Document Imaging Trends and Predictions for 2017 and What They Mean

To say that 2016 was an eventful year is an understatement. Within the industry, we saw mergers big and small change the competitive landscape. Economic trends and declining print volumes buffeted the major OEMs and the channel. And contentious politics raised uncertainty over the business climate.

This begs the question: What can we expect in 2017?

ENX Magazine asked a number of leaders within the office imaging community to weigh in. We included people from all aspects of the industry’s ecosystem: major hardware OEMs, software vendors, dealers, suppliers, and financial services providers. These are the biggest trends the industry is paying attention to in 2017 along with their advice on how the channel should react. ENX Magazine will continue to cover emerging trends for 2017 in our ENX The Week in Imaging enewsletter.

A Changing Workforce

Finding good people to hire has always been tough. Generational turnover within dealerships is presenting a new challenge as management tries to meet the expectations of younger prospects and employees. “Today’s businesses include four generations (traditionals, baby boomers, generation X, and millennials) working together,” said Greg Chavers, director of U.S. copier sales for Lexmark. “Tailoring your message based on the different audiences is the key to success,” he added.

Millennials will also be buying a lot of equipment and services, again with a new set of expectations. “Millennials now make up a quarter of the nation’s population and are expected to spend upwards of $200 billion annually by 2017,” said Stephanie Dismore, vice president and general manager, Americas Commercial Channel at HP. “They prefer sleek designs that are flexible and compact – yet powerful,” said Dismore. She cited millennials’ preferences for influencing everything from mobile printing apps to multi-function printers to the rise of managed print services (MPS). “If the experience doesn’t meet their needs or expectations, they will seek an alternative,” she said.

Of course, the best way to understand and deliver on those expectations is to hire millennials into the right positions. That could be difficult in a climate where it’s hard to find the right people regardless of their generation. “Hiring is the number-one dealer challenge – again!” said Jennie Fisher, SVP and GM, for the Office Equipment Group for GreatAmerica Financial Services. She cited The Cannata Report’s 2016 Annual Dealer Survey, which showed recruiting personnel to perform in the services area as the top dealer challenge. She noted that GreatAmerica formed its PathShare HR Services eight years ago to help dealers with recruiting, hiring and retaining top talent. “Solution providers need to be effective in this area in order to scale,” she said.

Hiring good people might be harder depending on a dealer’s geographic region. “We do not have high unemployment in our markets,” noted Barry Simon, president of Datamax. “We cannot grow without hiring the right people to help us get there.”

Diversification Putting Pressure on Margins and Growth

Many dealers will try to grow by offering new services and products in 2017, and the range of those new offerings can be quite wide. “We see more and more dealers looking to diverge their business beyond the foundation of print to print-adjacent business,” said Luke Goldberg, Clover Imaging Group’s executive vice-president of global sales and marketing. This includes managed IT services, workflow, BPO, security, and even coffee services. “Business customers are demanding more from their suppliers and are looking to consolidate services in order to have one throat to choke,” he said. “Print’s future is uncertain to many dealers and diversification is the path forward.”

“Dealers are diversifying all over the place,” said John MacInnes, president of Print Audit. “They are getting into just about everything that the typical business consumes. This is good news because dealers are fantastic sales organizations that have the ability to sell anything.”

Diversification, especially in areas furthest away from the core print business, can put margins at risk if it’s not done wisely—for example, underpricing to gain new customers. “The erosion of service pricing in order to gain net new business is an alarming trend that needs to stop,” said Debbie Dellaposta, president of WPS/Doing Better Business.

Some dealers caution against rushing into new areas. “Dealers are losing focus on their core business because they are getting caught up in the hype and false high-margin promises of the shiny stuff. In reality, new product lines are a drain on capital, time, and energy,” said Dellaposta.

The commoditization of services like MPS and increasing competition are squeezing margins and prompting dealers to look for new lines of business. The best strategy for evaluating new lines, then, is to find products that are in-demand and under-served in the channel. “While MPS has reached a certain degree of adoption, other offerings such as digital signage/content services, and managed IT services have not,” said Bill Melo, chief marketing executive for Toshiba America Business Solutions. He recommends dealers have at least one managed service in their portfolios.

“Moving forward in this arena will differentiate resellers from the competition while providing another revenue stream.”

