As we kick off our coverage of the 2006 On Demand Conference and Exposition, which begins May 15th at the Philadelphia Convention Center, WhatTheyThink spent time with InfoTrends' Managing Director, Charlie Pesko, to gain insight into what we can expect to see at this year's show. Amazingly, the On Demand Conference and Exposition is in its 13th year, and has evolved with a dynamic market over those years, maintaining its vitality. This will be the third year the show will be co-located with AIIM, the enterprise content and information management event, enabling attendees to visit both exhibition floors on a single exhibition pass.
WTT: Charlie, good talking with you. Before we jump into a discussion about the show, I wondered if you would share with our readers the background behind your company's name change from CAP Ventures to InfoTrends.
CAP: CAP Ventures acquired InfoTrends about four years ago, and two years ago, we acquired the remaining stake in our marketing and sales partner in Japan, GSM. So we found ourselves with three brand names globally and we wanted to unify the brand. We made the decision that InfoTrends was the most indicative of what we do. We have been painfully going through the name change for the last couple of years, carrying both the CAP Ventures and InfoTrends names, and then we recently dropped CAP Ventures. These types of changes are never easy, but I think it is a good long-term move for us.
WTT: And will you be staying involved with the business?
WTT: We're looking forward to the show, as I am sure you are. How is the show shaping up so far?
CAP: The show floor looks great. People were very happy with Philadelphia last year. It is a big risk when you move a show that has been in New York City for 11 years to new venue. People love the venue; Philadelphia is a much friendlier town, and getting to the Javits Center is not easy. Also, exhibitors want three days to set up their equipment, and the Javits Center never was able to give us that much time, so you ended up doing setup on Sundays at triple time. The venue move was good. We own he place because there is nothing else going on, and people don't get lost.
WTT: Will it be in Philadelphia again next year?
CAP: No. We are very excited that next year we will bring the show to Boston. The new Boston Convention and Exhibition Center on the waterfront is now open, and that is where we will be in 2007. It is an absolutely gorgeous state-of-the-art facility, and it is a big deal for them and for us. There is one hotel right there and another going up around the corner. We are still growing the show, and Philadelphia is containing the growth right now. And people like coming to Boston.
WTT: How about attendance for 2006? How is that shaping up?
CAP: Attendance keeps growing. Pre-registration is ahead of last year. When people ask why the show keeps growing, it is that, just like the title of my keynote speech, we have crossed the chasm and everyone realizes they need to be and want to be in the digital printing business. That is the theme of my speech and that's where we are in the industry.
WTT: I am sure you must have some data to back that up.
CAP: We talk to 20,000 people a year in the document world as part of our research work, and in every survey we do with printers, we ask them where they think they are going to be in a few years and what share of their business needs to come from various segments of the market. The majority tell us that two years from now, more than 35% of their business will come from color digital print and that they will be offering one-to-one marketing services.
Five years ago, vendors had to convince printers that they needed to be in the digital print business. Not anymore. Now we have crossed the chasm and we are into the fast growth of the curve. If you go back to Geoffrey A. Moore's book, Inside the Tornado, once you get into the hockey stick part of the growth curve, opportunity abounds. Everyone has the chance to succeed. I tell the new vendors in the color POD market, "You are late, but not too late." We have been in the early adopter stage of color digital printing for a long time. But it is not a niche market anymore. We are into the mainstream, that's the main message.
WTT: What are some of the key trends you are seeing in the market?
CAP: Our forecast is aggressive; existing players are growing rapidly. The vast majority of color digital users will be adding more equipment in the coming years. In fact, at least 65% of the folks that currently have high speed digital color units are going to buy another in the next two years. I look at the market as the haves and have-nots. When we look at folks who have digital color devices, who are delivering value added services, digital workflow, folks that are into digital, they are growing at 10 to 20% per year. They are they "haves." They have the digital technology and they are buying more. As people get into digital workflow, they get more efficient, and that is really the difference between the haves and the have-nots, and the gap gets wider all the time.
For folks that have not made the jump to digital, the longer they wait, the more the risk there is to their businesses. Unfortunately, we are still losing a lot of printers. We think we are going to lose more, as much as 20% more by the end of the decade. They are going out of business, selling out, merging—it is industry consolidation overall, not just folks going out of business. And while overall revenues are up, the share of those revenues that is marks on paper is going down.
