SOHO Market Explosion - 1105 Media: Home -- 1105 Mediadownload.101com.com/rec/.../pres/Luke_Goldberg_SOHO_Market_Exp… · SOHO Market Explosion ... Entry Level Color (HP 2550, Samsung

SOHO Market ExplosionBig Opportunities and Small Challenges


DEFINING THE SOHO CHANNELWHAT IS IT?

– This channel is comprised of small offices, home offices, and the home user/consumer channel.

– Typically, the OEMs divide their consumables and printer business into defined channels, each having differing product offerings and levels of retail distribution. They are as follows:


CHANNEL CORE PRODUCTS LEVELS OF RETAIL DISTRIBUTION

Consumer Ink Jet, Photo Ink jet or Entry Laser-based MFP; Thermal Fax

Mass Merchant, Office Products, Computer Retailers, Consumer Electronics

Home Office/Small Business Entry Level Laser, Entry Level Color (HP 2550, Samsung CLP 500, QMS 2300), Laser-based MFP (Brother leads here)

Office Products, Discount Warehouses, Computer Retailer, Computer Catalog (CDW, Tiger)

Medium-sized Business Mid-Range Color (HP 3500, Xerox 8200)Mid-Range Laser of MFP (i.e. HP2300, etc…)Business Ink Jets

Office Products, Discount Warehouses, Computer Retailer, Computer Catalog (CDW, Tiger), Catalog Stationers, Superstore Catalogs

Large Business High-speed Network Laser and MFP, HP 4300, 9000MFP, Lexmark t634

Catalogs Stationers, Super Store Catalogs, Contract Stationers

Departmental HP 9500, Xerox Phaser 7700, HP 9000 MFP, Digital Copiers

Catalogs Stationers, Super Store Catalogs, Contract Stationers, OEM Contract

Of these clearly defined channels, the SOHO and consumer channel are offering the largest growth opportunity. The other channels are finite.


THE SOHO EXPLOSION

- HP places 1 million printers per week! Of these, 70-80% are placed in a SOHO environment.- Dell and HP will place over 13 million PC’s this year, most of which will be bundled with an ink jet printer in an

effort to shore up consumables revenue- 95% of them have consumables that can be remanufactured.

- Over 1 billion ink jet cartridges will be sold this year- Over 500 million ink jet printers are installed- Over 80 million digital cameras will be sold this year (many of these images will be

captured using ink jet photo printers from Epson, HP etc...)- By 2005, in many industrialized regions, such as the USA, Japan and Western Europe,

one-half of all consumers will have two printers in the home.- According to The Wall St Journal, digital camera’s were the number 1 gift given in Christmas 2004, in America.

PC Shipments 2002 2003 2004

Dell 4.45 Million 5.7 Million

5.3 Million

6.5 Million

HP 4.7 Million 6.0 Million


Overriding Trends

- Across all SOHO product lines, growth is primarily a factor of the following:- PC attach rates and the heated up competition between Dell and HP, PC sales has

become a key entry way to ink and toner consumables revenue. (see chart)- Increased digital camera usage and printing off the internet has increased average page

coverage's and consumables revenue.


Worldwide Digital Prints Market Forecast

Source: HP digital prints forecast



Overriding Trends

- Lowered hardware costs and increased functionality.

- Complete leveraging of hardware and PC sales to gain the consumables revenue (the razor to razor blade analogy).


A look at SOHO product lines by product category and growth trends.Ink Jet

- HP: Still the market leader in ink globally and in the US although market share is declining (most of the loss is at the hands of PC rival DELL)- Trend in ink jet is away from single function to MFC/MFP- High cost per page has always been a hallmark of ink jet, which, as we will discuss later, Dell is taking advantage of, especially on the laser side.- High ink consumables costs have created a consumer backlash creating aftermarket opportunity. As a reaction Lexmark, HP etc... have lowered cartridge

prices.- However, the release of the HP DeskJet 5650™/3650™ (Observer, July 2003) addresses the fact that consumers are becoming more leery

of high cost consumables. - These printers were designed especially for the SOHO/Consumer market with the lowest cost to date on consumables. Retail prices on a black

cartridge at $17.99 (No. 27A) USD and a tri-color cartridge at $21.99 USD. Interesting to note that these cartridges have half the life of a 45A or 78A. - #56A retails at $19.99, the #56 cartridge yields 400 pages, the #27 200. HP was actually a follower in the entry level ink jet market and these releases break

new price point barriers. (The 3650 at $79.00, the 3520 at $39.00)- Lexmark released the Z816, X5270 printers w/ low OEM sub $20.00 price points for a 200 page count ($0.4 + Cost Per Page)

