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Headline: catfight
As Dell celebrates the first anniversary of its entry into the printer market, the rivalry between the company and its key rival HP has hit new proportions. Is this set to become a battle to the death? A year on from its entry into the printer market, Dell has cranked up the war for market share and the war of words with arch rival Hewlett-Packard (HP).
Like a couple of seasoned alley cats, the two companies have been scrapping like mad recently with neither willing to back down in a market that is becoming the new battleground for the technology sector’s big-hitters.
While Michael Dell has expressed regret that he failed to enter the printer market earlier, his CEO in-waiting Kevin Rollins has questioned HP’s business model. For its part, HP has fired back with CEO Carly Fiorina typically feisty and printing and imaging chief Vyomesh Joshi insisting that the company is feeling little impact from Dell’s attack on its profit centre. Indeed, Joshi insists that Dell’s market share gain is at the expense of its rival’s technology partner Lexmark.
Dell is growing fast in the printer sector but the fact remains that it is estimated to sell more than four million printers this year while HP sold more than 43 million last year.
Nevertheless, Dell says it has exceeded all its pre-entry goals and quotes research firm IDC which places the company in the #2 position in the all-in-one inkjet market, #4 in the totalinkjet market and #4 also in the mono laser market.
Furthermore, maintaining the momentum of its evolution into printers, Dell capped off an intriguing month by launching its printers in Japan on 3 June and announcing it would move into other Asian markets, including China, later this year.
speed
Tim Peters, Dell’s general manager of imaging and printing, insists the Dell family is very happy with progress in the printer market. He says: “We are very satisfied with the success we have had to date in giving our customers a better means for purchasing printers and consumables.”
The speed at which the company has been able to grow in the printer market has not surprised seasoned Dell watchers as the entry strategy has been used to good effect in other markets such as notebooks, workstations and servers.
However, when Dell entered printers the key concern was how it would counteract its lack of intellectual property. To this end, its series of technology partnerships with HP’s printer rivals, including Lexmark and Fuji Xerox, have proved successful.
IDC VP Roger Kay says: “Dell is performing a classic disruption, selling adequate technology below an incumbent. For this reason, its value is not in leading-edge technology but efficient processes and, ultimately, scale. It’s a fine strategy. The technology needs only be adequate. Dell could have some trouble bidding for high performance or quality-oriented business, but it’s aiming at the fat middle of the market where all the volume is.”
Peters adds: “Our strategy in partnering with some of the leading printer technology companies in the world is to allow Dell to focus on improving the customer’s experience, creating tremendous value for customers. We can do this effectively by leveraging the access we have to intellectual property through our partnerships.”
hamstrung
Despite the apparent success of the technology partnerships, there does seem to be the outstanding problem of Dell being hamstrung by having to follow the technology roadmap of its partners.
Kay points to this factor when considering Dell’s relatively subtle entry into the printer market. He explains: “Dell was cautious about predicting that it would storm the market. Management said the company would emphasise the three Ss (servers, storage and services) in the near term and the three Ps (peripherals, printers and PDAs) over a longer period. So, with reduced expectations, the firm seems to be performing well against a modest benchmark.”
Keen to dispel the idea that Dell is restricted by its technology partners, Peters insists that the strategy is working fine and it is not just sitting back and waiting for the likes of Lexmark to hand it new technology.
He says: “Because Dell has partnerships with some of the leading printer companies in the world, we have access to more intellectual property and creative R&D energies. The fact that Dell has technology partnerships does not mean that we must follow our partners’ roadmaps. Dell is involved in every aspect of bringing our printers to market. Our collaborative research and development process means that we do not just sit back and take what our partners deliver.
“We drive both feature and implementation requirements and focus on developing industry standards that will benefit customers by lowering costs, expanding access and providing investment protection.”
Of course, few can beat HP when it comes to its hugely respected R&D unit. The imaging and printing group has 9,000 patents and adds 1,000 a year, off the back of annual research spending for the unit of more than $1 billion. Around 70 per cent of HP’s profit comes from the printer market and it relies on innovation to keep it ahead of the pack.
As the battle between HP and Dell has heated up, Dell, in particular, has addressed the strategy of its rival in public. In his first interview with a British newspaper, Rollins told The Times that HP was persisting with a “substitution” model in which it offset losses generated by selling computers at cut-down prices by selling high-priced printer supplies.
Kay believes the burgeoning war of words between the two firms is understandable.
He says: “HP is subsidising its PC business with the printer business. The PC business makes a one per cent return on revenue on its best days. That’s not even enough to cover the cost of capital. It stays in PCs, like IBM, in order to be able to offer a full solution to its enterprise clients and because it can still use PCs to fight off Dell.
“HP is hurting Dell’s PC profits with its willingness to lose money and Dell is hurting HP’s printer profits with its willingness to come under the price umbrella. Because this is a life-and-death struggle, the management has personalised it. They are, after all, human.”
* Post was edited: 2004-08-26 09:24:00
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