This Month's Spectrum Summary:

(The following is an excerpt from the May 2003 issue of Spectrum. Spectrum is a proprietary monthly briefing published exclusively for the clients of I.T. Strategies, Inc. © 2003)

HP Reacts to New Realities With Launch of
IPG Services Group

This month I.T. Strategies' consultants meet to discuss the significance of announcements made by Hewlett-Packard at a major analysts conference earlier in May. For years it has been fashionable to talk about solutions rather than just products, but now the analysts see HP's Imaging and Printing Group (IPG) taking major steps in this direction.

Yet much of the HP presentations continue to center on products and print volume. Currently, of the estimated 18 trillion pages printed each year, only around 4% are digital. IPG has its sights set on the other 96%. Emphasis is on growing their MFP line, already making up almost 1/3 of their models. Two strategic goals to capture more page volume are first, to field equipment that will let users bring jobs in-house currently done at outside print-for-pay shops, and second, move customers from centralized to decentralized in-house printing.

Four types of services will be offered: acquisition and payment, consulting, support, and fleet (printer "fleet") management. One arrangement offered is analyzing customer printing needs and supplying all equipment and supplies on a pure cost-per-page basis.

Beyond this, IPG will expand content management including document integration, storage, retrieval and distribution. Some of these services will help customers by reducing their print volume. This is one reason IPG will have to look for revenue elsewhere, with more revenue from services and less from printers and supplies.

A new organization, IPG Services Group, will implement these services. This "adaptive enterprise" is a joint venture between IPG and HP Services, tapping resources acquired with Compaq. The three basic programs are customer support, managed service, and consulting. To cover all levels from the desktop to digital presses, Indigo is a key element at the high end. The plan is to drive demand by helping customers with content management and where appropriate connecting them with an HP-authorized, Indigo-qualified print-for-pay shop. At the low end, they see personal printing driven by the digital camera and demand for economy MFPs. For the SOHO market, more sophisticated services will be made available over the Web.

IPG's goal is to continue to grow revenues 10% per year. Is this realistic? We enumerate hurdles. One is security. The downside of electronic documents is compromised security due to viruses, identity security, and disposal of printers containing a hard drive loaded with documents. Another problem is marketing, with HP traditionally relying heavily on resellers, compared, say, with IBM. However with Compaq HP's services potential is strengthened. Another problem could be organizational complexity.

At this point, the many different services levels are hard to sort out, and this complexity can make the market nervous and could feed internal turf conflicts. Relying on Indigo at the high end raises questions, since it appears HP has given up trying to downsize the technology and instead salvage it through their authorized print provider program. The recent announcement that their Phogenix joint venture with Kodak has been abandoned could shake confidence in their strategic vision. Lack of an appropriate color laser engine handicaps moving toward high-end MFPs.

In short, we agree this new HP direction is on target. But it is hard to sort the substance from the sound-bites. The potential HP/Compaq/Indigo synergy in theory fits changing market realities. The outcome, however, is by no means assured.