June  2018:  “Has HP Already Won the War?”

We’re coming up on the two-year anniversary of HP’s current attack — its seventh in two decades by my count — on the business and product norms of the A3 office MFP market. In fact, it’s actually been only about a year since HP shipped most of the models that comprise its new A3 lineup. So while HP still has a very long way to go when it comes to achieving substantial market share and revenue in the A3 MFP business, HP has already largely succeeded in turning the tables on competitors when it comes to redefining the conversation with channel partners and end-user customers alike. The MFP competition is now very obviously and awkwardly in a reactive mode. And that’s a big deal.

HP has done two things well. It’s redefined the industry conversation with dealers by focusing on how to lower service costs by reducing labor in favor of more highly automated device monitoring. And as a corollary to that message, HP touts to end users that its “printer-centric” MFPs have fewer parts and deliver better uptime than “copier-centric” models from competitors. More notably, HP has shifted the conversation with end users to focus foremost on making sure hardcopy devices are secure network denizens.

Let’s be clear, HP isn’t the first vendor to emphasize either lower cost of service or better device security in the office MFP market. In fact, both items are pretty much in the “mom and apple pie” category. But HP has been touting these twin themes better, louder, more aggressively, and more consistently than anyone else for a couple years. That’s left competitors sounding pouty as they protest, “We did it first!” or “Me too!”

Look no further than Ricoh’s ConvergX dealer meeting and Lexmark’s dealer roadshow in June. Both vendors found themselves with talk tracks that were implicitly created to counter the messages HP has been out there telling the world. And these vendors aren’t the only ones. Xerox says a lot of the same things as regards security, and other vendors are responding, too.

A couple of things have really helped HP. First, at a time when competitors have had to tap dance around explaining lower revenue or weaker profits (or both), HP has recently had a string of strong quarters in which most metrics in its printing business have been heading in the right direction. So HP’s reputation has been rising.

Second, HP has actually been spending money on advertising for its A3 MFP business. We’re not talking big bucks like P&G or GM or AT&T, but the bar for ad spending in the printing world currently rests on the floor. Whether it’s The Wolf video vignettes, its Step Aside Copier print ads, or its various online ads, HP is investing in getting itself and its twin themes known in the market.

It also doesn’t hurt that while HP has been doing all this, competitors have struggled to string together a few words about their new products or express coherent thoughts about what their next act will be. And then add to this the embarrassing soap opera that’s consumed everyone at Xerox, and the major missteps over at Ricoh. Is there any wonder dealers and customers alike are tuning in to what HP has to say?

But this isn’t the end of the story with HP. It’s just as interesting what HP hasn’t been saying this time around in the context of its latest MFP push. HP’s themes of better security and greater reliability evoke a better way of doing what every other A3 vendor already does. And in stark contrast to its various prior pushes into this market, HP this time isn’t trying to upend any tried-and-true norms.

Think about it. HP isn’t saying a word about customers switching from A3 devices to A4 models. It isn’t saying copying is stupid (although copiers still are), or that customers really only need printers and a few network scanners. There’s no change-the-world mantra about switching from laser to inkjet technology. And there’s definitely been no overt message about reducing page costs in the office printing market.

Having said this, HP continues to struggle with the if, how and when of where its new line of A3 PageWide inkjet MFPs fit in the overall marketplace, in a dealer’s portfolio, and in a customer’s office. On one hand, HP has come up with this really obtuse positioning of its 40 to 60 ppm PageWide models being equivalent to other 25 to 45 ppm “price class” laser devices without ever explaining what that means. Customers are meant to understand they can get 40-60 ppm inkjet units for prices that are comparable to 25-45 ppm color laser MFPs. But do they get it?

One has to take HP’s price claims on faith since it doesn’t disclose hardware or page pricing. Some buyers may even think HP is saying its 40-60 ppm PageWide MFPs are no better than 25-45 ppm color laser MFPs. And while HP says its A3 PageWide devices deliver “low-cost color,” that’s purely a subjective measure. A customer can’t quantify the savings without going to an HP dealer and obtaining a full-blown proposal.

As for HP’s overall lower-cost-of-service pitch, that’s strictly for dealers, who are pretty much being advised to pocket the savings and share just a few crumbs with customers. Yup, there’s raising the bar (which HP sure wants to do), and there’s rocking the boat (which HP is loathe to do).

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May 2018:  “Dominoes in Reverse”

The “common wisdom” in the hardcopy market has long been that we’re heading towards a last round of bottom-up industry consolidation, with the first vendors to go likely to be the smallest and weakest companies. But what if that’s only half-right? What if we’ve gotten it backwards? Yes, consolidation is almost certainly coming, but maybe it’s going to be a top-down affair.

I can now postulate multiple paths by which all of the world’s largest hardcopy vendors could in rapid succession be on the buying or selling end of a massive consolidation tsunami that takes just a year or two to finish. All we need to start is for that first big domino to fall. Hello, Xerox!

After all that’s happened at Xerox this year, the ultimate fate of the company is anyone’s guess. What’s clear now is that outside agitators are firmly in charge at one of the largest and certainly the most iconic printing company in the world. And that’s created an unexpected industry disequilibrium that can’t last all that long. In fact, remaining a healthy independent company seems to be the least likely outcome for Xerox.

Messrs. Icahn and Deason, the new Xerox CEO, and the mostly new Xerox Board of Directors are on the same page when it comes to the idea of shopping the company around. And it’s a pretty good bet HP’s door will be the first on which the new Xerox folks come a-knocking. After all, it was HP that apparently approached Xerox late in January about a possible last-minute deal. But at the time, the old team at Xerox was deeply enthralled with Fujifilm as its one true love.

But consider now that HP is worth about $36 billion, has $4.3 billion in cash, and could raise or borrow many billions more. Meanwhile, Xerox is worth closer to $7 billion, has about $1.5 billion in cash, and is probably hasn’t ruled out using Tinder to look for its next transaction.

Then there’s the messy matter of Fuji Xerox. It’s too soon to tell, but at this point one can’t rule out a formal break between Xerox and Fujifilm. And protracted litigation — either over the failed transaction, the breakup fee or the Fuji Xerox “crown jewel” lockup — is somewhere between possible and likely. But HP may be the only incumbent hardcopy vendor that could acquire Xerox without needing to buy Fuji Xerox as well.

