Recharger Magazine

Industry Trends

Print and the Aftermarket Imaging Supplies Business’ Scary Monsters

• By Luke Goldberg
• Jul 01, 2012

In the 21 years that I have participated in the aftermarket imaging supplies business, I have experienced several “extinction-level” events that threatened to relegate us to the scrap heap of history.

Some were sensationalized — as the media is wont to do — but some were very real. As an industry, we have proven to be a resilient bunch. We have survived unfriendly OEMs that have attempted to thwart us with technology (lock-out chips, greater encryption, printer proliferation, color technology, etc.), with marketing, with Prebate-type programs, with IP, with core collection and so on. We have even survived the worst recession in 80 years.

Yes, we have stared death in the face time and time again and survived — just a little worse for the wear and tear. We are like one of those movie superheroes who, in the end, is bloodied but victorious — like Arnold after facing down the Predator.

So what are the next scary creatures we’re likely to confront? Will we live to fight another day yet again? Will these monsters be self-perpetuated or externally propagated?

In this article, I’ll discuss two monsters that hover in the shadows. One isn’t of our own making; it’s the decline of the printed page and the feared moribund state of printing. The other is one I have discussed before: the self-inflicted destruction of market integrity as a result of internal price compression.

First, let’s look at print. Is it really dying? Do the facts bear this out? As an aftermarket, how should we    view trends in print? How is our perspective different from an OEM perspective?

To begin, certain trends are unavoidable: Paper usage is declining, albeit at relatively modest rates. Most market analysts predict a 3-5 percent reduction in paper usage per year for the foreseeable future. There are a number of undisputable factors that account for this:

1. Unemployment is still high in the U.S., hovering at about 8.2 percent.
2. Cost controls are more restrictive of unneeded prints. MPS might even contribute to this.
3. In the consumer market, there is massive migration to Facebook and Flickr, reducing the number of printed photos.
4. More and more office workers are using tablets and smartphones and aren’t printing as much, and/or documents are migrating to the cloud.
5. Because of all of the above, the sale of hardware is down or flat. (According to International Data Corporation (IDC), in the U.S., hardware sales suffered to the tune of -6.4 percent in 2011 compared to 2010.)
6. More business customers are using MFPs and retiring single-function devices, thereby consolidating their fleets.

It’s hard to argue with any of this, and the OEMs are certainly suffering because of these trends. What’s worse for the OEMs is that the printer base is aging and, in the case of the SME/enterprise channel, refreshes are being delayed.

MPS complicates this matter by placing refurbished printers back into a base that is usually supported with aftermarket printer cartridges. In this case, what is bad for the OEMs is a boom to the aftermarket, since an older base directly leads to higher aftermarket share.

Let’s look at how these declines in print will affect the aftermarket, as illustrated in the chart above.

People are buying fewer printers. In 2011, according to IDC, a mere 125 million printers were sold globally. HP, who we all know is taking a beating, sold only 1 million printers per week in 2011 (it was nearly 1.2 million in 2006).

Are these the most expensive paperweights in history? Or, as I suspect, will consumers actually use these 125 million printers to print? Let’s remember who we are and why we are here: We are an aftermarket. We are here to provide consumers with an alternative to the OEM consumables that they received with their new printers.

This is how I view it: In 2011, a bad year for the OEMs, 125 million new potential customers were created who will soon be seeking new cartridges. If we do our job, we will convert approximately 22-25 percent of these customers to aftermarket supplies.
Additionally, MFPs and color continue to grow, which is good news for us and the OEMs. In fact, growth in MFPs, which is judged to be in the high single digits this year, is contributing to the overall slowing of printer sales because MFPs roll up multiple devices into one. They also tend to print more pages because they do more.

Color is growing at approximately 7 percent. According to Lyra, color laser will grow from $21 to $26 billion in consumables revenue by 2015. Let’s look at this opportunity for a minute.

It’s estimated that the current worldwide aftermarket penetration for color is approximately 7 percent. If we just consider color laser, we have 7 percent of a $21 billion opportunity that will soon be a $26 billion opportunity. In order to look at how this can/should affect the aftermarket, let’s say that today the total aftermarket revenue is approximately $11-13 billion of an approximately $75-78 billion pie. My estimate of aftermarket revenue is a little higher than most and includes not just remans but new molds as well.

If by 2015 we can grow our color share from the 7 percent it is today to a modest 15 percent (which is still far short of the 25 percent we have of the monochrome market share), the total size of the global aftermarket will grow by a staggering $2.45 billion. (At 7 percent share of a $21 billion market, the aftermarket revenue is $1.47 billion. At 15 percent of $26 billion, it’s $3.9 billion!) By gaining a mere 7 percent in the color world, we will grow the global aftermarket by more than 20 percent!

This opportunity alone is enough to sustain us and even allow those of us who focus on quality and OEM conversion to grow and thrive. This $2.45 billion growth opportunity doesn’t even take into account the opportunities that are emerging as we break into the enterprise channel with MPS or the growth in MFPs. In addition, even though pages are being reduced, many are citing there is both a steady flow of what we refer to as “higher-value pages” that contain higher coverage and a greater use of higher CPP color.

Bottom line: If we compete for the business within the blue OEM ocean (which we should be), we will do more than survive the next monster. We will possibly even evolve into something better, smarter and more resilient. I am not talking about cockroaches that survive by consuming the detritus from the waste of civilizations’ tables, but a more truly actualized, well-nourished imaging aftermarket.

However, there is not one trend mentioned above that means anything if we don’t compete with the OEMs with quality and value. Those 125 million potential new customers and that $2.45 billion color growth opportunity will instead be squandered as we gaze into the abyss of internal price compression.

There is one thing that will guarantee our own undoing: Ignore all of the positive trends we have in our favor — that is, ignore our value as an alternative to the consumer, our green value and our quality — and instead just focus on the fact that we are cheaper. This is the monster we cannot stop if we summon it by chumming the ocean with the blood of our fellow aftermarket competitors.

The path to growth should be clear: Compete fairly with the OEMs with quality products that are produced without copying or infringing legitimate OEM IP.

Print isn’t really dying for us, as I hope I have shown; it is changing in a way that we can leverage to our advantage. We need to think about our business and determine whether we are perpetuating our own destruction or if we are creating a sustainable path forward to a newly evolved aftermarket imaging supplies business.

This article originally appeared in the July 2012 issue of Recharger.