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Scott Tuthill, vice president of imaging and printing for Hewlett-Packard Co., joined Ziff Davis Enterprise Editorial Director Mike Vizardfor a recent Changing Channels podcast live from the Breakaway Conference in Las Vegas. A transcript of that interview follows.

Mike Vizard: I caught the whole presentation and the first thing that kind of leapt out at me is you’re talking about a 1 percent growth in digital pages, even though it’s a huge volume, but those digital pages are split among a lot of the different constituencies in the channel. So is that really enough of a growth to really drive or attract people to get into that business? And maybe you can also delineate a little bit more what a digital page is versus an analog page.

Scott Tuthill: Let’s make sure the 1-percent growth is qualified correctly, all right? So it’s 1 percent of the total going from 9 percent to 10 percent, which I think translates into an 11 percent growth if the total is staying the same. But we can get you the background information. We’ve shared that publicly before. So from a digital page, I would just say it’s something that, in the process leading up to printing, that it’s in the digital domain and it’s traveling through a computer over a network, you know, something like that. Maybe the way to think about [it is by considering] what isn’t one. If you had a chance to go into kind of a classic print shop you’ve seen Heidelberg, you know, eight-color presses or things printing out where there’s actually a physical plate that’s generating the page. We would say that’s an analog page. And obviously, that’s the bulk of how things get printed today. Newspapers are printed that way. Magazines are printed that way. A lot of packaging is printed that way. Now, let me just make sure I understand your question. So, the fact that these are all in many different places, does that represent a challenge or an opportunity? I mean, is that what you’re really asking?

Vizard: Yeah, is it in the realm of the classic solution provider who comes to this type of event to really go after and drive that business? Or is that in the realm of what used to be the straight-up copier guy or the graphic artist guy?

Tuthill: It could be. Remember the point I made about, you know, look for the convergence that is going on. So from a technology standpoint, there’s convergence going on. And it’s not just that that’s converging. I think if you look at — for the audience that’s here, as I talked about last night — as the technologies come together, then resellers who may be used to, you know, coexist and be different, copier and IT, they’re going to come together whether they want to or not because their customers are going to say, “Hey, I’m only going to make one purchase choice, and I’m not going to make a separate copier purchase choice and a separate IT printer purchase choice. And by the way, I only need one person to do that for me now as well.” You can look at it as a threat if you want to. We look at it as an opportunity. And I would say to the audience that’s here, they can look at it the same way. They can look at it as an opportunity to grow what they want to provide in terms of services to their customers. It’s their choice.

Vizard: So, you’re basically saying, then, that what we’re going to see is a convergence of the channel around the printer segment, and there will be some merger and acquisition activity I would imagine that’s going to drive a lot of that?

Tuthill: I can’t comment on mergers and acquisitions. I mean, if you look at, you know, there’s some activity out there clearly with Xerox buying Global Imaging [Systems], that’s kind of in the same space that they’re used to and if you read the press releases, it’s more of a reach for Xerox in the small and medium business base than it is to get them into a different competency space. But over time, yeah, I think it’ll happen. I mean, this is a long-term trend, OK?

Vizard: So if that happens, doesn’t the business model change at the same time? And most of these guys are used to a model where, you know, I sold you a printer, I dropped it off, I come in and I check on it every now and again. Maybe if I’m lucky I sell the service pack to a model where now I’m trying to keep track of who’s printing what for what penny per page and now I make money doing that. How does that–

Tuthill: Yeah, we would say it doesn’t have to be that way, and that’s not the way that we’re approaching it because we don’t think that our customers want it that way either. In a lot of cases, the customers themselves are tired of the way that the classic copier billing model has worked with, you know, in some cases they have to provide page counts on their own, you get [under counts] and overages, you get wild swings on what the bill is each month, and it doesn’t have to be that way. That’s the approach that we’re taking, as I talked about with our Smart Printing Services concept, which really is just pay this flat amount each month, at the end of the year we’ll figure out what your supplies usage has been and if it’s been below what we’ve worked in, we’ll take your bill down and we’ll credit back what you, in a sense, have overpaid. Or, if you’ve been using more, we’ll ratchet it up and we’ll level it up for the next year. So it doesn’t have to be that way because that’s kind of a pain in the neck. Technology can actually solve some of that now, too. And we have those capabilities with our Web Jetadmin product, which actually can query the devices over the network and get that information back. If somebody really wants to do that and if, like I said last night, the folks in the room, if they happen to be doing network monitoring and maintenance and management for their customers, today it’s actually a fairly easy capability to lay on top of that. And then they can offer value added services around that as well, really to their heart’s content in terms of supplies, media, device maintenance from a proactive standpoint or a reactive standpoint. And we have some people that are doing that, too.

Approaches to Managed Services.