- New # 21, 22 for 5x7 HP Photosmart 475 retail at $14.99 & $17.99, making gross roots collection a priority.- New 02 series non-integrated cartridges for the PhotoSmart 8250. Retail for $9.99 creating price challenges for the aftermarket.


HP lost its lead in PCs…Worldwide PC market share

Source: Los Angeles Times


…and has lost market share in the inkjet printer market…U.S. inkjet printer market share



…to a more efficient DellDell generated more than $2 in revenue per dollar of assets, and HP

barely generated $1 for every $1 in assets last year.



A look at SOHO product lines by product category and growth trends.Ink Jet

- New Developments, Trends in Ink as the digital imaging and photo revolution matures - OEM branding of Inks to enhance consumer awareness and differentiation

- Epson Pigment Durabright- HP’s brand new “Vivera” inks to compete with Durabright and Lexmark. (HP # 94, 95, 96, 97, 99, 100, 101, 102)

- All OEM’s continue to market ease of use and cost/quality versus retail printing- Bundling of Printer/Camera/Media

- Paper as the new cash cow.- Huge growth in 4 x 6 specialty printers – See chart on next page.- HP PhotoSmart 8250 at .24¢ a print - 6 color technology becomes the standard for photo applications and HP jumps on the bandwagon, HP and Canon now offer 8 color for photo professionals. - The release of HP Photosmart 8250 in June 2005, reassures HP Photo Ink dominance

- 4x6 photos in 14 seconds – When used with high cost specially formulated micro-porous papers for instant drying- 30% lower cost per page at 24 cents- 3900 nozzles = speed and quality- New Vivera # 02 cartridge sets

- Worlds 1st 5x7 printer (Photosmart 475)- New cartridge sets #21, 22, lowest prices yet at $14.99 and 17.99 - Improved print longevity- Image permanence – WIR certification- Light Fastness - “Sure Supply” technology similar to HP Laser Smart Supplies (Pixel and Drop Counting)- More camera phone/printer bundles/Nokia offers first 1+ mega pixel camera bundled with Epson printers equals more and more printed images due to

convenience of capturing camera phone images




Digital Photo Revolution

*4X6 now as low as $0.24 using Photosmart 8250*Figures based on estimated US street prices. Actual cost may vary based on printer used, images printed and other factors.

Digital photo development at Wal-Mart , U.S. cost comparison Jan. 2005

HP 97 Twin pack, Premium 280 ct.

Lyra Symposium – Consumer Printing


Ink Challenges- With HP and Lexmark, empties collection and cost are a critical issue. In general SOHO products present more challenging core

collection issues and the empty represents a much higher % of total cost. OEM price strategy versus empty cost will present a challenge especially as the OEMS attempt to shore up there own collection programs.- New HP regionally specific Vivera series with imbedded chips make collection a challenge.- To compete, the aftermarket must employ grass roots collection programs to coincide with grass roots sales efforts, focusing on affluent communities,

non profits, universities, etc…- HP protects it‘s supplies business with copy write and IP challenges

- Quality continues to challenge the aftermarket on ink. As with laser, the advent of STMC standards and consolidation will lead to higher quality.

- Measuring Ink for: - Color fastness- Water fastness- Dry time- Archival nature etc…

- Combating WIR certification of OEM’s superior Ink and Paper:Matching

- Aftermarket archival testing- Matching of Inks and Paper- Ink STMC ?


The SOHO Entry Level Color Market- Prevailing trend propelling growth is the plummeting hardware cost.

- The average cost for color in this segment is now sub $500.00. How these printers are being marketed and the opportunities created are important to understand.

