Luke Goldberg
Later this month we’ll be publishing the complete interview that we conducted with Luke Goldberg, global SVP, sales & marketing, Clover Imaging Group, for the September issue of ENX. Because of space considerations, we could only fit a portion of his comments in that main feature. This week as a warm up to our upcoming Webinar on September 22 on the color market later this month, we had another opportunity to talk to Luke, this time focusing on his views of the color aftermarket, including where it’s going and where it’s growing and where Clover Imaging Group/MSE fit into the picture. As always, Goldberg’s comments are thoughtful and insightful, and a must read for anybody selling color supplies and compatibles.
Everyone references color laser as the great untapped growth opportunity for the aftermarket due to its sub-10 percent penetration versus the OEM. Where do you think the aftermarket is today in terms of its ability to finally start eating into this huge OEM pie?
Goldberg: Certain aftermarket players have finally started to invest in the technology that’s required to tap into the color market even though the historical issues that have plagued the market’s ability to capture color market share still persist; there still isn’t the level of consistency and repeatability that’s required to convince a high-quality conscious OEM user that there is a true OEM alternative.
There is some light at the end of the tunnel. There are some companies that have made the needed investments on the raw materials side, such as the toner and components to produce a high-quality product. In addition, we, for example, have invested millions into the engineering infrastructure required to really provide a true OEM alternative product. As a result we have as high as 40% color penetration in divisions such as MSE. Overall, we certainly don’t see this being the proverbial year of color, but there is some positive momentum.
It might not be realistic in the foreseeable future that the aftermarket achieves the same penetration in color that it has in monochrome. A lot of that is because of this legacy of bad quality and because the average OEM color user has expectations of color output they might not have for black output. Because of that, let’s say in the monochrome world the aftermarket has about 30-35 percent penetration; right now in color it’s sub-10 percent. Maybe a realistic expectation is that in five years we can raise it to 20 percent in color. If we do that, that represents billions of dollars in incremental growth—growth that can sustain the profitability of the aftermarket during that period.
Do you think user expectations and concerns with color quality will ever go away?
Goldberg: User expectations are only going to remain heightened with color. The only way the aftermarket can overcome that is by having a period of repeatability and consistency with the quality of the product, and having success stories in Fortune 1000 types of businesses related to color quality, cost savings, and the green aspects of the product. We have to have some wins we can celebrate and those wins have to be capitalized to create more wins.
Is color in MPS engagements viewed any differently than in a transactional environment or versus monochrome in MPS?
Goldberg: It’s viewed differently than the world of transactional monochrome vs. color. The difference is, if you’re selling a transactional cartridge, the end user buys that cartridge in its entirety. The cartridge is $100 so they pay $100, which means that end user is going to do everything they can to get every single page out of that cartridge because they paid for it.
In the MPS world, that user is paying for the page. So at the first sign of any issue they’re going to yank that cartridge out of the printer and put in a new one. That’s what heightens the importance of quality in MPS because the user doesn’t have a vested interest in trying to work through a problem.
It used to be a misconception when MPS first became a buzz word and dealers would say quality isn’t as important in MPS as it is in the transactional world because we get to choose, and because the end user isn’t really buying a consumable, they’re buying a solution. That’s true, but then at implementation it became clear that the quality was more important in terms of how the user views that consumable. Other issues also ratchet up the importance of quality such as service incidents and activity based costing.
In April HP introduced new engine platform color printers under the “jetintelligence” banner claiming a high level of new technologies that are expected to challenge the aftermarket. Do you think this is good for the aftermarket industry?
Goldberg: I may have a different take than a lot of people. Ever since the beginning the aftermarket has been challenged with various technological barriers. These barriers were not necessarily things the OEM was erecting to make our lives more difficult. In a lot of cases they were introducing these technologies to produce higher quality products, a better user experience, etc. There’s been one after another of these challenges and the aftermarket has been remarkably resilient in overcoming them.
When the aftermarket does that, it makes the aftermarket better. It enhances our technological credibility and our ability to engineer around these challenges. When I look at something like jetintelligence and the way that Clover/MSE differentiate ourselves and set ourselves apart is by having the engineering wherewithal, infrastructure to overcome these challenges.