Think about it. HP’s A4 business is far too important for Canon to throw it away in a snit. And between its Samsung A3 laser devices, its own PageWide A3 inkjet models, and its production systems, HP could do without a lot of what Fuji Xerox makes for Xerox today. HP could cherry-pick what it needs from Fuji Xerox or others to fill the gaps. Xerox would also certainly bolster HP’s coverage and gravitas in A3 and graphics.

With Fuji Xerox then untethered from Xerox and in need of a top-tier partner outside of Asia, Fujifilm could very well team up with Canon. In fact, I can make a pretty good case why Canon would benefit mightily from buying either Fuji Xerox (with over $9 billion in sales) or perhaps even Fujifilm (with about $22 billion in revenue). Canon and Fuji are successful in printing and increasingly well diversified. Sure, Canon’s like your grandma when it comes to doing deals, but it has over $5 billion in cash and a $45 billion market cap. And pairing Canon and Fuji would create a Japanese colossus with sales nearing $60 billion.

Now let’s turn to Sharp, or should I say Foxconn? Sharp last fall brazenly proclaimed it wants to buy its way from also-ran to the top-tier in printing, and Foxconn is certainly the kind of sugar daddy that could pay the tab. So if HP doesn’t buy Xerox, then Sharp certainly could and might. Or Sharp instead might opt to purchase Ricoh. Foxconn could easily afford such a deal — Ricoh is worth around $7 billion today — and a confused and flabby Ricoh would definitely benefit from some Foxconn-style discipline and direction.

That leaves Konica Minolta in search of a beau. Our hunch is this vendor would rather spend its slimmer budget at the high end of the market. EFI would be easy pickings for less than $2 billion, and it would move Konica Minolta towards its goal of being a production and industrial print powerhouse. Conversely, one could also make a case why either Konica Minolta and Brother or Konica Minolta and Epson would be nice complementary pairings, and it’s possible that any of these three could be the buyer.

That takes care of the biggest hardcopy vendors, but what about the smaller ones? That’s where my revised top-down consolidation scenario has a major impact. Instead of companies like OKI, RISO, Toshiba TEC, Kyocera or even smaller niche print vendors being the first to be bought up by bigger vendors, these companies could end up left on the sidelines. And in a hardcopy industry dominated by leviathans, smaller vendors would face even steeper odds of survival.

Under this revised scenario (thank you Xerox) the printing industry could experience a belated but quick game of catch-up, such that only a few large vendors — probably just three or four — will be left dominating the declining office/consumer printing era and be poised for growth in the rising business of industrial digital inkjet printing. And those smaller vendors would unfortunately find themselves on the path toward extinction.

April 2018:  “Be Careful What You Wish For”

Some old-timey sayings fall by the wayside, but others never seem to lose their luster. A case in point is that old standard, “Be careful what you wish for.” It’s occurred to me recently that this axiom is particularly apropos to what we see going on today as MFP vendors gently nudge (or blatantly harangue) their dealers to “get with the program” and make some life-altering changes in the fundamentals of their businesses.

It’s eminently logical for vendors to want dealers to broaden their focus beyond print. And there are few surprises on the list of the most common areas of business that MFP vendors choose to promote, whether it’s IT and managed network services; ancillary IT offerings like cloud storage and IP telephony; document management software; workflow and business process related consulting; or deeply vertical solutions.

But what’s surprising is there’s been so little public attention to the no-win situation MFP vendors face as they pursue this approach with dealers.

First, there’s the rather obvious and reasonable expectation that dealers will heed their vendors’ warnings, as well as what they’re already seeing and hearing on their own. As a result, many dealers will materially shift their efforts and investments to non-print areas in their businesses.

Second, dealers will feel little allegiance to the limited and often ineffectual offerings MFP vendors haphazardly try to promote as the best way to achieve diversification. At the risk of mixing my metaphors, once the beyond-the-MFP diversification genie is out of the bottle, there’s no good reason for dealers to limit their non-print business options to just those few specific offerings sanctioned and sold by their MFP vendors.

Moreover, these twin effects feed off each other, thereby compounding the overall risk to vendors. Essentially, the more that dealers invest in the non-MFP parts of their businesses, and the more they obtain growth and rewards from diversification, the more they’ll accelerate their investment in opportunities further afield from printing. Likewise, the more expert and confident dealers become in those other domains, the more likely they’ll stray even further from what their suppliers are offering them beyond print.

It also doesn’t help that MFP vendors today are pretty blatantly using their investments in IT services, ECM software, and business process automation services largely as a “hook” to sell more MFPs and printers. Hardcopy vendors like to talk about their non-print offerings, but they still measure success mostly in boxes and pages.

In fairness, it’s not as if MFP vendors have a lot of other choices. On one hand, companies like Xerox and Lexmark spent lots of financial and organizational capital in their attempts at significant but supposedly adjacent diversification. But they discovered they weren’t good at running non-print businesses, and they still had little to offer dealers who were looking beyond print.

On the other hand, it’s not like MFP vendors can simply stay the course and not make any real effort to encourage or help their dealers expand beyond traditional office and production printing. Savvy dealers know they have no choice but to diversify, with or without the aid of their print suppliers. So it’s a classics case of “Damned if you do and damned if you don’t.”

As difficult as this dynamic would be under the best circumstances, two other changes in recent years are making the entire process of channel evolution even more daunting for hardcopy vendors.

For one thing, the MFP channel pendulum is swinging back from direct to indirect sales. Some of this is because of major initiatives at Ricoh, Xerox, HP and Lexmark to aggressively recruit or shift business to dealers. It also partly reflects a growing desire by vendors to enable IT resellers to offer MPS to SMB customers. And the rest reflects the simple fact that dealers have outperformed branches across the MFP industry.

On top of all this, there’s the massive increase in dealer acquisitions that’s accelerating each month. We’re clearly moving toward a final wave of dealer channel consolidation. A combination of acquisitions, customer absorption, and organic growth is putting unprecedented distance between dealer haves and have-nots.

Among other things, this is quickly changing the relative balance of power between vendors and dealers in the MFP industry. Today’s regional US dealers doing $100 million, $200 million, or even $300 million and more in revenue are in the catbird’s seat. Vendors quiver and kowtow to what these big guys want, say and do. Even the mere suggestion they might switch an MFP product line or expand in a new direction beyond traditional MFPs and printing can be calamitous for their incumbent hardcopy suppliers.

