On September 14th, 2009, HP IPG made numerous announcements designed to accelerate its growth in Managed Print Services (MPS), and to deepen its portfolio for enterprises, from the very large served by its direct sales force through the mid-market served by its channels. The announcements include expanding its existing relationship with Canon, the formation of a new Managed Enterprise Solutions (MES) global business unit within HP IPG, extending the HP Printing Payback Guarantee program to other regions worldwide and new channel-led programs along with enhancements to existing programs.
The extension of the Canon alliance is intended to directly benefit HP's MPS enterprise business by removing any customer or prospective customer's objection that HP's portfolio does not extend high enough in performance. The announcement entails joint marketing and distribution of a range of enterprise level devices that Canon has in its current portfolio. These fill the gap in the departmental and production segments. Building on this hardware alliance with Canon, HP is looking to leverage its own software and services offerings combined with Canon's global services and support offerings. The new expanded portfolio will be made available through HP's direct sales to enterprise customers.
Why have HP and Canon expanded their relationship?
IDC believes that HP has several reasons for doing this – to accelerate its MPS business, and to offer devices that capture where pages are moving. Initially, HP will do this using its direct channel to very large enterprises and selling the Canon-branded machines as part of its MPS offering. Later, when HP has its own branded versions of the Canon machines, it is unclear if it will sell them to all size enterprises via both the direct and indirect channel.
HP wants to accelerate an already fast-growing MPS business. Most large MPS customers have multiple contracts and one of the reasons for this according to IDC research is a provider's portfolio not being broad enough in terms of hardware or services. IPG has had a gap in its hardware portfolio in the departmental and production segments, that Edgeline and its laser devices does not fill adequately. The access to Canon's MFPs allows HP to compete fully in Enterprise accounts. IDC expects this to enhance HP's win ratio in large enterprise MPS deals, and to allow it to consolidate MPS contracts from multiple providers to one.
We believe Canon has near term and long term motivations for the partnership. Near term we believe Canon wants to offset the lost IKON business and to offset the decline in the low-end of the laser market where it's OEM HP has been migrating away from. While this may seem defensive, we believe that Canon also has a long term strategy that includes competing with HP in the MPS space. What's not clear is whether Canon will use HP's MPS to reach very large global enterprises while Canon will use its direct branches and independent dealers to reach customer segments below that. Or, will Canon directly compete with HP in all customer segments, and is Canon only using HP in the short term until it can build out its MPS support infrastructure, particularly in the U.S. where Canon is replacing the IKON infrastructure? Given the enormous strength of the Canon brand, one might be inclined to bet on Canon using HP as a stop-gap measure, but given HP's use of EDS for potent MPS leverage, we could see Canon choosing to partner with HP for very large and global enterprises, unless it can acquire or partner with another strong IT outsourcer.
Relative to the impact of Ricoh's acquisition of Ikon, IDC estimates that Canon lost under $1 billion dollars of hardware, supplies, software and service sales due to Ricoh's acquisition. With the acquisitions of Danka by Konica, Global by Xerox, and many of the larger independent dealers by competing copier vendors Canon is choosing to build out its branches, selectively acquire dealers, and to partner with HP for very large enterprises. We think this strategy makes great sense.
Industry Impact:
The enhancement of the existing alliance is sure to create shock waves through the industry, but its greatest near term impact will be on manufacturers and channels selling to very large enterprises. Longer term, the impact could extend to manufacturers and channels selling to the mid-market, if HP opens distribution of the HP-branded Canon machines to its channel.
Very Large Enterprise Users – These customers will benefit from being to consolidate their many MPS contracts. The single point of contact will simplify billing and support and improve transparency in the cost of imaging and printing in an environment.
HP – IPG will benefit by completing its product portfolio allowing it to compete more effectively and provide a more complete offering to end users. The addition of EDS has given HP a major advantage penetrating large or global enterprise accounts. HP will gain incremental revenue and profits from sales of Canon MFPs and may gain portions of the services business if HP services the Canon equipment. In the near term it is expected that HP will outsource service to Canon and independent Canon dealers. One negative for HP is the de-emphasis for Edgeline products in the office segment. Had HP been able to utilize Edgeline hardware in departmental and production segments, HP's margin would have been better. (This would be offset by much higher capital and R&D costs). However, due to time-to-market, and a wise decision to invest in areas that have a better/faster ROI, outsourcing engines from Canon is a better business move.
Canon Inc. – Canon Inc. will benefit as the business through HP will help it offset the lost IKON business and the contracting low-end laser business, even as Canon further expands its business through build out of its direct branches, select dealer acquisition, and increasing volume through its independent dealer network. To maximize its profits, Canon will have to move more Canon branded versions than the HP-branded versions, or reach higher volumes of the HP branded versions. It can also maximize profits by ensuring that Canon branches do as much of the servicing of the HP machines as possible. Canon Inc. also benefits from the partnership as HP could have gone with another copier manufacturer! Longer term, we do think Canon Inc. will have to decide whether it will rely exclusively on HP to reach very large/global enterprises or compete directly with HP.
