And what do servers and Xerox have to do with all this? By Andy Tribute February 12, 2003 -- The current situation where both Creo and EFI want to own Printcafe is just an indication of the ongoing battles we will likely see between the two companies in the future. The companies come from widely different areas of the market, but are fighting for a dominant role in an evolving industry. EFI largely created the market for digital front ends (DFE) for digital color copiers, an area of the industry that they totally dominate. More recently, EFI moved aggressively into driving digital color presses. Creo also moved into the digital color press market and they now compete directly with EFI. The two are the chosen suppliers of DFEs to Xerox, the world market leader. In terms of volume, EFI has supplied far more DFEs to Xerox, however the company must clearly be smarting at Xerox’s recent major five-year commitment for DFEs from Creo. Creo, a multi-product company, has very strong positions in each of the markets in which it operates. EFI is largely a one-product company in the commercial printing industry, offering its Fiery DFE. In fact, Fiery has nearly become a generic term for a digital front end for color copiers and printers. Until now, apart from developing a higher performance DFE for the Xerox Docucolor 2060 and 6060, it has largely failed to take Fiery into other markets. It entered the color proofing market with an agreement with Epson to have a small Fiery drive the Epson Color Stylus 5000. This market was only in North America as elsewhere Epson sold the Color Stylus 5000 without a RIP, allowing it to be driven by software RIPs. This was far more cost effective, and once Epson opened the product up in North America, EFI no longer sold in the color proofing market. As a company, EFI has also carried out acquisitions. It acquired Splash, the successful competitor driving color copiers and printers. Splash produced better, more accurate colors than the Fiery. Once acquired Splash was largely dispensed with some of the color technology being absorbed into the future Fierys. EFI has sold its Fiery technology on an OEM basis, predominantly to Canon, but also to other Japanese color copier and printer manufacturers. EFI is obviously feeling somewhat at risk seeing the success of Creo entering their core markets. In talking with Xerox companies around the world I find Creo is regarded as the company for quality accurate color, whereas EFI is regarded as the company for office functionality. With graphic arts being seen as the major growth area for digital color printing, EFI is very keen to be seen as a key supplier into this market, as well as protecting its established markets from attack by Creo. Color quality and reproduction accuracy is critical for these markets, and likely to be increasingly important in the office market in future. EFI recently acquired color proofing specialist supplier Best located in Germany. Best should allow EFI to further improve its color quality, and potentially take it down to the ink jet and lower cost color laser market. - - - More on Xerox and the Servers By WTT Staff On January 22, 2003, Creo announced it had entered into agreements to acquire approximately 2.6 million shares of Printcafe common stock from other shareholders at a purchase price of $1.30 per share. Upon completion of the purchase, Creo's ownership will increase to approximately 55 percent. Creo also asked the Printcafe board of directors to consider a proposal for Creo to acquire all outstanding Printcafe common shares not owned by Creo for a purchase price of $1.30 per share. The strategy to gain a majority holding in Printcafe would most likely keep other potential bidders away and allow Creo to easily acquire the entire company. However, on January 23, EFI made an offer for all outstanding shares for $2.60 per share. As noted in Andy Tribute’s commentary, Creo and EFI compete directly in the high-end digital front end (DFE) device market. In the all important Xerox account, they both provide a DFE for the DocuColor. It is estimated that EFI gets about 70% of the business and Creo 30%. The Xerox relationship has been a positive item emphasized in Creo’s last two earnings report. In December, Creo announced a new 5-year deal with Xerox. Currently, Creo's Spire is the only non-Xerox offering for the iGen3. EFI has a similar five year agreement with Xerox and says their DFE for the iGen3 will be available soon. Xerox sees EFI as a supplier for small and medium commercial printers. Xerox sees Creo as a supplier for larger commercial printers and professional document service organizations. The iGen3 and other high speed color devices from Xerox are poised for significant growth in the next few years. Its too early to tell where the “boom” will occur for iGen3 type equipment - the lower or higher end of the market. Xerox is hedging their bet and playing it smart by having strong and similar relationships with Creo and EFI. Creo has not signed any other OEM accounts from manufacturers of digital copier/duplicators, which is EFI's main source of revenue. Recently EFI and Creo went head to head over the Scitex Digital Printing (SDP) account. Despite the low number of units expected to be placed by SDP, Guy Gecht (CEO of EFI) and Amos Michelson (CEO of Creo) were directly involved in trying to gain SDP’s business. EFI won the account and said it was because they were able to better handle high speed variable data requirements in the transactional marketplace. Creo said they walked away because the complexity was too high when considering the smaller sales opportunity. Regardless of what happens with Printcafe, the stakes are indeed high. Creo needs more deals from smaller and medium-sized commercial printers. EFI needs exposure to larger commercial printers and publishers. Current economics could make a Creo/EFI merger very attractive as they could possibly serve the entire industry better as one company. Stranger things have happened. EFI is highly profitable, significantly more so than Creo. But EFI is also very highly at risk. Creo is its major competitor, but there are also other players with a strong reputation for quality, that are well established in the graphic arts markets. Kodak Polychrome Graphics (KPG) is one of these. KPG acquired the Imation color group and with it the excellent Imation Color RIP. This is Xerox’s prime product for color proofing driving the DocuColor 12 engine. With new Xerox color engines coming to market at lower costs and probably with comparable quality to the Docucolor 12, EFI must be worried that its Xerox market may be attacked at the top end by Creo and now by KPG at the lower end. This brings me to the subject of this article, namely Printcafe. Printcafe is the world’s leading supplier to the graphic arts industry of commercial business systems. It also has excellent portal technology for utilizing the Internet to communicate within this market. For Creo, Printcafe is seen as the vehicle that will help it get the Networked Graphic Production initiative well established throughout the industry. In doing so, it will also likely make Creo’s Spire DFEs the preferred choice of the industry because of their tight integration into NGP. For EFI, Printcafe could be seen as the vehicle to get a wide entry into the graphic arts industry, especially in the higher end of the market. Through the Printcafe portal EFI would also be able to link up it’s Internet capabilities to spread the EFI PrintMe Networks for providing e-mail driven color printing to graphic arts customers. Printcafe would also give EFI a platform to move its Velocity workflow in the market. I believe both companies need Printcafe to move forward. I believe EFI needs it far more and that its bid for Printcafe (double the Creo offer) is done more than just a spoiling issue. It is a shot across Creo’s bow to say that it is after Creo’s markets. EFI has the money but does it have the understanding and capabilities to succeed in this area of the graphic arts market? EFI is unlikely to get Printcafe with Creo’s entrenched position, but EFI has put a stake in the ground.