So what are MFP vendors left to do? I can really provide only two directives. Focus on truly diversifying acquisitions without regard to the fit with MFPs or dealers (like Canon and Konica Minolta have done in medical), and be honest top to bottom, internally, and with channel partners about what’s happening. That’s it. Wishing won’t help.

March 2018:  “Cat Got Your Tongue?”

More and more these days, the single biggest part of my job has shifted. It’s now less about interpreting and analyzing what vendors say they’re doing. Instead, I have to interpret the vacuous statements they proffer, and increasingly I must overcome the total absence of any communication whatsoever precisely when vendors should be saying something ... anything!

Yes, I’ve often railed against the declining quality of communication from MFP vendors when it comes to mundane announcements of products, solutions and programs. But the antics this month just about pushed me over the edge. Ricoh was the final straw, but its actions — or the complete lack thereof — sadly are not unique.

So in March, Ricoh in Japan ignominiously blamed its US operation for just about everything bad that’s happened to it this entire fiscal year. That includes the biggest write-down in its history, and the largest operating and net losses it’s ever recorded in more than eight decades of existence. It was all because of IKON, and mindSHIFT, and the inability of the US to focus on profitability, and the failure of the US organization to adapt to a changing market. Meanwhile, there hasn’t been one word from Ricoh in the US. Not an “Oops” or a “Wait.” Not “Let us explain” or “Here’s what we plan to do.” Nope. Bupkis!

Who does that? And why? In fairness to the US folks at Ricoh, it could be the company’s investor relations team or legal counsel in Tokyo simply won’t allow the US to speak. But that merely shifts where to lay the blame. And it begs this key question:  Who’s been minding the store in Japan? It certainly doesn’t justify the lack of a reasonable explanation or any communication in the US. It doesn’t help that Ricoh has never been at a loss for words when blathering on about its inscrutable “Workstyle Innovation Technology.” I’d gladly forego one posting on that topic for real answers to these very real issues.

As for other culprits, look no further than Fujifilm. The company looking to take control of Xerox and its iconic brand and legacy has basically ceded all of the public commentary to Xerox, even though its own credibility and capabilities are critical issues in the debate over the proposed transaction. And even when Fujifilm does say something, it looks like Xerox wrote the script. I can’t think of any other instance in which a public company doing the buying has left it to the public company being bought to explain the deal to investors and the world. How is one to believe Fujifilm can handle the massive challenges inherent in the deal if it won’t take the lead to justify this contentious transaction?

This deal has also put Xerox in the unenviable position of having to speak repeatedly but belatedly about how it really has no other options for growth — or perhaps even survival — and how it’s utterly dependant on Fuji Xerox for nearly everything it sells. That’s an awkward about-face from the company’s past bravado. Indeed, if Xerox had been more matter-of-fact and forthcoming about the fundamental nature of its hardcopy business, it likely would have been better for the company in the long run.

Nor is this phenomenon limited to major vendors. Look at the case of little old OKI. A year ago, the powers that be in Japan fundamentally altered (i.e., curtailed) OKI’s printer/MFP business, particularly in the office market. There’s nothing wrong with that, but one might have thought it was newsworthy ... or at least deserving of comment or communication by OKI sales companies in the US and elsewhere. But one would have been sadly disappointed. And don’t get me started about the utter confusion in Panasonic’s printer business.

The same problems can also afflict software companies in our industry. More than a year ago, Nuance had to acknowledge that an appreciable dip in sales in its Imaging division was self-inflicted, the unforeseen impact of some vague kind of sales reorganization. But Nuance’s Imaging sales had already been stagnant for a few years, and neither that situation, the nature of the sales reorg, nor what the company was doing in response to the problem has ever been discussed, certainly not in any proactive sense. In fact, Nuance has said barely a word to press or analysts about the nature or direction of its imaging business in two years.

At a more general level, the hardcopy industry as a whole has only very recently (and also very reluctantly) begun to acknowledge openly that the problems it faces from slowing demand for products and pages is not just a “someday” matter. It’s already here. And it’s bigger and badder than vendors are presently ready to let on. But so far not a single MFP vendor is discussing in a complete, clear, credible or quantitative manner where it goes next. A few are doing an “OK” job, particularly HP and Canon, and to a lesser degree Konica Minolta as well. But there’s a lot of room for — and a desperate need for — better communication all around.

The bottom line is that I can’t think of a single instance anywhere at anytime in which a company that’s in the midst of a turbulent environment, or one that’s weathering a big self-induced mess, has ever been well served by zipping its corporate lip. So speak up!

Febuary 2018:  “No Collusion!”

 “No collusion!” The phrase has become part of the political vernacular, although it remains to be seen if anything comes of it all. Meanwhile, in the hardcopy world, we’ve also got an oddly unanticipated outcome that begs the question whether the players were secretly and illicitly in cahoots to assure the result they all wanted.

What I’m talking about is the complete failure of compact, economical A4 MFPs to supplant significant swaths of the market for oversized, overpriced A3 MFPs in offices. It ain’t gonna happen. Not now. Not tomorrow. Not ever. But did this outcome result from dreaded collusion? Nope, it’s not. That’s because Collusion is just one of the “Three C’s” that can explain how an unexpectedly irrational outcome can occur. The other two are pure Coincidence and simple Common Interest.

Collusion entails intentional, often secretive efforts among coconspirators to achieve a desired outcome. Coincidence is the complete opposite. Stuff just happens randomly in parallel to produce a particular result, even if it’s unexpected, unlikely or flawed. Common Interest is an in-between explanation. It’s when shared preferences operate independently to nonetheless produce a commonly desired outcome.

With the failure of A4 devices to supplant A3 devices in the office MFP market, there’s no need for an investigative committee or a special counsel. Hardcopy vendors didn’t get together in a smoke-filled room and agree on a common strategy. But this also wasn’t just some random throw of the dice. Rather, it has resulted from the overwhelming shared financial interests of hardcopy vendors, as well as independent dealers.

It also certainly helps when there ceases to be any credible threat from capable and disruptive outsiders intent on spoiling the fun. So “everyone” is getting what they wanted. Oh yeah, except for those pesky customers. Those stupid rubes continue to pay through the nose for A3 hardware that delivers far more than they need.

I’m actually hard-pressed to think of a similar circumstance from another market in IT or elsewhere. Generally speaking, we’re accustomed to seeing “free” markets respond to unmet demand or underserved customers with new players, new products, or new platforms. No small cars from GM and Ford? We got Toyota and Honda. Music albums are too pricey? We got iTunes. Taxis are expensive and inconvenient? We got Uber.

