What will the independent dealer channel look like five years from now?
A sea of change is in store for the dealer of the future, driven in large part by the shifting tides of technology and new business models. Many of the forces that will shape tomorrow’s dealers are already having an impact.
As we consider the dealer of the future, let’s first define what we mean by “the future.” The future is 2024″”five years from now. We believe this is a reasonable time frame to peer ahead while also leveraging our knowledge of current technology and trends.
Will Only the Strong Survive?
The fate of the dealer of the future is analogous to evolution and survival of the species. If you’re not adapting and growing, you’re becoming irrelevant and drifting toward extinction. We’ve seen signs of this for decades, but even more so in the past 18 months, with larger dealers and OEMs acquiring mostly smaller dealers at a brisk pace. That trend won’t change over the next five years, even though we believe plenty of smaller dealers will still be in business in 2024. That shrinking population of small dealers will continue to fill a niche, but that niche is only as strong as its customer base. A large part of most independent dealers’ customer bases is SMBs. How many of those will still be here five years from now? That’s worth monitoring in the wake of technological change and could impact dealers of all sizes.
In the next five years, it will be interesting to see what happens with large dealers such as Marco, FlexPrint, POA, and the Visual Edge family of dealers, particularly after Staples recent acquisition of DEX. Private-equity (PE) money has strengthened some of those organizations, enabling them to grow and grow quickly. Consider that FlexPrint, acquired by the PE firm Oval Partners in 2016, has grown by more than $200 million in the past two years alone.
Examining the ever-expanding footprints of Marco, FlexPrint, and Visual Edge, one wonders if it makes sense for another PE firm to invest in this industry. We could see more PE firms jump into the fray and acquire larger dealers, in the, say, $50 million and higher range with expanding regional footprints. Or might we see Staples expand their footprint in other regions of the U.S.?
Tom Callinan, president of FlexPrint LLC, believes the industry can handle double the amount of PE firms there are today. He references large independent dealers, some of which have revenues of over $100 million, that would be attractive acquisition targets. The challenge, he said, is what happens after a PE firm acquires a dealer.
“Then they have to buy companies because private equity doesn’t want to buy you and have you grow 6% or 7% a year,” said Callinan. “That’s where it becomes more difficult.”
The burning question, however, is what’s the end game for the PE firms that have invested in the imaging industry and will that answer be revealed in the next five years? PE’s mission is to make money, which they are, but if the eventual plan is to sell and make more money, whom will they sell to?
Callinan believes some of these PE companies will sell their assets to an even larger PE firm.
“There’s always a buyer,” he opined. “There’s so much money out there it’s crazy.”
Subtraction by Contraction
There’s another dynamic in play that will shape the dealer of the future””mergers and acquisitions in the hardware, software, and solutions space. As more of these companies are acquired or merge, dealers will have fewer partnering options. Look at what’s happened in the software space with the acquisition of Nuance by Kofax and ECi’s many acquisitions of software companies during the past decade. These deals have created two huge, one-stop solutions shops that are destined to expand even more through acquisition.
It’s not unrealistic either to see more OEMs acquire software companies as Kyocera, Konica Minolta, and Ricoh have done of late.
And let’s not overlook what the future has in store for the Big Six OEMs, as well as HP, Lexmark, and Xerox. The Xerox saga is far from over. What about Toshiba? Can we make any assumptions about the future of Lexmark after two of its U.S. presidents have resigned for personal reasons in the past two years, or should we chalk that up to coincidence? Will HP acquire another OEM as it did with Samsung, or even a distribution channel as it did with Apogee Corporation in the U.K.? Nothing is off the table in this age of acquisitions.
Ultimately, we see fewer players on the field five years from now. Depending on whether you believe less is more, or more is more, this may or may not be a factor for the dealer of the future. But it will be the new reality.
Long Live the MFP
Despite our dire warnings in this issue’s editor’s letter about how dealers who only sell traditional print technology are drifting toward extinction, it’s safe to say the MFP isn’t going anywhere. Most MFP sales will still be centered around print even as OEMs expand the capabilities of the MFP. But it will take time to convince customers and prospects about the viability of these new capabilities and encourage them to use them. It will happen, driven in large part by generational shifts in the workforce. Younger employees aren’t intimidated by all these apps accessible from the control panel of the MFP and fully expect to access the MFP from their mobile devices.
Moving into Managed IT
By 2024, managed IT will be offered by even more dealers than today. Dealers who are committed to growing this segment of the business or building a managed IT business will do so through acquisition or by partnering with a third-party managed IT company, while PE-backed dealers will continue to ramp up their managed IT offerings across their locations by acquiring dealerships that are excelling in this space or by acquiring managed IT companies.
Ultimately, dealerships with younger talent at the helm will look very different five years from now compared to baby-boomer-owned dealerships that are currently focused on crafting an exit strategy, particularly if they don’t have a younger second generation waiting in the wings. Dealerships that are built for the future will become converged businesses, offering managed IT services and print, according to West McDonald of FocusMPS and one of the imaging industry’s most forward thinkers. That model will appeal to the SMB customer seeking someone to manage their network, computer assets, and security initiatives.
