After HP hurled two pebbles (maybe big boulders?) into the imaging industry pond in mid-September, the ripples are expanding. We presented our initial thoughts on the announcement in the first part of this series, as well as in a webinar, which you can view here.
Analyzing the HP-Samsung printer deal is either incredibly simple and logical from one point of view, or very complex and layered from several other perspectives. One thing is clear to us: the readers of The imaging Channel are intensely interested in this move – and want to understand why it happened and what it may mean to them and their businesses. We offer a few morsels to chew on.
Follow the Pages
While the business world is slowly and inexorably trying to go paperless, we obviously are not there yet – and no one seems to confidently know when paper documents will cease to be a meaningful part of everyday communications and transactions. Someday, we may all drive electric vehicles, but we aren’t there yet either and I don’t own a Tesla. As we noted in our last webinar, industry research firm IDC reported in its Worldwide Quarterly Hardcopy Peripherals Tracker that shipments have been declining consistently (down 10.6 percent year-over-year in Q1 2016), but the “contractual” sector grew in every major geographic region – Asia/Pacific, Japan, Western Europe, and the United States – with year-over-year growth ranging from 3.9 percent to 41 percent. Some of that revenue growth comes as more color pages are produced by those installs. Further, any contractual page is typically more valuable to an OEM because in those environments, there is near universal use of OEM supplies and parts. Since HP admittedly has less than 5 percent share of the contractual channel (and its pages), they had to make another and determined effort to capture a bigger share of that pie or simply stand by and watch while the transactional sector continues its downward trajectory.
HP has bet the farm on its PageWide color inkjet initiatives, so if revenue growth for color pages is evident in the contractual channel where contracts almost always use OEM supplies only (and with PageWide, they wouldn’t have much in the way of aftermarket alternatives anyway), they had to make grabbing share an imperative. Penetrating the contractual channel is also a complementary move to introducing those dealers to the HP DesignJet or PageWide XL models as possible additions to their product line. These products are another card in HP’s hand, either as a factor in deciding to add the HP line overall or as an add-on product line once they become a HP account. The PageWide XL series offer dealers another differentiated card to play with corporate and print-for-pay users who are heavily invested in color printing.
Why buy the Samsung unit and not, for example, the Sharp or Toshiba (or another OEM) print/copy operations? If they were interested in the Sharp operation, that interest may have been quashed when Sharp was acquired by Foxconn this past spring. Further, because of domestic political considerations in Japan, the terms of the Sharp deal mandated that the bulk of Sharp’s design, management, and production operations, and its IP, remain in Japan. Those terms would have limited HP’s ability to run and leverage the unit in the future — moving engine production to China or Vietnam to lower costs, for example. There don’t appear to be any such limitations in the Samsung deal (we doubt there are) – though those details have not yet been revealed (if they ever are). Those terms would have likely applied to any Toshiba deal as well. HP already has an existing OEM relationship with Sharp, though the consensus is (and HP concurs) that like the Konica deal before it, that partnership effort failed to achieve whatever objectives HP had in its inception.
The Samsung deal may have been attractive from a pricing perspective: business units often sell for a multiple of its revenues (assuming other business metrics are generally in line). HP paid a bit over $1B for the Samsung unit – whose revenues, according to Samsung, were in the $1.8B range. Certainly in its public pronouncements, HP was careful to point out that it was getting lots of IP in the deal – over 6,500 patents and 1,300 engineers and researchers, the Samsung eXtensible Open Architecture (XOA) printer software and applications development platform, and the new Android-based Smart UX user interface capabilities introduced in the firm’s new MX Series. HP also has noted that the deal included the Canada-based PrinterOn subsidiary, which has strong technology enabling mobile device printing and the mobile-centric Smart Print Diagnostic System (SPDS), and that it was also getting the entire division’s supply chain and regional marketing assets, which would include China-based engine production assets. In all, a pretty good deal for $1B, it appears.