The fact that collusion wasn’t needed to forestall a meaningful A3-to-A4 transition doesn’t make the end result any less suboptimal for individual customers or for the economy as a whole. Just think of all the more productive things customers could do with the money they’re wasting on A3 devices when comparably equipped A4 models could easily suffice. How about investing in IT security? Or developing new products? Or perhaps giving raises to employees? It’s what academics refer to as “economic inefficiency.”

While A3 copiers and MFPs have been the office norm for decades, that wasn’t always the case. Mimeo and Ditto machines were mostly letter or legal size. And the seminal Xerox 914 launched in 1959 wasn’t an A3 machine. Frankly, I’m at a loss as to why the industry long ago settled on the idea that A3 paper handling was a sine qua non of design up and down the product line.

Was it the idea a customer would only buy one or a few of these things, so each one had to be able to handle everything? Was it a carryover from the world of printing presses? Or was it a way copier vendors could emphasize how they were different from what came before? Regardless, it was a really bad deal for customers. And it stuck. Even in the copier boom years, no one championed the idea that customers could buy twice as many machines that cost half as much, although it’s something HP figured out when it launched the first LaserJet printer in 1984.

Instead, the ongoing prevalence of A3 devices in the office MFP market is a case study in how the power of sellers’ shared business models and marketing have won out over common sense and customers’ own financial self-interest. From the advent of complex leasing arrangements in the 1960s, to a singular focus on cost-per-page in the copier-versus-printer wars of the 1990s and early 2000s, to the click-focused MPS transition over the past decade, the dominant business norms in office imaging have all served to mask the massive A3 hardware price premium.

Of course, it didn’t help that the top printer vendors were so excessively naive, simplistic, ill-prepared and mistake-prone in their efforts to push A4 alternatives. After years of overpromising, underdelivering, and ignoring channel and business model issues, HP, Lexmark, Samsung and OKI to varying degrees gave up or proved ineffectual. And not a single A3 MFP vendor has ever more than halfheartedly put forth an occasional competent A4 platform without almost immediately disowning it and assuring failure.

So unless some nervy incumbent vendor goes for broke in the industry’s future waning days, we’re all gonna ride those A3 MFPs into the sunset. But perhaps it’s time to tone down the smarmy “We’re all about the customer” rhetoric?

January 2018:  “Let the Games Begin!”

Something tells me this time things are different ... real different. I’m talking about the announcement that Fujifilm is sorta-kinda buying Xerox. I expect this deal — even if it gets modified and perhaps even if it falls through — will prove to be the long-awaited catalyst that triggers a final round of hardcopy industry consolidation.

Printing has had its share of boy-who-cried-wolf moments when it comes to predicting the time is nigh for industry consolidation. Previous M&A announcements never ended up triggering a rash of other deals. Not Konica buying Minolta back in 2003. Not Ricoh purchasing IKON in 2008. Not Canon acquiring Océ in 2009. And not the twin 2016 announcements that a Chinese consortium would buy Lexmark and that HP would acquire Samsung’s printing business.

So what’s different this time? Five things. First there’s the size of the deal. About $8.6 billion will change hands (a big part of that several times) in order to create the “New Fuji Xerox.” That’s small potatoes in the gluttonous world of corporate M&A these days, but it’s much more money than in any previous print-related transaction.

Second, there’s the timing of the deal. In some ways, it’s counterintuitive. After a frighteningly miserable 2016, 2017 turned out to be an OK-ish year for the majority of the industry, with improvements in both sales and profits. And it was an almost good year for a few vendors. But clearly printer companies now see this as just a temporary lull; it’s the eye of a hurricane. Things will only get worse, so it’s time to hunker down. And vendors see safety in bigger numbers.

Third, there’s the context of the deal. For two decades, there’s been a subtle but significant and continual shift in the locus of power in the office printing industry from channel players to vendors. But that’s changed abruptly in the past year or two. While everyone was obsessed with which vendors might buy each other, the real M&A action (and money) quietly shifted to the dealer side. We’re fast heading toward a much “lumpier” landscape with a lot fewer, larger and more powerful dealers who together will determine which hardcopy companies win and lose. There won’t be room for all of today’s suppliers.

Fourth, it’s Xerox. The brand and company ain’t what they used to be, but Xerox is inextricably linked with office imaging. And when Xerox does something — anything — it tends to get more attention from both inside and outside the industry. And even in the face of considerable challenges, the New Fuji Xerox is likely to be a more formidable competitor than the old Xerox.

And fifth. There’s a palpable sense of disequilibrium paired with a scent of blood in the water.

So who’s the next contestant on “Let’s Make a Deal?” I don’t know, but I do believe the industry is coalescing into four distinct groups of companies. It’s the dynamics within and between these groups that will determine the next dealmakers.

First, there are the Mega Vendors. That’s HP, the New Fuji Xerox, Canon, Ricoh and Konica Minolta. Their sheer scale ($10-$20 billion in printing revenue), channel footprint, and breadth of offerings mean they’re here for the duration. They’ll be able to expand into adjacent “document” services. And more importantly, they’re moving into industrial inkjet printing. These companies are probably too big and too print-centric to be acquired, although Ricoh might prove to be a wild card. More likely, these vendors will themselves become serial acquirers, but their prey will be mostly smaller industrial print technology add-ons.

Then there are the Twin Tweens. That’s Epson and Brother. They’re moderate in size, and each performs pretty well in its own domain. They’re trying to move upstream and into new channels to grab a bigger piece of the office market. Each has a toehold in industrial printing. While both are somewhat diversified, printing is still their largest business. And although M&A has not been part of their DNA, Epson and Brother may well confront a new eat-or-be-eaten dynamic.

Next is the Fish-or-Cut-Bait Crowd. That’s Kyocera, Toshiba TEC, Sharp, OKI and also Lexmark. Each is part of a larger diversified company, although much less so in the case of Lexmark. Their hardcopy revenues range from under $1 billion to over $3 billion. Kyocera, Toshiba TEC and Sharp are decently stable with a good range of office devices, but they’re not much on the desktop or in industrial printing. OKI is smaller and perpetually struggling. And Lexmark is in its own world these days. Sharp (with its sugar daddy Foxconn) has spoken of making a big buy that will move it up the printing ranks, but OKI is likely to wither away. So does that leave Toshiba TEC and Kyocera in a Mexican standoff?

