Xerox CEO: Global Imaging Buy In Sync With Channel

Xerox's acquisition of printer and copier distributor Global Imaging Systems one year ago has expanded the manufacturer's business opportunities while creating little, if any, channel conflict with Xerox resellers, according to Xerox chairman and CEO Anne Mulcahy.

Mulcahy, in an interview with Everything Channel last week, said another acquisition on the scale of Global isn't likely, but other deals like the $68 million acquisition of Veenman B.V. in the Netherlands are possible. And Mulcahy said Xerox, so far, has weathered the economic slowdown in the U.S. "I do think that everyone has seen the softening of the U.S. economy," she said. "It's a good time to be a global company. More than half of our revenue is outside the U.S."

In the quarter ended April 30 Xerox reported a 13 percent gain in sales to $4.3 billion. Big companies are taking longer to make IT purchasing decisions and are more closely scrutinizing the potential return on their purchases, she said.

Multi-function systems and color printing are the big technology drivers for Xerox, Mulcahy said. Xerox's $1.5 billion buyout of Global marked a major effort by the company to expand its presence in SMB markets. Without disclosing details, Mulcahy said Global has brought incremental sales gains to Xerox. The CEO maintained that the Global acquisition has created minimal market conflict with Xerox channel partners. But she acknowledged the manufacturer must help resellers move up-market with more sophisticated products and provide them with more training and marketing support.

"We're finding there's an appetite to go up-market and take [on] more sophisticated technologies," she said. "But that also requires more knowledge, expertise and training and support than has been available before."

Mulcahy also thought that Hewlett-Packard's pending $13.9 billion acquisition of EDS could drive some IT outsourcers that now work with EDS to Xerox.

What are you seeing as far as the state of the economy goes and the impact on your business?

It's a good time to be a global company. More than half of our revenue is outside the U.S. That's great diversification. And we have no particular industry or segment of the market that we're so concentrated in that we feel any disproportionate impact. I do think that everyone has seen the softening of the U.S. economy. Big enterprises are really watching their decisions and [there's] certainly some stress on any investment that doesn't give them a good and quick return. Which actually plays to us since our services, our value proposition, generally, is about saving money and becoming more efficient.

The good news is that we've actually seen a resiliency in the SMB market. We're seeing a level of business that's encouraging [with] no significant or precipitous downturns in the SMB business.

What kind of demand are you seeing across Xerox's product lines. What's doing well, what's not?

[Sales across] the product lines remain relatively strong. It's more the size of the opportunity. For example, if it's a big opportunity it's taking longer for decisions to get made. It's clearly not so much product-driven as it is more the size of the deal and really ensuring that it's got a great return. So we're very, very focused on services, value propositions that address great cost-efficiency or revenue creation through innovation. [We're trying] to rise above some of the very conservative decision-making right now in big enterprises.

What are some of the technology drivers right now in printers and document management overall?

Two areas that we think have won the day: One is multi-function versus single-function technology. We placed that bet a number of years ago and, fortunately, it was a good bet. People understand the productivity associated with multi-function for a whole bunch of reasons: Efficiency, cost, workgroup productivity. A second is color. Color has reached a point where the quality, the ease-of-use, the cost and the impact of color are driving a lot of growth. For us, it's consistently double-digit growth. Personal innovation and print-on-demand is changing the communications market. It's also driving the transition from offset to digital. Great color technology with personalized content is about as good as it gets in terms of the impact and the ability to have communications that find their way through the clutter of information.

We're finding that customers, particularly big customers, want services and solutions. They don't want to buy hardware. It's got to solve a business problem. It's got to add value beyond hardware functionality so that whether it's content management, infrastructure optimization, [or] document network capabilities that automate business process, there's just a whole set of business problems that need to be addressed. We're very focused on making sure that hardware is somewhat behind the curtain and the solution to the business problem is really the lead.

It's been close to 18 months since Xerox began its full-bore attempt to enlist the channel in its effort to hit the mid-market and small business segments. Where is Xerox seeing the most traction and where must it do better?

We're certainly seeing traction in terms of color MFPs. I would say that is the sweet spot in terms of growth in the market right now. The price points and the capabilities are really making that a very hot market and one that we have very good participation in. We're also seeing that services are something there's a lot of pull for, whether its workflow collaboration software like DocuShare or print management tools. There's a whole set of value outside the hardware that is becoming a source of new revenue for the channel. Well, I think that we need to spend more time on the marketing and training side [for] our distribution and reseller community. I think we should go further up-market with our partners as well. We're finding there's an appetite to go up-market and take [on] more sophisticated technologies. But that also requires more knowledge, expertise and training and support than has been available before. So I think we're working through [providing] access to more capabilities whether it's up-market technologies or services and solutions, and provide the training, the expertise and the competence that's required to really be able to market those to customers.

