www.i-itc.org ✴ April 2005 ✴ Imaging Spectrum Magazine 51

Feature Article

Author’s note: This is the second install-

ment in a series of six articles examining the

challenges, opportunities and product lines

of the SOHO (small office, home office)

market. In the first article of this series, we

defined the enormous opportunity in the

SOHO channel as well as the trends that

exist across all SOHO product lines. The

second installment focuses on the SOHO

inkjet product line, which, as we discussed

last month, is growing exponentially, pri-

marily due to the growth of digital cameras

and home photo printing.

An Enormous Emerging MarketAccording to Lyra Research, more than one

billion ink cartridges will be sold this year;

over 500 million inkjet printers will be

installed this year; and over 80 million dig-

ital cameras will be sold this year alone!

In fact, The Wall Street Journal reported that

the number-one gift in the United States

last year valued at over $100 dollars was the

digital camera. According to Hewlett-

Packard (HP), over 312 billion images will

be captured this year worldwide, with over

76 billion images printed! Currently, HP is

placing more than one million printers per

week, and more than two-thirds of these are

in the SOHO category.

Consumer Sticker ShockNow that the gigantic size of this market

has been clearly defined, it is necessary to

Luke Goldberg is responsible for developing overallmarket/industry analysis and sales trends, expanding dealer

channels, managing the Future Graphics sales team of profes-sionals as part of the new product development and market-ing/promotions team. Luke has more than 14 years of experi-

ence in the imaging supplies industry. He may be reached at800-394-9900.

Copy

right

© 20

05 Im

aging

Spec

trum

and

its lic

enso

rs.Al

l righ

ts res

erve

d.

Introduction to the SOHO Market, Part II:The Home Printing Revolution

by Luke Goldberg, Future Graphics

Feature Article

52 Imaging Spectrum Magazine ✴ April 2005 ✴ www.i-itc.org

Goldberg: Introduction to the SOHO Market, Part II

gain some insight into where the opportu-

nities lie. As we know, a hallmark of inkjet

hardware today is increased multi-func-

tionalism. After mail-in rebates, the average

photo-capable printer costs far less than

$150. There is also a major trend in the

direction of selling photo-specific hard-

ware bundled with digital cameras and

print media (photo paper). In short, con-

sumers are getting a huge “bang for their

buck” on the hardware side.

However, as discussed last month, this

razor/blades OEM sales strategy has creat-

ed a major backlash when, much to their

dismay, consumers realize their total print-

ing costs (cost per page) as a by-product of

high consumables costs (media costs).

Photo paper is the new OEM profit center

as the manufacturers attempt to create

greater consumables revenue through the

bundling of matched cartridges, printers

and paper for optimal photo output. This

sticker shock is further exacerbated as con-

sumers print more and more because of the

higher page coverage that is associated with

printing photos.

OEMs’ Pricing StrategyOEM companies are not naive when it

comes to addressing this consumer discon-

tent.As early as mid 2003 when HP released

its new cartridge sets, the HP 56 and low-

yield HP 27 for the HP 5650/3650, 3520,

and Lexmark released its Z816 and X5270,

all of these entry-level SOHO black car-

tridges were priced at under $19.

No doubt these lower prices served to bene-

fit the OEMs in two ways: First, it offered the

consumer a perceived savings over older

models, and second, due to these low OEM

prices and high-priced, hard-to-collect

empties, it made it harder for the aftermar-

ket to offer savings to consumers. Ironically,

these cartridges actually cost more than

some of their predecessors (for example, the

HP 45A cartridge). In many cases, the page

yield for these is half that of the older mod-

els. In the case of the HP 27A (220 pages), it

has approximately one-quarter of the yield

of a HP 45A (800+ pages). What the OEMs

are banking on is the fact that consumers

are short-sighted, that they only look at up-

front costs and not at cost per page.