Finally, there’s the Industrial Crew. You recognize names like EFI, RISO and Memjet, but there are lots of lesser-known players, such as Xeikon and Screen, and a panoply of niche vendors in everything from textiles, to labels, to boxes, to signage. They’re smaller companies who hope that industrial digital printing grows fast enough and soon enough — before their funds are depleted or their investors grow too weary from the wait.

Yup, it’s gonna be the race of a lifetime.

December 2017:  “Our Own Fake News”

At any given moment these days, my inbox seems to be flooded with results from various surveys and polls conducted by or on behalf of MFP vendors and imaging solution providers. Along with fact-free blog posts, vacuous tweets, and self-congratulatory Facebook missives, producing data on “what real people really think” has apparently become obligatory in the cool new world of B2B marketing. But just because this trend is hardly unique to the hardcopy industry, doesn’t mean we shouldn’t hold our own accountable for jumping on the “fake news” train.

Here’s a sampling of items that have crossed my desk in recent months. Canon in December proclaimed that a survey it sponsored found “60% of enterprises will implement digital transformation strategies by 2020.” HP in September released results from a consumer photography survey that found “Germans like to photograph a lot.” Ricoh, also in September, revealed results from a survey of European workers that found “81% believe new technologies such as automation and AI are changing how we work.” In November, a Brother survey found two-thirds of SMB companies feel they need to do a better job “increasing the efficiency of business processes,” and about half said “cutting corners on office equipment sometimes backfires.” And YSoft in August determined that 52% of younger US workers thought their companies had “too many paper-based processes.”

Can you say, “Duh ?” I admit I’m cherry-picking these findings, but such “insights” are typical of what vendors rush to tell the world. Sadly, these divinations are right up there with “people like mom and apple pie,” and “most folks prefer lower taxes.” Will these genius revelations never cease?

It’s not that these efforts are necessarily intended to mislead or disappoint, but far too many of these surveys and polls end up doing one or both of those things because they suffer from two serious and intertwined flaws.

First and quite strangely, there’s often no compelling reason why a particular hardcopy vendor or solutions company is bothering to sponsor or conduct such an information-gathering activity. All too often, the topic is some variation of workplace/workforce/workstyle meets technology/solution/service to produce innovation/transformation/evolution. Yet the questions asked are so vague — and the likely answers so obviously predictable — that one wonders why a company would go to the trouble and expense.

Other times, it’s like the vendor is hoping to position itself as a source of “basic research” regarding the IT landscape. Or it expects to discover some psycho-sociological “truth” that academic researchers have missed. But that thin veneer of pseudo-selflessness all too often yields “findings” that are of little or no value and have minimal applicability to the vendor’s present customers or its future business. Moreover, I’ve yet to see a single one of these polls that explicitly — or even implicitly — tries to answer that most fundamental of all questions:  “So what?”

Second, even if the underlying goal or premise of the polling activity has merit, very often the methods employed by the vendor or on its behalf are somewhere between questionable and laughable. It can be everything from a weak survey design, to badly worded questions, to poor sampling methodology, to minuscule sample size. For example, one of the snippets I referenced earlier came out of a mere 100 responses to an online SurveyMonkey questionnaire. Really?

Put these problems together, and you get our industry’s own version of what I call “fake news.” Vendors produce surveys that by design are unlikely to reveal any meaningful findings or actionable information. And they compound this by employing methods and tools that are incapable of assuring the findings are reliable or even real. It’s sort of a new and unwelcome spin on an old saying. “Those who can, do; and those who can’t, sponsor surveys.”

That’s why in my role as an industry analyst and newsletter editor, I pay little attention to these increasingly common PR pronouncements. And I have to wonder if anyone else pays them heed. Aside from the vendors who want to create a vague aura that they’re on the leading edge of momentous change, one has to wonder why the companies bother with these activities at all.

And then there’s the matter of opportunity cost, which to me is the most frustrating aspect of these misbegotten polls and surveys. Instead of spending time and money trying to be seen as disinterested market observers, vendors should be collecting and sharing data on what their customers, sales prospects and channel partners are doing “down in the trenches,” so to speak.

I’m still waiting for the first MFP vendor who produces a credible report on why customers chose their products over those of the competition. Or what about a poll on how low color page costs will really need to go before companies are comfortable shifting en masse to color devices and output? Or how about a survey on the kind of suppliers companies feel comfortable turning to for ECM, or managed IT services, or consulting services? These are the kind of results I’m interested in seeing. How about you?

November 2017:  “The Hospice Option”

As I’ve often remarked to subscribers of The MFP Report, the editorial page is typically the last, most challenging and most invigorating part of each issue I write. After more than two decades and over 260 issues, I wonder occasionally if I’ve exhausted the list of available topics on which to pontificate. To help allay that anxiety, I keep a folder of possible subjects, tidbits and reminders to inspire me. It’s a simple system that works.

A case in point is an article I put aside during the summer. The title was “Why It Might be ‘Dangerous” for IBM to Turn Itself Around.” It was written by Daniel Howely, and appeared on the Yahoo Finance news page on July 22. The article was inspired by the fact that IBM four days earlier had announced its 21st consecutive quarterly revenue decline. But what particularly intrigued me were some quotes from Aswath Damodaran, a professor who teaches corporate finance and valuation at the Stern School of Business at NYU.

Damodaran was quoted stating the following:  “Not all companies last forever. There is a life cycle to a company. They are born, grow and then decline.” He added that “Trying to force growth in older companies like IBM could actually have a negative impact on them, because they might end up simply throwing good money away.” Wow! In what other industry have we seen companies experience years of revenue declines and billions wasted on misguided strategies to reinvigorate growth? As Damodaran concluded, “When you’re 75, you’d love to be 35 again, but you’re not going to.”

What was lacking in the article was advice on what geriatric companies are actually supposed to do when additional investments made in the hope of rejuvenation simply don’t or won’t pay off. At the risk of sounding tasteless, impractical or even insensitive, I’d like to suggest an option. I call it Corporate Hospice Care. Absent a competent strategy to regain growth, aging companies in declining industries at some point will need to come to terms with death. So why not make it easy, dignified, and as painless as possible?

I speak from some experience. Sort of. In the past four years, I’ve lost two parents and a dear friend to cancer. In each case, we relied on some form of hospice care. Although the specifics can vary, hospice care is generally an approach that focuses on palliation of the chronically ill, terminally ill, or seriously ill patient's pain and symptoms, while also attending to the patient’s emotional needs. In an era in which the law increasingly ascribes personal rights to corporate entities, why not hospice care for corporations?

