The death of a (printer) salesman

March 30, 2010: 7:00 AM ET

In the near future, most big businesses won't actually buy printers. The shocker: HP is looking forward to that.

Enterprise printers aren't going away. But soon, most big companies will pay for the output, not the box. Photo: HP.

Bruce Dahlgren's job at Hewlett-Packard is to sell printers to big customers. Well, sort of. During a recent huddle in a conference room at Hewlett-Packard headquarters in Palo Alto, he was talking about what will happen when big customers stop actually buying printers.

Sound unthinkable? It's not. Rather than purchase equipment that gets old and breaks down, these days a growing number of companies would rather let someone else own and manage the office copiers and printers -- make sure they're up-to-date, stocked with supplies and arranged in the most efficient way -- and instead just pay for the work the equipment does. The model is called managed print services, and it's all the rage.

In fact, it's a big part of the reason Dahlgren is at HP (HPQ) in the first place.

Soon after HP CEO Mark Hurd arrived at the company five years ago, he recognized that the vaunted imaging and printing group wasn't doing a great job with large businesses. Part of the problem: IPG executives were used to marketing to consumers, and lacked deep experience in enterprise sales.

Vyomesh Joshi, the printing group's executive vice president, once told me that it was humbling, but he realized he needed Hurd's help to turn things around.

In a controversial move, Hurd brought in Dahlgren, a former colleague at NCR (NCR), to lead the enterprise printing business and spearhead managed print services. (Because of a legal dustup with previous employer Lexmark (LXK) regarding a non-compete agreement, he had to take some time overseeing Europe before settling into the role.) Since then, Dahlgren has been scrapping with the likes of Xerox (XRX) for share in the market.

So far the services business has grown to the point where HP manages 19 billion pages per year. The total value of all managed print services contracts stands at about $5.5 billion. Revenues have recently gotten large enough that HP executives review it separately from the other printing operations.

A race to print money

The spoils of the managed print services war should be considerable. Photizo Group, a research firm, estimates that by 2013 it will more than double into a $60 billion global market, and more than half of all enterprise printing devices will be under a services contract. Dahlgren says that today, only about a third of HP's enterprise customers have begun using managed print services at all, and another third are evaluating it. "So I don't shy away from a $1 million contract," Dahlgren says. "Because I know that once we get in there, this thing really expands."

In this environment, the company that locks up the most market share could eventually wield decisive influence over which enterprise printer and copier brands thrive. If HP wins, it gets to eat a big piece of Xerox's business. If Xerox wins, it gets to do the same to HP.

So it makes sense for the printing giants to jockey for market share grab now, especially since businesses don't want to buy equipment anyway and companies like HP can promise coveted cost savings from switching to the services model. But what happens when that stage is over, and investors still want profit growth in the imaging and printing segment?

Dahlgren has an idea of how it might work. He offers a customer as an example: HP had begun managing most printers and copiers for a hospital when someone noticed that the station for printing the hospital's ID wristbands was located right near the admissions station. That would make it possible to print each patient's picture, in color, right on the wristband.

Not only would it make it easier for hospital staff to check them, it would add a valuable layer of security. And in the print services contract, HP can charge more for the new wristband-printing service -- similar to the way the cable company charges more for premium channels. Says Dahlgren: "Wouldn't it be cool -- we're not there yet -- but wouldn't it be cool if when a doctor printed out a patient's information, there was actually a picture there?"

It would be cool. And apparently profitable for HP, too.

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