For the aftermarket to thrive, we must take

advantage of this dissatisfaction. Clearly,

this is what Dell has been extremely suc-

cessful in achieving: delivering the cost-

per-page message to the masses by utilizing

the power of its direct-distribution model

(we will discuss Dell in greater detail in a

later article). In our industry, the areas that

have taken advantage of this chink in the

OEM armor are on-line resellers of inkjets,

as well as retail franchises offering “refill-

while-you-wait” services, such as Island

Inkjet and Cartridge World.

Consumer Concern withCost of OEM Ink According to many surveys and article polls,

cost of ink is becoming a paramount con-

cern to the consumer. In one recent survey,

Lyra Research stated that consumers’ ratings

of OEM ink prices averaged 5.3—on a scale

of 1 to 10—for all major OEMs. Noteworthy

also in this survey is the consumer assess-

ment of aftermarket inkjet cartridge quality,

which rates 8.3 compared to 8.8 for OEM

inks. This clearly shows that the aftermarket

has come a long way in addressing a legacy

of poor inkjet cartridge quality. The creation

of the Standardized Test Methods Commit-

tee (STMC) on inkjets will undoubtedly

advance this further in 2005.

Cost is also being continually addressed by

the OEMs in an effort to increase consumer

incentive to print at home instead of relying

on retail processing. According to Lyra, it

typically costs around .20 cents to process a

4˝ x 6˝ photo. Both Epson with its Picture

Mate and HP with its new Photo Smart

printers are hoping to address this by offer-

ing not only lower costs of around .29 cents

per 4 x 6 photo and as low as .81 cents per

5˝ x 7˝ photo (versus $1.47 for retail pro-

cessing), but also by marketing the ease of

use of home printing via bundles with soft-

ware, cameras and media. This can clearly

be seen in the new HP ads with that catchy

“Picture Book” song. (Here is one for the “I

betcha didn’t know category”: That song

was also sung by a wacky, little-known 90’s

alternative band called The Young Fresh Fel-

lows. Now you, too, are the proud owner of

that useless piece of information.)

www.i-itc.org ✴ April 2005 ✴ Imaging Spectrum Magazine 53

Photo-printing RevolutionAs Lyra has stated, photo printing is clearly

the number-one inkjet printing application

driving growth and innovation in the mar-

ket. Other than cost, in which the aftermar-

ket has a clear advantage (and must learn

how to better communicate the cost bene-

fits and savings of its products versus the

OEM), quality and empties collection are

additional challenges that we still need to

address. The photo-printing revolution ups

the ante in terms of the end user’s expecta-

tion of quality.

This expectation is furthered by OEM mar-

keting efforts and branding that strive to

perpetuate the notion of OEM superiority.

This tactic was successfully employed by

Epson, who was the first OEM to create

differentiation by sub-

branding its own inks.

Epson’s decision to do

this was possibly a reac-

tion to the aftermarket’s

capability of narrowing the

OEM window

of opportu-

nity to shore

up consumables revenue.

In many cases, such as the recent

releases of the Epson R300/rx500 and

C84/86, the aftermarket product was

released within two to three

months of the OEM. HP

and Lexmark have the

benefit of limiting after-

market penetration due

to the patent-protected,

integrated print head

design and also the

availability issues of empties,

coupled with the inherent

difficulties of remanufacturing

cartridges with complex integrated

print heads.

Consumer Savvy IncreasingEpson also was the first OEM to market the

superiority of something as obscure to the

average user as “ink type.” The very success-

ful marketing of Durabright® inks helped

educate the end user in regards to pre-

viously unknown terms such as

“light fastness,” “water fastness,”

“archival nature” (permanence, print

longevity),“dry time” and so on.

Feature Article

54 Imaging Spectrum Magazine ✴ April 2005 ✴ www.i-itc.org

Goldberg: Introduction to the SOHO Market, Part II

In normal printing applications, these fac-

tors are clearly not as important, especially

light fastness and permanence. But when

printing photos, OEMs such as Epson and

now HP (not to be outdone with its new

brand, the Vivera series) are taking advan-

tage of photo expectations by claiming light

fastness of more than 100 years. That is

great. So when the consumer is 136 years

old, the photos of his or her trip to Wally

World will be just as vibrant and unfaded as

the day they were taken. And what is more,

an entire pitcher of beer could spill on them

without worrying about the ink running.