- $400.00 Barrier broken with QMS 2400 at $399.00- Consumables for QMS 2300/Samsung CLP 510 are more expensive than the printers

- HP 2600 breaks new ground- Big part of “the SMB Segment is the largest for HP IPG Group” 10 Billion.

- 2600 “disruptive” flagship of SMB Segment. Sub $350.00, 8 PPM color printer fastest in class (slowest Black and White)- “Highly Colored” users use 2600 (Real Estate Etc…) Those wanting highest speed use 2550 or 2820/2840 – Worlds first Sub $900.00 color

MFP based on 2550 engine. - According to Lyra, of 1.85 million units sold 978,000 were in entry level (1-9 ppm) category (47% worldwide) - Positioning of entry level color: For the first time, HP and others (Samsung and Dell) are positioning entry level color as monochrome

replacements since, as HP says, “At under $500.00 you get your color for free.” In the case of the 2550 which replaced the HP 2500 and 1500 the monochrome print speeds are elevated to 20 ppm (4 ppm color) This printer, as well as the brand new entry level Dell 3000, and Samsung CLP 500/510, are marketed to users who are primarily going to use these as monochrome printers with the optionto print color. Serious color users would upgrade to an HP 3700, 4650, Phaser 8400 etc…

- Traditionally, cost per page is much higher in using a color printer to print black and white. Since the difference is nominal (approx 2.4 cents per black page for a 2550, 1.7 for a 1300), many entry level users looking to buy a new printer may make the jump to color. Conversely, at the workgroup level, when you compare average cost per page to print using a 4100/4200 it hovers around .1 cent versus .2 for a 4650. Since corporate users are more cost per page savvy, it is less likely to see this jump at the work group level.


Big Shifts in Consumer ProductivityTransforming the home office and SMB

Growth trends:– Color in the office and home– More pages printed in-house– Multiple printers and AiO’s in the home

Key enablers:– Affordable laser printing

– <$499 color laser printer– <199 monochrome laser printer

– Innovation improvements in performance, printing speeds and quality– Breadth of printing systems to meet diverse needs


Vendor Konica Minolta HP Konica Minolta Samsung Samsung HP

Model Magicolor 2300DL/2400 Color LaserJet 2500L Magicolor 2300W CLP-500/510 CLP-550 Color LaserJet 2550L

Introduction Date September 18, 2002 September 23, 2002 March 18, 2003 September 16, 2003 March 23, 2004 June 1, 2004

Street Price $599 $899 $499 $499 $599 $499

Speed (ppm)BlackColor

164

164

164

215

215

204

Foot print (w x d) 14.02x19.69” 18.9x17.8” 14.02x19.69” 20.1x18.5” 20.1x18.5” 18.9x17.8”

Cost per Page*BlackColor

2.30¢12.18¢

2.10¢ 12.01¢

2.30¢ 12.18¢

2.19¢ 11.69¢

2.19¢ 11.69¢

2.41¢ 12.01¢

PDI Support Windows PCL 6, PS . Windows Windows PCL 5Ce, PS 3 PCL 6, PS 3

Network Interface Standard Option Option Option Option Option

Maximum Resolution (dpi) 2,400x600 600x600w/ImageREt 2400

1,200x600 1,200 dpi class 1,200 dpi class 600x600w/ImageREt 2400

Paper Capacity (Sheets)StandardMaximum

200700

125875

200700

350850

350850

125875

Monthly Duty Cycle (pages) 35,000 30,000 35,000 35,000 35,000 30,000

Processor Speed (MHz) 200 300 N/a N/a 266 264

RAM (MB)StandardMaximum

32288

64256

3232

64192

64320

64192

Duplex Option No Option Standard Standard No

Cost per page figures are based on estimated street prices or vendor Web prices for Highest capacity cartridgesSource: Lyra Research, Inc., based on information from HP, Konica Minolta, and Samsung

U.S. Entry-Level Color Laser Printers in Retail

No

1616

264

35,000

250500

600x600w/ImageREt 2400

Standard

Host-based

3¢ 4¢

16.02”x17.83”

88

$399

June 1, 2005

Color LaserJet 2600n

HP


SOHO Color Laser Challenges and Opportunities

- Color chemical challenges not as critical as with the 4650 due to user requirements. Color chemical toners now available for the 2550/2500 etc…

- If you are going to experiment with color, do it in this channel since most users are not using this as a marketing tool and are printing mostly monochrome.

