We all know print volumes in the office are declining, and this translates into lower demand for expensive, high-output printing and copying devices. However, before a widescale recalibration of demand and supply can take place, technology designed to transform the customer experience must first be in place.
We have argued our case, building a foundation that the conditions exist for significant disruption in the usual means for placing printers and copiers into the marketplace. Ultimately, it appears certain a shake-up will take place. What is less clear is understanding the remaining barriers that continue to impede the disruptive process, and the pieces of the puzzle that must be connected before a new value proposition will take over.
We regularly use the analogy of disruptive events occurring in the transportation industry, with Uber and Tesla being the most-immediate examples. Both are technology companies, and the disruption they’ve initiated couldn’t take place without the technology platforms upon which each is based.
Uber disrupted the paid-ride business, deploying technology to connect supply with demand and enable a solution that provided a better experience at a lower cost than conventional transportation methods.
It has become so simple to summon a ride using a hand-held device that the technology underlying the service is taken for granted.
It was only a few years ago that the goal of aspiring individuals in New York City’s paid-ride business was to acquire a Medallion (license) that permitted them to operate a taxi in the regulated environment. As recently as 2014, this license required an investment of up to $1.3 million. Today, the value of a New York Medallion is less than $150,000. It’s difficult not to feel sympathy for individuals who invested late in the business cycle and are now unable to generate a return.
Tesla is disrupting a global industry—not just the automotive industry, but the entire energy sector, including the global, politically charged oil industry. Almost single-handedly, it’s providing the impetus for converting automotive fleets from the internal combustion engine to electric. Think of the implications in terms of the oil industry, the environment and the legacy auto manufacturers.
Powerful industry segments have continued to assume the status quo will remain in place while they extract profits from the often over-priced and under-utilized assets they provide.
Uber and Tesla are closely related in terms of their dependence on technology. Don’t think of a Tesla as an automobile, but rather as a software package wrapped up to appear as an automobile. Also think of Uber as a software package, built to enable a vehicle to magically appear when you summon it. It may not be tomorrow, but in the not-too-distant future when you summon a ride, it will be a self-piloted electric vehicle that arrives to transport you. Uber is ahead of the curve in its technology and infrastructure for connecting supply and demand, and Tesla is ahead of the curve for providing the platform to physically transport customers from point A to point B.
Understanding the Customer
Now think about the founders of Tesla and Uber, counting on the natural inclination of consumers to only pay for what is needed at the time it is needed. They had the foresight to leverage this aspect of human behavior to accelerate the disruption process. In this context, think of our legacy practice of spending $40K every four or five years (or leasing for $400+ per month for four or five years) to acquire (rent) an asset that will sit unused in garages and parking lots 95% of the time.
The desire to own a motor vehicle became ingrained in our behavior over the 100 years or so since Henry Ford made it affordable. But, as technology provides viable alternatives, it’s turning into a liability and a drain on personal wealth.
Making an investment in an expensive asset destined to be used only 5% of the time will come to be viewed as a waste of money and resources. Especially when that asset is associated with other significant operating costs, such as insurance, maintenance, taxes, and license fees, etc. While it’s understandable how owning a motor vehicle became ingrained in our behavior, it’s not beyond the realms of our imagination to foresee how not owning one could feasibly become the new norm.
Turning our attention back to office equipment, think about some of the parallels between an automobile and a copier machine. Under-utilization, repair, maintenance and the ongoing cost of supplies necessary to keep it running—not so different from an automobile.
In the new era of declining print volumes, the copier machine, which the industry leverages to drive a legacy revenue and profit model, can also be viewed as a waste of money and resources. With our parallel examples in place, it becomes increasingly difficult to argue against the potential for disruptive events to take place in the office products and equipment vertical.
However, to understand the path toward disruption, we must think about these circumstances in terms of the distribution channels, the businesses that operate in these channels and the technology platforms utilized to sell products through these channels.
First, we must put the requirements for service as part of the value proposition into context.
In a process no less certain than the passage of time, a product’s value is never greater than on the day it was introduced to the market. From that day on, an inevitable decline takes place in this part of the seller’s proposition as it’s gradually replaced by service. This trend is distribution-channel agnostic. It simply doesn’t matter whether you are a reseller operating in the transaction-dependent office products channel or the more-service-oriented office equipment channel.