Fundamental to the concept of hospice care is the idea that death is just a part of life. At some point, the focus must shift from remedies and cures, to acceptance and a managed demise. In that context, hospice care for corporate patients would seem to be a natural and even logical next step consistent with Professor Damodaran’s view that ”Not all companies last forever.”

It goes without saying the hardcopy companies most vulnerable to terminal print-itis are those who have the greatest dependence on hardcopy revenue. There’s still a pretty long-list of vendors who obtain roughly 50% or more of their sales from printing:  Fujifilm, Epson, Brother, Canon, Ricoh, Konica Minolta, RISO, Xerox and Lexmark. And the degree of print dependency becomes more disconcerting as one goes down this list. Perhaps ironically, while HP is certainly a top-tier hardcopy company, printing generated just 36% of its total revenue in FY2017.

This is not to argue that all of these companies are doomed, or that each faces an equal chance of mortality. But it’s certainly true that past efforts by Xerox and Lexmark to diversify away from printing have not exactly panned out. Indeed, Xerox, Ricoh, Lexmark and RISO presently have shared no significant or credible path to lessen their hardcopy dependence, except for some efforts to grow industrial printing. Conversely, expansion in the medical/biological field by Canon, Konica Minolta and Fujifilm seems so far to be more promising.

So what might corporate hospice care actually look like? Foremost, it would require acceptance of a continued downward trend in revenue, quite possibly with an accelerating level of decline after some negative inflection point. It would also necessitate a laser-like focus on maximizing operating profit. Fortunately, that’s easier in printing than in many other industries. To accomplish this, one would likely see further slashing of R&D expenditures, even lower capital investment, reduced headcount, greater outsourcing of manufacturing, and further de facto “outsourcing” of sales to channels. There’s also something to be said for treating remaining employees with the utmost compassion.

Interestingly, one might argue Xerox, Ricoh and Lexmark are to varying degrees already operating in accordance with such a prescription. But of course, this kind of trajectory is easier to pursue for private firms than for public companies. Because of that, I would expect to see one or some hardcopy companies undergo private equity buyouts. Indeed, one might argue it’s more likely for some print-centric companies to go private than to be acquired by competitors in that oft-predicted final wave of consolidation.

October 2017:  “Go Fourth and prosper? … I Hope Not”

As the old saying goes, “Once is an incident, twice is a coincidence, and three times is a pattern.” So what do you call it when the same stupid scenario plays out in the hardcopy industry for the fourth time in 15 years? Well, I call it a fiasco.

I’m talking here about the massive financial fraud that’s engulfed Ricoh India and Fuji Xerox New Zealand (and Australia) in recent months. But lest we forget, these twin disasters were preceded by the original “Blame It on Brazil” debacle Xerox revealed in 2002 — which actually entailed problems across Europe, Latin America and Canada — and the “Pain in Spain” mess OKI confessed to in 2012. These four events clearly evidence a pattern of inattention at best and malfeasance at worst when it comes to basic financial controls and fundamental management oversight among multiple vendors in governing various overseas sales subsidiaries.

Just to recap, although none of these disasters alone was life-threatening to the company involved, each was a major mishap with serious repercussions for the respective vendor. And the implications extended beyond just one territory.

Even after fifteen years, the Xerox situation remains the mother of all messes. Issues in Brazil and other overseas sales subsidiaries were at the heart of Xerox being forced in 2002 to restate its revenue for 1997 through 2001 downward by $1.9 billion, with a corresponding $368 million reduction in pretax earnings. Meanwhile, Xerox was dealing with its “unsustainable business model” and was nearly on the brink of collapse.

Five years later in 2012 — and at the other end of the printer industry — OKI had to restate its results for the prior six years because of irregularities in Spain. OKI took a hit of nearly $400 million on net income and $100 million on sales.

In contrast, the messes at Ricoh India and Fuji Xerox New Zealand remain “works in progress.” Both vendors would like to think all the bad news is out and accounted for, but no one really knows. What we do know is that between last fall and next spring, Ricoh could end up taking a hit well in excess of a half-billion dollars to address years of fraud in India. And Fuji Xerox has already taken a $340 million charge to net income for six years of fraud in Oceania.

That’s a combined total of more than $1.6 billion in reduced earnings just for these four incidents! And that doesn’t include the consequences of reductions in stock prices, market cap, headcount and sales. What’s so striking is the common themes I see across these four situations. Despite different eras, vendors and locales, so much of what happened, why it happened, and how it was handled is strikingly similar.

Consider that in each case, the underlying malfeasance was widespread, long-standing, and significant in scope. The overstatements to sales and income were so egregious as to very clearly be “too good to be true.” Yet even when employees raised questions — as they did invariably in each instance — their concerns were easily and quickly ignored. In effect, the key constituencies in both the local sales companies and the corporate headquarters were so vested in assuring that the subterfuge continued, it was nearly impossible to recognize the underlying fraud and address it.

Of course, one could argue that for each of these vendors, the particular problems were geographically isolated and have not been repeated ... at least as far as one knows. Indeed, it’s tempting to believe that hardcopy vendors both individually and collectively have learned the requisite lessons from these past blunders. But one wonders why the first one or two instances would not already have been sufficiently didactic. So I’m left to ponder. Who’s next? Where? And when?

Putting that worry aside for now, there remain far more pressing questions that the hardcopy industry as a whole must consider. From my perspective, the egregious lapses that transpired at Xerox, then at OKI, next at Ricoh, and then at Fuji Xerox reveal three disturbing tendencies.

First, we’ve witnessed excessive readiness by management to accept unreasonably positive outcomes as evidence of superior operational performance. Second, we’ve seen a willingness by executives to brush aside uncomfortable information when it’s conveyed by outsiders, from those in the field, or from those who are lower down in the organization. And third, we’ve observed how an underlying current of desperation during difficult times can cause leaders in effect to say “Don’t look a gift horse in the mouth.”

We’ve also seen the same tendencies play out in situations that didn’t involve fraud but still proved to be very detrimental. Look no further than Xerox’s unwillingness to confront the big problems in its former BPO business; Lexmark’s failure to realize it was overspending to buy underwhelming software firms; or the refusal by Dell or Panasonic or other vendors to admit their total irrelevance to the hardcopy industry.

