocuShare. Xerox has been beating that dead but homegrown horse nonstop for 22 years. And for what? DocuShare does zippo for Xerox’s hardware and managed services businesses, and those businesses do very little for DocuShare. That Xerox could likely have sold off DocuShare for a moderate sum in years past makes today’s awkwardly naive fawning over the software by a new management team all the more embarrassing and pathetic. Make it stop!
This isn’t to say there aren’t some common threads and lessons to learn. Two of them are biggies. First, hardware and software generally aren’t a great mix for vendors, unless the software is so critically enabling and aligned as to give customers a fundamental reason to buy the hardware. Hardcopy vendors have done their darndest to convince themselves that document /content management software fits this key criterion. But it doesn’t. Case closed. Now hush.
Second and much less appreciated or understood in the hardcopy business is the simple fact that document/content management software — even when done well and with great focus — ain’t that great a business. Waves of consolidation have already come and gone. Sure, some forecasters point to annual growth around 15% for the next few years. But it looks like a lot of that expansion is really driven by widening the definition of what constitutes document/content management to include historically separate but related areas like capture, search, and file sharing.
And to the extent it’s an OK-ish business, revenue generation is overwhelmingly dominated by big players like IBM, Microsoft, Oracle, OpenText, Hyland and Micro Focus. Successful small vendors like Laserfiche, DocuWare and M-Files have had to spent decades attaining and defending their relatively thin slices of this market.
Meanwhile, “the cloud” is changing things big time. In theory, this type of generational disruption creates opportunities for new players. And it sorta is. But those opportunities seem to be accruing to big cloud vendors, like Box and Google and Dropbox. At the same time, incumbent document/content management solution vendors are busily trying to convert their own offerings, channel partners and customers to the cloud. And that doesn’t leave a lot of space for inept printer companies to swoop in for the kill.
So what about MFP vendors who sidestep the business of making or buying the software, and instead just cozy up to some established document/content developers as partners? That can work, but hardcopy companies need to have much more realistic (i.e., low) expectations.
There are only a few such vendors who target MFP channels (e.g., DocuWare, Square-9) or who’ve stumbled into the industry and learned to live with it (e.g., Laserfiche, M-Files). These aren’t big players. Sure, lots of MFP vendors claim to be besties with Hyland, but those vendors together are a tiny sliver of Hyland’s sales. And to the extent MFP vendors have had modest success, it’s precisely because they’ve made no serious efforts to create any pseudo-synergy.
There are some dealers who’ve succeeded with document/content management software, but it’s almost always been separate from or even in spite of what their MFP suppliers have done. The bottom line? MFPs and content software can be friends. They can even date. But they shouldn’t marry. And no one wants to see the offspring.