Next: Update On Results Of Global Imaging Systems Deal

It's been a year since the acquisition of Global Imaging Systems. How has that worked out? What competitive advantages have that provide Xerox?

We're really pleased with the results of Global, to date. As you know, Global was a great company before [it was] acquired by Xerox. Our strategy has been to insure [it] stays a great company. The biggest change for Global is that they have access to the portfolio of services [and] technology capabilities that Xerox can provide, which they had no access to before the acquisition. In terms of results for us, Global clearly touches a marketplace that we did not have strong access to before. So much of Global's business is incremental for us. Almost none is substitutional. Global operates in 37 states. They've actually made six acquisitions since we've bought them. They're continuing to expand across the U.S. Which is one of their assets. Acquisitions are tough to do, but that is their model. They did one in Florida [recently], one of the largest independent dealers in Florida. And for us it's kind of a double-win. Not only do we get a whole new area of distribution for Xerox technology, but we're replacing [competitors'] technology as well.

How does the Veenman acquisition fit into this plan and how is it similar to or different from the Global Imaging acquisition?

Well, I think it has a lot of similarities. It's a really good business. We're not into fixer-uppers. These are the premier distribution companies in their space. Veenman has a great reputation in the marketplace. I believe it's the largest independent dealer network in the Netherlands. It had no Xerox technology that it was carrying before. Now, obviously, like with Global, we have this opportunity to get all this incremental business from Veenman. [And it has a] great management team like Global.

At the time of the Global Imaging acquisition, there were a lot of concerns among Xerox' channel partners about channel conflict. What have you done to ease or resolve those concerns? Has this resulted in any conflict?

Sometimes the best resolution is reality. And the reality is that there was very little overlap in terms of the market opportunity. We found that there are pockets [of overlap], but it's certainly not broad-based conflict by any means. The biggest thing here is just to make sure there's a customer-focused strategy. In this market nobody's got a huge share of the market and therefore the opportunity is really about new business and new [market] share much more than stepping on each other's toes. I think it's actually worked out very well. I think we've done the right things for all of our channels. Where it's appropriate to coordinate we do. This acquisition was about incremental distribution and that's why it was such a great fit with Xerox.

What about resellers whose focus is service and providing services to SMBs?

If anything, I think we're working really hard to support the extension of their services reach with the kind offerings we're driving for the reseller community. Print management has been a big opportunity and that's something we've worked hard [on] to take some of the capabilities we have at the high end and simplify them for print management in the office. And we'll make that available to Global, but we'll make it available to all our resellers as well. There's no preferred relationship there in terms of services capabilities for either our partners or Global.

Do you plan additional acquisitions like Global and Veenman?

Global was kind of a unique acquisition for us because it was the largest independent network available at the time. I don't think there's a Global-like acquisition to be had. What's left, really, is Ikon [Office Solutions Inc.] and we made our choice with Global. In Europe we will look at other Veenman-type acquisitions if they make sense for us. But at the same time we've been extending our reseller relationships quite a bit, more resellers and deeper relationships with resellers.

Will HP's acquisition of EDS on the services side have any impact on Xerox, either with regard to competition in services delivery or by way of any distraction or disruption it could cause HP?

We had a partnership with EDS that wasn't huge, by any means. We partnered with them on some customer deals where they would do the desktop and we would do the document management. I believe that, in many ways, the opportunities that come out of this deal for Xerox are better than the risks. There's lots of IT outsourcers we can work with and they're lining up at our door. Certainly there's some of the Indian companies that would love to partner with Xerox on the overall IT outsourcing front. There's companies like Dell and IBM that we already work with and could have deeper and richer relationships with. We're EDS's seventh largest customer, so there's good reasons for us to continue to collaborate to some degree.

So what you're saying is that some IT outsourcers that are working with EDS now might be interested in working with you because of the HP acquisition?

Exactly.

Powerset continues to march toward competition with Google, thanks in large part to its relationship with Xerox. Where is Google most vulnerable to the Powerset-Xerox partnership? And should Google CEO Eric Schmidt start to worry?

(Laughing) I think I'm going to stay away from being arrogant here. This is a start-up and a technology and certainly not a product yet. There's certainly a lot of work being done in this area of natural language search. But I think most people believe over time that natural language search will be a preferred search artchitecture because it is more intuitive and your chances of getting [the] information you're looking for are higher. I'm not sure I would say it's a time for worry. But I do think it's an opportunity to exploit and we feel excited about the fact that Powerset has licensed the technology from PARC.