Refinement and Expansion of Managed Services

Dealers depend on mainstay services like MPS for recurring revenue, but again, competition and commoditization have been making them less profitable. “Too many companies are selling the same product in the same territory,” said Simon. “It is a lot tougher when costs are coming down and so is the pricing of aftermarket service, and you have to compete with someone selling the same product.”

This has led dealers to look for other higher margin services. A big area is managed IT services. “In 2017, integrated network and other IT services in the office technology industry will continue to evolve,” said Fred Carollo, GM of Office Technology Platform at EverBank. “These total solution products will be offered to the end-user with bundled documentation and invoicing. If the economy continues to improve and new businesses enter, a focus on maintenance contracts and services may be the key to converting clients in the traditional office products space.”

That doesn’t mean that MPS is dead. In fact, MPS may see a bit of a revival as dealers rethink how they deliver the service. “As MPS has become commoditized over the last few years, the growth and profitability of the business model has suffered,” said Doug Johnson, chief strategy officer at LMI Solutions. “Many dealers are now taking another look at MPS from the ground up, in part to determine if they continue to offer MPS as part of their portfolio and in part to determine how to offer an MPS solution set that is efficient, scalable, and profitable.” The challenge for some dealers is the lack of investment capital needed to relaunch their offerings. “It will be interesting to see how that shakes out. Who will back away from MPS, who will double-down on a relaunch?” he said.

“Managed print profitability and scalability seem to be a key topic for resellers that have a managed print practice, but are struggling to reach the business potential they had hoped,” said David Concors, vice president of sales at Supplies Network. “The need to add overhead in the form of staff and equipment outpaces the onboarding of new managed accounts, and the failure to deliver an authentic, hands-off managed program prevents the ability to scale. For many resellers the battle to achieve profits and growth are causing them to reevaluate their strategy in an attempt to streamline operations and improve the customer experience.”

“I think the key word is relevance,” said Concors. “The market is not experiencing overall growth. However, according to Infotrends, managed or contracted business is experiencing growth. So all of us in the supply chain need to challenge ourselves. Are we offering relevant products and services to our customers? Are we delivering on the promise of those products and services? If the answers to those questions are unclear, we may be losing in the battle for relevance in what will only become an increasingly competitive market.”

Increased use of technology to deliver and manage MPS and other services might help boost margins as well. “Increasing efficiency and reducing cost are all based on automating print operations, eliminating redo or waste, and using analytics and software tools to reduce downtime,” said John Henze, vice president of marketing at EFI.

Another hurdle that dealers will have to face with new services is marketing—getting the message out to customers and prospects about those services. Simon, for example, said that Datamax would be thinking about how it would market managed network services to its existing customers profitably. “It’s our future,” he said.

“Even when a company is adding offerings or providing more in the way of service, many dealers see the next challenge is communicating the value of what they are now offering,” said Henze.

“The smart dealers are trying to recruit more tech savvy salespeople who can do this. The end result is that a dealer can capitalize on the trends and conduct real business discussions with clients, as opposed to just having a product centered discussion.”

Expect to see more dealers offer content-related services, and not just those associated with digital signage or website development. “As the volume of available data continues to grow, end users will look to dealers to help manage that information,” said Hiro Imamura, vice president and general manager, Business Imaging Solutions Group at Canon U.S.A. “This growth is a major revenue generating opportunity for the dealer.” Canon recommends that businesses take advantage of professional services that will address these pain points, enabling seamless and secure access to documents inside and outside the enterprise, creating a pathway for information to move faster and work to be completed more efficiently.

“As MPS matures, organizations are finding that there are many more advantages to having managed services than simply reducing print related costs, with businesses becoming more receptive to implementing additional cost saving measures and efficiency-enhancing services into their environment,” said Imamura. “MPS is not a prerequisite to managed content services (MCS), but where there is an active MPS relationship with a customer, there is the potential for dealers to initiate the MCS discussion.”

Customers Looking for More Holistic Solutions

Much of what is driving dealers to enhance or expand their offerings is that customers are turning to their trusted providers for products and services outside their core areas. “We see more accounts/prospects looking for a single source provider for their imaging and IT needs,” said Bill McLaughlin, CTO at Atlantic, Tomorrow’s Office. “Having the ability to assess and optimize the entire imaging fleet by utilizing a suite of software to provide automated supply and service fulfillment, rules based print, secure print, and document management.”

