gapForecast: What to Expect From the Print Industry in 2015

by Jake Fishman | 1/19/15

There are a lot of reasons to feel confident in what 2015 has in store for the print industry. The economy (at least in the U.S.) is looking as strong as it has in recent memory, there are a number of interesting strategies and initiatives emerging, and many vendors in our industry are now posting solid profit and revenue growth. However, there are powerful technological and behavioral changes unfolding that will impact printing as we know it, and the real storyline for 2015 and the years to come will be the evolution of our industry in the face of these changes.

With that, below are gap intelligence’s top predictions for the print industry in 2015. At the very least, I guarantee that these predictions are much more likely to come true than what the folks from Back to the Future II forecasted for this year.

gap’s 2015 Forecasts

 

–  Lineups Continue to Balance

–  The HP Split Will be Fast and Change Everything!

–  Inkjets Mean Business

–  Get Ready for M&A!

–  Toner-Out Gets Locked-In

–  The Yen Boosts Profits and Pushes Down Prices

 

Lineups Continue to Balance

I told you these would be easy to predict! Looking back on 2014, one hardware trend was very clear: the copier guys are actively expanding their A4 portfolios and the traditional printer players are similarly trying their best to grow their enterprise-class lines.

Last year, the segment expansion trend was most pronounced among the traditional copier manufacturers, as an amazing 45 percent of all BTA dealer-targeted office MFPs that launched were A4s, marking a clear shift from the 25 percent A4/75 percent A3 average ratio from the previous four years, and suggesting that these A4 investments in 2014 will lead to increased sales activity in 2015. Overall, the traditional printer players maintained a more A4-centric approach, but still continued to push their A4 lineups up-segment and up-market, while making a number of notable A3 additions.

Even if the balancing of MFP portfolios won’t get the same headlines as solutions or services, you can bet this trend will dominate hardware strategies throughout the next year for very old school reasons: In a contracting market, segment expansion drives growth, and as lineups expand, having a complete portfolio will be a competitive requirement – not a nice-to-have. The printer-based guys keeping their A3 lines to a minimum should keep this trend in mind.

The HP Split will be Fast and Change Everything!

Just kidding. Like HP’s recent acquisitions (although hopefully it will be more successful), the separation of HP’s print and PC business into the new HP Inc. will be a gradual process with minimal tangible impacts on HP’s printing strategy and business structure until much later in 2015 at the earliest.

That said, just about everything HP does has a major impact on the print industry, and there have been some changes brewing within HP Inc./HP PPSG/HP IPG/et al. for some time that are much more likely to influence the print market in the coming 12 months. In fact, perhaps HP’s highest-impact upcoming moves were tipped off within HP Inc.’s strategy briefing when the split was announced back in October.

Personal Systems – Although most of the print industry pays little attention to HP’s PC-related activities, the very purposeful use of “Multi-OS” in describing HP Inc.’s Personal Systems strategy should have set off alarms. We’re still the peripheral after all. The fact is, between Chrome growing among consumers and within key verticals, Android expanding both within and beyond mobile segments, and the OS possibilities of the Internet of Things, the need to connect way beyond the Windows OS has never been stronger. The print industry generally lags behind platform shifts (just ask the guys who built all of these BlackBerry print apps), so we’ll see how manufacturers adapt to the Multi-OS future this year, but it has to happen soon.

Printing – HP Inc.’s Printing strategic pillar screams “inkjet technology” (fast, affordable, engineered by HP = inkjet), and you can bet that 2015 will be highlighted by HP’s continued efforts to push its inkjets deeper into B2B channels and enterprise environments. There will of course still be a lot of laser activity from HP and we could also see some cool SMB-ready solutions as well as new and better ways to deliver service and supplies to customers, but once again, HP’s printing future looks very very inky. If this HP ink trend keeps up, maybe in 2016’s forecast we’ll write about Canon Inc. becoming the majority stakeholder in the newly spun-off HP Inc. …

Inkjets Mean Business

Good segue, right? As home printing continues to decline and the benefits of inkjet technology keep chipping away at the traditional laser value proposition, it’s hard not to see this one coming. By hook or by crook, inkjet print manufacturers/divisions are going to do everything they can to infiltrate B2B channels and customers in 2015. In the world of forecasts, this is a layup. I guarantee it.

After years of office inkjets bumping up against a $400/20 ppm ceiling, the HP Officejet Pro X series expanded the business inkjet segment to $699/42ppm in 2013, carving out a double-digit share of the A4 Color Small Workteam MFP market by 2014 on the strength of its astounding TCO advantages over direct laser competitors (see below). If that didn’t catch everyone’s attention, last year brought the world’s first $1k-plus enterprise-class inkjets with a similar low TCO value proposition. Also, looking at the current business inkjet MFP assortment (see below again), it’s easy to see how much lineup expansion opportunities still exist within the business inkjet segment, both within the existing $500–$2,000 price range and eventually into higher speed/price bands.

 

Sure, these first and second generation business inkjets will face their share of adoption and performance challenges, and the laser guys have no shortages of reasons to naysay inkjet technology. However, given the initial success of the Pro X line and based on the strength of these inkjets’ exceptionally low TCO, these products are going to sell. And considering that business printing is pretty much a flat market, nearly every business inkjet sale is going to be at the expense of a laser-based product, making the need for laser vendors to shift from naysaying business inkjets to competitive responding to business inkjets a strategic necessity.

Get Ready for M&A!