WTT: What can we expect to hear from visionary John Seely Brown in his keynote?
CAP: He has done a lot of leading edge research in the document space and has a very long-range strategic look at the document world and where it might go in the future. We expect he will talk philosophically about where things are and where they are going from a technology standpoint.
WTT: And what about Adobe's Bruce Chizen?
CAP: As we move more into the workflow side of the business, the software players and workflow are becoming a much more important part of the business. The hardware, the digital printers, is not where the sizzle will be in the industry. They will become a commodity moving forward. Output devices will get faster, cheaper, better. But what will drive the industry is digital technology that will improve the efficiencies of people and processes and decrease costs. I think Bruce will focus on what the standards are and what the software technology will be doing in the future to help us be more productive, creative, and able to deliver information effectively in multiple media.
WTT: What about new product introductions at the show?
CAP: There will be a number of new product introductions, and the good news is that more vendors are looking at our show as the place to introduce new products to the U.S. market. On the show floor you will see the exciting new product introductions from IPEX as well as some brand new developments in the production color space. We are completely focused on digital, and we are a spring show, so it is a good place for people to introduce new digital products. People are spending more on promotion and activity around the show, and we will see a lot more of that moving forward. Because it is a spring show, they have the benefit of the rest of the year to get their return on those investments.
WTT: What about the conference?
CAP: The conference is doing very well as far as pre-registration. There is a lot more focus on the software and solutions side of the business. We have some traditional things; we will always look at print quality, substrate handling, and other output features and where that is going, but in general, a lot more focus is being placed on the software and solutions side of the business in terms of the share that topic has in the total conference program. Even the technology tracks are focusing more on super-efficiency with software solutions and less on the hardware side of the business.
WTT: What else do you expect to see at the show?
CAP: There are certainly a lot more inkjet products coming into the market. That has caught everyone's attention. We expect the technology to move down from high-end production and up from the desktop. A couple years ago, we said watch inkjet; it is the dark horse. Now it is moving ahead, especially in the color space. Data centers and other high volume environments have the potential to gain competitive advantage with color ink jet where high speed and cost are the most important factors.
We have been talking about adding color to data center for ten years. Now it is becoming a reality. While the data center is a market in decline in terms of the number of pages, it is still a huge business. The annual production of monochrome pages in the U.S. data processing market is around 250 billion impressions. In addition to inkjet, we are seeing a lot of the high end production color units starting to move into those environments.
WTT: What other trends should be we looking for?
CAP: There is a lot more happening in the color space, inkjet on the high end and a whole family of production color players in the one million plus volume range. Now you have Japanese suppliers coming up from the lower end, what used to be office moving into light production. A lot of them are universal copier/printers, what we call UCPs. They are not designed to operate in the one million plus world, but they provide high speed color and monochrome costs that are extremely competitive. These will drive the entire market. Now we have digital color engines that can fit the pocketbook of every printer in the world. Two to three years ago, we didn't have that.
WTT: What about the cost of operation? In the past you have talked about color pages under ten cents.
CAP: Not only is cost of the equipment coming down, but the cost of operation is down. It is now below 10 cents and quickly moving to a nickel. We will show a lot of numbers on the price elasticity of various levels of cost per page and how willing printers will be to move volume from offset. The quality is there; it is good enough for 80% of the applications out there.
WTT: What about profit margins?
CAP: That's another thing I will talk about in my presentation, average profit margins, comparing offset, digital print and value added services. It is no surprise that offset, which is in decline in the U.S. marketplace, has the lowest margins. Average margins on digital printing are 46%, compared to 29% for litho. That's a substantial difference in margins. And offset will only get worse. Margins for value added services average 35%.
WTT: Charlie, thanks for giving us this overview. We will be looking forward to seeing it all play out at the show. Anything else you would like to add before we close?
CAP: The On Demand show continues to grow for the simple reason that companies are putting more and more focus on digital processes. These are important times for the business. The marketplace is changing radically, and this move to on-demand processes will put more pressure on the have-nots. People who visit the show floor and participate in the conference at On Demand will be gaining the knowledge they need to be successful in the digital future.