Feature Article

by Luke Goldberg, Future Graphics

Copyright 2005 Imaging Spectrum and its licensors.All rights reserved.

Introduction to the SOHO Market, Part II:

The Home Printing Revolution
Authors note: This is the second installment 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, primarily due to the growth of digital cameras
and home photo printing.

An Enormous Emerging Market

According 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 digital 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 HewlettPackard (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 Shock
Now that the gigantic size of this market
has been clearly defined, it is necessary to

Luke Goldberg is responsible for developing overall

market/industry analysis and sales trends, expanding dealer
channels, managing the Future Graphics sales team of professionals as part of the new product development and marketing/promotions team. Luke has more than 14 years of experience in the imaging supplies industry. He may be reached at
800-394-9900.

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

Feature Article

Goldberg: Introduction to the SOHO Market, Part II

For the aftermarket to thrive, we must take
advantage of this dissatisfaction. Clearly,
this is what Dell has been extremely successful in achieving: delivering the costper-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 refillwhile-you-wait services, such as Island
Inkjet and Cartridge World.

gain some insight into where the opportunities lie. As we know, a hallmark of inkjet
hardware today is increased multi-functionalism. 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 hardware bundled with digital cameras and
print media (photo paper). In short, consumers are getting a huge bang for their
buck on the hardware side.
However, as discussed last month, this
razor/blades OEM sales strategy has created a major backlash when, much to their
dismay, consumers realize their total printing 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 consumers print more and more because of the

higher page coverage that is associated with

printing photos.
OEMs Pricing Strategy
OEM companies are not naive when it
comes to addressing this consumer discontent.As early as mid 2003 when HP released
its new cartridge sets, the HP 56 and lowyield HP 27 for the HP 5650/3650, 3520,
and Lexmark released its Z816 and X5270,
all of these entry-level SOHO black cartridges were priced at under $19.
No doubt these lower prices served to benefit 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 aftermarket 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 models. 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 upfront costs and not at cost per page.

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

Consumer Concern with

Cost of OEM Ink
According to many surveys and article polls,
cost of ink is becoming a paramount concern to the consumer. In one recent survey,
Lyra Research stated that consumers ratings
of OEM ink prices averaged 5.3on a scale
of 1 to 10for all major OEMs. Noteworthy
also in this survey is the consumer assessment 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 Committee (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 offering 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 processing), but also by marketing the ease of
use of home printing via bundles with software, 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 didnt know category: That song
was also sung by a wacky, little-known 90s
alternative band called The Young Fresh Fellows. Now you, too, are the proud owner of
that useless piece of information.)

Photo-printing Revolution
As Lyra has stated, photo printing is clearly
the number-one inkjet printing application
driving growth and innovation in the market. Other than cost, in which the aftermarket has a clear advantage (and must learn
how to better communicate the cost benefits 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 users expectation of quality.

OEM window
of opportunity to shore
up consumables revenue.

This expectation is furthered by OEM marketing 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 subbranding its own inks.
Epsons decision to do
this was possibly a reaction to the aftermarkets
capability of narrowing the

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 aftermarket 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 Increasing
Epson also was the first OEM to market the
superiority of something as obscure to the
average user as ink type. The very successful marketing of Durabright inks helped
educate the end user in regards to previously unknown terms such as
light fastness, water fastness,
archival nature (permanence, print
longevity),dry time and so on.

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

Feature Article
In normal printing applications, these factors 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 advantage 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 Paramount
The 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 universally-recognized, correlative testing methodology against the OEM product. No doubt
aspects such as permanence and dry

Goldberg: Introduction to the SOHO Market, Part II

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 aftermarket 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 retailersfrom Office Depot, Best Buy, to Wal
Martoffer them for sale. That said, quality 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 Aftermarket
Head to Head
There are a number of ways that the OEMs
will protect their cash cow of ink consumables. As discussed earlier, the first way is to
lower the price so that the aftermarket cannot 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 smaller ink-drop size, all to increase photo quality and resolution.
HP has now begun using a smart suppliestype chip technology as seen in its laser
products. These chips serve multiple purposes 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

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

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 empties, since many empties are imported.
Finally, possibly the aftermarkets biggest
challenge to the growth of integrated ink
cartridges (Lexmark/Dell and HP) in the
SOHO market is the availability and collection of high-quality empties. Traditionally,
the OEMs have also attempted to keep
empties out of circulation via their collection efforts (for example, HPs Planet Partners 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 remanufactured cartridges.
In order to combat these efforts by the
OEM, our industry must create its own
grass-root empties programs. The partnering 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 campaigns, must be employed in affluent areas
where there is a strong likelihood of inkjet
usage. Encouragingly, many remanufacturers have already started using pre-paid
postage return bags in their cartridges in an
attempt to keep empties in circulation.
A Goldmine of Opportunity
It is impossible to ignore the opportunities
available in the SOHO inkjet segment. The
vast majority of end users are potential customers 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
months article will focus on another large
growth segment in the SOHO market:
entry-level monochrome laser.