MFPs: Beyond the Hardware Sale

Since opening its doors in 1974 as a small office-supply store, reseller Cannon IV has managed to evolve its business model to survive three decades of change in the printing and imaging market.

It was seven years ago when Cannon IV decided to make the transition from selling boxes to providing solutions. After several years of hard work, the company today is a full-fledged provider of managed services for print solutions, servicing nearly 20,000 printers and MFPs in the Midwest.

"We all come from the world of printers, fax machines and separate scanning devices, and sometimes those are on the network and sometimes they're not," says Jim Fall, vice president of strategic planning at Cannon IV, Indianapolis. "The opportunity of MFPs now is that there's a computer built into a device that has a printer, scanner, copier and fax, so the MFP now becomes the hub of creating and moving documents around in an organization. The world of network computing has really changed the entire landscape. We've gone from the world of printing a document once and then making lots of copies to creating documents electronically."

Slide Show: Color MFPs For Less

Four years ago, MFPs accounted for about 3 percent of the VAR's hardware sales; now they account for nearly 25 percent, with the bulk of MFPs costing from $2,000 to $10,000. But most telling is that these MFPs have served as a springboard for other sales. Cannon IV, for example, sells software or a document-management solution with 75 percent of the MFPs it moves out the door.

The solution provider doesn't develop its own software; instead, it partners with software providers such as Capella Technologies, which makes document-output-management software. Cannon IV has installed Capella's software on Hewlett-Packard MFPs for law firms so they can more easily bill customers for the printing they do.

The VAR takes a two-stage approach to sales, Fall says. At the outset, it works on assessing an end user's printing environment and selling new hardware as part of a cost-per-page solution. That solution, which includes services and supplies, ensures that the VAR receives a postsales recurring revenue stream. Cannon IV also deploys HP's WebJetAdmin asset-tracking software tool, as it sells mainly HP printers.

Once the customer feels that its output costs are under control, the VAR works with software providers like Capella to implement a solution aimed at managing the production and distribution of documents.

The strategy so far is paying off for Cannon IV. In the past three years, its cost-per-page business has grown at a compound annual growth rate of 300 percent.

"The cost of printing and distributing documents is one of the last unaudited and undefined areas within most corporations," Fall says. "You may look at the traditional hard costs of buying a printer or an MFP, but you don't think about supplies, the administration of that device, network-related costs, controlling documents and other costs down to the point of what you do with the printers and cartridges when you're done with them."

NEXT: Assessing your client's environment

Most businesses spend about 6 percent of their annual revenue on document output, according to Xerox. And while the cost of printing hardware has declined about 20 percent in the past three years, the cost of printing has actually increased because of the rising cost of consumables, says Washington, D.C.-based market-research firm Current Analysis. The firm found that, since the first quarter of 2005, the cost of color printing increased 15 percent and the cost of monochrome printing jumped 9 percent.

The first step in assessing an end user's environment, says Fall, is asking questions about what challenges the user faces in the production and distribution of documents. That way, Cannon IV can identify potential areas where efficiencies can be improved and costs can be cut.

Also key is assessing the end user's current printing assets and identifying those that are underutilized or overutilized. For example, a marketing department within a company often needs a more robust printer than other departments.

"We generally find within most organizations that the technology has been acquired without a plan. One department has a need, so they go out and buy that technology, and another department has a need, so they buy another technology," Fall says. "Most companies have the same problems, generally. Once we figure out what kind of printers and copiers they have, we can make recommendations on how to consolidate and make sure they have the right-size devices in the right locations."

Another area where VARs are helping end users save money through the use of networked MFPs is by replacing costly overnight mail shipments with digital processes.

Horizon Computer Resources, a solution provider based in San Diego, recently helped a midsize credit union with nine remote branch offices streamline its loan-document processes.

"They had this business process that involved couriering two copies of every set of loan documents from the remote loan sites to the central administration center every night," says Mark Szalkiewicz, senior account manager at Horizon Computer.

After conducting a study that illustrated how much money it was spending on its outdated processes, the VAR convinced the credit union that digitizing those processes would result in cost savings. The credit union then decided to place Xerox M20 WorkCentre MFPs in eight of its branch offices, a higher-end Xerox 4150 MFP in its busiest branch and a Xerox 4150 at its central office.