Quality Testing ParamountThe aftermarket must be able to combat the

OEMs’ marketing of their superiority. One

step in the right direction is the creation of

a STMC testing protocol for inkjets. This

will provide us with the ability to publish

and present data resulting from a universal-

ly-recognized, correlative testing method-

ology against the OEM product. No doubt

aspects such as “permanence” and “dry

time” will be criteria that the STMC board

will look at to test aftermarket cartridges.

In the meantime, there are some ways to

test photo quality of aftermarket cartridges

other than just holding them side by side.

Certain companies have aging chambers

that subject the cartridges to extremes in

order to approximate shelf life. Then there

is the tried-and-true dashboard test. Place

an aftermarket print and an OEM print

side-by-side on the dashboard of a car on a

hot day. At the end of the day, determine

which has faded more. In general, it seems

that there are very subtle differences in

print quality between most quality after-

market cartridges and OEM cartridges.

This was proved in the Lyra survey referred

to earlier. Further proof of the acceptance

of aftermarket inkjets is that all large retail-

ers—from Office Depot, Best Buy, to Wal

Mart—offer them for sale. That said, quali-

ty overall, especially on certain models of

remanufactured cartridges, still requires a

lot of improvement. This will be addressed

by STMC testing, higher quality inks and

better remanufacturing equipment.

OEMs and AftermarketHead to HeadThere are a number of ways that the OEMs

will protect their cash cow of ink consum-

ables. As discussed earlier, the first way is to

lower the price so that the aftermarket can-

not offer a cost savings. The second is

patent protection against new compatibles,

and the third is the barrier created by more

complicated technology. According to Lyra,

in its new Vivera series, HP has increased its

nozzle count from 416 in the #56 to 600 in

the #94. Additionally, it has gone to a small-

er ink-drop size, all to increase photo qual-

ity and resolution.

HP has now begun using a smart supplies-

type chip technology as seen in its laser

products. These chips serve multiple pur-

poses to keep consumables revenue shored

up. First of all, they allow online ordering

from HP, which helps to create a captive

audience. Of course, Dell offers this as well,

but as HP points out, Dell does not offer the

option of buying from any source other than

Dell directly. The chips also play a big role in

curtailing the importation of empties from

other countries, as these printers are region

specific. This eliminates a big source of emp-

ties, since many empties are imported.

Finally, possibly the aftermarket’s biggest

challenge to the growth of integrated ink

cartridges (Lexmark/Dell and HP) in the

SOHO market is the availability and collec-

tion of high-quality empties. Traditionally,

the OEMs have also attempted to keep

empties out of circulation via their collec-

tion efforts (for example, HP’s Planet Part-

ners program) and through their resellers.

In the December 2004 issue of Hard Copy

Supplies Journal, it states that Office Depot

has collected more than 12 million ink and

toner cartridges in less than two years. In

exchange, customers are given either a

rebate on a cartridge or a free ream of

paper. Of course, some of these are

undoubtedly sent back to companies that

make the Office Depot brand of remanu-

factured cartridges.

In order to combat these efforts by the

OEM, our industry must create its own

grass-root empties programs. The partner-

ing with nonprofits, schools and other

organizations to create and set up collection

programs of inkjets is critical. Additionally,

grass-root efforts, such as direct mail cam-

paigns, must be employed in affluent areas

where there is a strong likelihood of inkjet

usage. Encouragingly, many remanufactur-

ers have already started using pre-paid

postage return bags in their cartridges in an

attempt to keep empties in circulation.

A Goldmine of OpportunityIt is impossible to ignore the opportunities

available in the SOHO inkjet segment. The

vast majority of end users are potential cus-

tomers who most likely are not happy with

the cost of OEM consumables. This includes

home users and business consumers. Later

in this series of articles, some concrete ways

to enter this market will be discussed. Next

month’s article will focus on another large

growth segment in the SOHO market:

entry-level monochrome laser.