- Great profit opportunities exist in this channel now:- Overall color aftermarket penetration is less than 1% due to CPT toner quality and availability. The positive

by product of this is plentiful empties availability and low prices equal huge profits and revenues. For example: Based on a color OEM cartridge cost of $95.00 for HP 2550


SOHO Color Laser Challenges and Opportunities

Suggested sell price is $75.00 GP% is 41%

- Samsung and QMS 2300/2400 offer similar profit opportunities- In color, overall empties prices will IMMEDIATELY escalate as soon as toners become more readily available. Take

advantage of the market situation now to make this a profitable opportunity while the empties are cheap and plentiful.

Empty $2.00 - $3.00

Chemical Toner $21.00

Chip $6.00

Labor (10/hr) $5.00

Overhead $7.50

Packaging $2.00

Misc $1.00

Total $44.50


The Emergence of Dell as a Challenger to the SOHO Throne; Challenges and Opportunities

The Innovator Versus the Distributor.“I wish we had entered the ink business 10 years ago.” - Michael Dell

- In it’s first 10 months they sold 2 Million printers.- 5 million in 2004 VS HP 50+ million- Almost two years ago, as PC prices were on the decline, and Dell’s longstanding battles with HP were escalating, Dell

entered the fray to capture some of HP’s consumables revenue. (on 70 Billion in sales net profits are around 2.45 Billion, 70-80% are from the printer business, Dell a 40 Billion dollar company profited 2.65 Billion)

- At the outset, Dell partnered with Lexmark and HP paid little attention, citing 12 billion in R & D according to Fiorina 11 patents per day (LA Times) 1 million printers sold per week, etc… Meanwhile Dell honed its direct distribution model and is poised to mount the biggest challenge to HP’s SOHO hegemony.

- Dell is “practically unassailable by competitors – not because they can’t emulate the model, but to do so means practically discarding the business and organizational model they have today. Most companies don’t have the stomach for it.” - Paul Wiefels, author, The Chasm Companion, January 2003






- According to Dell, they now have market share in the US in 2004 in the profitable all-in-one ink segment of 16%. How do they do this:- Direct distribution model allows them to communicate directly to the user, communicating benefits on cost per page etc..- “We think we can cut the price of printer consumables by 40 percent from what HP is currently charging.”

- Michael Dell, February 2003- “They [HP] have got a customer base that’s paying a ton of money for the most expensive liquid on the planet.”

- Kevin Rollins, June 2004 - More recently in May 2004, Dell lowered the bar from entry level MFP hardware and cost per page.- Dell 1600 (Samsung Engine) and Dell 1700 (Lexmark E-330)

- 1600 has no “use and return” program signaling that it is not a Lexmark engine.- Cartridge prices 30-40% lower than competing HP MFP’s 3380 (HP1200) and 3000 (HP1012)- Cost per page 40% lower- Color Ink Jet 40-60% lower cost per page- Dell will continue to educate it’s customer on printing costs which will cause HP to re-evaluate pricing strategy- Dell’s direct distributor modes give them an advantage in communicating that message- Dell’s 1100 breaks new laser printer price barriers at sub $80.00

- How big of a threat is this to HP’s core distributors?

See chart on next page.


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Dell 720 Inkjet Printer HP Deskjet 3745 Color Inkjet Printer C9025A