Vizard: You outlined two managed services approaches. One is kind of reselling the managed service provided by HP, the other was build your own managed service using the HP tools. Where do you think people are going to go and in which direction and why?

Tuthill: It depends. I mean, we have people who do both. And it depends, you know, what’s the business model that the service provider, reseller wants to be. We have a value partner program, our Solution Value Partner Program, which we can get to you to brief on. That would give somebody that wants to be and deliver services themselves, those capabilities to do that. And we have people to do that both that are in the copier channel, traditional copier channel today, and they are very familiar with that. Or people that are in the IT channel today that are adding this practice. So people are doing what I talked about last night. And by doing it, you know, the benefit of having this more contractual and annuity-based model for the imaging and printing business is that over time, it really does start building up where you’ve got your financials kind of cranked in as you’re coming to each month. One of our resellers, he had some background via IKON — and so there’s a lot of people who have kind of crossed, just like the convergence that’s going on, they’re, you know, the management teams are also moving around as well — and he goes, “You know, I come into the start of each quarter and it used to be I didn’t know where am I going to retire my quota. Now I come into the quarter and after working on this for a year, I know I’ve got 30 percent of my quota already fully retired.” Because he’s gone from a transaction, what-am-I-going-to-sell-this-month basis, to a long-term contract with the customer where he knows he’s got a very predictable cash flow coming in. So that’s one of the key benefits. From your own management standpoint, you get a more predictable cash flow out of it.

Vizard: What does that mean for the solution provider in the sense that, if I’m reselling the HP service, I may have lower capital costs but maybe not as much profit as the guy who rolled out the service himself?

Tuthill: That’s probably one of the key ones. Again, what’s the business model? If you want to provide your own service and stock your parts and get your people trained, that’s great. We’ve got programs to do that, and I think they’re very highly regarded. Or, if you say, “Hey, I’d really like to make some of the margin off services, I normally don’t get a chance to, and I’m going to let HP do all that and, you know, please compensate me for selling the service that HP delivers,” we’ll do that as well.

Vizard: Does the classic printer VAR go away? I mean, in a world where, you know, especially HP, is pushing this notion of attached rates and, they want the VAR to sell the PC, the server, the printer and the whole nine yards, are the dedicated printer VAR specialists going to be folded into some larger type of solution?

Tuthill: I don’t know if I’ve thought of it that way. I mean, there are some some VARs out there that specialize in printing. There are a few that I can think of that really specialize in imaging and printing. But most of them have multiple practices already anyway. And the ones that do specialize in imaging and printing are doing more than just, you know, as kind of the printer world, buy the printer, maybe I’ll sell the care pack, come back and see how it’s doing. There really aren’t, that I can think of, that many out there that are doing that today anyway.

Vizard: You talked about the activity around color printing moving from the graphics shop to in-house. And you said HP’s doing that. Now, is that going to become a major trend, or is that an isolated set of circumstances?

Tuthill: No, no, no, this has been going on for a long time. We’re a big company, we have tons of research. There’s more than half of the small and medium business that are doing something like this today, and it’s a long continuum. What we would say is that within the printing and the Print 2.0 world, there are opportunities to accelerate that trend. So, for instance, if you’re helping customers build out and deploy a CRM system, we also integrate that CRM system with this marketing collateral or their communication system to help them integrate their prospect tracking, their campaign management and those kinds of things, which really then get to where you have an opportunity to go in and act as a consultant to help that business grow their business, which is really what the marketing collateral stuff is all about, right? It’s helping them generate business.

Vizard: One of the things you didn’t talk about but seems to be an issue and, you know, at some point HP rolled out this program called Rolling Thunder a few years back. And now maybe that was ahead of its time, because today everybody’s talking about power, and they’re talking about green environments. So is that going to be an opportunity going forward at some point?

Tuthill: So let me make sure I understand how you’re tying Rolling Thunder to environmental issues.

Vizard: Well, Rolling Thunder was kind of, you know, look around for all the aging printers that are costing the company more money to run and, by the way, wasting paper and toner, and upgrade that environment. Now, today, that seems to be a, you know, regularly appearing theme in the printer world. So I was wondering if we were going to see Rolling Thunder 2.0 or something to get another shot at that?

Tuthill: OK, I see, that was one element of Rolling Thunder, but Rolling Thunder was also more of a solutions orientation or really giving more full body, you know, reasons and solutions to new devices. Well, from an environmental standpoint, I mean, that’s a strong corporate theme from HP. I think we just recently announced we’ve exceeded a billion pounds of material that we’ve recycled. And, you know, because it’s something our customers asked for, [HP] is designing these capabilities in all of the devices that HP makes. And it’s the things that we talked about before in Rolling Thunder on power, you know, the environmental things in particularly on power, you know, continue to go on. And so, yeah, that’s going to keep going, but I think more importantly is you’ll continue to see us build out solution capabilities as well, that we can help kick start or facilitate hooking up key solution vendors to reseller partners if that’s what they need. If someone who wants to build a document management practice, we’ve got, you know, document management solution providers that we can hook up with the reseller to go out to the customer. That’s what I think of as also part of Rolling Thunder.

