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imageSource Industry Review & Preview

24 Jan, 2003 By: Alicia Ellis imageSource

imageSource Industry Review & Preview

This year was a year of refinement
for the printer/copier industries. As the development of digital products pushed
analog out of the market in 2001, manufacturers were able to improve on products
this year, with increased speeds, lower price points, color capabilities, and

In our quest to give dealers
information to grow their businesses, we conducted interviews and surveyed
dealers to find both similar and different views on this past year. We looked
for changes in the industry, selling strategies, and product usage. What we
found was a market in transition, no longer from analog to digital, but from
external feature differentiations to the internal attributes and applications
that are enhancing the performance of equipment and are changing the face of
printing and copying.

Dealer Differences

Most dealers agreed that although 2002 was not the best year in terms of profits
and revenue, it showed marked improvement over 2001. "Up and down" was
the consensus among dealers when speaking about 2002.

More than 78 percent of dealers
surveyed reported good to excellent business performance in 2002. Most of these
dealers reported revenue increases between 10 to 25 percent. Dealers cited
preplanning, increased networking and software sales, color opportunities and
increased manufacturer support as reasons for their success.

According to companies who reported
fair to poor 2002 performance, a declining economy, increased competition and
lackluster sales performance were to blame for decreases in revenue and sales.
This was also the reason for decreases in service revenues where one company
reported a revenue decrease of 28 percent, which resulted in a decrease in
service profits of 30 percent.

Views were split when dealers were
asked if they entered the computer/networking market in 2002. Some 49 percent of
respondents did not enter the market and 51 percent either began or were
currently offering computer/networking applications. When examining the surveys,
a correlation developed between networking and service figures. The majority of
those dealers who were offering networking in 2002 reported increased service
revenues and profits of 10 to 20 percent. Of those companies that did not offer
networking in 2002, increases were far less, with most companies reporting
decreases in service revenues and profits. Many of the companies reporting these
decreases also reported, however, their plans to increase networking and
computer education in the future.

An Analysts View

We asked a few noteworthy analysts to take a look at 2002 and fill dealers in on
the hottest trends in the market.

· Color -- Certainly the
hottest news of this past year was a number of color introductions to the
industry. According to Rick Clayton, Director of CAP Ventures' Digital
Peripheral Solutions Service, "Over the past year, significant product
opportunities have developed for dealers, especially in the workgroup segment.
Dealers should be educating their customers about the uses of color and teach
how and what to print in color."

Lou Slawesky, President of Industry
Analysts noted a number of reasons for the success of color this year and its
continued growth into 2003 and beyond. Sum it up to say that the latest products
introduced allow users to print color with little sacrifice in speed or quality
and at lower costs. "Today's models with color capabilities cost the same
as the black & white models from three years ago," said Slawetsky.

"Color is really turning
mainstream," said Dick Norton, President of DocuTrends. "There are now
black/white machines that are color capable and new color copier-printer
introductions are bringing an emerging class of products that offer color
copying and printing at more affordable prices and faster speeds to the market.
The industry is like a pyramid; as the price of color decreases, the appeal
broadens. In addition, black & white operating costs on many of these new
color systems are comparable to existing monochrome copier-printer costs."

· Connectivity -- "In
2001, of all the office class copiers, only about 30 percent were connected to a
network. This year, the dealer community has made strides and it has predicted
that more than 40 percent of machines were networked in 2002," said Norton.

CAP Ventures analysts agree that
connectivity was an important enhancement this year. "Dealers have done a
better job this year getting machines connected," said Clayton.
"Dealers began offering incentives to reps for selling connectivity and
manufacturers have developed better campaigns to explain the benefits of

According to Ron Gilboah, CAP's
Director of Print-On-Demand Consulting Services, "New devices and
networking are producing 15 to 20 percent more volume than analog. There will be
a smaller piece of pie to compete for as digital machines replace analog and are
networked." Gilboah estimates that digital machines are displacing analog
at a ratio of 6:5.

Gilboah suggested that many users do
not network because of security concerns. Many universities and schools are
simply afraid to open up the firewalls protecting the machine. "There are
dealers who can benefit from teaching users about the security measures that
have become available and will continue to grow as more machines are
connected," he said.

· Controllers -- It is with
the advent of networking that the controllers that run these machines have made
strides. This year, there were more introductions by manufacturers who aligned
themselves with application providers than there were machine introductions. For
manufacturers, these alignments allow the dealer to better sell their products
and offer increased profit opportunities through increased volume and
applications for both the dealer and the reseller.