At the very best, the office MFP industry is deep in its maturity phase, which is pretty good considering it’s been 76 years since Xerox invented and launched the first copier. However, this milestone still serves as a strong indicator that the MFP market is going to act its age in 2015, particularly in the form of increased merger and acquisition activity, targeting a few key areas:

Dealer Channel Acquisitions– For the larger and more sophisticated dealers, competitive acquisitions represent a core part of their geographic, capability, and account expansion strategies. Meanwhile, many of the dealers that have struggled/refused to evolve in recent years increasingly see being acquired as their primary exit strategy. Seems like a match made in heaven. Throw in a handful of expected OEM direct acquisitions, and it is all but guaranteed that 2015 will bring a surge in channel acquisitions.

Software Developer Acquisitions – A wise man once said, “software is hard.” It’s hard to develop software if you are small and don’t have the funding to do it right and it’s hard to justify developing your own software if you’re big enough to realize it can be a much safer investment to buy the small guys than try to develop software yourself. Because of these factors and because of the vital importance placed on solutions-led sales, expect a big target on software companies this year. It’s even possible that buyers not named Lexmark/Perceptive, Nuance, and EFI will be involved.

Adjacent Channel/Capability Expansion Acquisitions – Whether it’s managed IT services or ECM, the vendors and dealers that are paying attention know it’s time to diversify their revenue sources and differentiate their offering, and once again, that is going to mean more acquisitions outside of what was considered part of the MFP industry just a few years ago. I’m still trying to wrap my head around how many managed IT providers the world’s SMBs really need or how many copier guys can trick themselves into adopting an IT mindset, but until we know the answers to those mysteries, expect adjacent-targeted acquisitions to play a major role throughout 2015.

Manufacturer Acquisitions – I’m actually not forecasting any major OEM acquisitions this year. That said, sometime in the not too distant future, it’s going to happen again. There are 15 legitimate multinational companies making and selling office printers and MFPs right now (18 depending on how you define “legitimate multinational”). I dare you to name any other mature industry with that kind of competitive population. Once again, more OEM acquisitions are going to happen.

Toner-Out Gets Locked-In

You have to feel for the printer-based guys. Transactional channels and the toner-out supply model do not exactly promote customer loyalty or allow for account control, and if you’re selling hardware at a loss (or at low margins), that’s a deal breaker. With that, it’s no surprise that the major printer OEMs are significantly increasing their investments in new programs centered around locking in these customers, with a focus on auto toner fulfillment, a shift to new billing/metering methods, and even an increased openness towards slinging non-OEM toner.

Some may point out that the mechanics of auto toner delivery is far from new, as the non-OEM guys and supply distributors have been doing it for years, but the key difference here is a closer direct connection between the manufacturer and the once-transactional end user, even if resellers are still serving as the middle men or distributors are still handling the logistics.

I’ve been saying for a while that entry-level MPS is more about infrastructure than about the human and process elements vital to larger MPS deals, and programs like these are actually not too different than how small SMB managed print services is delivered, they just need some added assessment and optimization. In fact, for a number of vendors, these programs are positioned as the entry point (HP, Xerox, Lexmark) or even a core part (Epson, Brother) of their MPS continuums, making these programs both a strategic and financial priority for many OEMs.

Look for this trend to continue in 2015, and considering that the transactional toner-out market still represents a $30 billion-plus opportunity, it may be wise for the copier guys to start building out their own delivery infrastructure.

The Yen Boosts Profits and Pushes Down Prices

Two months after Prime Minister Abe and the Bank of Japan launched a round of new and more aggressive stimulus programs that would make even Tim Geithner squeamish, the yen is starting off 2015 with an unprecedented downward trajectory. This is great news for our industry’s many export-centric Japanese OEMs, and not so great for their U.S. and Korean competitors.

While Japan’s stimulus moves have significant economic implications, it is important to note that the resultant weakening of the yen will also have a major impact on the print industry, which remains closely linked to Japan’s economy and currency. Roughly 67 percent of all active copier-based MFPs and 80 percent of all active laser printers in gap intelligence’s US Price & Promotions Reports feature engines made by Japanese companies, as the majority of printer and MFP manufacturers are Japanese and the key U.S.-based players including HP, Lexmark, Xerox, and Dell source a large portion of their engines from Japanese partners (Canon, Fuji Xerox, Konica Minolta, Casio).

Short term, the weakened yen stands to help much of the industry, as Japanese manufacturers will see their revenue and profits rise, U.S. and European subsidiaries and OEM partners will have more leverage in price negotiations, and vendors may have more capital to acquire and develop new service and solution capabilities. Meanwhile, the declining yen will likely create challenges for many non-Japanese players, who may face greater competitive pressures without the same currency factors to help offset price cuts and promotional investments.

Conclusion

To quote the only Yankee I’ll ever like, “It’s tough to make predictions, especially about the future.” That said, looking at these ongoing trends within the printing industry, even Yogi Berra might agree that the industry’s crystal ball is a bit clearer going into 2015.

Although a lot of these expected 2015 highlights could easily be viewed as attempts to grow share within a flat-to-declining market, the print industry’s challenges are certainly bringing forth some innovative responses, and we believe that this innovative spirit is what is going to drive ongoing success beyond 2015.

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Jake Fishman is business director for gap intelligence, a San Diego-based independent technology research firm with emphasis in helping product manufacturers and resellers understand current market trends in order to respond to customer demands as they occur. He can be reached at Jfishman@gapintelligence.com.