At a time when the industry and every hardcopy vendor must truly question old assumptions, diversify in uncomfortable new ways, and pursue change sooner rather than later, it’s time now to consider the lessons from this sordid history.

September 2017:  “Buy, Buy EFI”

Let’s face it. We’re well into the “everybody needs somebody” stage in the printing industry. Acquisitions and diversification are the name of the game. But consolidation is proceeding at a glacial pace. Vendors are more interested in businesses that are further afield. That can be good news (Canon and medical) or bad news (Xerox and BPO). But there’s a much closer-in company that hardcopy vendors are ignoring at their own peril as possible prey. And that company is EFI.

I’m not putting on my financial advisor hat. I don’t even own one. But what I am saying is that from a strategic, tactical and competitive point of view, EFI could be a very logical acquisition for almost any print vendor around today.

Folks who think of EFI mostly as that pricey Fiery supplier for color office and production MFPs might be surprised to know those RIPs are rapidly declining in importance at EFI. Fiery generated just 27% of EFI’s revenue in the most recent quarter, and Fiery revenue was flat in the first half of the year versus three years ago. It’s just that the rest of EFI has been growing so much faster, both organically and from acquisitions.

As a result, 2017 is expected to be the year EFI finally surpasses a billion dollars in revenue. The company now gets twice as much revenue from its diversified industrial inkjet hardware and supplies business as compared to the Fiery business. The rest of EFI’s sales are from its vast collection of software used by all sorts of print providers to run their day-to-day operations.

All three of EFI’s businesses present interesting opportunities for hardcopy companies in the context of a would-be acquisition. Let’s start with the Fiery business, since it’s the most familiar to MFP vendors. EFI is on track to do around $250 million in Fiery sales this year. And with a 70% gross margin, the Fiery unit performs more like a software operation than a hardware business. Not only are Fiery RIPs used by nearly every maker of A3 color MFPs, EFI has gradually expanded its Fiery sales into the world of digital presses and inkjet devices, not to mention supporting its own diverse industrial printer lineup.

The benefits of a printer vendor taking control of the Fiery business would be twofold. It would cut out the middleman and some markup, and it would put all competitors at a worrisome disadvantage. And those other vendors couldn’t simply stop buying Fiery controllers. They have no ready alternatives in the short term, and perhaps not even in the longer run. Over time, a new owner could even create differentiation between the features in its own Fiery RIPs and those available to competitors. And a new owner would be ideally positioned to leverage all that Fiery technology for its own industrial printers.

Then there’s EFI vast and growing array of industrial inkjet and LED printers and supplies. It’s everything from signage and labels, to textiles and tiles. And it should produce $600 million in sales this year. That’s a lot more than small industrial digital print competitors like Xeikon, and it’s arguably more than any of the big diversified hardcopy companies are doing in the industrial market. Adding EFI’s industrial printing revenue would catapult Xerox, Canon, HP or Konica Minolta to the very top of the industrial print world.

And then there’s EFI’s easier-to-overlook “Productivity Software” business, which will do around $150 million in sales this year. While this is EFI’s smallest business by far, it does have the highest margins. More importantly, these tools put EFI in the enviable position of enabling industrial print providers to go digital, and wedding them to an EFI print ecosystem.

There are also very important but less quantifiable pluses for EFI as a potential acquisition. Both the company and its management are exceedingly well-known to hardcopy vendors. Moreover, EFI has demonstrated an effective and reassuringly conservative ability to make one acquisition after another ... and leverage them. The deals have mostly been small, and all of them were paid in cash. Yet EFI still had $431 million in cash on June 30. There have been no big failures on the list, and all these deals have helped EFI grow 2.5x in size since the Great Recession. Talk about reducing the risk in a deal.

Still, EFI remains barely a mid-cap company in a stock market in which investors like large-cap firms. Moreover, one has to ask how truly disruptive or dominant a company with $1 billion in sales across three businesses can be in a truly massive industrial printing market transition.

Of course, timing can be everything, especially since EFI has an awkward history of pretty big swings in its stock price and valuation. For the past five years, the stock has mostly bounced between $40 and $50. But this year, the stock has careened from a high of $51, to a low of $26. A day after EFI scared the bejeezus out of investors on August 3, when it warned of revenue recognition issues that turned out to be nothing, the stock plummeted 45%. That gave EFI a market cap of just $1.2 billion. By the end of September, the share price was back up, pushing EFI’s valuation to $2 billion. But that’s still below a recent peak of $2.3 billion back in April.

So who’s gonna open up the checkbook? You?

August 2017:  “Healthy Choices”

For very good reasons, there’s been more than a little handwringing amongst hardcopy vendors, investors, analysts and others when it comes to figuring out if, when and how these companies will proactively plan for their “next act.” The context is a printing industry that on an overall basis is slowly declining. Understandably, the concerns are greatest for the largest vendors and for those vendors who are most dependent on printing for their current revenue and profit.

I, too, have worried that I don’t see enough of these vendors taking sufficient actions to create new businesses with adequate scale and financial attributes to offset the decline in printing. Eventually, they’ll have to replace the bulk of what they get from printing. I see three plausible explanations for these vendors’ slow response.

First, there’s the addictive nature of the supplies-and-service annuity business model. It’s like asking why a drug addict doesn’t stash away some money for a rainy day. The second issue is the self-soothing way vendors tend to believe all they need to do is gradually move into comfortably adjacent markets, whether that’s production and industrial printing, or document management and IT services. They tell themselves the transition will be natural, comfortable, uneventful. And the third and perhaps biggest roadblock is a combination of plain old fear and denial, plus a belief there’s still plenty of time to plan.

But the past year has somewhat surprisingly provided evidence vendors are waking up to the dangers and recognizing new possibilities. And some of them have decided their “next big thing” will be healthcare. I’m not talking about healthcare as an interesting vertical in the world of printing, document management or IT. No, I’m talking about horizontal healthcare as in medical equipment, allied software and services. You know, the kind of healthcare that’s designed to help make people healthy ... or at least healthier.

In less than a year, we’ve seen two top printing vendors make pretty important acquisitions that are likely to set them on paths that will make healthcare an increasingly larger and transformative part of their respective businesses.

