Adapt to managed print or die
The channel must embrace managed print solutions (MPS) and this is why, says Louella Fernandes
It is not the strongest of the species that survives, nor the most intelligent, but rather the one most adaptable to change.
-Leon C Megginson, 1963
Low margins, hardware commoditisation, and the growth of cloud computing are changing the landscape dramatically for traditional print channel players.
Many are keen to take advantage of the growing managed print services (MPS) opportunity which promises longer-term customer relationships and recurring revenue. Although the shift from transaction-based hardware sales to MPS can be challenging, our channel MPS research reveals that partners that have made the commitment are reaping the benefits.
SMBs are actively exploring MPS as a way to reduce the burden of managing their uncontrolled print environments. Most SMBs rely on printing with typically no or very few IT staff, meaning it is often a distraction from their core business.
In addition to their primary job responsibilities, business staff may have to order ink or toner, book service calls or deal with daily printer problems. Only 10 per cent in our latest study indicated that their print-related IT burden was decreasing – and 30 per cent expected it to rise over time.
An ad hoc approach to print management is both a cost and productivity drain for SMBs, with many now turning to MPS to address these concerns.
According to our study, the top driver of MPS adoption is reduction of consumables expenses, which many SMBs are seeing rise as a result of increased colour printing. At the basic level, an entry-level MPS or basic print service wraps hardware (whether leased or purchased) with service and supplies on a cost-per-page basis, paid for monthly or quarterly.
Often this is supported by proactive service and automated supplies replenishment; SMBs get the benefit of predictable expenses and a reduced IT burden as an MPS provider automatically handles support and consumables delivery.
This avoids the need to manually order new ink and toner, or stockpile consumables, freeing up SMBs to focus on running their business.
SMBs showing more interest in MPS are looking for trusted partners, and our study revealed that while the channel recognises the value of moving to MPS overall, most individual organisations are still in the early stages of their journey.
While almost 60 per cent of channel partners that we surveyed are transitioning to MPS, less than a quarter have evolved to a full MPS model.
Those that are making the transition are certainly expecting growth. On average, MPS comprises about 18 per cent of reseller revenue, rising to 25 per cent by the end of 2014 – with the UK and German markets the most optimistic about growth.
Quocirca expects MPS to mature rapidly over the next two years as more vendors and distributors drive more channel engagement through their MPS programmes.
However, in a market characterised by a range of diverse competitive offerings, the channel is having mixed success and faces mounting obstacles in its transition to MPS.
Much of this is due to the diverse nature of the channel. Smaller channel partners may not have the resources or acumen to make the shift, while larger resellers that may be better equipped may still be taking a measured approach, and still primarily focusing on their transactional business.
One of the major hurdles is the potential disruption to cashflow. In contrast to the traditional hardware-centric model where the customer pays for everything up front, services revenue is spread over a longer period.
The channel is therefore looking for more support from vendors. However, Quocirca's study revealed that vendors are not meeting expectations around financial incentives and financial support.
Vendors need to close this gap, which if not rectified could be a major stumbling block to the channel adoption of MPS.
If vendors can provide the financial support to help them get started, partners will benefit long term, avoiding the cashflow peaks and troughs of hardware sales in favour of regular, unchanging payments over a longer period of time. This helps long-term planning and can set the stage for an ongoing expansion of services.
Perhaps the best approach is a hybrid model where the reseller introduces MPS into their portfolio yet continues to generate legacy streams of revenue by selling hardware. This can help manage cashflow to ensure services develop at the right pace and don't drain resources from current operations.
The MPS business may hit an inflection point around the same time the company's traditional hardware sales reach a tipping point and begin to decline.
MPS is clearly working for those that have made the investment and commitment. Those resellers that indicated they have evolved to a full MPS model were the most confident and optimistic about it. They indicated that they have been highly successful in creating a new revenue stream, improving their profit margins and developing a more proactive relationship with their customers.
Indeed, one reward for enduring the initial risks related to reduced cashflow and additional investments in the development of an MPS business is the so-called long-tail effect resulting in the possibility of accessing new customer groups.
MPS providers could offer services to a wider variety of customers (for instance, those using managed IT services) but also expand their penetration with existing customers by providing additional software and services.
This is potentially a strong differentiator for the channel organisation that needs to respond to growing interest among SMBs in mobile printing, secure print and document workflow. Indeed, more than 30 per cent of resellers in our survey are already offering such capabilities, with an additional 35 per cent planning to offer them in future.
The channel will need to think strategically about what partnerships will help them introduce integrated software bundles that are most relevant to specific SMB segments.
It is about more than simply converting customers to a subscription-based fee model and services. To start with, it requires planning and a commitment to a progressive approach. The channel cannot afford to rest on its laurels; if it does not make the leap to a services model, it risks stagnation and eventual irrelevance.
Fortunately, the channel is well placed to take advantage of the SMB opportunity with most vendors now offering comprehensive MPS support programmes. Vendors need partners to reach SMBs, so they will need to manage and motivate their partner ecosystem effectively, as well as develop the programmes to drive the capability and commitment.
Even though there are challenges for the channel, the best chance of success will come from moving quickly into this market with a clear understanding of the needs of the SMB customer.
Louella Fernandes is associate director of print services and solutions research at Quocirca