Consumables are what it's all about, analyst reports

According to OEMs and market researchers one of this year's biggest revenue generators for solution providers will come from selling managed print services to the small- and medium-sized business (SMB) market. The world-wide revenue potential for services contracts now range in the billions of dollars, with margins for individual contracts far surpassing the value of the original hardware. But to take advantage of these opportunities, solution providers need to make some adjustments to their business models, according to Philip Grote, senior analyst for business printing at market researcher Current Analysis.

In the following interview, Grote discusses why the SMB market is ripe for managed print services and what kind of a revenue boost solution providers can reasonably expect when they lock in consumables sales.

Printing & Imaging: Why have SMBs become such a hot area for solution providers selling managed print services contracts?

Philip Grote: The SMB market has become the promised land for printer manufacturers, but with declining hardware prices and margins, resellers in the color laser printer space may make as little as $50 when they sell a printer. In order to not loose the channel, OEMs had to rethink their strategies, so they came up with managed print services solutions. These solutions are designed so that the reseller who used to sell just the box and make a small profit can now see all the same benefits as those who sell to enterprise customers.

P&I: Printing hardware prices have been declining for a few years now, why didn't we see an SMB focus sooner?

Grote: These solutions would have been too logistically complicated to do just a couple of years ago. But now resellers have management tools from OEMs and third-party companies that make it easy to go after SMB customers and lock them into consumables contracts.

P&I: What size market are we talking about?

Grote: Estimates are that there's a $44 billion revenue opportunity world wide, just for consumables.

P&I: How can solutions providers tap into this market?

Grote: Before managed print services, most customers didn't buy the consumables from the reseller than sold them their printers. Customers bought direct, from a third-party, a re-manufacturer, or from a different reseller. But with a managed print services contract in place, the original reseller has the ability to lock in consumables sales. It's a win/win situation for everyone: OEMs lock out third-party consumables, the reseller gets ongoing consumables revenues, and the end-user has predictable costs and doesn't have to worry about shopping around for consumables.

P&I: What stumbling blocks should solution providers watch out for?

Grote: Managed print services can be a difficult transition for resellers because of the longer sales cycle. You can sell a box in a couple of hours. But selling managed print services may take a year or more, and oftentimes you have to talk to entirely different people at the customer. The CFO may understand the implications of managed print services better than an IT person.

There is a lot of change that's required, but most resellers are open to change and learning new things because they realize consumables revenues are the main money maker for everybody else.

P&I: For those that successfully make the transition, what benefits can they expect versus selling just the hardware?

Grote: Over the life of a printer, with a depreciation of say three years, the total cost of consumables can easily be more than 30 times the hardware cost. For example, our TCO [total cost of ownership] tool shows that consumables for a color laser printer that sells for around $380 and runs some standard usage patterns could total well over $15,000 in 36 months. That's why consumables are what it's all about.