MPS: Growth Strategy or Harbinger of a Smaller Pie

My opinion is both, depending on your current position and how well you leverage the MPS opportunity. To understand my feelings I will share my thoughts.

Fewer printers and copiers are being sold year on year. Gartner recently reported that worldwide combined printer, copier and MFP shipments totaled 51.3 million units, a 20.2 percent decline in shipments from the first half of 2008. Office printing devices drove the overall decline in the global print market, with a 24.5 percent decrease in the first half of the year compared to the first half of 2008.

Add to this year on year unit decline the facts that A4 units are replacing A3 units, at a lower average unit selling price and, like all maturing technology, average unit selling price across all segments is declining and you wonder where the growth is. The simple answer is that there is no growth; in fact, the overall market is shrinking.

Keep in perspective that there is nothing new in an MPS sale, which includes toner, parts and service (together “aftermarket”), equipment, and software. Moreover, one of the long-term goals of MPS is to reduce the quantity of devices used by a company. What does this mean? It means that the industry players—those that depend on an already shrinking revenue pool—are going to deliberately accelerate that revenue decline.

So far it sounds like death by a thousand cuts so why would anybody want to jump into MPS? Because for the short term, it is a growth strategy for those that properly deploy a strategy.

Printer Manufacturer Perspective

Every printer manufacturer is touting an MPS strategy. Why would you push a strategy that is going to result in fewer devices sold when you are a manufacturer? Simple, because you expect to take market share from the other printer companies—you intend on gaining share. So in short, the device loss is going to come out of your competitors’ backside.

MPS is clearly an inflection point in how devices, parts, and toner get sold and we’ll get to that shortly. The real question is will a printer manufacturer with low market share—when laser printers have been in the market for over 20 years—suddenly be able to leverage MPS to transform themselves into an industry player or is it simply a drowning man grasping for a thin read? Time will tell….but history usually repeats itself.

Let’s use HP as an example, who by all accounts has a 50%+ market share. I don’t care what industry you are in 50% market share is a dominating position. HP used their technical expertise—manufacturing super reliable printers that easily connected to the network—along with a “razor / razor blade” strategy to earn this dominance. One way to grow market share is to change the definition of the market so you motivate your team to penetrate adjacencies, and HP has accomplished this with their MFD products—directly targeting the copier space as a growth strategy.

But HP, in my opinion, has a bigger issue than pure market share and that issue relates to their razor blade strategy. Low priced, highly reliable, easily connected products provided HP with the ability to distribute through mass market players like CDW and PC Mall, as well as value added resellers (VAR) and dealers. The end user then purchased their HP cartridges through distribution points like their office supply company or HP direct. Sure, rechargers have approximately 30% of the mono market and 7% of the color market, but this seems to have been an acceptable level to HP, who constantly introduced new models; it took the rechargers a year or so to get enough empty cartridges to manufacturer in quantity.

Two sea changes are occurring today. First, and the point of this article, copier dealers, VARs, and other players are selling MPS agreements. Just four years ago HP, as well as the other printer manufacturers, but HP is the 800 pound gorilla, only had to deal with cartridge resellers and some private label products in super stores. Selling HP or compatible (remanufactured) cartridges was not a focus for the vast majority of copier dealers and the MPS VAR did not exist. Today, hundreds—rapidly headed toward thousands—of MPS providers are selling contracts that primarily use remanufactured cartridges in their contracts. Second, end users are holding onto their printers for a longer period of time so remanufactured cartridges are available for most products.

HP has a strong drive for market share; they are aggressive and smart and that is why they are so dominant. The other printer vendors sense there is an opportunity with the sea change of MPS. We will see if other printer manufacturers are able to take advantage of this inflection point or if HP will respond and retain their dominance.

Copier Manufacturer Perspective

No difference here—all copier manufacturers are pushing MPS. I think they have more to gain than the print manufacturer in that they have the opportunity to capture highly profitable new services revenue. So while HP is defending their turf—and the likes of Lexmark, Muratec, OKI, and Samsung are trying to take that market share—the copier manufacturer, through either their direct branch or dealer channel, can gain profitable aftermarket revenue. And they need it because year on year equipment placements are dropping rapidly!

So here is the short term gain: HP’s and the likes of CDW’s loss is the MPS delivering company’s gain. There are other winners too, like cartridge remanufacturers and distributors who supply MPS companies. We’ll cover the deliverable growth aspect in the next section but copier companies believe that they can replace that fleet of HP, Lexmark and other brand printers over the long term with their own products, while developing profitable service revenue over the short term.

I don’t think you are going to see any magic occur with this strategy: Copier manufacturers with low market share aren’t going to displace the top tier players with an MPS strategy. The channel is fairly set at this late stage of maturity so all the manufacturers can do is execute well through their branches and provide the consulting and training their dealer channel will need. They also need to provide them with a solid A4 product line of MFDs and printers.

The provider—MPS companies

Here is where the tremendous growth is near and medium term; the actual company that is on the street selling and delivering on MPS. The growth is coming out of other channels—it is not industry growth. Let’s just take an example:

ABC Imaging, a Sharp, Konica Minolta (KMBS), and HP dealer convinces Smith and Fried, a law firm, to place their 160 HP printers on an MPS agreement. Previously, Smith and Fried bought their printers from CDW with care packs and bought their cartridges and maintenance kits through Staples with their office supplies. ABC gets a contract for $15,000 to supply and service the 160 printers. So far Staples has lost the toner and maintenance kit business. ABC is going to use compatible cartridges so HP also lost some business with cartridges immediately and care packs over the near term. Time will tell if the printers are replaced with HP, Konica Minolta, or Sharp; the dealer will probably select the best product for the application. At that point CDW will have lost the business, and possibly additional HP loss.

Let’s assume Smith and Fried was spending $15,000 per month through Staples before they signed the agreement with ABC. MPS “grew” by $15,000 but other players lost the same $15,000. As ABC optimizes the fleet the revenue will continue to be reduced; there will be less capital expenditure on devices. As more players enter MPS the high early adapter margins available today will fall, as will revenue.

There could be others that gain revenue. KMBS offers revenue credit toward quota and rebates if their dealers buy their compatible cartridges through KMBS. If the dealer decides to take advantage of this program KMBS is able to recognize revenue and a small GP on the cartridges they buy at a lower price from a remanufacturing company (KMBS is simply an example…..other copier manufacturers have similar programs). KMBS also gains market intelligence. The OEMs’ direct organization also have the opportunity to grow revenue with an MPS strategy since servicing and supplying competitors’ printers is all net new business for the directs, at a loss to others.

The only absolute growth in MPS is at the provider level. Four years ago I used to tell audiences to get into MPS now because in two years everybody will be doing it. Well, it is four years later and I gave up saying that…..I guess I was more enthusiastic than the average dealer or reseller. What I would tell you is that if you get into MPS today—really get into it with a business plan and focus—you are still an early adapter. The revenue and profit opportunities are great. But in the long term we will all be fighting over a smaller pie so don’t hesitate…..get your outsized slice today!

Strategy Development is a consulting and training firm that can help you get more than your share of the MPS space. Whether you are a manufacturer, distributor, or reseller we’ll help you achieve success (http://www.strategydevelopment.org)

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