Dell’s print job

I’m no Jedi knight, but even I know you can’t put a galactic war on hold just to launch a few printers.

It seemed even earlier than 8:00 a.m. when a group of colleagues and I arrived at the Varsity Cinemas in downtown Toronto. The occasion was a customer appreciation event organized by

Xerox Canada, which rented out one of the theatres to show Star Wars Episode II: Attack of the Clones the day after it was released worldwide. Most people opted for free coffee, but there was buttered popcorn on hand (I couldn’t believe it when CDN’s Jennie O’Brien actually scarfed down a bag), all the better to enjoy the introduction of the Xerox Phaser 8200 and Phaser 6200. I felt so sorry for the executive forced to stand in front of the audience discussing the merits of the company’s single-pass technology, but he did the best he could. Even Xerox knew the real reason this was the best-attended printer launch in the history of IT, and before the executive could finish some men dressed as Storm Troopers hauled him off the stage. I cannot imagine Dell, if it enters the printer business, ever going to such lengths.

The rumours have been circulating for weeks that Dell, one of the most successful PC companies ever, is exploring the idea of expanding its hardware line beyond desktops and servers. It should be stressed that absolutely no one within Dell has confirmed this, but there is a sense that, having survived the industry’s first real slump, the company is ready to broaden its horizons. Handhelds and other personal digital assistants have already been ruled out. In fact, Michael Dell’s response to a question on the topic from one of our reporters earlier this year offers a good guide to his decision-making process. “”We look for three things in markets,”” he said. “”We look for large markets that are profitable, that have clear industry standards.””

PDAs don’t fit that bill, at least not yet. Printers, on the other hand, have been around long enough that they also conform to one other criteria that Dell didn’t mention: he likes products that are basically commodities. This explains the company’s growing interest in Layer 2 switches, a high-margin area that would complement its existing hardware offerings. Similarly, it is winning market share over stalwarts like Compaq in the low-end storage business, at least in the United States.

Dell’s participation in the printer market would cause an upset of seismic proportions, at least initially. Manufacturers have long feared the efficiencies its vertical integration model have brought to the PC business, leading to a comedy of errors in which they attempt to create hybrid business models that don’t alienate their reseller partners. Despite its disdain for the indirect channel, however, Dell has never turned its nose up at reselling for someone else. It has long bundled desktops with printers from Epson, Lexmark, and market leader Hewlett-Packard. It’s interesting to consider that Dell may be preparing to challenge HP on its home turf just as many believed the latter merged with Compaq because Dell had eaten away so much of the PC business.

Even with its proven track record, printers would be a high-risk segment for Dell. Other hardware companies, including Compaq, have tried to move in here before and have failed. It is probably more crowded than it needs to be, and customers are notoriously brand-conscious. You can talk their ears off all day long about automatic document feeding, but more than likely purchases will be based on the number of times the company’s previous model broke down.

This factor has lead to speculation that Dell might simply buy its way in by acquiring an established player. When I wrote recently about potential IT mergers of the future, one reader suggested Dell would take Lexmark. This is entirely possible, given that Lexmark is becoming ever more interested in the low-end, where Dell would most likely test the waters. With only one (failed) acquisition in its history, however, Dell would probably prefer to do the job itself, unless it forms a close partnership à la its high-end storage relationship with EMC.

Dell could enjoy some success in the monochrome laser area, but only if companies like HP and Xerox manage to turn color lasers into the lion’s share of their printer revenues. On the other hand, perhaps Dell could cash in on color printing as it becomes hot, undercutting the competition as it has so deftly done in desktops. Price war, anyone? Pass the popcorn!

sschick@itbusiness.ca

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