Now that the last crumbs of fruitcake have been devoured and there isn’t a trace of egg nog to be found in the cafeteria refrigerator, it’s time to dust off the old crystal ball and take a look at what 2019 has to offer. It’s safe to say that M&A left a significant handprint on the previous year, and that consolidation will once again cause the market of independent dealers to shrink. And there is ample evidence to suggest that manufacturers, suppliers and other players within our little world will find there is strength in uniting under one flag.
Most folks have returned from vacation and are ready to begin conquering whatever challenges 2019 has in store for them. To get your year off to an informative start, we’ve collected a rather large sampling of industry heavyweights throughout the office technology and imaging universe to share their views on what we can expect from the New Year. Not all of the following opinions are bright and cheery, but like a traffic report, hopefully these pundits can help you steer clear of potential jams while providing a quicker access route to your destination—the ongoing road to success. May your 2019 journey be a safe and profitable one.
Ondrej Krajicek, Y Soft
Ondrej Krajicek, chief technology strategist for Y Soft, believes artificial intelligence (AI) will play a significant role in increased productivity and security for print management. He feels AI will deliver significant boosts in user productivity by increasing the level of process automation, including the discovery of new business processes or the optimization of current ones.
“Process discovery is kind of a holy grail of AI in business process and enterprise office workflows applications, because it will solve the ultimate challenge of automating business processes—someone has to realize that there is a process to automate and create that automation,” he said. “Today, workflows are manually created and are a one-size-fits-all approach. With AI, the user data will suggest an optimized workflow or suggest a new workflow. And, those suggestions may be less structured, more ad hoc and take into account individual user’s preferences fulfilling the purpose of the workflow at the same time. AI might also anticipate the needs of users, matching the right user experience at the right moment or dynamically change depending on the circumstances.”
The M&A Mystique
It comes as no surprise that the continued onslaught of M&A continues to dominate mindshare among industry professionals. Stiff competition from manufacturer branches, the demands of new technology and diversifying a dealer’s product and service portfolio are many of the key triggers that are driving the movement, notes Nick Capparelli, managing director for LEAF Commercial Capital.
Nick Capparelli, LEAF Commercial Capital
“We’re seeing a trend toward increased demand for capital to support M&A and post-acquisition integration, facility updates, hiring, marketing, inventory management and so on,” Capparelli observed.
“Increased M&A presents a number of challenges, including maintaining staff morale, changing capital structuring and managing customer sentiment in the face of shake-ups to relationships that have often spanned decades,” he added. “Larger dealers also have more leverage with manufacturers, increasing competitive pressure for them. Allied providers, such as equipment leasing and finance companies, will need not only to keep up with the needs of businesses as they consolidate, but to also anticipate and address the challenges these businesses will face as they diversify their offerings.”
Joseph Dellaposta, Doing Better Business
Joseph Dellaposta, owner and COO of Doing Better Business in Altoona, PA, predicts increased M&A movement from both the dealer and manufacturer standpoints. This will result in fewer players, with the remaining dealers getting larger.
“This could result in a more competitive market, or it could eliminate the low-cost provider mentality, since everyone will have overhead and shareholder/investor profit expectations,” he said. “I think dealers should solidify their base as best as they can and keep their eyes and ears open for potential acquisitions and mergers.”
Bill Melo, Toshiba
As organizations continue to change hands at the dealer level, what impact will it produce on the entire dealer ecosystem? Bill Melo, chief marketing executive for Toshiba, feels the aim of the acquisitions is to create a new type of reseller that can provide a variety of services for SMB clients.
“Will this new model succeed? If so, can it move downstream from the well-capitalized, tier-one dealers that are blazing the trail to the majority of document solutions resellers that don’t have the wealth of resources from which to draw?” Melo posed.
Darren Metz, Novatech
One of the key players in the M&A space is Nashville, TN-based Novatech. Darren Metz, CEO, believes its incumbent upon dealers to take a hard look in the mirror and decide whether they have the resources and firepower to compete, particularly in metro markets where consolidators and OEMs have a considerable presence.
“The big thing is for the dealers to figure out how they’re going to participate in this; are they going to be the last independent guy standing, or are they going to be a regional player consolidated themselves?” he mused. “Are they going to be a consolidator themselves? I think it’s decision time for the dealer channel. I don’t think that business as usual is going to be an option. The smaller dealer choosing the business-as-usual option is likely to find itself muscled out if it’s in any sizeable market at all.”
John Lowery,
Applied Imaging
Along the same vein is the growth of venture capital investment in the industry. John Lowery, president of Applied Imaging in Grand Rapids, MI, notes the trend is to buy dealers, fuel growth and then flip the business.
