The great printer dust-up

The corporate world is well-accustomed to buying managed services contracts for their copier fleets. Photocopiers have traditionally been expensive to purchase, difficult to maintain and costly to feed, and customers are generally happy to pay for expert care.

However the waves of consolidation that have swept through other areas of IT are only just beginning to break in the copier-printer world, and the lucrative corporate market is now in the sights of traditional printer vendors.

Multi-function printers that print, scan and fax as well as copy are biting chunks from the fleshy haunches of the copier market and cost structures are under pressure.

Although the total volume of office paper output is increasing, Gartner research has shown that the growth is coming from print, scan and desktop output, whereas copy and fax volumes are actually decreasing.

Nearly all copier vendors have responded by turning their backs on the channel and going direct.

The Australian market now has the largest number of direct-selling copier vendors in the world; Sharp, Toshiba, Konica Minolta, Fuji-Xerox, Lanier, Ricoh and Canon are all on the list. “Ownership of the customer is too important,” says Lanier’s Ciliberto. Though it holds just six percent of the plain-paper copier market, Lanier is happy to sacrifice market share for profitability, says Ciliberto.

Copier vendors see their experience in managed services as the key to surviving the coming industry shakeout, and some even refuse to train their own resellers to avoid boosting competition with their direct-sales teams.

Ricoh is one vendor that arranges managed services for its direct channel only. Managed services for resellers is “just not something we are working on at the moment,” says a Ricoh spokeswoman.

Lanier also only develops managed services with its regional resellers; metro resellers are given access to laser printers and low-end MFDs.

Kyocera Mita Australia pursues a similar policy, holding copiers apart from the printers it sells through the channel.

Managed services have grown strongly over the past three years and now represent 20 percent of printer sales sold through its distribution channel. The number of the vendor’s direct MS sales for its copiers are “a similar figure”, says Anthony Toope, marketing manager for Kyocera.

When it comes to printers, Toope claims the vendor is in a more limited position than its own channel because resellers have a better relationship with their customers and can provide other IT infrastructure beyond printing.

Some customers specify during the tender process that they will only deal direct, but Kyocera is committed to encouraging its resellers into managed services. “Our success has been very much largely to the support of the resellers,” says Toope.

The one area where a vendor has more connections is with government, but Kyocera has recently launched a program to place resellers within that market.

The authorised reseller program in April with special pricing, support material and training for suppliers willing to make the trip to Canberra. “We do want to be quite proactive promoting our sales through the reseller channel,” says Toope.

Printer vendors are more familiar with balancing a channel and direct sales. The unspoken understanding is that the top 200 companies and government are left to the vendor, while resellers are left alone to chase SMEs.

However some printer vendors have established managed services divisions or launched them in recent years, with OKI one of the latest.

Lexmark provides more competition than one of its managed-services resellers is happy with, who labels the printer vendors’ direct-sales departments as his greatest threat.

HP continues to offer its own in-house, managed services portfolio. A multi-tiered approach covers the full gamut, from toner and service through to full outsource.

“For us it’s all managed services,” says Shane Lucas, sales and marketing manager, Imaging and Printing, HP South Pacific.

The programs are quite specialised and include providing toner to legacy machines no longer on sale, a managed service for a single printer or break-fix service for over 1000 units.

A fully outsourced program can involve the vendor owning the fleet and providing printing services as a cost per page, as well as project management.

However not all printer vendors are on top of the managed services game despite the market shift. “Our expertise is fairly limited,” admits Epson’s Pleasants. “It is a new area for us.”

Ex-copier resellers are on the street looking for new markets and other vendors.

HP South Pacific’s vice president and general manager, imaging & printing and consumer group, Christoph Schell, reports that he meets two to three times a week with copier resellers wanting to sell HP products.

HP is promising greater commitment and has rolled out three flexible programs designed to give resellers varying levels of sales support.

With the most basic package, Print Advantage, the reseller is essentially a sales agent for the HP service, and the vendor provides training and a certification program as well as point-of-sale material.

Resellers with some infrastructure and knowledge, often moving sideways into managed printing services from other areas, are enlisted under the ValuePage program. HP provides parts and limited support while the reseller maintains the relationship with the customer.

The third program is for end-to-end resellers with the staff, parts and tools to provide a fully managed print service themselves.

Copier resellers have a significant head-start over traditional IT and printer resellers in selling managed services. Their staff are experienced in break/fix work on larger machines, they often stock their own parts inventories and specialist tools.

But the greatest advantage is that their customers are already paying for managed services for photocopiers. Adding printers and other devices to the list is an easier task than selling a services contract for the first time.

Despite all evidence to the contrary, managed print services will inevitably move away from stamping ink on paper towards electronic document management.

Copier vendors such as Fuji Xerox have led the field, and Lanier coined the ugly term “docutivity” more than 10 years ago to describe the productivity of producing documents.

The corporate world has been moving in this direction for some time, albeit slowly. However the Sarbane-Oxley reporting requirements, introduced after the collapse of the US investment giant Enron, have forced SMEs to face the issue of document management, according to Lexmark’s Cox.

He believes that the entire production of documents now requires management at a much higher level. “You can call it printing if you want,” says Cox.

Scanning technology was the hot topic two years ago, and MFPs can now scan a document to email, a file or even more complicated tasks. Some software can automatically recognise a document as a company invoice and covert the text into data, then index and store it within a database.

“These kinds of processes speed up the workflow and make huge savings,” says Gartner’s Hancock.

But now workflow is the new buzzword, and print providers are destined to become management consultants that look holistically to improve a customer’s entire business through process engineering.

At least, Lanier is convinced that this is the right direction and has employed document specialists to study workflow processes.

“We are looking at breaking into that IT space to become a true IT solution provider for everyone, not just for a photocopier,” says Lanier’s Cilberto, who rates the move to managed services as big a jump as the shift from analogue to digital.

Tough path to walk

Selling managed services may be lucrative, but that doesn’t mean it is easy. Customers generally think of print in short-term episodes; the initial purchase followed by toner replacements and service calls only when needed.

The pressure on MPS resellers is to explain the benefits first, which can be an uphill battle. “Our potential customers don’t sit up in the morning and say, ‘I need to make an investment in a managed services agreement’,” says Neil Tilley, managing director of Upstream, which claims to be Australia’s largest independent print solutions company.

The clincher missing from the pitch is that a customer entering a managed services contract is not guaranteed to be in a better position than its competitors. An MS contract saves a company money and makes business easier to run, but it doesn’t buy a competitive advantage over its rivals.

The reseller must also aim higher than the regular contacts in the IT department. Because managed services are a strategic rather than tactical sell, resellers must be prepared to take their case beyond the IT manager to the CEO.

Consequently the sell itself is a lot harder, takes much longer and is therefore more expensive in staff time to the reseller.

Ciliberto observed Lanier’s regional resellers making the transition from box-dropping to managed services go through a six to 12-month period where they were missing their budget targets.