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

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

 user 2006-05-11 at 11:43:00 am Views: 71
  • #15412

    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.