“For the independent dealers, this adds opportunity and potentially more competition, but long-term, more opportunity for growth,” Lowery said. “The impact to the industry will be the loss for some manufacturers’ distribution. So, for the dealer, there could be an opportunity to go after the base they are trying to convert to another manufacturer. The focus for dealers should be to take advantage of strategic acquisitions to fuel growth and build necessary resources dealers need to compete.”
Lowery adds that as a Ricoh dealer, the ability to buy the OEM’s MIF and eliminate competitors has been good for both parties. “Ricoh is clearly out front on this trend, and we believe others will follow.”
Value-Added Solutions
Sammy Kinlaw, Lexmark
One of the most prevalent trends sees dealers educating themselves to create value-added “beyond-the-box” solutions in the print space, according to Sammy Kinlaw, vice president, worldwide channel and OEM sales for Lexmark. “This could include serviceability, adding value such as cloud management for fleets and/or continued emphasis on security in the print space,” he said. “We will see new players selling print in 2019, and we will also see remaining players continue to become smarter. Smaller partners will begin to offer MPS.”
Andy Slawetsky,
Industry Analysts
Diversification is certainly a hot-button issue moving forward, notes Andy Slawetsky, president and owner of Industry Analysts. He points out that many dealers are evolving beyond the traditional copier/MFP model into managed service providers.
The key here is offering a product or service that carries post-sale opportunities. “Dealers need to continue to look to add products and services that fit within their customer base,” Slawetsky said. “Simply put, what else can they sell to their customers that they can support?”
Fred Carollo,
TIAA Bank
Fred Carollo, vice president of Originations, Office Products for TIAA Bank, Vendor Equipment Finance, feels one area of particular interest lies in the continued movement toward selling Everything-as-a-Service (XaaS), along with the desire to have all-inclusive agreements to document these solutions (hardware, licenses, services and consumables).
“Dealers will need to address their capabilities and offerings to compete in the ever-evolving market and stay relevant,” Carollo said.
Ray Fuentes, Edwards Business Systems
Indeed, many long-term changes to the industry will be driven by technology and client usage requirements, notes Ray Fuentes, president of Edwards Business Systems in Bethlehem, PA. Evidence of this can be found in industrial printing, with many manufacturers either making an initial foray or additional investments in their existing technologies.
“In addition, label-making equipment and wide-format are going to become additional areas of opportunity for our industry, along with color production,” Fuentes remarked. “We also see greater interest and growth in MPS as well as various software solutions. IT services, security and VoIP are additional areas of opportunity for recurring revenue. I believe AI will have a place for opportunity in our industry as well, and some of the companies being purchased by the manufacturers, or who they have partnered with, will bring that technology to our industry.”
Security Concerns
Hiro Imamura, Canon
Digital security continues to move up the hierarchy chart of concerns for dealers and end users, according to Hiro Imamura, senior vice president and general manager, Business Imaging Solutions Group, Canon U.S.A. He points out there is a strong market for MFPs and other equipment that incorporates digital security protocols due to the high volume of sensitive information that is shared on—and processed through—office devices.
“Features like user authentication and user tracking are critical to keeping business information secure, especially in the current workflow process that often spans multiple connected devices,” he said. “These modern security needs help inform features and optimizations for Canon’s leading imageRUNNER ADVANCE system and supporting uniFLOW device management platform, and will continue to be a priority for future editions of office solutions.”
Tracey Mustacchio, Nuance
Tracey Mustacchio, vice president of product and marketing at Nuance Document Imaging, notes that given the inevitability of security breaches, there is now a focus beyond preventing breaches to addressing content after they occur. The key is understanding exactly when and what content may have been exposed, and following up with a swift and appropriate response.
“(The) spend on securing data will continue to increase, but will expand from securing data in repositories (at rest) to include documents moving to and from those sources (in motion),” she said. “Print and capture are examples of unprotected vulnerabilities today in many organizations.”
SMB Versus Enterprise
Kevin Morris, OneDOC
The doom and gloom associated with dwindling page volumes is a well-documented trend, but this isn’t a cloud that can be found in all skies. Kevin Morris, president and CEO of OneDOC MPS of Oklahoma City, continues to see a veritable green field of opportunities for MPS growth. Morris’ sales force continues to reach out to businesses in the SMB sector that have not been queried, though he has little doubt the declining volume phenomenon is prevalent with enterprise accounts, a field in which OneDOC is not a player.
“Companies that we contact who have been through this before were really only sold service and supply rates to include with their printers and copiers,” he said. “There was no managed print going on in those accounts, anyway. So we still see a lot of opportunity in that space. That being said, we’re not silly enough to think it will be that way forever. We, like a lot of other companies, have looked at things to add onto our business. Also, for the first time ever, we have the opportunity to do a seat-based billing program and it is finally starting to come to fruition.”