"By moving away from that process to a scan-to-e-mail environment, they were able to scan right at the branch so that, as soon as a document was signed, it would appear on the loan officer's desk moments later," Szalkiewicz says. "They figured out that the new solution would not only cover the cost of machines and printing on those machines in a five-month period, but also generate positive cash flow for them to the tune of $30,000 a year."

When getting buy-in from customers, it's key to use the customer's own data, Szalkiewicz says.

"Provided the customer is willing to share their own data, it's the best way to be able to really get complete buy-in on the numbers," he adds. "When you use industry studies, it's not as successful. Everyone thinks they're not the same as the rest of the industry."

NEXT: Vertical markets ripe for such services and solutions

Vertical markets ripe for such services and solutions include finance, health care, legal, government and education, solution providers say.

"School systems, faced with tight budgets, are looking for ways to reduce costs," Fall says. "There are a number of school systems with multiple school buildings and several hundred MFPs and printers they need to better manage. That's a very rapidly growing market."

Adds Szalkiewicz: "Health care is really up-and-coming, and one industry that latched on early was real estate. When the market started getting kind of soft, agents were thinking about how to control costs while still standing out with high-quality documents. So they figured out a way to have their cake and eat it too."

Most of the major printing vendors also provide tools to help VARs assess end users' printing environments more easily, such as Xerox's Office Productivity Assessment Tool. Many VARs are developing their own models as well.

Meanwhile, vendors continue to roll out new MFPs to fit the needs of any buyer, from the smallest office to the largest enterprise. And the MFP market continues to see strong growth. HP, for example, enjoyed 116 percent growth last year in its MFP business from the prior year.

The growth is especially strong in the market for workgroup color MFPs priced at less than $1,000, according to Lrya Research. Although these models are more geared toward small businesses, they can serve as stepping stones for VARs to sell other higher-end offerings along with services and solutions.

Monday, Oki Data is launching its new model, the C3530n MFP, which prints 16 pages per minute in color and 20 ppm in black-and-white. The product is both faster and smaller than its predecessor, the c5510, and it also includes standard networking features and a USB plug, enabling users to scan directly to USB sticks without first going through a PC. The C3530n costs $800 and will be available later this month.

In February, Xerox introduced a new model, the Phaser 6115 MFP, for $800. It prints 5 ppm in color and 20 ppm in monochrome.

Smaller players in the printing market are also wooing solution providers. Nearly a quarter of VARs that responded to the recent VARBusiness Alternatives Study said they're selling Brother printers--particularly its MFPs. The vendor makes its own engines, which gives it a cost advantage. Samsung, too, which makes some of the engines for Xerox MFPs, was cited as a top alternative by some VARs.

As for printer technology, ink-based models are expected to make more of a mark in the business MFP world in the future. Xerox, for example, just launched a new solid-ink model, the Phaser 8560MFP, which is a workgroup device that replaces the WorkCentre c2424. The 8560 prints at 30 ppm in monochrome and color and costs around $1,500.

HP, too, is expected to release printers based on its Edgeline ink-based technology this spring.

Most of the major printing vendors are now developing MFPs with document management in mind by providing hooks into common applications and back-end repositories, and by providing the ability to customize features, such as a graphical user interface, for a specific business process.

VARs say that these solutions are tougher sales to close, and that they typically involve longer selling cycles. Many resellers, such as Cannon IV, first focus on getting users' costs under control and then look to provide additional solutions and software. As a result, they often start out end users with simplistic document-management solutions and then move them to more advanced software later.

But, as Cannon IV knows, once you make the proper investments and refine the art of selling these printing solutions, they really pay off. In fact, document-management solutions are among the top five solutions cited by midmarket IT buyers as spending priorities this year, according to the VARBusiness Market Insight Report.

One challenge cited among printer resellers looking to move deeper into providing services and solutions is building a competent sales team.

Cannon IV's Fall says he has found success recruiting salespeople who have sold other business IT software that's complementary to document-management applications. A few of his choice words: patience and perseverance.