Crossover Points
The office products and equipment industry is a mature one, and the crossover points between the product and service components have probably long passed. But even if they haven’t, anyone understanding the inevitability of the crossover must also see that survival is based on incorporating ever-increasing levels of service into their value proposition. Stragglers who fail to do so will eventually be eliminated from the market.
To contextualize this, we need only to look at Staples and Office Depot, as this is the fundamental thinking underlying their moves toward service-based value propositions. Both entities have embarked on their transformations, with Staples making a series of acquisitions including HiTouch, DEX Imaging and Essendant, and with Office Depot acquiring CompuCom. Both organizations are also adding conventional revenue, necessary to support their top line in a shrinking market. They’re doing so by acquiring regional dealers, looking to leverage those dealers’ long-held relationships in their respective markets to roll-out their own increasingly service-oriented value propositions. Collectively, these strategies are designed to play into the services model with both entities knowing they have no choice if they wish to survive.
In a process no less certain than the passage of time, a product’s value is never greater than on the day it was introduced to the market. From that day on, an inevitable decline takes place in this part of the seller’s proposition as it’s gradually replaced by service.
We have argued our case for channel convergence, providing examples and parallels with other industries to illustrate that conditions are ripe for disruption in the office products and equipment space. But what do these circumstances really mean for the two primary channels of distribution?
Office Products
Typical office products and supplies resellers rely on their high levels of customer service, extensive product catalog, reasonable prices and long-standing relationships in their regional markets to manage customer loyalty. The fact that their value proposition is not wrapped up in a recurring subscription model doesn’t mean they have totally failed to address the transition from a product-based value proposition to one that’s service based. What it does mean is that they remain exposed to comparison shopping, and are increasingly vulnerable to the threat coming from Amazon and other powerful competitors who have built a strong online presence.
Most of the channel resellers operate on legacy technology platforms with roots that go back to the 1990s or earlier. Disruption in the digital era is usually contingent on technology, but there’s no evidence that today’s platforms are likely to become the foundation for disruption. In short, they were designed for a different era.
Office Equipment
As we all know, the office equipment channel is dominated by managed print and managed service contracts. All sorts of technologies have been deployed to monitor printer and copier devices for ink and toner levels, manage and trigger supplies reorder points, and monitor for preventative maintenance as well as for failure diagnostics.
The channel has focused for 15 years or more on securing multi-year contracts and bundling a range of services into recurring monthly fees. It’s far more difficult for competitors to unravel these bundled services and, outside of contract renewal times, to take business away from an incumbent.
The problem is that there’s a far-more-limited market for this style of value proposition. The selling cycle is comparatively long and the cost of customer acquisition quite high. Furthermore, any time there’s a complex, multi-year agreement being contemplated, there’s also a much-higher likelihood that expensive lawyers and senior management will need to get involved. These circumstances mean the value proposition is usually only suitable for larger companies with the resources to fully understand the agreements they require.
What we have are conditions ripe for disruption, but we don’t have the Uber or Tesla-like technology to facilitate that disruption.
Because it’s a complicated and extended selling cycle, it’s also full of friction points for the customer. Just imagine if there were many friction points when summoning an Uber—if there were, Uber would never have become a disruptor.
This all serves to illustrate that the resellers’ current technology in the equipment channel is unlikely to disrupt the channel. In fact, it’s obsolete technology perpetuating a flawed business model that will be swept aside as disruptors take over.
Conclusions
What we have are conditions ripe for disruption, but we don’t have the Uber or Tesla-like technology to facilitate that disruption.
So, we have a channel of transactional sales resources (office products) with access to the printing technology (A4) that’s eminently suitable for the reduced volume requirements of the traditional copier (A3) channel. However, these sales resources generally lack the “service-oriented” selling skills currently necessary to sell into that channel. And regardless of this skill-set deficiency, they will inevitably run into selling cycle issues of their own when they try to break into the multi-year contracts that protect most of the potential business opportunities.
The missing piece of the puzzle is the Uber-like technology that allows customers to purchase products and services configured to match what’s needed when it’s needed. Further, this must be accomplished regardless of the individual skill-set of the channel salesperson representing the product or service. We have to accept that it’s unlikely there will be a successful re-training of a transactional salesforce toward service-based selling skills. Therefore, it must be technology that helps solve this piece of the puzzle.
