Xerox-Global Imaging Deal: A Sign of Change To Come?

Xerox's planned $1.5 billion acquisition of mega-VAR Global Imaging Systems raises questions about the future of the printing and imaging channel. As IT VARs, copier dealers, printer vendors and copier vendors continue to battle for dominance in the lucrative market, who will emerge victorious?

Xerox isn't the first copier vendor to acquire one of its own dealer partners or a competitor's solution provider, although this deal is certainly the biggest of its kind. Toshiba, Sharp and Ricoh have been acquiring smaller dealers over the past several years. Toshiba, in fact, has acquired some 45 dealers to date.

Taking control over your channel is a trend moving across the printing and imaging industry today, according to Keith Kmetz, industry analyst at IDC in Framingham, Mass.

"I think we'll be seeing a lot more channel acquisitions by vendors," Kmetz says. "There's no question that vendors want more control over the channel and better control over distribution."

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Document imaging VARs, too, are not that surprised by the deal.

"Our large manufacturer suppliers have huge investments in capital equipment, and if a VAR like myself doesn't send orders, their equipment sits idle and they can't have that," says Dick Gray, president of Xtension Technologies, a VAR in Laguna Hills, Calif. "They have to be turning the iron constantly to have a steady flow of business coming in. If the distribution channel doesn't meet that need, they'll go direct."

In fact, Gray predicts deals such as Xerox's are signs the market could eventually revert to a direct model.

While no one knows what the future holds, analysts predict that, for the near term at least, no one sales model will prevail over all others and that all of the models face different obstacles ahead. The key for success for anyone in the market is the ability to sell solutions and services that lead to recurring revenue streams, says Ian Hamilton, analyst at Current Analysis, San Diego.

Acquiring Global Systems gives Xerox an instant sales force with expertise in selling document imaging solutions and services, which may be more cost-efficient for the copier king than training thousands of VARs, Hamilton says.

Xerox contends that it's still committed to driving sales through the channel. But the company will likely have to tackle channel-conflict issues--either perceived or real--as Global Imaging takes its products to market. Channel conflict is already an area where Xerox struggled a bit in the past year. In fact, the vendor's declining scores in that area on the 2006 VARBusiness Annual Report Card offset its high marks on other Partnership criteria and caused it to lose the crown to channel newcomer Ricoh.

Jim Firestone, president of Xerox North America, tried to address the channel conflict issue earlier this month, acknowledging at the outset that not all such conflicts can be avoided. He outlined Xerox's three-pronged approach to the SMB market, which, he contends, makes room for many. First, there's Xerox's traditional agent program. Then there are the IT resellers that predominantly sell printers today--the ones Xerox targets for training on more sophisticated document management solutions. The last leg of the stool is Global Imaging, which will operate as a wholly owned subsidiary of Xerox.

The vendor says the Global Imaging acquisition will enable it to make inroads into the SMB market, where it estimates that less than 20 percent of businesses currently use Xerox products.

Up to this point, Tampa, Fla.-based Global Imaging hasn't sold Xerox products at all, opting instead to sell copiers and MFPs from Canon, Konica Minolta, Ricoh, Sharp and Toshiba, and printers from Hewlett-Packard.

Interestingly enough, Xerox had originally intended to woo Global Imaging as a reseller.

"We started talking to Global Imaging about a distribution relationship," Firestone says. "But we realized there was a bigger prospect here. Global's local presence in the document industry is where we can leverage their sales, services and support. It was easier to evolve with them in-house."

Carolyn A. April contributed to this story.