Dealers who understand the core customer issues seek a more holistic approach to the solution, thereby creating more customer trust, loyalty and “stickiness.” “Dealers are becoming better skilled at deploying more solutions and services beyond the hardware box they sell,” said Leah Quesada, VP of marketing and communications at Xerox Corporation. According to a Xerox survey, SMBs want to improve workflow/business processes (47 percent), reduce printing costs (42 percent), improve customer service/response times (39 percent), and improve security/disaster recovery (34 percent). “Dealers are aware of these business priorities and are more inclined to address them with end-users,” she added.

Customers are willing to pay a premium to providers who can reliably provide solutions across all their objectives. “The dealers that are thriving are doing so because of increasing value to their customers,” said Henze. They add value by expanding offerings into areas like display graphics or providing more sophisticated cut-sheet offerings like perfect bound or bleed edge tabs. “Another way to add value is to provide more services – offering a storefront, design services, cross-media marketing, color matching guarantees, and so on,” he said.

Industry Consolidation

Dealers are increasingly being divided into buyers or sellers. Buyers are looking to expand offerings or territory by acquiring competitors or complementary businesses. Sellers might be owners ready to retire but have no one to hand the reins to, or don’t have the resources to make the investments needed to stay competitive.

MacInnes sees continued M&A activity among dealers. “The baby boomers have a choice, sell or pass on the reins,” he said. “This gives aggressive acquirers a great opportunity to get bigger. We are also seeing private equity backing acquisitions, so the money is out there.”

“Reseller consolidation seems to be accelerating,” said Concors. “We are seeing larger resellers focused on selling solutions growing. They are taking market share and planning for acquisitions to expand geographical coverage and customer base as well as add to their product and services portfolio to increase relevance to customers and vendors alike. The struggle to remain relevant is becoming very real for those who have not evolved to offer services and solutions that add real value.”

“Dealers are often looking to grow their businesses to transition to the next generation or to sell. With this in mind, there’s been a renewed focus on building enterprise value,” said Fisher.

“GreatAmerica works closely with our dealers to identify ways in which they can enhance their enterprise value. Many are taking initiatives like technology integrations, bundling, and managed services to the next level of sophistication and profit.”

Not just the dealer channel is consolidating. It’s happening throughout the office imaging ecosystem. “Our industry has been stuck in neutral for the past few years, and OEMs are seeking new ways to grow revenue and share through committed partners,” said Brian Stevenson, president of footPRINT MPS and the director of technology & managed services at TriMega. “HP started this trend, which resulted in 20,000-plus resellers losing their ability to purchase HP supplies through authorized distributors.” OEM consolidation has led several OEMs to carry out their own version of an authorized reseller model. “These OEM decisions, along with the growth of new transactional competitors (Amazon), will have an impact on a significant percentage of the reseller community. These realities may be leading to the accelerated rate of consolidation we’ve been seeing across our industry – and with bigger dealers,” said Stevenson.

“Clearly, there are changes at every point in the value chain, and even across points in the value chain,” said Johnson. “The rules of engagement that have guided this industry for 30 years are being blown up. That means new opportunities for those willing to think outside of the box and the potential of death for those that are not.”

Increasing Digitization of Paper Processes

People are printing less, and that’s affecting services and supplies revenue. Some see opportunity ahead in the trend towards digitization. “Forty-six percent of all SMBs say that time is wasted in their organizations every day on paper intensive processes, indicating the potential for great savings if the processes could be streamlined,” said Quesada. Xerox’s survey shows that SMBs are digitizing paper processes at a significant rate.

One in five SMBs would like to implement a plan for digital processes, but are unaware of paper-free options and solutions. “These trends are important because they signal opportunities for dealers to expand their revenue,” said Quesada. “Document management is the bloodline to running companies. Some 81 percent of all organizations also report that they plan to improve some of their current document workflow processes in the coming 12 months. Only 22 percent intend to use the office equipment dealer to carry out an MPS assessment. There are huge business opportunities for dealers – delivering MPS, cost reduction, and productivity improvements integrated into the customer’s mobility and security initiatives,” she said.

