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Commentary & Analysis

Battle of the Giants Comes to Printers, or All the Old Rules are Out the Window!

By Ed Crowley These rules are '

By WhatTheyThink Staff
Published: November 22, 2004

By Ed Crowley These rules are 'ingrained' in every executive's mind and are part of the DNA of the printer industry. November 22, 2004 -- For years now, there have been a couple of 'rules' in the computer printer industry. The rules have been pretty simple: HP is the king. You don't mess with the king. Sure, you can grab a few points of share, but only the fool hardy make a direct assault on HP. After all, they can always outspend you on branding, and they have more development bucks than any three other competitors put together. So why risk 'making the elephant mad'? You can take hardware pricing as low as you want. But don't mess with the premium charged for network models or other options (i.e. duplex or paper handling), and absolutely never ever mess with the consumables model. Disruption is not a good thing. The business model is fairly stable (albeit margins are constantly under pressure due to hardware pricing), so don't go messing around with it! Now, lest anyone start talking about price collusion or other unsavory and illegal practices, there has not ever been an 'industry' summit or any other talk between competitors which defined these rules. However, having worked for several companies in the printing industry, it is clear that these rules are 'ingrained' in every executive's mind and are part of the DNA of the printer industry. Michael Dell is clearly making good on his promise to attack HP's installed monochrome laser printer base. While various competitors might have 'bent' some of the rules (i.e. Lexmark's direct attack on HP's consumer inkjet business which resulted in HP struggling to maintain it's number one position in the consumer inkjet market in the late 80's, or KonicaMinolta's direct attack on HP's color laser printer business with the sub-$1,000 color laser line beginning in 2002), everyone has basically played by the rules. But now things have changed. A new competitor is in town, and they have a personal grudge against HP. Yes, it's the boys from Austin, Dell Computer. While Dell began attacking HP in 2003, a recent product introduction in 2004 could be the key challenge to HP's supremacy. This October Dell announced the 5100cn color laser printer. With this printer Michael Dell is clearly making good on his promise to attack HP's installed monochrome laser printer base. This is the goldmine that is funding HP's aggressive expansion into PC's. Remember the acquisition of Compaq a few years ago and HP's poorly performing server business? The remarkable thing about the 5100cn is that it finally delivers on the promise of 'color for free'. The printer offers comparable performance to an HP 4250n model with duplex at about 33 percent less cost. And, by the way, it also gives you color! And not only that, but, it is actually less expensive to operate (in terms of monochrome cost per page) than the HP 4250n. And, the three-year on-site warranty upgrade costs less than almost any other printer in the market (monochrome or color). So essentially, you obtain a very capable monochrome laser printer that gives you color, duplex, and networking for free. And all this with a very reasonable warranty upgrade package! Dell is breaking the rules. They are attacking HP directly, with a far superior value proposition, and they are 'messing around' with the sacred supplies and options pricing model. So Dell is breaking the rules. They are attacking HP directly, with a far superior value proposition, and they are 'messing around' with the sacred supplies and options pricing model. So how will HP react? Or can they afford to react? Will this be a major disruption to the entire industry? Or, will Dell find the printer market tougher to crack than they anticipated? Who knows the answer, but hang on to your hats because it is sure to be an interesting ride! So what does this mean for the printing industry? If Dell is successful in displacing HP's mono laser printers with their color laser printers, it means that high quality color printers will be available to almost anyone. This availability of low-cost, high quality color output devices will accelerate the trend towards the distribute-then-print model, putting even further pressure on the printing industries traditional print-then-distribute model. As I've said in this column before, it doesn't mean that traditional print services will go away, but it will certainly reduce the demand for these services.

 

 

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