*NEWS*DEAD IN THE WATER,HP&LEXMARK’s BUSS

[Anonymous]

Lexmark’s and HP’s Printer Business Model Is Increasingly Unsustainable
Gearlog
points to the latest evidence that the business model employed by the
major printer manufacturers is dead in the water. Staples’ 20th
anniversary sale includes a Samsung color laser printer that can do
duplex (2-sided) printing for $199 after a $50 rebate.Manufacturers
such as Lexmark  and Hewlett Packard have traditionally used the
razor/blades approach to sales, subsidizing the initial cost of the
printer and making up for it as customers buy high-margin replacement
toner and ink. When the typical printer cost $700 and the replacement
ink/toner was $30-$50, this strategy worked fine. Customers tended to
own the machine far longer and buy multiple replacement cartridges.
As
with all electronics, however, hardware prices declined rapidly. As
early as 2003, one could occasionally find a basic black-and-white
inkjet printer (with ink) on sale for as low a price as the replacement
ink cartridge. Customers realized the printer was a better deal than
the ink alone and frequently upgraded to a newer printer rather than
buy replacement ink.This action hurt the manufacturers in two ways:
first it resulted in a new printer sale at a negative profit margin;
second, it deprived them of the ink sale that was supposed to make the
original printer profitable over its life span. Suddenly, instead of a
five year life and possibly dozens of ink replacements, customers were
keeping printers for 1-2 years and only replacing the ink a handful of
times.‘No matter,’ the manufacturers said, ‘we will focus on higher
value printers such as color, laser and multi-function
(printer/copier/fax) devices.’ These still sell for higher prices and
validate the razor/blade model.Anyone can guess what happens next –
three years later we have color, duplex laser printers for a couple
hundies. It won’t be long before the color laser MFP is selling for
less than $100, and by then the old business model will be completely
dead. And we aren’t even talking about the ink/toner refill business,
which continues to grow and further cuts into the potential profits.The
problem, though, is that none of the existing players can shift the
business model to selling hardware at a profit unless all of the other
players go along as well. And right now there are just too many players
looking to compete in the market for that to happen. Somebody will go
against the grain in order to gain market share, and the subsidized
hardware will be back again.

[Author]

May 11, 2006 at 11:43 AM