Is it Time For Hp to Rethink Ink?

[Anonymous]

Is it Time For Hp to Rethink Ink?

I used to believe that vendors who covered more of the bases in hardcopy — consumer, SOHO, SMB, enterprise, production, presses, even wide format — were distinctly advantaged. And in recent years, no vendor has covered the bases better than HP. But now I’m not so sure, and the reason is the slide in sales and pages for inkjet AIOs. Could it now be that maintaining that kind of inkjet presence is a drag on HP, one that is increasingly getting in the way of what the com- pany needs to do in more defensible and per- haps profitable hardcopy segments?

For at least a decade, having a massive footprint in consumer and SOHO inkjet printing has af- forded HP substantial financial, business and technical upside. During the pre-recession boom, that inkjet business provided somewhere close to half of HP’s hardcopy revenue (which peaked at almost $30 billion in 2008) and a huge chunk of its hardcopy profit (which generated almost 40¢ of every dollar HP earned that year). The ubiquity of HP AIOs also constituted a unique kind of adver- tising and brand building that created a halo around all of the company’s other products.

Together, those placements and profits enabled HP to achieve vast economies of scale and sup- ported massive complementary R&D in high- speed inkjet technology. It’s not by accident that HP’s multimillion dollar web presses that today lead the industry leverage essentially the same photolithographic inkjet printheads used in mil- lions of $100 to $400 AIOs sold each quarter.

Looking back, it was the transition from single- function printers to AIOs — which occurred in parallel with the rise of digital photography and widespread adoption of high-speed Internet access — that ushered in the glory days of inkjet. To understand what is now so different, we need to look at the key challenges that are afflicting inkjet hardware, supplies, and overall usage.

Hardware is the simplest to dissect. The funda- mental inkjet technology in today’s AIOs is ma- ture and stable. HP has moved to pairing four or five separate ink tanks with a permanent print- head. Image quality, resolution, print speed, and page durability are more than adequate. Hard- ware prices have been relatively stable in recent years. What this means, though, is HP has had to cram in new features — WiFi, bigger LCDs, web connectivity — without being able to raise prices or lower costs. This has exacerbated the fact that for the bulk of AIOs, the price doesn’t cover the cost to build and sell the hardware.

That dynamic isn’t new, but it used to be predict- able. Owners of certain AIOs would buy certain inks over the life of the machine, and the ink choices were few and pricey. Three things have made that dynamic less certain and profitable.

First, HP responded to grumbling by consumers that ink was simply much too expensive. While Kodak’s entry into the market did that company little good, its emphasis on ink costs sharpened what had been previously a diffuse undercurrent of dissatisfaction. Rather than simply lower ink prices across the board, HP switched to offering two sets of cartridges for each device.

More ink options were good for AIO own- ers, but this kind of supplies segmentation reduced overall ink profits. Precisely those who printed the most could now buy high- yield inks with much lower margins.

Second, non-OEM inks are taking a much bigger share of the aftermarket. This is especially so in emerging economies where growth in placements is greatest.HP has responded with rejiggered AIOs that cost more to buy but use cheaper HP inks. The proliferation of these Deskjet Ink Advantage models would seem to indicate this strategy may be helping to some degree.

The third and biggest issue is that use of AIOs is declining in both the consumer and SOHO mar- kets. Even with the added convenience of WiFi and mobile printing, AIO owners are printing fewer photos, e-mails, web pages, and docu- ments. This results in a double whammy: lower sales of high-margin inks and less interest in replacing current hardware with new models.

HP, even more than competitors, has tried all sorts of things to boost pages on new AIOs in the past few years. Nothing has been able to reverse or offset the secular decline in output, not ePrint, not printer apps, not a glued-on tab- let, not making an AIO look like a video compo- nent, not bigger touchscreens, not new colors, not more SMB-ish models, not forced ink deliver- ies, and certainly not clumsily trying to move way upmarket with poorly executed Edgelines. There simply are no countervailing trends on the horizon that promise to rejuvenate sales of hard- ware or ink for consumer, SOHO or office AIOs.

Meanwhile, HP is deluding itself and the market by stating that a year of double-digit declines in AIO placements and weak ink sales is just a teensy-wensy channel issue. Sure. As the twelve- steppers say, “First, admit you have a problem.” There’s certainly no reason for HP to “go all Lexmark” on its inkjet business. AIO sales still generate big volumes for printheads that help on the high-end, and retail AIOs still spread the HP name. But for a company that hasn’t been able to keep all of its product plates spinning in the air for quite some time, cutting back on in- vestments in AIOs may not be a bad way to go.

[Author]

October 2, 2012 at 8:29 AM