First, we saw Canon complete its $5.6 billion acquisition of Toshiba Medical Systems Corporation (TMSC) late last year. I’d like to think this reflected a strategic awakening at Canon, but the deal was probably justified as much or more to help a fellow Japanese corporation in dire financial straits, than to bolster Canon’s long nascent efforts in diagnostic medical devices. After all, Canon had been talking about expanding further into healthcare for years, while giving no indication it planned to do anything that was either tangible or timely. However, owning TMSC for just six months has worked wonders for Canon’s financial results. It can’t be lost on management that TMSC is by far the best thing that’s happened to Canon’s financial health in quite some time. So look out for even more deals.

Then a few weeks ago, we saw Konica Minolta announce its billion-dollar purchase of US-based Ambry Genetics. It’s the biggest acquisition since Konica and Minolta came together in 2003, and the most diversifying as well. Like Canon, Konica Minolta had been talking about expanding its tiny healthcare business for some time without doing anything much to make that happen. Now, there’s a good chance Ambry will have the same kind of fortuitous financial impact on Konica Minolta, and prove to be a strategic catalyst for additional healthcare investments.

And it’s not just these two hardcopy vendors who are making “healthy choices.” Consider that the company which had been bidding most aggressively against Canon to buy TMSC was none other than Fujifilm, which owns three-quarters of Fuji Xerox. Like Canon and Konica Minolta, Fujifilm already has a smallish medical business that it’s looking now to nurture and grow.

Other hardcopy vendors’ plans are more aspirational. Sharp wants to use its display technologies in the medical field. Kyocera already has a medical and dental division. Xerox PARC is partnering “to tackle healthcare challenges through collaboration in medical technology, engineering and robotics.” And both HP and Funai have spoken of leveraging their inkjet technologies for biomedical and pharmaceutical purposes.

There aren’t lots of technological or even business synergies between printing and healthcare beyond some underlying commonality in optics and digital imaging. The true impetus has much more to do with growth. Healthcare and allied medical fields will be among the most dynamic and fast-growing sectors in the global economy in coming decades due to technological momentum and demographic determinism.

And I also see a healthy difference in the mindset hardcopy vendors are bringing to this field. In businesses closer to office and production printing, hardcopy vendors display a distinct sense of unearned entitlement. It’s sort of “Don’t you know who I am?” But with healthcare and medical technology being so much further afield and also exceptionally dynamic, these vendors seem to sense they’ll actually have to earn everything they want. And that’s a healthy choice. 

July 2017:  “Sure, We Can Do That”

Sometimes we Southern Californians take for granted the inherent differences that come with living on the Left Coast, like year-round sunshine, great ethnic food, and day laborers. That last one refers to the couple dozen immigrant workers in any Home Depot parking lot every day of the year. They’re new to the country or down on their luck, and are willing to help with almost any task for a reasonable cash payment. It’s sort of like the work I used to do as a kid for my dad ... except there was no cash payment.

I’m starting to see the makings of an analogous trend in the US office MFP business. It’s too soon to say if this development has legs, but it’s worth a look ... and some cautionary advice. What I’m talking about are a couple of recent announcements from Ricoh and Konica Minolta. They’re about how both companies want to leverage their MFP service people and infrastructure to pursue opportunities in new, not necessarily adjacent markets. My concern is that these initiatives are very simplistic and not terribly sound.

In May, Ricoh announced Service Advantage, which it described as a “substantial addition to its services suite.” The mission is “to help businesses accelerate their core strengths” and “enable a significant competitive advantage.” To do this, Ricoh is offering a wide range of businesses access to its global network of 25,000 skilled and certified service employees. Ricoh says they possess “extensive market knowledge and distribution networks” and “understand the business conduct and laws” in 200 countries and regions.

Ricoh boasts that its MFP service techs can provide “cradle-to-cradle” services. That’s not babysitting, although I’m sure Ricoh would do that too for the right price. It’s just another bit of undefined industry argot. Ricoh touts its expertise in device lifecycle management, distribution, installation, maintenance, training, and physical asset retirement. But Ricoh never really pins down what exactly any of these services are; how many or what kinds of employees provide the services; or any options for service delivery.

Then in June, Konica Minolta announced it is investing up to $3 million in Knightscope, a Silicon Valley maker of security robots. This follows a small initial investment in 2014. It’s the rationale that’s interesting. The focus isn’t on robotics technology or the security market. Rather, it’s “to leverage Konica Minolta’s service technicians.”

The common thread in what Ricoh and Konica Minolta have announced is a parallel quest to find new things for MFP service technicians to do. When you break it down, the message is really pretty simple:  “We have lots of service techs who do lots of stuff, so why not let them do stuff for you?” We’re not talking here about MFP vendors advising other companies on service infrastructure design, field service systems or software, or best service practices. This is about providing MFP service tech bodies and hours far and wide so that other companies don’t have to hire, train, deploy and maintain service techs of their own.

This type of offering is new in the MFP world, but the practice has a long history in the IT market. Today, field service outsourcing is just another link in the booming logistics support and supply chain management business. In some cases, it’s closely intertwined with IT outsourcing.

Now for the cautionary advice. Look back to the early days of field service outsourcing in IT in the 1980s, and see who was doing it. And why. I stumbled across a “leaders” list IDC had prepared over 30 years ago. It’s a veritable who’s who of old, largely forgotten mini and mainframe companies like DEC, Prime, Data General, Tandem, Wang, Burroughs, Microdata, Basic Four, etc.

Now think back to what else was happening in the ‘80s. The PC market was exploding, and these mini and mainframe computer companies were getting slammed. They too had lots of service techs and were looking for a new way (or any way) to make money. Does this sound at all familiar? Nearly all of them got into field service outsourcing, and it was a decent business ... for a while. But it wasn’t enough to help most survive. In fact, only a few in that business managed to hang on (e.g., IBM, HP, Unisys, Honeywell), and none of them still do field service outsourcing.

So this early interest among two MFP vendors who want to leverage thousands of service techs warrants some critical thought. Let’s start with the most fundamental question. Either these vendors have too many service techs; or they think their techs can easily take on totally new tasks; or they’re expanding their service forces to gain new outsourcing work and customers. I have concerns with each of these scenarios.

MFP service needs are declining, which means fewer techs. If a vendor has too many techs, downsizing is the prudent choice. However, if the idea is to build an outsourced service business, then the economics, competitive dynamics, prospects, and business model for that endeavor deserve a harder look. Field service outsourcing faces a lot of pressure on pricing, margins and profits. And the barriers to entry are hardly insurmountable. Ask Xerox about its experience with complementary services. Just because a vendor can stretch the services it offers, does that mean it should?