Diversification, AI and Consolidation: The Many Trends that Shaped 2023

It’s been quite a while since the phrase “optimistic” was applied to a coming year’s business outlook, at least without the qualifier “cautiously.” Without giving into hyperbole, one can almost hear the office technology dealership humming the song “Feeling Good.” After three years of COVID-infested conversations and a business engine that’s been slow to turn over, whatever shape the new normal has taken appears to be palatable. Business, for many, is brisk.

Whether it’s a new dawn and a new day remains to be seen. But there was enough evidence in the tremendous growth experienced by our Elite Dealer ranks—essentially the Fortune 118 of the industry—in 2023 to suggest that the worst of the pandemic hangover has subsided. A degree of this, naturally, is dealers being able to follow through on sales that hung in limbo. But there’s an air of optimism that goes beyond pent-up demand, and it will be interesting to see if dealers can continue to register double-digit, year-over-year revenue increases in 2024.

Let’s not be too Pollyanna about the future. Significant issues are continuing to plague dealers. Output volumes continue to tumble, and finding capable employees—certainly in sales and technical service—is getting increasingly more difficult. The desire of current and prospective team members to continue working from home impacts dealers and their clients, as quality candidates are finding alternatives where remote work is either tolerated or a permanent fixture.

Certainly, these aren’t the only developments visiting our industry. To get a better grip on what’s going on in the marketplace, we cast a wide net to dealers, manufacturers and other providers to the industry for our annual trends and predictions issue. This piece covers the most notable trends industry heavyweights are seeing as 2024 gets underway. A separate article containing their predictions for the coming year can be found on page 26. So kick back, pour a glass of whatever bubbly remains from New Year’s Eve and absorb the viewpoints of these individuals brave enough to offer estimations of what trends have been impacting the industry.

Interest Level

The Federal Reserve has done what it can to arrest sky-high inflation via interest rate increases. Inflation has been slowly (with slowly being the operative word) receding, and there have been murmurs within the Fed that rates could be cut as early as this spring if the trend continues. Carter Hertzberg, the president of Nauticon Office Solutions in Gaithersburg, Maryland, is concerned about the long-term effects of higher interest rates, as he feels they’ll remain constant for much of 2024.

“This is just another margin squeeze on the dealer community and the leasing companies,” Hertzberg said. “This tug-of-war will be interesting to watch as dealers shop rates and some aggressive leasing companies see an opportunity to buy business—but at what cost?”

This tug-of-war will be interesting to watch as dealers shop rates and some aggressive leasing companies see an opportunity to buy business—but at what cost?

– Carter Hertzberg, Nauticon Office Solutions

While 2023 didn’t quite live up to the previous two years, some see consolidation as a trend that will continue at least in the short term. Count Bob Madaio, vice president of marketing for Sharp Imaging and Information Company of America among those prognosticators. He sees the proliferation of mega dealers and private equity-backed organizations creating national level organizations; several consolidators, in fact, have stretched into new geographies in the past 12 months.

The upshot for independents, according to Madaio, is the clear need for carving out a distinct value proposition. “This forces dealers, both large and small, to sharpen their strategic approaches to clearly define their prime differentiators and what solutions they need to focus on,” he said.

Continued consolidation is in the cards from both a dealer and manufacturer perspective, according to Sean Bell, president of Solutions YES in Portland, Oregon. Whether this is a good or bad development depends on one’s point of view, but Bell sees pluses and minuses.

“I believe [dealer consolidation] will open doors to hire new employees from the industry and add net-new customers,” he said. “I believe we’re aligned with strong vendors, but anticipate that some of our competitors could be negatively impacted [by OEM consolidation].”

One of 2023’s biggest talking points was AI, including generative AI and machine learning, as it applies to the industry. While the technology has been leveraged for predictive maintenance for a number of years, the conversation around its integration, along with digital customer engagement, bears watching, according to Jennifer Healy, senior director, marketing strategy, communications, programs and enablement, dealer and partner channel, Ricoh USA.

I believe we’re aligned with strong vendors, but anticipate that some of our competitors could be negatively impacted [by OEM consolidation].

– Sean Bell, Solutions YES

“Today, our digital presence is rooted largely in customer conversation,” she said. “Because of this, dealers should look to implement digital customer engagement strategies that enable personalized interactions. AI will also play a significant role in how businesses operate and interact with customers. A closed AI system can drive renewals, lower sales costs and improve customer experiences.”

Certainly, one of the major talking points for the industry continues to be print security. Awareness is always a key, and as more customers become cognizant of the risks, they’ll demand a robust security strategy, not to mention a vendor that can provide ongoing support and consultation, notes Dan Larkin, solutions sales director for Marco of St. Cloud, Minnesota.

