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 user 2005-05-30 at 10:25:00 am Views: 43
  • #9403

    Photo MFPs Take the High Road as Low-End Competition Heats

    May  , 2005

    Photo-enabled inkjet MFPs are one of the hottest revenue growth segments in
    the printer market, with sales projected to grow upwards of 20% in 2005.
    Manufacturers have used creative promotions featuring sub-$150 MFPs bundled with
    digital cameras, notebooks, and PCs to offer consumers effective price points
    that are as low as $0. Market share and volume are the key determinants as
    printer manufacturers seek to lock in consumers with low price points so they
    can reap the benefits that come with the highly profitable downstream revenues
    associated with inkjet printing supplies. The problem is that the low-end inkjet
    MFP space is getting crowded. MFP manufacturers looking to gain market share and
    differentiate product lines are forced to look to the high end of the inkjet
    market for future revenue growth opportunities in 2005 and beyond.

    The low-end MFP space was once dominated by Lexmark, whose bland, sub-$150
    models were big hits with budget-constrained families and students. The bad news
    for Lexmark is that photo-enabled printers have increased in popularity and come
    down in price to levels that are competitive with Lexmark’s standard inkjet
    machines. Lexmark does not have a photo-friendly brand name and was slow to jump
    on the photo bandwagon.

    Photo-enabled MFPs are now available for under $150 in the retail channel and
    only consumers with the most extreme budget constraints will opt for generic
    inkjet MFPs because the price difference is only $20. Epson and HP have attacked
    the market with their respective $99 CX4600 and sub-$100 PSC models, targeting
    consumers with creative promotions that offer up photo MFPs for next to nothing.
    Newcomers to the low end of the inkjet MFP space include Canon and Brother.
    Canon has just released its first sub-$100 inkjet MFP model, the MP130. It has a
    futuristic form factor that looks like something out of Star Trek. Brother, the
    silent assassin in the shadows, appears ready to steal share at the low end of
    the SOHO market. Brother is not strong in photo printing, but it offers office
    models with fax functionality and networking at bargain prices.

    With all this congestion at the low end, moving upmarket to focus on
    higher-end models seems like an obvious choice. The potential of this segment is
    highlighted by the success of HP’s PSC 2610 ($259), which has consistently been
    a top-selling MFP in terms of revenues since the holidays. Recently,
    manufacturers have taken two different routes to market MFPs with higher-end
    functionality: they have developed models that converge office and photo
    features, and designed high-end photo models that cater to hardcore photo

    HP has focused on the former, producing products that combine office and
    photo functionality. HP has accomplished this by adding photo features like
    memory card slots, six-color printing and PictBridge connectivity to its
    OfficeJet line of office MFPs and by supplementing its PSC line of photo MFPs
    with fax and built-in networking capabilities.
    The photo enthusiast strategy has been employed by inkjet MFP
    manufacturers to appeal to the growing legions of high-end amateur digital
    photographers. These machines are full of fancy features that include standard
    five- and six-color ink systems, film adaptors for scanners, image correction
    and photo enhancement software, CD printing, and compatibility with CD-R drives.
    The two key players in this arena are Canon and Epson, which shouldn’t surprise
    anyone given their strong reputations in digital photography.

    The outlier at the high end is Lexmark, whose limited SKUs don’t give it a
    clean-cut retail strategy. Lexmark seems best suited for the office-photo
    conversion route as it does not have a strong brand name in digital imaging. How
    does Lexmark foster growth of higher-end inkjet MFPs? By continuing to rely on
    OEM partner Dell, which has advantages in consumer branding and low-cost, direct

    The graph below shows high-end photo inkjet revenue share in retail from
    November of 2004 to April of this year.

    The big winner? HP–without a doubt. HP has leveraged its brand name,
    promotional muscle and office-photo convergence strategy to dominate the market.
    Epson’s revenue share has fallen off over the past few months, and it appears
    that Epson’s fancy features may not be enough to sustain high-end market share
    growth throughout the year. Lexmark suffers from the aforementioned SKU issues
    and Canon needs to increase its MFP shelf presence in the consumer electronics
    retail channel.

    Looking forward, the impact Kodak’s 2006 entrance into the inkjet market will
    have on the market, and specifically the retail space needs to be examined. Much
    has already been made of Kodak’s potential inkjet OEM relationship with Dell,
    but what will be interesting to see is where Kodak positions itself in retail.
    Kodak does not currently produce an MFP, but it will certainly have to if it
    wants to effectively compete in the inkjet arena. If Kodak comes to market with
    inkjet MFPs, what will this mean to the high end of the inkjet MFP space? New
    CEO Antonio Perez knows enough about HP to stay away from it in the SOHO space.
    Kodak’s best shot is targeting the inkjet photo market, where it will need no
    introduction to digital photo enthusiasts. Epson and Canon will need to prepare
    themselves to duke it out with a photo giant that has every bit the “photo
    quality” brand image that they do. As for HP, it will see increased price
    competition and take some hits down low, but it will keep on rollin’ at the high
    end with a convergence strategy that hasn’t been seriously challenged.