Digital printing is growing very rapidly, and it’s getting a ton of buzz in the print community even though despite huge growth the overall business is still quite small. Most people I talk to believe that digital print will overtake everything eventually, the question is how long it will take.
Our president, Karl Fritchen, raised an interesting point the other day. Apparently, the digital press folks have chosen the office copier business model when it comes to toner. That is, the press manufacturer supplies the toner and the customer has to buy it from them. This is way different than ink, which is sold by entirely separate companies. Naturally the printing company doesn’t want to be stuck with a single source, so they are resisting this business model. They want the offset/gravure/flexo model where consumables are sold by many companies, and they retain more control. Off hand, I don’t blame them.
But is innovation the real product of the future?
More and more, it seems that innovation is the real product of the future. It isn’t good enough to make a great product, you have to keep improving it. Open source software is a great example of this. The software is free, but it still produces revenue streams for people who implement it for customers, maintain it, etc. Offhand you might think that really the customer is paying maintenance, but really they are enabling the continuous innovation of the product. Even proprietary software usually involves a maintenance fee to ensure upgrades, and really, isn’t that fee paying for the development of the upgrades?
For those who don’t innovate, someone will duplicate the functionality of their product, either illegally as an exact copy or legally as in ways that don’t violate IP laws, and offer it for a lower price. They can only retain their share through attempts at rights management (see Sony) or by innovating fast enough to maintain their superior value.
And remember, software companies have pretty low incremental cost for each copy shipped – the cost of goods sold. Think about hard goods and their costs of goods sold.
The “big iron” style printing presses don’t evolve that rapidly. The technologies change, but not at the pace of higher tech products. So the model of investing in a new design, and then selling copies has worked. Enough copies of a design can be sold to pay for the development. But, are digital presses closer to software? I’m no expert on digital presses, but I do know that there is a tremendous amount of technical wizardry that sits between my pdf file and a printed piece of paper, most of it existing as software in one form or another.
But how do you pay for that innovation?
I remember an R&E Council meeting a long time ago – 1999 maybe – where Harry Quadracci ranted a bit at the manufacturers. He was upset because we’d given printing nothing really innovative or new. Not enough money was being spent on R&D, and because of that printers had no new equipment worth buying. I think he was right.
So, if software companies can’t really afford to keep developing new products without ongoing maintenance revenue, and they have very low costs of goods sold, how are the folks who make equipment doing it? Especially when more and more of that equipment has complicated computerized control systems that run on software? If you take the consumables revenue from these companies, which almost certainly is where a lot of their income comes from, how will they fund development?
The nice folks at Xerox have invited me to attend an event they’re hosting at OnDemand. It’s a roundtable/focus group about what will be important to commercial printers and their customers when it comes to the transition to digital. About a dozen folks from the industry will be there from various backgrounds. I’m really looking forward to it, and discussing issues like this.