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Commentary & Analysis

The Changing Business Model

By Ed Crowley Once you have that color laser printer you are much more likely to print in color,

By WhatTheyThink Staff
Published: March 17, 2005

By Ed Crowley Once you have that color laser printer you are much more likely to print in color, and suddenly the page volume increases, too. The net effect can be a significant increase in revenues for the printer vendor. March 17, 2005 -- Last month I wrote about the outlook for 2005, and how this year could just be "the year of color". This transition from monochrome lasers to color lasers (and monochrome MFP's to color MFP's) is just one of the many changes that are occurring to the business model for the printer industry. This transition has both positive and negative ramifications for the printer industry. On the positive side, even when the page volume does not increase, a color laser printer supplies are more profitable than mono laser printer supplies. How can this be? It's really simple math. Even though the number of pages printed, and the coverage on each page may be the same, almost every page contains some color. And this color will be printed by 'blending' multiple layers of color toners (up to 200% coverage in some cases). And the color toner may cost up to twice as much as the monochrome toner (for the same coverage). The following table shows an example of this effect. Sample Letter with a blue boxed logo Printed on a monochrome laser printer Printed on a color laser printer Black Text 2.0¢ (5% coverage) 2.0 ¢ (5% coverage) Blue Boxed Logo 2.0 ¢ (5% coverage) 1.5 ¢ (1.5% yellow coverage) 4.0 ¢ (5% magenta coverage) Total Cost 4.0 ¢ (10% total coverage) 7.5 ¢ (11.5% total coverage) Note: These numbers are for demonstration purposes only, and do not reflect actual pricing for any vendor. The net effect is that the supplies revenue stream may be five to six times greater than the monochrome laser supplies revenue stream in a typical installation. Now, add in the fact that once you have that color laser printer you are much more likely to print coverage intense photos, colorful web pages, or multi-page PDF reports with lots of highlight color and graphics, and suddenly the page volume also increases. The net effect can be a significant increase in revenues for the printer vendor. While the business model impact from the supplies stream is very positive, the impact of the hardware sale itself can be negative! Especially if one considers the sub $500 class of color laser printers. In many cases, these products may be, at best, a breakeven proposition for the manufacturer. When extensive channel rebates and marketing development funds (MDF) are added in, the total hardware margin may even be negative. The convergence of copier products and printer products is driving a change in the business model for enterprise accounts as customers compare pay for copy/print models to hardware acquisition models. This leaves vendors of low-end color laser printers in an interesting business model dilemma. The more successful they are at building market share (and future supplies revenue streams), the more likely they are to suffer near term losses from hardware sales. But in order to get the long-term supplies stream gains, they must accept the short-term hardware loss. And since that first supply sale (and initial profit from the printer footprint) may not come for several months, the more the 'up front' negative financial impact of hardware sales they have. I like to call this the "delayed gratification game" dilemma. This is not the type of dilemma that most publicly held companies like to face due to the quarter to quarter pressure to show increased revenue and profit growth for shareholders. At the same time, most companies recognize the dramatic shift currently happening in the laser printer market. IDC's fourth quarter printer tracker data shows that, in the U.S., color lasers accounted for 17% of total laser volume in the fourth quarter of 2004. This is up from being less than 10% of the total market in 2003. So, while they struggle with the impact to the business model, they also realize that this is the wave of the future. The transition to color is just one of the business model changes occurring in the printer and MFP market. For example, the convergence of copier products and printer products is driving more than just a change in product specifications. It is also driving a change in the business model for enterprise accounts as customers compare pay for copy/print models to hardware acquisition models. The last major transition in the printer market was the technology move from dot matrix to laser printers. As a result of this transition, companies that dominated the dot matrix printer industry (Toshiba and Panasonic) dropped out of the printer market. Entirely new competitors emerged (Hewlett-Packard and Samsung) in the laser printer market. And only a few companies (Lexmark / IBM, and Okidata) managed the transition from producing dot matrix printers to producing laser printers. This transition involves more than just technology; it involves changes to the industry business model. Will this transition result in as dramatic of changes to the competitive landscape as the last technology transition? Only time will tell. There is an old curse that says, "May you live in interesting times!". These are definitely interesting times for the imaging industry!

 

 

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