InfoTrends Finds MPS Will Drive Down Supplies Revenues. I Agree.
The market research firm InfoTrends recently released a study indicating that managed print services will have an adverse effect on the consumption of toner and paper along with the revenues that come from the sale of these consumables. According to a press release issued on November 30, InfoTrends found that MPS programs will lower revenue from the sales of "…marking and paper supplies in the United States by $2.6 billion in 2014." A similar study performed by the company in the Western European market predicts MPS will reduce consumables sales in that region by €1.56 billion in 2014.
InfoTrends is one of the first research firms I'm aware of that is pulling back the curtain a little on the downside of MPS. In all the hoopla around the growth of managed print services, one piece seems to get left out—MPS will drive down top-line revenue. That's by design. Most—if not all—MPS programs promise to reduce customer costs by efficiently managing the way that hardcopy is generated. Efficiencies are often achieved either by reducing the number of machines in a customer's printing device fleet or by reducing the amount of pages that the client prints. And in some instances, an MPS package will do both. So, regardless of the fact that the total amount of money spent on MPS programs is growing, the impact on revenue growth for the industry as a whole has to be negative, especially in the long-term if MPS is as popular as many believe.
It's been difficult to gauge what impact MPS has had on the current market—perhaps it's already had an effect. The horrible recession and subsequent weak recovery in established Western markets clouds the picture.
Beginning in 2008 and lasting into the first part of this year, most OEMs reported that hardware revenue and unit shipments were down across categories. Who knows how much, if any, of that drop was from MPS? Overall, sales of consumables have also been down, although sales of certain third-party supplies, which are less expensive that OEM products, have been up. The sudden drop in demand for hardware and consumables wreaked havoc on the supply chains at many companies including Canon, Hewlett-Packard, Lexmark, Xerox and others. As companies took steps to slow production, product shortages arose, which further eroded top-line revenues and shipments. Did MPS play some role in the shortages? Did customers unexpectedly turn to leases and run down inventories? It's impossible to tell.
The InfoTrends Study
Among other things, InfoTrends set out to determine what the overall impact of MPS will be on print volumes, paper usage, and the consumption of ink and toner as we proceed through the next few years and presumably emerge from the economic downturn. The firm used Web-based surveys to poll hundreds of MPS users and MPS providers in the U.S. and Europe. The company conducted follow-up interviews with certain respondents to "probe on more intricate issues."
According to John Shane, the project manager of the study and a director at InfoTrends, it is "imperative" that the industry realizes how big a role MPS will play in the markets in the medium to long term. InfoTrends predicts that by 2014, 28 percent of all office print volume in the U.S. will be generated via some type of MPS program. In Western Europe, MPS programs are expected to deliver 22 percent of office printing. If this estimate is true, the growth of MPS has been phenomenal in offices in the more established printing markets of the U.S. and Europe, which supports Mr. Shane's observation that understanding the downside of MPS is an imperative in today's market.
In a prepared statement, Mr. Shane explained some of the reasoning behind InfoTrends's estimates. The company calculated baseline numbers based on a data set forecast as "if MPS was never invented," he said. When that baseline number was compared to InfoTrends actual numbers, Mr. Shane says, "We see that MPS will reduce the consumption of marking supplies by 10 percent (6 percent in Western Europe) and paper by 7 percent (5 percent in Western Europe) by 2014."
As interesting as all this market information is, I wanted more, of course. I like to know, for example, how much of the reduced consumption is color pages versus mono? Presumably, demand for pricey color pages is dropping, which will drive toner consumption down. But is mono printing dropping too? And what's the overall trend in third-party supplies? Are OEMs creating a closed market for their supplies through MPS, or does MPS drive dealers to look for more remanufactured supplies so they can grab the higher margins they provide? In terms of paper, how much of the reduction is from people requiring less hardcopy and how much results from simply printing on both sides of a sheet of paper?
Of course, these are exactly the kinds of questions InfoTrends wants to leave hanging so folks who read the press release will reach for their wallets. Because I'm a cheapskate, I probably won't buy it, but I still think InfoTrends is on to something in its claims that MPS will drive down the demand for hardcopy.
Perhaps it will become more clear over the next few months if MPS is already impacting the industry adversely. It appears that hardware vendors have weathered the worst of the economic storm. Most OEMs have reported a turnaround. As we move through 2011, it will be interesting if we start to see some declines in certain categories of hardware and/or consumables. It will be particularly telling if sales of office machines such as workgroup printers or Segment 4 copiers demonstrate a pronounced decline. If these types of revenues start to drop—and we see no uptick in other categories—it's likely that MPS is to blame. Of course, while top-line numbers may take a hit, bottom-line numbers should improve as vendors learn to wrap higher margin services around the hardware.
Only time will tell, but we should heed Mr. Shane's advice and pay close attention to the situation. The stakes are certainly high.
Posted on 12/14/2010