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 dependant 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.