Dell J740 Inkjet Printer HP Deskjet 3845 Color Inkjet Printer C9037A

Dell 922 All-In-One HP PSC 2355 AIO Q5789A

Dell A920 All-In-One HP PSC 2355 AIO Q5789A

Dell 942 All-In-One HP PSC 2610 AIO Q5542A

Dell A940 All-In-One HP PSC 2610 AIO Q5542A

Dell A960 All-In-One HP OJ 6210 AIO Q5801A

Dell 962 All-In-One HP OJ 6210 AIO Q5801A

Dell 1600N All-In-One HP AIO LJ 3380 Q2660A

Dell 1700 Laser Printer HP LJ1320 Q5927A

Dell 1700N Laser Printer HP LJ1320n Q5928A

Dell M5200N Laser Printer HP LJ4250n Q5401A

Dell W5300N Laser Printer HP LJ4250n Q5401A

Dell R1500 Laser Printer HP LJ1160 Q5933A

Dell S2500 Laser Printer HP LJ2420 Q5956A

Dell S2500N Laser Printer HP LJ2420dn Q5959A

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Dell printer’s compatibilities:

- In most cases the technology is identical with different chip sets.- Empties collection will be a challenge since all Lexmark technology uses the use and return program.

Dell 1500 Lexmark e321

Dell 2500 T420

Dell 5200/5300 T630

Dell 1600 Samsung ML 2250 (no chip)

Dell 1700 Lexmark e330

Dell 3000/3100 color Fuji Xerox

Dell/Samsung Dell 1100 = Samsung ML1740


E-Series Engine Cost per Page

Lexmark E Series

Dell1700

IBMIP 1412

6K Toner Street Price $119.00 $89.95 $155

Drum Kit Street Price $62.50 $49.95 $63

Toner Cost per Page 1.98¢ 1.50¢ 1.92¢

Total Cost per Page 2.19¢ 1.67¢ 2.13¢

Source: Lyra Research, Inc.


Lexmark E232t and Dell 1700 versus Selected Entry-Level PDL-Capable Monochrome Laser Printers

Vendor Lexmark HP Brother Samsung Dell Dell

Model E232t LaserJet 1150 HL-5150D ML-1750 1700

May 2004

$199

25 ppm

200 MHz

PCL 5e, 6

1,200x1,200

16 MB

n/a

250 sheets

550 sheets

No

215 in.²

3,000

3,000/6,000

1.67¢

1100

Announce Date June 2004 July 2003 January 2004 November 2004 June 2005

Street Price $299 $299 $299 $299 $99.00

Speed (Letter) 22 ppm 18 ppm 21 ppm 17 ppm 15 ppm

Processor Speed 200 MHz 133 MHZ 133MHz 166 MHz 150 MHz

Languages PCL 6 PCL 5e PCL 6, PS3 Windows, PCL 6 GDI

Maximum Resolution 2400IQ 1,200 Ret 2,400x600 1,200x600 600 x 600

Memory 16 MB 8 MB 16 MB 8 MB 2 MB

First-Page-Out Time 8.5 seconds 10 seconds 10 seconds 12 seconds n/a

Standard Paper Supply 800 sheets 250 sheets 250 sheets 250 sheets 150 sheets

Optional Paper Supply No No 250 sheets No No

Duplex No No Standard No No

Footprint 217 in.² 311 in.² 227 in.² 203 in.² 11.7"x8.54"x14.1"

Starter Cartridge Yield (pages) 1,500 2,500 3,500 1,000 1,000

Standard/High Yield (pages) 2,500/ 2,500/4,000 3,500/6,700 3,000 2,000

Cost per Page (best available) 3.17¢ 2.30¢ 1.63¢ 2.67¢ n/a

Source: Lyra Research, Inc, based on information from Lexmark, HP, Brother, Samsung, and Dell


Monochrome Multifunctional and Entry Level Lasers- The overriding trend here is the remarkable drop in price for these devices. Nowhere does the razor and blades analogy ring truer than

in these products. Clearly small home users and home offices are looking for certain things in a printing device;- According to Lyra’s year ending summary entry level laser grew faster than other laser segments.

- Conversely workgroup grew by only 0.5% due to lower hardware prices.- Of 12.2 million monochrome sold in 2004 10.6 million were sub $500.00

- All in one capability to print, fax, copy and scan. Traditionally Brother has been the MFC leader in this channel with the HL1240, 1650, 2040, 5040, 5150 etc… Brother offers great capability for and options for less than $250.00 with rebates. As in all printers in this segment, it is the consumables revenue that creates consumer sticker shock and aftermarket opportunities.