Printing Business.

Vizard: There’s the document management business now, there is color printing, there’s more complicated printing. In a world where solution providers have had a hard time just adding your basic service pack to a printer and selling that, what makes you think that they’re going to be able to sell all this stuff at that level? Because it sounds more complex.

Tuthill: So tell me why do you think they’ve had trouble selling care packs?

Vizard: I don’t know the answer to that, I was hoping you would –

Tuthill: You’re just passing on what you hear?

Vizard: Well, last time I talked to you guys you were saying that service packs was a problem; the attached rate on service packs was in the low teens somewhere.

Tuthill: Probably for maybe all the devices that we sell. I don’t know. I mean, I’ve been in with service experts, been in presentations to groups of people like today and told them, you know, what’s your opportunity here in terms of making more money by leveraging each piece capability and selling care packs, and I don’t know why they don’t. You know, we have some resellers that actually have connect rates about 80 percent. And if you look at the way they manage their organizations, is they just dictate and say this is what you’re going to do, this is part of what we sell and this is what you’re going to be held accountable to sell. And they have great attach rates, and they make money doing that. And I haven’t heard anything, it’s not like there’s anything wrong with the care pack products themselves or anything like that. You know, it’s just you’ve got to decide if you’re going to do it or not.

Vizard: Are they selling their own care packs versus an HP care pack?

Tuthill: Well, no, these are people, there are actually, we have partners out there that are reselling HP care packs to that extent. And, you know, that could not fit their business model, right? Is that they don’t want to provide the services themselves, or they may, because you can be, you know, they may be service authorized or warranty authorized depending on what the care pack is. So we allow, you know, kind of mix-and-match, what do you want to do? What do you want to have HP do? But you have the backing of the HP brand and the product. So I think it’s an untapped business opportunity, in all honesty.

Vizard: Or maybe there’s just too much user error around printers and no one wants to take the call five times a day about “I can’t put the toner cartridge in the printer.”

Tuthill: In what way?p> Vizard: From the end user. Because it’s like, you know, it’s one of those items that seem to break a lot. And it has nothing to do with the machine per se, it just has to do with usage. But maybe it’s too many calls, too many service calls, not profitable enough?

Tuthill: I don’t know. You may have more data on that than I do. Generally they are pretty reliable products, you know, from all standpoints of usability, reliability, classic break/fix reliability and the like.

Vizard: Just seem like users find a way to jam the printer or do something.

Tuthill: You may be thinking about copiers. Not printers.

Vizard: So what do you think is going to happen as MFPs evolve? Because one of the things that occurs to me, at least looking at the technology, is I’m seeing all these multi-core processors coming down. And over time, a print server could have a multi-core processor and become an MFP on steroids. Is that going to happen? Or, what do you think is going to happen?

Tuthill: If you look into a business that what will eventually happen is there’ll be kind of a smaller number of devices in businesses that they use for their core functionality, like print, copy, scan, fax, digital. They’re going to be color capable, they’re going to be on the network, they’re going to be multifunction. And it’s going to be that way because the economics are going to make it happen that way in the long run. Technology is going to give away the cost of ownership, the usability, the integration with the IT systems and the like. So that’s where it’s going to be eventually. You know, it’ll take awhile for it to get there, but that’s where it’s going to be in the long run.

Vizard: So is Print 2.0 a euphemism for output device consolidation? Is that what we’re really talking about?

Tuthill: So the output device consolidation, the term we would use is optimize infrastructure, that would be part of Print 2.0. But Print 2.0 is as much about what’s going on around the devices as the devices themselves. As I said, HP is going to have great boxes. That’s our legacy. It’s the root of what we do. But we know that we need to surround those with well, what are you really going to do with it, from an end-user standpoint so that it’s really going to make a difference. And the Print 2.0 is about realizing that the network that is attached to and feeds these devices extends beyond the company itself, that Web interaction is a key interaction in any of the information content gathering and presentation organization. That the imaging and printing capabilities need to be integrated in with Web interfaces. That the content itself exists on the Web. And, you know, talking about earlier, how do you integrate your CRM systems, your marketing and sales systems and produce a full direct-mail campaign therein? So it’s doing those sorts of things and, you know, we’re making investments in more than just the hardware printers. That’s the one thing I’m trying to get across on that. We’ve got a pilot going on right now up in Canada with Canada Post where we’re actually working with Canada Post for them to work with their customers and provide them really with a marketing campaign–based system. So those are the types of things that we really see as the future, it’s the full infrastructure around it. And that’s really what Print 2.0 is.