Managed Print ServicesWhere Do We Go from Here?3 Mar, 2011 By: Randy Dazo, InfoTrends imageSource
Managed Print ServicesWhere Do We Go from Here?
Managed Print Services (MPS) engagements are becoming increasingly popular
among companies of all sizes as a way to better manage print and save money.
This has resulted in explosive growth of the market segment. But, have we hit
the tipping point?
According to our latest forecast data, the market for MPS will experience
high levels of growth over the next three years, but it will approach market
saturation in 2014 and the growth rate of new business will decrease
significantly. So, what does this mean for service providers in the MPS space?
Should you just give up and abandon your MPS strategy? No! There are still many
opportunities in this market. The key to success will be moving your customers
upstream to higher value engagements and targeting key business sizes.
Breaking Down the MPS Revenue Stream
Before we can break down the MPS revenue stream, we must first understand
what MPS engagements are. InfoTrends defines MPS as:
Managed Print Services are services-led offerings that help companies solve
their pain points (typically surrounding management costs and/or document
processes) by delivering continuous improvements, particularly related to an
organization’s print, copy & document environments.
Due to the variable nature of MPS contracts, InfoTrends breaks our MPS
revenue forecast into three levels or tiers of MPS contracts: supplies only,
hardware optimization, and enhanced. Breaking the market down into these three
tiers provides an interesting perspective of how the nature of MPS deals are
shifting and will continue to shift for the next five years. Currently, hardware
and supplies agreements make up the majority of MPS offerings, but we predict
that workflow and solutions agreements will be the only type of MPS still
growing by 2014, as well as having the largest revenue than any other segment.
(See Figure 1 in print publication.)
Tier 1 – Supplies Only
These engagements typically include supplies only or supplies and services
(break/fix) contracted agreements. Examples of Tier 1 agreements include
OfficeMax’s contracted supplies and break/fix programs (which are sold directly
to customers) and packaged supplies programs from vendors like HP, Xerox, and
Lexmark. Tier 1 engagements generally do not focus on hardware sales, but they
usually include the maintenance or servicing of hardware devices under a
supplies contract. Hardware optimization is minimal and is usually only
performed at the beginning of the contract as the primary focus is on
maintaining supplies delivery. Revenues for Tier 1 MPS engagements are expected
to have a compound annual growth rate (CAGR) of 10% over the forecast period.
This represents the lowest CAGR of the MPS segments. This slow growth, and
actual negative growth in 2014, will be attributed primarily to two things:
- As businesses continue to move up the market to more sophisticated MPS
agreements, the revenue for Tier 1 services will become part of the Tier 2
or 3 revenues.
- As MPS programs become more efficient and begin to reduce printing cost
and output volumes, the predicted MPS savings of 20%-30% will come to
fruition, and most of those savings will be coming from supplies spending.
From 2009-2013, supplies revenues will still be increasing because the
decrease in supplies purchased will be offset by the constant influx of new MPS
deals. As the market slows down, there will not be enough new business to offset
the reduced revenue coming from cheaper supplies. Therefore, even though new
business will not stop coming in, the addressable revenue for Tier 1 MPS will
decline due to the cost efficiencies MPS provides.
Tier 2 – Hardware Optimization
These programs take Tier 1 agreements a step further by providing customers
with continuous improvements and recommendations about their hardware and
supplies programs over the contract period. These optimization programs are
focused on reducing costs within the print and output environments. Quarterly
reviews of current infrastructures are typically conducted to provide the
“continuous improvements” portion of the service. Tier 2 engagements utilize
some type of tracking solution to enable the reporting and monitoring aspects of
MPS. Vendors are then in a position to provide their customers with
recommendations, and may use advanced service alerts to automate the service
aspect of the customer’s environment. Revenues for Tier 2 MPS engagements are
expected to rise at a 12% CAGR. Currently, Tier 2 agreements have the highest
revenue of the three MPS segments, but will be overtaken in 2012 by Tier 3
Enhanced MPS engagements. Currently, the market is focused on getting the best
printers and the best supplies arrangements. However, consumers will become more
interested in complete solutions that handle all elements of the print
environment. As this happens we will see a leveling off and slight decline of
Tier 2 agreements by 2014 because of that.
Tier 3 – Enhanced
These programs offer all of the services mentioned in Tiers 1 and 2, but
also include advanced solutions and or services. These solutions and services
can include: security, environmental, change management, and
workflow/optimization solutions that can help streamline business processes and
cut hardware/supplies costs. In some cases, Tier 3 solutions may not include the
hardware and supplies services as these are more secondary to security or
compliance managed services engagements. In many cases, advanced solutions will
evolve out of engagements that initially focus on hardware and supplies.
Revenues for Tier 3 MPS engagements are expected to show the highest growth with
a 21% CAGR. In addition to experiencing the highest growth rate of all the
Tiers, Tier 3 engagements are predicted to be the only ones with continued
growth into 2014. With the addressable market for MPS becoming more saturated,
MPS will be less about finding new clients and more about providing additional
services to existing clients. As this happens, the total revenue for Tiers 1 and
2 will diminish and be phased into Tier 3 agreements. Tier 3 will continue to
grow despite the MPS market being near its expansion threshold.
Size Does Matter: Medium-Sized Business a “Sweet Spot” for MPS
Large companies with 1,000+ employees accounted for the largest share of the
total U.S. MPS market in 2009 and will continue to be the primary business size
for MPS throughout the forecast. However, despite large companies having the
greatest market share, medium-sized companies represent the largest opportunity
and the highest compound annual growth rate at 22%. (See Figure 2 in print
The growth of medium-sized MPS deals will be directly related to the growth
seen in the indirect channel (BTA, supplies, and resellers). The indirect
channel has a long standing relationship with medium- and small-sized
businesses, having sold equipment and supplies to this market segment for years.
It makes indirect the natural choice for selling MPS in these markets.
InfoTrends forecast numbers offer support showing indirect channels with strong
growth rates across all tiers of MPS engagements over the forecast period. As
this channel continues to grow and become more sophisticated with MPS we will
see more penetration into the medium-sized market. This will translate into
increased revenues for those companies with a clear MPS strategy for this market
Move up the value chain – the real growth is now coming from solutions. Revenues
for supplies are eroding, so it is important to move up the scale. The higher
tiers are less cutthroat and service providers have more of a chance of turning
a profit. Shifting to Tiers 2 and 3 will also give service providers a leg up on
competitors who have not yet expanded into these tiers.
Blend services - companies that can blend MPS with other managed services
will have a huge advantage in delivering value to customers and will be on the
leading edge of MPS in the coming years.
Don’t ignore the “sweet spot” – develop a strategy that targets medium-sized
businesses. Medium-sized businesses are a largely untapped market, and are
predicted to be the highest area of growth for MPS through 2014.
Randall Dazo is Director of InfoTrends’ Network Document Solutions (NDS),
Professional & Managed Print Services (PMPS), and Image Scanning Trends services
(IST). Dazo leads the information service practice, globally, including all
forecasts, research reports, consulting & client care. Article is an excerpt of
InfoTrends’ Managed Print Services Forecast. For info contact Robyn Wuori,
firstname.lastname@example.org. InfoTrends is a leading market research &
strategic consulting firm for the digital imaging & document solutions industry.
Mr. Dazo is a speaker at ITEX 2011.