“Unfortunately, not only did the pandemic escalate security concerns, but it also exacerbated underlying issues within our labor market and our supply chain,” Larkin added. “Service providers will need to be proactive about managing client expectations and incentivizing workers to consider service technician roles.”

Service providers will need to be proactive about managing client expectations and incentivizing workers to consider service technician roles.

– Dan Larkin, Marco

Leaner Lines?

Could dealers actually be looking to reduce the number of OEM lines they carry? It’s definitely a possibility, according to Mitch Leahy, vice president and managing director of sales for GreatAmerica Financial Services. He believes supporting non-secondary lines may become increasingly difficult after dealers cleared out their 2022 upgrade backlog.

“With inventory normalizing, quotas in place and pricing adjustments continuing, dealers may scale back on lines sold,” Leahy added.

There’s little doubt that 2023 saw many dealers build on their diversification strategies in earnest. Frank Cucco, CEO of Impact Networking in Lake Forest, Illinois, believes risk management, cybersecurity and managed digital transformation services will continue to garner momentum.

“They provide more growth channels for revenue in a declining hardware market,” Cucco said. “That means that hardware-centric companies will also have to continue transitioning into managed service providers.”

Are we on the cusp of seeing a stabilization in print volumes? Fernando Maroniene believes that to be the case. The senior director of product marketing for Brother International notes that more device consolidation will translate into greater efficiencies. And with continued digital transformation, an increase in machine learning and artificial intelligence, it will call for more digital workflows that can help a distributed workforce increase productivity and efficiency.

[Diversifications] provide more growth channels for revenue in a declining hardware market.

– Frank Cucco, Impact Networking

“There’s a need for more security requirements as employees continue to work from different locations and require document confidentiality, network security and device security,” Maroniene remarked. “Automatization and AI will continue to be implemented into several facets of business, which paves the way for innovation. But with this advanced technology, we’re anticipating an increased risk of security breaches and cyberattacks. Therefore, updated fleets of printers are necessary to protect companies from these security threats, and dealers should remain flexible with their most updated security platforms.”

Another industry veteran who’s keen to see the trajectory the AI movement takes is Steven Sauer, chief revenue officer of Toshiba America Business Solutions. He thinks the industry has only begun to scratch the surface of AI’s potential.

“I believe AI will dramatically impact intelligent document capture and how we liberate information from paper,” Sauer added. “Doing so will deliver intelligent document capture technologies to SMBs as well as to individuals. Previously this capability was only available at the enterprise level. Toshiba currently harnesses AI to deliver insights into clients’ MFPs to deliver superior client experiences from setup and ongoing management to troubleshooting and support.”

I believe AI will dramatically impact intelligent document capture and how we liberate information from paper.

– Steven Sauer, Toshiba America Business Solutions

Election Splash

During past election cycles, particularly when the nation’s chief executive post has been up for grabs, it usually meant an uptick in business as efforts by the incumbent would be taken to boost the economy. That’s been conspicuously absent during recent election cycles, notes Chip Miceli, CEO of Pulse Technology in Schaumburg, Illinois.

“I expect [no business uptick] is what 2024 will hold in store for us,” he said. “As we watch economic news and anticipate that interest rates may continue to rise, we’ll have to rely on means other than an election year uptick to boost our business fortunes.”

In order to grow as a dealer, it stands to reason that vendors would be best served by monitoring vertical markets that have a penchant for growth. Laura Blackmer, president, dealer sales for Konica Minolta Business Solutions, believes health care and the public sector are two business lines that are prime to continue growing.

“[These verticals provide] a lot of opportunities for dealers to create better workflow opportunities with product and save money,” Blackmer noted. “Training is imperative to understand market demands, offerings and how solutions play into that.”

As for diversification-minded dealers, Blackmer suggests penetrating the industrial print space—packaging, label and wide-format devices—for profitable revenue streams.

Training is imperative to understand market demands, offerings and how solutions play into that.

– Laura Blackmer, Konica Minolta Business Solutions

Diversification Options

The need for diversification is clear as dealers seek to evolve from a pure-play MPS strategy, according to Ray Belanger, president of Bay Copy in Rockland, Massachusetts, although what that looks like will vary from dealer to dealer. He also believes that dealers on a fast track to significant growth must be mindful of maintaining meaningful relationships with clients.

“One of the advantages smaller companies had was the ability to maintain close contact with customers and this can sometimes be difficult with larger organizations,” Belanger noted.

Erik Crane, president and CEO of CPI Technologies in Springfield, Missouri, is another diversification proponent who sees managed services—managed IT in particular—as being the top choices. He notes that with many partners to choose from and an MFP base to sell into, it’s become easier for dealers to launch these initiatives.

“VoIP systems is another way to gain wallet share with your existing customers. Again, with many vendors to choose from, it’s easy to find a partner that will fit your needs,” Crane remarked. “There are many other options. Physical security and EV stations look promising for our channel as well.”