Canon Business Solutions – IDC believes that Canon Business Systems will not be impacted greatly as the HP-Canon partnership is targeted at the largest of enterprises which are not deeply penetrated by CBS. Furthermore, CBS may be providing some of the servicing along with Canon independent dealers. And, Canon Inc. may be giving CBS quota credit for the HP volume.
Canon Independent Dealers – Once again IDC believes that the impact to Canon dealers will be minimal due to the narrow focus of HP's sales of Canon product to the largest of enterprise customers. Canon independent dealers are on average focused on targeting small through mid-market businesses and possibly the smallest of large enterprise customers. In addition, it is possible that Canon may treat the independent dealers as channel neutral, allowing dealers credit for sales sold in their regions. In the near term HP will be unable to provide all the service and support for Canon devices and it is very likely that Canon independent dealers will receive some of the services revenue stream from HP. HP has traditionally used partners to provide service and support and this is unlikely to change in the near term.
Xerox, Ricoh, Konica Minolta – Because these three vendors are so focused on MPS and departmental through production devices, we believe they will feel an impact when it comes to very large enterprises. Given the size/breadth of its Managed Services portfolio and business, and its EDS relationship, Xerox will likely experience the greatest competitive impact. Prior to the acquisition of EDS by HP, Xerox had been a key EDS primary partner of EDS providing document services and hardcopy hardware in services deals. With direct access to Canon production and departmental MFPs, HP/EDS will need Xerox and others less. On the other hand, competitors will surely argue that HP's ability to place Canon devices does not address customers' need for portfolio continuity in such areas as user interface, and a solutions development platform (Canon's MEAP and HP's OXP). In the end, manufacturers will need to sharpen their sales and marketing messaging, and address what customers really need and the tradeoffs they will make. IDC's global MPS research shows that while there is opportunity to differentiate, customer needs are changing and making it harder for MPS providers without IT capability to compete.
The impacts of this weeks announcement will take time to unfold as phase one is mostly a reselling alliance between Canon and HP while phase two involves HP-branded Canon machines. Phase two means competition may well extend from the very large enterprise and the direct channel to the mid-market and the indirect channel! The long term ramifications hinge on whether Canon has intentions to compete seriously in the enterprise MPS market and if HP expands its distribution of Canon products to its channel partners who target the mid market.
About IDC
IDC is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets. IDC helps IT professionals, business executives, and the investment community make fact-based decisions on technology purchases and business strategy. More than 1000 IDC analysts provide global, regional, and local expertise on technology and industry opportunities and trends in over 110 countries worldwide. For more than 45 years, IDC has provided strategic insights to help our clients achieve their key business objectives. IDC is a subsidiary of IDG, the world's leading technology media, research, and events company. You can learn more about IDC by visiting www.idc.com.
The extension of the Canon alliance is intended to directly benefit HP's MPS enterprise business by removing any customer or prospective customer's objection that HP's portfolio does not extend high enough in performance. The announcement entails joint marketing and distribution of a range of enterprise level devices that Canon has in its current portfolio. These fill the gap in the departmental and production segments. Building on this hardware alliance with Canon, HP is looking to leverage its own software and services offerings combined with Canon's global services and support offerings. The new expanded portfolio will be made available through HP's direct sales to enterprise customers.
Why have HP and Canon expanded their relationship?
IDC believes that HP has several reasons for doing this – to accelerate its MPS business, and to offer devices that capture where pages are moving. Initially, HP will do this using its direct channel to very large enterprises and selling the Canon-branded machines as part of its MPS offering. Later, when HP has its own branded versions of the Canon machines, it is unclear if it will sell them to all size enterprises via both the direct and indirect channel.
HP wants to accelerate an already fast-growing MPS business. Most large MPS customers have multiple contracts and one of the reasons for this according to IDC research is a provider's portfolio not being broad enough in terms of hardware or services. IPG has had a gap in its hardware portfolio in the departmental and production segments, that Edgeline and its laser devices does not fill adequately. The access to Canon's MFPs allows HP to compete fully in Enterprise accounts. IDC expects this to enhance HP's win ratio in large enterprise MPS deals, and to allow it to consolidate MPS contracts from multiple providers to one.
We believe Canon has near term and long term motivations for the partnership. Near term we believe Canon wants to offset the lost IKON business and to offset the decline in the low-end of the laser market where it's OEM HP has been migrating away from. While this may seem defensive, we believe that Canon also has a long term strategy that includes competing with HP in the MPS space. What's not clear is whether Canon will use HP's MPS to reach very large global enterprises while Canon will use its direct branches and independent dealers to reach customer segments below that. Or, will Canon directly compete with HP in all customer segments, and is Canon only using HP in the short term until it can build out its MPS support infrastructure, particularly in the U.S. where Canon is replacing the IKON infrastructure? Given the enormous strength of the Canon brand, one might be inclined to bet on Canon using HP as a stop-gap measure, but given HP's use of EDS for potent MPS leverage, we could see Canon choosing to partner with HP for very large and global enterprises, unless it can acquire or partner with another strong IT outsourcer.