The new HP A3 product lineup apparently won’t be available until sometime in spring or mid-year 2017. Have you asked yourself why they decided to announce their plans so far in advance? I can think of several reasons why they did it, but lots of reasons why they shouldn’t have.
Strategically, they have given all their copier competitors plenty of time to develop counter-plans to defend their turf – both with important end-user accounts and/or their dealer base. As an example, surprise has been a primary and critical element in Apple’s numerous and successful product debuts over the years – announcements that often sent their competitors scrambling to develop a counterplan while Apple was flooding the earth with whatever sleek new gizmo Mr. Jobs had cooked up. As an element in marketing strategy, time is a precious — and irreplaceable — commodity.
There will be no element of surprise in HP’s assault on the copier market – they should fully expect the beaches to be very heavily defended, as if they weren’t already. Of course, surprise isn’t always important as a tactical element but it can be effective, and, importantly, it essentially costs nothing. One general rule of thumb: the longer you give the competition to prepare to fight against you, the more you have to spend and invest to overcome those newly-erected and pre-existing barriers – in both time and money. Note to HP: giving Canon, Ricoh, Konica Minolta, Xerox, et. al., six to nine months to dig in is going to be very costly.
Let’s be mindful, however, that a favorite strategy for seizing and growing market share in the stratified copier industry is to simply buy share through acquiring dealerships and merging that acquired base into the manufacturer’s direct operations. That strategy has a double-barreled effect in multi-brand dealership situations: it grows the acquiring OEM’s market presence while also giving it the ability to convert any competitive installs/customers to the OEM’s products.
The Canon Question
Is the end of the Canon-HP OEM relationship sealed, as it appears logical? In numerous statements, HP management was careful to focus their comments on the products they will be acquiring in the Samsung deal as A3, products which HP makes clear will be sold in the “contractual” (aka BTA) channel. Enrique Lores, SVP & GM, Printing and Personal Systems, never directly acknowledged that they intend to market the Samsung A4 line beyond the contractual channel — and did say that that the “transactional” (open market) A4 line will continue to be sourced from Canon. HP CEO Dion Weisler addressed the issue at the press Q&A session at HP’s 2016 Global Partner Conference, saying, “It was very important to me that Canon understood what we were doing here. I personally went to Japan to meet with … the president and chairman of Canon. We spoke about this face to face. He understands our intent to continue to drive our A4 business [with Canon] just as we have in the past 30 years.”
Weisler continued, “This [Samsung deal] is all about accelerating our entrance into the $55 billion A3 copier space … as we continue to focus on our A4 business with Canon. [the Samsung deal] is all about accelerating what we always said we were going to do, accelerating our growth into the A3 copier space.”
Weisler also noted, “We believe the technology in that part of the world [A3] is very dated, it is very old, it’s based on very complicated machines.” Of course, these comments therefore include existing A3 offerings from its OEM partner Canon, gloss over the fact that HP already sells A3-class printer models based on Canon engines (are they old and dated?), and Weisler wasn’t specific about what new technologies will be incorporated in the Samsung-based A3 models HP plans to sell (presumably they include the new security, service monitoring, Jet Advantage, and other HP LaserJet/PageWide features.)
While marketing the Samsung-based A3 models — with added HP engineering and capabilities — will give HP significant differentiation by not simply rebadging a competing OEM’s lineup in the same market space, it stretches reasonable credibility to believe that HP spent over $1B to acquire an entire laser product design and manufacturing capability and will not eventually attempt to leverage those investments across both the contractual and transactional sales channels for both A3 and A4. It is hard to envision the HP engineering team developing a truly kick-ass A3 MFP with Samsung and then not find a way to offer an A4 derivative of that platform in both channels. You know the answer to that dilemma, don’t you?
So, yeah, the Canon thing is over, except that it will be a long goodbye.
It’s a Printer vs. Copier Thing
The day the new HP lineup was announced along with the Samsung deal, the company’s senior management held sessions with press and analyst representatives invited to the event. Considering HP had entered this fray several times before – with little success — with versions of Konica Minolta, Canon, and Sharp products, the obvious question to be asked is: what is HP going to differently this time?