“And print will just be a tag-along,” predicted McDonald.
Dealers will no longer just be selling toner-based MFPs as inkjet moves downstream at speeds, image quality, and prices that will appeal to a broader range of users in an office. Inkjet won’t completely supplant toner-based machines in the office, but there should be a broader range of inkjet MFPs available than there are today. Companies such as Canon, Epson, HP, Kyocera, and RISO will be the drivers behind this trend. Similarly, companies such as Canon, Konica Minolta, HP, RISO, and others will still be introducing inkjet devices for the production and industrial print markets””two business segments that will be on their way toward becoming huge revenue generators for some dealers five years from now.
Kevin Kern, senior vice president, Business Intelligence Services and Product Planning, Konica Minolta Business Solutions U.S.A., expects inkjet will move downstream, but he is unsure about its level of penetration in the office. In his view, inkjet will still rule at the upper reaches of the printing spectrum.
“The real play on inkjet is production and labels,” Kern said. “That’s an area a smart dealer will get into because the cool thing about that business is most big [prospects] are not located in a big city with a million dealers and a million branches.”
He referenced Konica Minolta’s KM 1 as an example of the company’s inkjet offerings. Some Konica Minolta dealers have sold a few of those products already, but what starts with a handful has the potential to turn into a flood of products moving through the dealer channel. That’s a growth area, as are packaging applications for Konica Minolta.
“Packaging is not going to go away unless we can teleport product back and forth,” Kern commented in his inimitable snarky way.
In his view, these are adjacent products that fit within a dealer’s existing sales and service structure.
We also expect dealers to embrace labeling machines as they look for new devices that place marks on a page. Toshiba is offering those to its dealers, as is Konica Minolta, especially after its acquisition of Muratec. These products can easily be categorized as adjacent products whether it’s for high-end labeling applications or small-scale applications.
Toshiba America Business Solutions sees products such as this fitting into a dealer’s sweet spot””SMBs””depending on the industry. Promising industries include logistics, manufacturing, transportation, and retail.
Don’t Forget Industrial Print
A visit to this year’s EFI Connect conference in Las Vegas, as well as last year’s PRINT 18 conference in Chicago, spoke volumes about the industrial print opportunity. Admittedly, it’s a new type of customer for most dealers, even larger dealers, and this area will require specialists who understand the industrial print market and industrial print applications, as well as be able to speak knowledgeably about the technology and the software. Even though we remain strong advocates of industrial print, we’re also realistic and only see pockets of dealers embracing this opportunity over the next five years. But make no mistake about it, industrial print is a huge opportunity, and there’s a wealth of conferences such as EFI Connect, PRINT 18, and Printing United where dealers can learn more about this market opportunity, particularly if they are already aligned with manufacturers such as Canon, EFI, HP, Konica Minolta, Ricoh, and Xerox.
Software is making dealers smarter and FocusMPS’s McDonald believes tomorrow’s dealer will be providing business intelligence analysis and statistics to customers as a standard offering.
“It won’t be enough just to provide [information on] color and monochrome print,” said McDonald. “Users are going to dive into why are we printing this, is there a better way to do it, how does it break out across our departments, and how do we compare against other people in the same industry [or vertical market]?”
He also predicts the demise of static reporting and the emergence of dashboarding and active reporting in the printing space.
“People will have logins, dashboards, and the ability to dive into information and slice it in ways that are meaningful to them when they need it,” observed McDonald.
OEMs and ECM
There’s a reason OEMs are aligning with electronic content management (ECM) and document management providers such as Hyland, PSIGEN, and Square 9, among others. ECM is one of Konica Minolta’s most profitable growth areas, according to Kern, driven by the preponderance of data in a business””data that encompasses video, voice, paper, digital information, etc. In Kern’s view, ECM is touching a document, scanning, and scan-to-email. It’s also taking the unstructured data of a customer and integrating it to get a better view of their business. Over the next five years, these types of solutions will become even larger revenue generators than they are today for dealers.
The Digital Workplace, a.k.a. the Office of the Future
Call it the “office of the future” or “digital workplace,” if you will, but whatever terminology OEMs are using to describe their latest initiatives, it’s more than just hype. Many have well-defined plans and are introducing or developing products that will shape the office of the future. Konica Minolta in Japan, for example, has a digital workplace business unit that’s already doing $100 million a year in revenue.
We’ve written before about Ricoh’s and Sharp’s initiatives to reinvent and make the meeting/ conference room experience more efficient. Sharp’s Smart Office Suite has already hit the channel, and Ricoh’s is another year away, but considering how those solutions leverage artificial intelligence and integrate with existing technologies such as whiteboards, MFPs, and mobile devices, dealers should find it much easier to sell those solutions five years from now. We also see similar offerings on the horizon from other OEMs as everything within the office becomes more integrated with the intent of making workers more efficient and allowing them to better communicate, whether they are on- or off-site.
Konica Minolta’s Workplace Hub is an excellent example of this new generation of products that will shape the digital office of the future. Kern describes it as a platform for the digital workplace.
