Mar 25, 2008
Tombstone: HVTO Trends
Ed Crowley, Founding Partner – Photizo Group
"Tombstone." A written advertisement placed by investment bankers in a public offering of a security. It gives basic details about the issue and, in order of importance, the underwriting groups involved in the deal. Investopedia.com. Investopedia Inc. 28 Feb. 2008.
One of the most critical financial factors facing manufacturers of high volume transaction output (HVTO) equipment is the question of whether printing volumes are increasing or decreasing. In my last column, (What Recession? Output Links 2/12 >>>>) I took the position that the industry could survive and thrive, even during a recession. While many readers agreed, a few challenged this assumption.
One executive from a major hardware supplier (who wished to remain anonymous) expressed concern over the impact of economic concerns on the budgets for printing collateral materials and other ‘non transactional’ documents. I think this is a valid concern, and I agree that these static documents are very likely to be heavily hit during an economic downturn. However, I believe this will be offset by the continued growth of Transpromo documents (transactional documents which are also used to promote information or additional services).
Transpromo documents will continue to grow, especially in a negative economic climate for a very simple reason, namely, they can drive positive business returns. These documents offer the possibility of improving returns by increasing sales and reducing customer support by communicating vital information to the customer. For example, the InfoTrends white paper titled “The Transpromo Revolution: The Time is Now!” produced in August of 2007 shared the following results from Humana’s SmartSummary health statements:
- A 17% increase in loyalty and retention
- An incredible 52% increase in its private Smart Products membership
- Improved 3% coupon redemption rate (compared to norm of 1.5%) from personalized coupons
- Cost savings via a 42% shift from brand to generic drugs (typical is 10%) through targeted message campaigns
- Call center calls for member questions/concerns dropped from an average of 7%-10% to less than 3.5%
- Call center mean call times reduced by 15%
Because they generate a positive financial return I believe transpromo documents will warrant continued investment and even in tough times companies will increase their focus on these documents. But will this drive enough volume to offset declines in other types of transaction output during difficult economic times? I believe so.
The reason I believe this is that during the last six months I have conducted numerous conversations with managers of high volume production print centers, specialty printers, and manufacturers. The trend that has clearly been emerging is the critical need for HVTO facilities to produce high value add applications such as the Humana example listed above. Increasingly in both HVTO centers and Graphics Arts printing applications, the value has shifted from creating ‘static’ documents for mass consumption, to creating customized content which is highly individualized with user relevant content (i.e. transpromo documents). This is THE growth strategy of the future for HVTO facilities.
In implementing this strategy, the challenge is to identify partners who can provide the technology which will enable these applications by expanding the HVTO capability. Whether it is the innovative work being done at Kodak in polyester chemical toner in an attempt to increase print speeds for EP printers beyond the traditional bounds of styrene-based chemical toners, or, Xerox’s work in creating ‘newsprint style’ paper which will work with high speed EP printers, hardware manufacturers are hard at work to develop new capabilities which will support these transpromo applications.
However, hardware is only half the battle. Software and database expertise are critical in developing the capabilities required to create customized documents in an HVTO environment. As HP’s recent acquisition of Exstream Software indicates, this may well become the ‘critical’ component for HVTO. These skills are, in many ways, more difficult since they require acquiring not only new equipment and software, but also acquiring new staff with database programming and sophisticated project management skills.
So as we look at an uncertain economic outlook, the key question for the HVTO facility is, “Are you ready?” Are you ready with the skills, and partnerships which will be required to provide added value to your customers, and thereby allow you to not only survive, but to thrive in this rapidly evolving market place?
During our next article we will be switching to a new topic – what investors look for in acquisitions in the HVTO space. I will be speaking to firms such as Vector Capital (who recently acquired Printronix) and private equity firm Riverside Capital (a private equity firm that specializes in small cap buyouts) about their views of HVTO and what makes a company a good acquisition candidate.
I look forward to sharing with you again in two weeks. In the meantime, be sure and check out the new financial special interest area >>>>. If you were not able to attend the Global Ink Jet technology conference in Budapest Hungary two weeks ago, contact me and I will send you my presentations on the Imaging Industry from a Financial Perspective, and, How to Work with Financial Analysts.
Feel free to send in your comments or questions to eacrowley@photizogroup.com.
Edward Crowley founded the Photizo Group with the objective of assisting clients in developing sustainable growth strategies. The Photizo Group (Greek for enlightened knowledge) is a consulting firm which works with many of the leading firms in the imaging industry. The firm has three practice areas including:
Assisting the imaging vendor community in developing growth strategies based upon new market and product development, product strategy and market roadmapping, understanding the firms true competitive position and identifying strategies for improving this position, and creating growth through acquisitions including due diligence and assessing acquisitions versus organic growth opportunities.
Tracking the Managed Print Services (MPS) market by conducting an on-going study of MPS adoption including the user communities’ satisfaction levels, preference for, and awareness of the MPS offerings by major vendors.
Providing the Wall Street community with insights into key trends and events in the Imaging Industry. The Photizo Group is the only independent analyst firm which specializes in the imaging industry. The firm has worked with many of the largest hedge funds and private equity firms in providing industry advice and due diligence.
Mr. Crowley has worked for 20+ years in the imaging industry for key firms including QMS, DataProducts, Texas Instruments, and Lexmark. He is an adjunct professor of Business and Economics at Midway College and a Certified New Product Development Professional by the Product Development and Management Association.