Lores replied, “Let me start by saying that we learn from what we do. What we learned is that competing in the copier market with a non-differentiated copier was clearly not a winning proposition, and this is what we have changed. We’re not introducing a portfolio of copiers, we’re introducing a portfolio of printers that have disruptive capabilities that will be able to compete head to head with copiers but offer a lower service cost.
“This is what we believe. Now we have a differentiated value proposition that will help us to win. How are we going to be working with the resellers? Really explaining this [point], and showing them that now they can either be more aggressive and win more deals by offering lower cost per copy or make more money offering the same cost per copy.”
Cathy Lesjack, HP CFO, added, “I think it is important to understand, we’re not reselling Samsung’s … multifunction printers. We are combining their innovations with our innovation. We bring a lot to it just like we do with our A4 partnership with Canon. Our products are going to have better security, smart analytics, remote connections as well as the fact that it is printer technology and not copier technology.” So there you have it – HP’s elevator pitch to the channel: printers vs. copiers.
And what will HP’s A3 channel look like? In a Q&A session, Lores said, “Our channel sales of the A3 products is going to be a combination of partners that today are working with us that have developed a managed reseller capability during the last two years. This is the fastest-growing part of the managed print service business and new resellers that until now have been selling only copier products from our competition. Many of the resellers were also selling A4 printers from HP, so part of the value proposition for them is going to be, you were buying A4 printers from us, now you can also buy A3 printers from us … that can help you to make more money or win more deals.”
Weisler laid out the channel engagement task: “We’re already in big discussions with the largest copier partners across the planet. We have gone country by country. We’ve mapped them. We know where they are down to the regions.” So, it appears that HP expects to lead its A3 channel thrust with existing partners, those living in the managed services space already (who we would guess have evolved principally from the IT side of the channel universe and not the BTA side), while enticing some of the larger BTA dealer entities (such as regionals … you know who they are talking about, don’t you?) to add HP to their roster. The firm will also transition any existing Samsung brand dealers into HP shops when the Samsung brand is phased out.
One could surmise that HP will zero in on BTA-class organizations that already have a strong hand in the IT managed services arena, resellers that have strength in reaching IT decision makers in mid-market companies, buyers who might be more receptive to HP, and buyers who might view copiers as merely connected printers. The comments also seem to indicate that HP isn’t planning a block-by-block battle to sign up smaller or single location dealerships, many of whom have relatively weak IT services portfolios and probably can’t sell the volumes HP needs to make the financials work in this whole mashup. However, Lores conceded there is and will be a direct component to HP’s approach. “For very large corporations, we will maintain our direct approach, which is what we are doing today, in managed print services … for our sales it is going to be a combination of direct for customers that are very large or that have a global presence and for the rest of the market we will go through the channel.”
Of course, this time HP has a full product line to offer dealers — differentiated products that will not be available anywhere else with several very advanced security, service monitoring and reporting, and networking/software integration capabilities, and some color models with dramatic CPP advantages over laser — through dealers who will be armed with HP MDF cash to promote these new offerings, and sporting the most famous brand in all of printing: LaserJet.
Sounds promising – but will copier dealers, many of whom have already been twice or even thrice bitten by HP missteps in this category — proprietors with very long memories we can assure you – even take the time to listen to HP’s pitch?
serves as a senior analyst for BPO Media. With more than 40 years of experience in the printing industry as an analyst, product developer, strategist, marketer, and researcher, he has covered the printing and supplies sectors for prominent market research firms such as Lyra Research, InfoTrends, and BIS Strategic Decisions, and served with major OEMs such as Samsung, NEC, and Diablo Systems/Xerox. McIntyre is the former managing editor of Lyra’s Hard Copy Supplies Journal and has conducted research and consulting engagements examining issues such as market and business strategies, product positioning, distribution channels, supplies marketing, and the impact of emerging technologies.