- The footprint wars. In this space, and for the retailers to market these products, the smaller the footprint, the better. Samsung has traditionally been ahead in this race especially with its very popular Samsung ML1710 printer. Replaced by the ML 2010 in June 2005, priced as low as $149.00 with smallest footprint in it’s class (now extended to the ML1750) This printer not only fits neatly into a small corner of a home office desk, but retailers love it because they can stack them up and they take up little shelf space.. Dell, with its 1700, and Lexmark with the e232 are also attempting to compete for smallest footprint crown and have bested the newest Samsung 2250 for the title.

- Konica Page Works 1350W – First sub $75.00 with rebates- Not coincidentally HP’s new entry level offerings such as the 1160 went with an internal paper tray to reduce the foot print of

predecessors such as the HP1200- In general many stand alone lasers such as the Samsung ML1210, Lexmark e210, and Samsung 1710 deliver very high speeds (17

ppm for the 1710) and offer rebates bringing the stand alone laser in this space well below $100.00. Unfortunately for the consumer, fortunately for the aftermarket, cartridges often cost more than the printer itself. (ML1710 retails for $79.00)


Profitability of Entry Level Consumables

Empty……………………………..……$10.00Toner……………………………….…..…3.00Drum (two cycles)…………………..…...4.00Labor, 15 minutes ($10.00/hr)………….2.50Overhead………………………………...3.75Packaging…….. …………………...……2.00Misc. ………………………………….….2.00

Total: $27.2553.4% GP

An example of the profits that can be realized with the Samsung 1710/1740 cartridge:

Empty……………………………………$3.50Toner……………………………….…..…5.00Developer roller (two cycles)…………...3.00Labor, 15 minutes ($10.00/hr)………….2.50Overhead…………………………….…...3.75Packaging/misc. …………………………2.00

Total: $19.7556% GP

The cost to manufacture a TN 560 toner cartridge:

- Easier entry - more cost conscious small business- Not tied up in cost per page agreement


OK, so the Market is Huge. How do I get into it?- Analysis of the consumer/SOHO channel tells us what the buying habits of these people are and therefore gives us a roadmap of how to penetrate this

channel.- Online sales. E-commerce is a very popular medium to sell inks and SOHO consumables.

- Spamming legislation has hindered this channel and now many sell ink jets on eBay, which offers a lot of competition and little profits. Those marketing not using spamming can still enjoy great opportunities on-line.

- Search engine registration is another powerful yet crowded E-Commence playing field.- Affiliate programs- Key word search's (Overture)- By 2007 internet marketing will be 13 Billion, surpassing magazines. (LA Times)

- Grass roots sales. Starts by selling inks to everyone you know: your employees, families, your lawyer, doctor. These people would rather buy from you than Office Depot.

- Direct mail, mailbox stuffers in upper-middle class areas illustrating cost and environmental benefits of compatibles.- Retirement homes

- Targeting SMB’s- Mimi Mall/Direct Mail

- Real Estate- Dental- Insurance- Mortgage

- Advertise in university book stores, bulletin boards, university newspapers. No consumer is more cost conscious than a college student, they have no bias about our products, they like environmental messages and saving money.

- Retail franchise opportunities- Other retail distribution. Since these products are now household items, every conceivable retailer is a potential buyer of these products;

- Convenience stores- Local and national grocery chains- Stationery stores - Local and national pharmacy drug chains


SUMMARY

– We have covered a lot of ground here trying to make sense of the changing imaging environment. The biggest enemy is not only the OEM but the FUD (fear, uncertainty, and doubt) perpetuated by rapid change and uncertainty. The competition is tough, but if we try to understand OEM movements and forecast change, we can create new strategies to compete. Hopefully this discussion, if nothing else, will provoke a thoughtful discussion of how we market our product today, what changes should be made to adapt, what products need to be added to current offerings, what does the future hold and how will we continue to not only survive, but to thrive in the face of change.

Documents

SOHO Market Explosion - 1105 Media: Home -- 1105 Mediadownload.101com.com/rec/.../pres/Luke_Goldberg_SOHO_Market_Exp… · SOHO Market Explosion ... Entry Level Color (HP 2550, Samsung