The controllers are the brains
behind the machine and offer increased functionality, especially with
copier-based MFPs. Integrated controllers are allowing copier components to be
turned on and off with a software key which is reducing the costs for the vendor
and increasing performance. Tools such as scan to e-mail, job status and
tracking features, scan to disk and document storage are changing the way users
look to send and receive documents. Finishing options previously available only
on high-end machines are now available and dealers can grow by leaps and bounds
by taking advantage of these new technologies.

Stressing that dealers need to move
into providing solutions, Clayton said, "There is a flat market when you
talk about hardware. Dealers must change their business models and integrate
solutions into the companies. Dealers must become a professional service
firm." Clayton sees dealers beginning to charge for projects, installation
fees and networking time. "You don't just walk up to a copier, printer or
MFP and plug it into the wall anymore," Clayton said.

According to Bob Sostilio, president
of Sostilio and Associates, manufacturers this past year have tried to sell
solutions without identifying who the product is designed for. "The revenue
model has changed," said Sostilio. "The profits are no longer being
made from hardware, but from pre or post sales services. This includes dealers
adding or deleting resources as they see fit to meet user demand." Sostilio
said this year there were not a lot of software sales by dealers but he sees
more suites designed to a specific market coming in the next year to help make
dealers more able to sell these solutions.

"Ricoh's acquisition of Lanier
this year was significant in terms of direct distribution," said , who said
this will be a growing trend to watch. "Canon has also been opening direct
distribution centers and Toshiba is offering its products through its TOPAC
division, which is a network of acquired equipment dealers. There are also
manufacturers who fund dealerships and offer direct distribution through these

According to Slawetsky, direct
operations also offer the potential for consistency of service in multiple
locations. Slawetsky suggested that perhaps this would be an area where BTA
could be able to help dealers to stay on top of increased competition.

Driving the Market

According to Slawetsky, the front runners in the imaging market for 2002 are
Ricoh, Canon and Xerox. Slawetsky expects this to continue with the top three
continuing the momentum and creating a larger gap between themselves and other
industry players. This, Slawetsky says, is due to a greater representation in
the market and strong dealer presence.

Analysts' views on specific
companies, their strengths in 2002 and what they see as 2003 begins, offers an
interesting mix of opinions and projections for the coming year.

o Xerox - According to Sostilio,
Xerox turned the corner this year and is headed in the right direction.
"Xerox is more goal focused, but they have a long way to go," Sostilio
said. Lou Slawetsky noted that Xerox's exit from the SOHO and inkjet markets
will allow them to focus on their refreshed product line.

o Canon - Slawetsky said that the
imageRUNNER products control panel was easy to use and the imageSend technology
was a great product with scan-to technology integrated into the hardware.
Slawetsky also noted a rededication of Canon to eCopy with a $15.8 million
equity investment in the company. Sostilio commented on Canon's strength in
color and anticipates that Canon can hold onto its market share based on this

o Hewlett-Packard - "HP's
LaserJet 9000 product came closer to putting HP in the copier industry than ever
before," commented Slawetsky. Sostilio said that HP is trying so hard to
hold onto the server end, they need more commitment on printers.

o Ricoh - According to Slawetsky,
Ricoh's biggest advancement this year was not in the 3800 color/bw or the Aficio
1075 product, but in its software drivers. Sostilio's hopes lie in Ricoh's plan
to capture market share. "If they can execute all the programs they talked
about at their dealer meeting, Ricoh will capture more market share," he

o Panasonic exceeded profit goals in
October, launched its new SFD-M products, introduced new software suites and
recently completed a training program for its dealers. "Panasonic needs to
reinforce it's dealer channel," said Sostilio. This year could be the year
that Panasonic develops more industry presence.

· Sharp introduced its AR-M 350 and
450 IMAGER machines to good reviews. "The only problem I see is the
challenge in the future for Sharp to develop a common controller throughout its
product line," said Slawetsky.

o Minolta is only recently seeing
the results of an alliance with Konica made in 2000. The Dialta 850 is the
product of this alliance and so is Konica's 7085 product. Interesting to note is
that while the hardware is the same on these products, each has a totally
different driver. Sostilio believes that Minolta has a loyal dealer base and has
the potential to be successful with their products.

o According to Sostilio, Toshiba has
been quietly buying dealerships and has a plan in place to strengthen its direct

o Sostilio also noted that Kyocera
Mita is on tract with its recent printer applications aimed at particular
markets. "Kyocera could be a strong provider of solutions for vertical
markets in the future," he said. "Kyocera is also ahead of the market
with wireless applications with a standard interface.

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