Michael George, Continuum
On the subject of MSPs, Michael George—CEO of managed IT services platform provider Continuum—adheres to the Pareto Principle that suggests 80 percent of the wealth is dominated by 20 percent of the market. He further believes market forces have created the perfect storm for this imbalance to take hold in the managed services marketplace, and by 2020, 8,000 of 40,000 MSPs in the nation will dominate most of the available revenue.
Citing CompTIA reporting, one of the market forces is a reduction in the workforce of up to 40 percent due to retirement, which could impact business leadership scenarios where there are no successors in place, thus stifling growth. The second is mass-market consolidation via M&A, with industry consolidators and private equity firms snapping up MSPs. George believes this will result in smaller players, facing increasingly challenging environments, who are unable to exist as their competition grows in size and strength.
“To prepare for these first two market forces, providers must reduce their reliance on increasingly scarce labor and focus instead on delivering valuable services to clients, efficiently,” George said. “And, to compete in a consolidating marketplace, business owners should be taking a close and urgent look at their exit plan, whether through merger, acquisition or scale.
“Finally, the dominance of large-scale MSPs in the major metropolitan areas across five key verticals will make it difficult for smaller providers to compete. Unless they are established dominant players, providers should look at focusing on geographies outside the 107 metropolitan areas in the United States or the five verticals (financial services, health care, construction, non-profit and legal) to stand a chance of succeeding.”
Dealer-OEM Relationships
Mike Marusic, Sharp
Mike Marusic, president and CEO of Sharp Imaging and Information Company of America, maintains that customers will continue to ask their suppliers to provide more services and support, expanding past traditional relationships.
“Companies will not only be looking at ways to leverage the data they have in institutional knowledge, but also how they can use the data on their technology use to better service their customers and be more efficient and productive,” he said. “End users will be looking for deeper relationships with their suppliers to expand past their normal goods and services in order to leverage this data in new ways. Copier dealers are perfectly positioned at the intersection of managing costs, information sharing and onsite support to expand how they provide value to their customers.”
Alternative Billing
Christian Pepper,
LD Products
While the concept of a seat-based billing model has a burgeoning following, buoyed by BEI Services, the SBB Roadshow and other proponents (including Konica Minolta’s One Rate MPS program for directs), some are skeptical of its widespread adoption. Christian Pepper, president of LD Products’ Channel Partner Division, fancies himself as an agent of change, but questions whether a majority of dealers would convert existing per-page billing fleets to a fixed-income model.
Pepper added that given it took sales reps a decade to learn and develop the “muscle memory” for selling MPS, and have amassed large volumes of customers under these programs, converting to alternative billing could be problematic.
“Konica Minolta can offer it because they started from zero in MPS less than two years ago and needed something that was easy for their reps to sell, and a major differentiator,” he said. “The independent dealers I know who have experimented with it have not been able to sell many, if any, contracts, and few like the idea of putting a cap on revenue and leaving costs variable. I am going to watch more closely, but my prediction is it isn’t going to go mainstream and take over from MPS anytime soon.”
Production Print
Pete Peterson, Xerox
Of the many areas for dealers to diversify, one sector that has had a polarizing impact on attitudes is production printing devices. Pete Peterson, president of Xerox Channels, is seeing more resellers expand into the production print market to sell higher-end devices.
“The great news is that selling these devices doesn’t have to be complex,” he said. “With the right tools and vendor support/training, resellers can adapt their selling techniques to become successful in this space. Expanding technology offerings allows resellers to make a greater per-sale profit while helping clients successfully address their business requirements.”
The A4 Migration
Ray Belanger, Bay Copy
With continuing technological improvement and dwindling print volumes, Ray Belanger—president of Bay Copy in Rockland, MA—sees a continued movement toward A4 printer-centric devices. Belanger maintains that it will be increasingly difficult to support a sales force on a commission model that emphasizes hardware sales and equipment.
“There just won’t be enough margin to keep high achievers interested,” he noted. “I believe more organizations will be moving to models that incent aftermarket profit growth, penetration of larger customers and retention of profitable customers. Driving business towards MPS and managed services models helps clients manage resources. This means selling equipment bundled with software tools and services together in a simplified program.”
Chinese Tariffs
The raging tariff war between the Trump Administration and the Chinese government saw something of a cease-fire in late November with a 90-day moratorium on planned increases. As the two governments continue to negotiate, it does little to mitigate the concerns that tariffs could have on the prices for Chinese-imported supplies critical to our industry.
Tyson Stargel, Stargel Office Systems
Tyson Stargel, vice president of Houston-based Stargel Office Solutions, fears the tariffs could cause back orders and price increases on copier-related products manufactured in China. “I think it’s too early to understand the impact, but asking your OEMs what they know is a good idea,” he said.