Relative to the impact of Ricoh's acquisition of Ikon, IDC estimates that Canon lost under $1 billion dollars of hardware, supplies, software and service sales due to Ricoh's acquisition. With the acquisitions of Danka by Konica, Global by Xerox, and many of the larger independent dealers by competing copier vendors Canon is choosing to build out its branches, selectively acquire dealers, and to partner with HP for very large enterprises. We think this strategy makes great sense.
Industry Impact:
The enhancement of the existing alliance is sure to create shock waves through the industry, but its greatest near term impact will be on manufacturers and channels selling to very large enterprises. Longer term, the impact could extend to manufacturers and channels selling to the mid-market, if HP opens distribution of the HP-branded Canon machines to its channel.
Very Large Enterprise Users – These customers will benefit from being to consolidate their many MPS contracts. The single point of contact will simplify billing and support and improve transparency in the cost of imaging and printing in an environment.
HP – IPG will benefit by completing its product portfolio allowing it to compete more effectively and provide a more complete offering to end users. The addition of EDS has given HP a major advantage penetrating large or global enterprise accounts. HP will gain incremental revenue and profits from sales of Canon MFPs and may gain portions of the services business if HP services the Canon equipment. In the near term it is expected that HP will outsource service to Canon and independent Canon dealers. One negative for HP is the de-emphasis for Edgeline products in the office segment. Had HP been able to utilize Edgeline hardware in departmental and production segments, HP's margin would have been better. (This would be offset by much higher capital and R&D costs). However, due to time-to-market, and a wise decision to invest in areas that have a better/faster ROI, outsourcing engines from Canon is a better business move.
Canon Inc. – Canon Inc. will benefit as the business through HP will help it offset the lost IKON business and the contracting low-end laser business, even as Canon further expands its business through build out of its direct branches, select dealer acquisition, and increasing volume through its independent dealer network. To maximize its profits, Canon will have to move more Canon branded versions than the HP-branded versions, or reach higher volumes of the HP branded versions. It can also maximize profits by ensuring that Canon branches do as much of the servicing of the HP machines as possible. Canon Inc. also benefits from the partnership as HP could have gone with another copier manufacturer! Longer term, we do think Canon Inc. will have to decide whether it will rely exclusively on HP to reach very large/global enterprises or compete directly with HP.
Canon Business Solutions – IDC believes that Canon Business Systems will not be impacted greatly as the HP-Canon partnership is targeted at the largest of enterprises which are not deeply penetrated by CBS. Furthermore, CBS may be providing some of the servicing along with Canon independent dealers. And, Canon Inc. may be giving CBS quota credit for the HP volume.
Canon Independent Dealers – Once again IDC believes that the impact to Canon dealers will be minimal due to the narrow focus of HP's sales of Canon product to the largest of enterprise customers. Canon independent dealers are on average focused on targeting small through mid-market businesses and possibly the smallest of large enterprise customers. In addition, it is possible that Canon may treat the independent dealers as channel neutral, allowing dealers credit for sales sold in their regions. In the near term HP will be unable to provide all the service and support for Canon devices and it is very likely that Canon independent dealers will receive some of the services revenue stream from HP. HP has traditionally used partners to provide service and support and this is unlikely to change in the near term.
Xerox, Ricoh, Konica Minolta – Because these three vendors are so focused on MPS and departmental through production devices, we believe they will feel an impact when it comes to very large enterprises. Given the size/breadth of its Managed Services portfolio and business, and its EDS relationship, Xerox will likely experience the greatest competitive impact. Prior to the acquisition of EDS by HP, Xerox had been a key EDS primary partner of EDS providing document services and hardcopy hardware in services deals. With direct access to Canon production and departmental MFPs, HP/EDS will need Xerox and others less. On the other hand, competitors will surely argue that HP's ability to place Canon devices does not address customers' need for portfolio continuity in such areas as user interface, and a solutions development platform (Canon's MEAP and HP's OXP). In the end, manufacturers will need to sharpen their sales and marketing messaging, and address what customers really need and the tradeoffs they will make. IDC's global MPS research shows that while there is opportunity to differentiate, customer needs are changing and making it harder for MPS providers without IT capability to compete.
The impacts of this weeks announcement will take time to unfold as phase one is mostly a reselling alliance between Canon and HP while phase two involves HP-branded Canon machines. Phase two means competition may well extend from the very large enterprise and the direct channel to the mid-market and the indirect channel! The long term ramifications hinge on whether Canon has intentions to compete seriously in the enterprise MPS market and if HP expands its distribution of Canon products to its channel partners who target the mid market.
About IDC
IDC is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets. IDC helps IT professionals, business executives, and the investment community make fact-based decisions on technology purchases and business strategy. More than 1000 IDC analysts provide global, regional, and local expertise on technology and industry opportunities and trends in over 110 countries worldwide. For more than 45 years, IDC has provided strategic insights to help our clients achieve their key business objectives. IDC is a subsidiary of IDG, the world's leading technology media, research, and events company. You can learn more about IDC by visiting www.idc.com.