I look at jetintelligence as an opportunity. It’s an opportunity for the aftermarket to elevate itself and to prove our technological wherewithal and capabilities in the face of technological challenges. It’s important that the OEMs continue to innovate. Innovation from the OEMs drives aftermarket growth and without that you get stagnation. And when you get stagnation you get commoditization, and when you get commoditization prices circle the drain, and that’s what’s been going on the last couple of years.
What are major aftermarket players like Clover/MSE doing to help dealers capture the color opportunity and to keep up with new technologies such as referenced in the prior question?
Goldberg: Number one, everybody is going to say you have to produce a quality product. I’ll say that too, but the difference between our statement and others is that ours is easier to substantiate and quantify.
We can say we’re producing a higher quality product because we invest tens of millions of dollars into engineering infrastructure. In the Americas we have over 100 engineers with degrees. Nobody has that type of engineering infrastructure, and those engineers are not cheap. You need the expertise to meet the technological challenges and a lot of that starts with the intelligence of your engineering team.
The second thing is we are one of the only manufacturers in the world that can control our destiny when it comes to creating automation, manufacturing fixtures, and equipment, and we do all that in house. Whenever we can it enables us to look at a problematic process and automate it, which mitigates the human error that would be associated with remanufactured cartridges.
The third aspect on the technology side is additional tangible differentiation, which for us is part and parcel with patented technology. In the world of color there are certain things we’re doing that nobody else is doing that has a direct impact on print quality output. Things like our patented secondary cleaning system which completely eliminates the toner that builds up on the PCR that causes issues like streaking, backgrounding, leaking, etc.
We can go to a dealer to say this is something you can go to an end user with and intelligently explain to him this is different than the last product they tried and that failed, and what makes it unique and what issues it’s going to eliminate.
Then we take all those technological benefits, engineering, automation, benefits, and wrap that around a comprehensive marketing program where we take obtuse benefits and translate those benefits into terms any end user can understand. And we create impactful end user facing marketing that helps our dealers bring this message of color quality to the street.
What effect on the color market are new build compatibles having? Do they offer the quality to compete with the OEM?
Goldberg: New build compatibles, at least historically, have had a very deleterious effect on both the OEM and aftermarket. From an OEM perspective these products have been priced so low that it creates price pressure throughout the channel. The other issue is they come out before there’s any remanufactured option available so if an end user is going to buy them they’re taking share from the OEM. Whereas on the reman side we have to wait for these to come into collection, which gives the OEM a window of opportunity where they can recoup the investment they made on the printer.
Obviously, there are certain IP risks associated with new-build compatibles. Reman products obviously start with a repaired OEM core. A product like ours is labor and process intensive so you can’t simultaneously have prices going down and quality going up. New build compatibles are being sold cheaper and cheaper and cheaper because there’s an oversupply and not enough demand. When that happens quality is impacted. It just exacerbates all the perceptions end users have about the inferiority of our product.
When you look at where these products have actually impacted the market, it’s at the very low end and mainly with non all-in-one technology. With products from Samsung or OKI it’s easier to produce those as new-compatible products because they’re not all-in-one technology, they’re just toner tubes. So on the all-in-one side, the technology is more difficult to replicate. There’s a lot of intellectual property that a compatible manufacturer would have to reverse engineer around so I don’t think there’s been as much progress in the world of color on the all-in-ones as with the toner tube design.
Also, on all-in-ones, not only is it more challenging to make those new build compatibles, the quality is more challenging and the price is going down, which lends itself to lower quality which means you won’t have a product that favorably competes with the OEM.
How do you view secular changes in print and overall print declines, and do they mean that our opportunities in color are limited?
Goldberg: There aren’t a lot of people beating the drums about the paperless office anymore. That ship has sailed and whether you like it or not print is here to stay in the office. Is it changing yes, and there are a million reasons why—a more mobile workforce, Generation Y entering management in business and they’re a less paper generation—all of these changes impact print and may cause print to decline slowly.
The bottom line is people still use a lot of paper. The last statistic I saw from IDC at the end of 2014 was that approximately three trillion prints were made in 2014. It was estimated that might go down two to three percent in 2015. That’s still a lot of pages and the majority of those pages, especially in the world of color, are produced with OEM toner. Even if print was decreasing organically by a small percentage, because we are such a small piece of a still huge pie, if all we do is get to that 20 percent, the aftermarket can grow by $2 billion in the next five years.
We still have an incredible opportunity.