Another big opportunity is scanning, but dealers might need to rethink how they package the products and services. “Document scanning versus printing is increasing significantly,” said Joe Odore, product manager at Panasonic. “Numerous resellers have told us that customers are scanning more than they are printing and it is shrinking their margins due to higher service and less print.” As a result of increased scanning, Odore sees more dealers adding a standalone scanner as part of the document management solution.

More scanning means an increase in service cost, since MFPs are not designed for substantial document scanning, particularly the feeders. “The addition of a document scanner into any MFP-based solution only adds a small increase in monthly leasing costs, while reducing the servicing burden on the MFP device itself,” said Odore.

MacInnes noted that in Europe and South America, dealers are starting to charge for scans. “North America has got to follow suit,” he said. “The machines are getting used, but the dealer is not getting paid.”

There is also opportunity to generate more revenue from printing. “Negativity surrounding the future of print still persists,” said Goldberg. “This is critical because our biggest revenue generator as an industry is supplies. While the 3 trillion pages being printed annually represent a huge opportunity, many dealers don’t feel bullish about print as a growth area.” To maximize print revenue, he advises dealers to look at technology that addresses print mobility, security, and workflow, which might remove barriers to printing.

Verticalization

One way to add value for customers is to offer solutions that are fine-tuned to the industries they are in. OEMs have started offering devices and solutions that are designed for or configurable to specific industries. “One area that is gaining traction and having a positive impact on the dealer community is verticalization,” said Melo. Toshiba’s approach combines its e-STUDIO MFPs, the Elevate customizable UI app, and its Vertical360 go-to-market methodology.

“Document management dealers are expanding their customer outreach efforts to include more verticals – healthcare, churches, education, legal, financial, and real estate,” said Quesada. Companies are looking to cut costs and increase productivity in billing/invoicing, business/financial reporting and HR forms. Dealers who can tailor industry-specific solutions in these areas will have an advantage.

Dealers with larger vertical opportunities might want to consider devoting more resources to them. “Dealers, with varying degrees of success, are focusing more on vertical markets with services and software that add value. The larger dealers will often have specialists in those industries,” said Henze.

More Ink in the Office

Manufacturers like HP and Epson are pushing inkjet as a lower-cost alternative to laser technology in the office. Dealers are watching to see what happens, but most are a bit skeptical. “Ink in the office is definitely growing, and it’s poised to grow at a faster rate in 2017 with several new models expected to be released,” said Stevenson. “The performance appears to be on par with or better than many laser devices. With the lower cost per page, the speed benefits, and the commitment of the OEMs to continue down the path of ink-based technology, dealers may want to invest some time to understand the benefits and drawbacks,” said Stevenson.

“2017 will be a telling year for the long-term success of ink in the office,” said Johnson. “If 2017 doesn’t deliver significant increases in device placements in 2017, the technology may be a limited alternative in the long run.”

Production and Industrial Print Growth

More and more companies are looking for in-house digital solutions for printing services they had previously outsourced. Dealers see this as a big opportunity going forward since the technology and OEM partners are familiar. “We should see an increase in dealers offering newer segments such as industrial printers and production print units to accommodate concentration in the mass print sector,” said Everbank’s Carollo. “We expect to see the market continue to expand with these product offerings to compensate for the reduction in print volume.”

“The new buzz lately is label printing,” said Fisher. “Capabilities like variable data printing and the ability to print on demand are catching the market’s attention. There are vertical markets like healthcare and distribution that show promise, and it will be exciting to see where this opportunity goes.”

Like any opportunity, however, success depends on how much you are willing to invest in it. “Larger organizations are bringing more of their production print in-house,” said Dellaposta. “It’s important to have knowledgeable staff to help with these different and more challenging requirements.”

The Bottom Line: More Work

What do all these changes together mean for dealers? LMI Solutions’ Johnson talked about the additional pressure it all puts on the dealer. “Navigating a revamped MPS offering, responding to the myriad of changes that industry consolidation pushes to the channel, and evaluating technology such as ink, all put a much bigger burden on the dealer. The dealer has always been the point in the value chain where all of the chaos has to be organized, rationalized, and structured in a way to make sense of it all to the end customer. The workload placed on the typical dealer to make sense of it all has probably never been higher.”