“It’s a hyper-conversion infrastructure that combines storage, management, server, and security all in a box,” said Kern. “[But] it’s not just a server in a box. The market doesn’t want all these separate non-integrated pieces. It’s where the market is going, and it’s a platform for the digital workplace.”
SMBs will be a viable market for products like this because most businesses with 20 to 200 employees don’t have these capabilities in house.
“They don’t have the best unified threat management out there,” Kern said. “They don’t have the best Wi-Fi. They don’t have 4G or 5G failover, so if the internet goes down, they can still communicate with the outside world. It’s redundancy and disaster recovery. These are all things dealers can build practices in.”
Another company that recently made a big splash with its offerings for the digital workplace is Ricoh, which in January of this year introduced a line of intelligent MFPs and applications, along with a platform that enables what the company calls “Always Current Technology.” This digital workplace offering will allow a dealer’s customers to acquire technology under a subscription model that allows the technology and applications used by the business to always be up to date.
Security Sense and Sensibility
We devoted an entire issue to security last month, and nothing has changed in the last 30 days to change our minds about the viability of IT and physical security offerings. In many instances, dealers that gravitate toward physical security will be partnering with new suppliers that can provide them with surveillance cameras, access control systems, and other devices that protect people, property, and premises. Companies such as Canon, Konica Minolta, Panasonic, and Sharp are also offering products that fit squarely into this category or partnering with companies that do. Meanwhile, the need for cybersecurity solutions will expand exponentially, and dealers that are offering managed IT Services will find even more opportunities for these solutions across their customer base.
Digital Signage of the Times
Digital signage and smart whiteboards will continue to represent an adjacent opportunity. The upper high-end of the digital signage space is still dominated by manufacturers’ direct operations, and that’s not going to change. The low end, on the other hand, offers a wealth of opportunities as consumers become more accepting of signage and technology that directs them to their destination, provides information that might once have been provided by a human being, and enables them to sign in for a doctor’s appointment or some other location via a digital kiosk. The human element is moving out of that equation, and technology is taking over.
Within the next five years, Toshiba and Sharp see more dealers embracing this technology. Interest in the channel is growing and Gary Bailer, director, product management, Sharp Imaging & Information Company America, sees this growth continuing, even if it might not be exponential. He contends these products are a perfect fit for SMBs.
“One unique value of a copier dealer is taking multiple acquisitions and putting them into a monthly recurring revenue that’s predictable and can grow,” observed Sharp’s Bailer. “We see that same exact trend happening in IT and software with seat licenses that combine software and hardware. We are implementing that with our copier dealers whether it be for signage applications or meeting room and classroom applications.”
Sharp’s display business is evolving from unintelligent monitors to smart devices. Recently, the company introduced a line of smart signage displays that allow for network communications and access to various cloud services. At the recent CES show, Sharp, along with various partners, including Microsoft, previewed a Windows collaboration display. This smart display uses various sensors and artificial intelligence and can identify who enters the room, for example, as well as how many people attended the meeting, while also offering the ability to turn lights on or off and provide information about room temperature and air quality. That information is fed into the Microsoft Azure smart-spaces area and integrates with other applications and other companies’ technologies to provide a total ecosystem into an organization in addition to managing meeting environments.
If Sharp has its way, dealers will also be selling desktop monitors.
“If you’re going to manage IT networks, this is another way to have another touch point on the desktop,” said Bailer.
OEMs such as Sharp and Toshiba will continue to make it easier for dealers to sell their digital signage offerings. Toshiba has created a program where it has all the infrastructure and solutions set from hardware to content to content services and managing the installation and implementation.
The company is seeing pockets of success among dealers””large and small””that are taking advantage of Toshiba’s digital signage program.
Well maybe not everything, but more businesses will embrace the concept of XaaS and they will have no reservations about selling under a subscription model. According to a recent article in Forbes magazine, the XaaS business model has helped companies in the B2B space generate continuous revenue from their products. As noted in Forbes, “Through “˜servitization'””combining products with services””businesses can innovate faster and deepen their relationships with customers by providing more value.”
Look at the value that Ricoh’s “Always Current Technology” is bringing to its new generation of intelligent MFPs and applications””all destined to be marketed under a subscription model.
Konica Minolta’s Kern believes XaaS has already impacted our channel, referencing page inclusive CPC contracts as an example. And most of us have accepted paying for services on a subscription basis in our daily lives. Prime examples are Office 365, music services, Netflix, Apple TV, and Sirius XM radio.
“It’s breaking everything down to a monthly payment, which is what we’ve always done anyway,” he said.
The XaaS subscription model simplifies things for the customer.
“Nobody is checking page volumes, nobody is checking serializations or seat licenses for software, they’re just paying a monthly fee which is predictable,” said Kern. “They can even budget if it goes up 3% a year. And what am I getting [as a dealer]? Consistent monthly recurring revenue.”
Don’t Fear the Future
As we speed into the future, diversification will continue unabated across all segments of the dealer landscape. There will be wrong turns and right turns, and patience will be required to expand into new business segments that will keep dealerships viable five years from now and beyond.
Don’t fear the future, embrace it. And find those opportunities to reinvent and reinvigorate your dealership, particularly if you plan to follow your current five-year plan with another five-year plan.
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