Diversification is all about attaining a greater wallet share with existing customers through a broader set of related technologies, states Elliot Williams, director of product marketing, business imaging, for Epson America. It may start with print, but it can serve as a gateway to many opportunities.

Physical security and EV stations look promising for our channel as well.

– Erik Crane, CPI Technologies

“While most initial client engagements are centered on solving an office print challenge, there’s a great opportunity to increase the share of wallet by providing complementary office equipment technology based on a client’s industry or scope of business,” Williams said. “This mindset is the key to the evolution from copier dealer to technology partner.”

Rob Richardson, president of Allied Document Solutions & Services in Swedesboro, New Jersey, sees the humble A4 device growing in stature with dealer portfolios. One facilitator is the increase in finishing options manufacturers are increasingly including.

“A3 continues to be a less used paper type, but there’s always been a gap in not being able to provide finishing on A4s,” Richardson said. “High-speed, low-cost ink output devices will also continue into 2024 by the manufacturers. This will further provide margin opportunities for dealers.”

The migration from larger, departmental A3 units to smaller A3 and A4 devices is opening the door for providers to bring managed print services into the mix, notes Jay Cartisano, president of Prosource in Cincinnati. He believes manufacturers will focus on subscription sales and software-as-a-service add-ons to bring more value to customers while generating increased revenue.

High-speed, low-cost ink output devices will also continue into 2024 by the manufacturers. This will continue to provide margin opportunities for dealers.

– Rob Richardson, Allied Document Solutions & Services

Also, with clients constantly seeking to reduce the number of vendors they do business with, providers with the broadest of portfolios will ultimately win the day. “In 2024, I think the gap will widen between companies that have diversified and those focused only on print,” Cartisano noted.

Dealers need to continue to promote enhanced cloud services and infrastructure. According to Clark Bugg, director of North America channel sales for Lexmark International, the cloud offers scalability, flexibility and cost savings, making it essential for modern businesses.

Leveraging cloud infrastructure can improve operational efficiency and reduce costs for channel partners.

– Clark Bugg, Lexmark

“The channel must adapt to meet the changing needs of customers as more organizations migrate to the cloud,” he said. “This includes offering cloud-based print management, remote device monitoring and secure document storage. Leveraging cloud infrastructure can improve operational efficiency and reduce costs for channel partners. For instance, remote monitoring of printing devices and cloud-based document storage streamline workflows and enhance productivity.”

Remote Issues

For certain segments of the country, including northern New Jersey, the after-effects of the pandemic have been slow to dissipate and continue to hamstring businesses. Andrew Ritschel, president of Electronic Office Systems in Fairfield, New Jersey, says office occupancy rates remain quite low, which has had a deleterious impact on business. He recently sat in on a Zoom meeting for the Commerce and Industry Association of New Jersey, during which the pros and cons of remote work were explored. While some indicated success, many pointed out the flaws.

“Some people talked about employees cheating on their hours, people working two jobs at the same time, a lack of team building and idea collaboration, and the difficulty of training new staff and sharing corporate culture,” Ritschel remarked. “[Not to mention] declining business opportunities and revenue.”

Ritschel also bemoaned another negative trend—the dwindling personalization of business engagement. Automated phone systems lack operator assistance and department extensions. Voicemails often lack introductions, and voicemail inboxes are frequently full. Plus, the most visually appealing websites are often missing key contact names, phone extensions, email addresses and cell phone numbers.

Some dealers feel production print is a tool better suited for larger dealers. According to J. Mark DeNicola, CFO/CSO for Centriworks of Knoxville, Tennessee, few small- and mid-sized dealers are equipped to effectively scale the offering.

“The manufacturers and industry pundits tout production print, and this segment may be profitable for the manufacturer and large dealers,” he said. “But for small- to mid-size dealers, production print is a loser or only a marginally profitable business when considering all the resources required to support the client and the manufacturers’ very low end-user pricing when in competitive deals.”

But for small- to mid-size dealers, production print is a loser or only a marginally profitable business when considering all the resources required to support the client and the manufacturers’ very low end-user pricing when in competitive deals.

– J. Mark DeNicola, Centriworks

The increasingly evolving nature of the post-pandemic business theater will continue to tax end-users as they struggle to maintain the pace of change while operating under hybrid work environments. Thus, Karl Boissonneault, leader of Xerox Canada and North America channels, believes it’s important for dealers to remain flexible and focused on delivering solutions that support increased productivity.

“To achieve this, companies must be nimble and work to provide highly tailored solutions that meet clients’ unique needs,” he said. “2024 will be the year of customization and bespoke solutions — off-the-shelf offerings won’t set clients up for success or help win new business.”