Going South

The convergence of output devices around MFDs is challenging the market for
standalone imaging devices, but unique requirements will keep them alive

With rapid technology strides come both comfort and pain. Nowhere else is it
more evident than the IT peripherals segment that is on the impact threshold due
to a emerging paradigm driven by MFDs, TFTs, Digital Cameras et al. On the face
the cannibalization effect-single function inkjet printers and entry level
scan-ners being eaten by All-in-Ones (AIO) would sound Utopian now but it has
started happen-ing. In the West the trend is gaining momentum like the CRTs,
being challenged by the TFTs and Desktops being challenged by Notebooks. While
it will take a while for this trend to catch up in India, one segment that has
already come into sharp focus is the Scanner market and the direction it will
take as a standalone product in the peripheral space.

Market dynamics

As per market researcher IDC, Scanner unit shipments stood at around 137,000
units during 2002 and witnessed 31% growth during 2003 with 180,000 units. For
the year ended December 2004, IDC pegs a figure of 177,000 units. A marginal
decline-not bad, one might say-but it is just the tip of the iceberg.
Analysts esti-mate a sharp 20 percent decline in scanners by end of 2005 with
MFDs and high mega pixel digital cameras denting into the scanner pie. With
entry level scanners stagnating with dull sales, most of the vendors are
concen-trating on the mid and high-end scanner requirements that are driven by
verticals like BFSI, publishing and the govern-ment. Comments Susheel John,
business development mana-ger, document products services and commercial imaging
group, Kodak India, "The MFDs, and digital cameras have definitely had a
major impact on the scanner market especially the personal desktop scanner
market. Since MFDs are becoming cheaper by the day, end users prefer to buy
these products instead of plain vanilla scanners. Definitely this will remain a
trend into the future, so much so that I believe over a period of time the
personal desktop scanner market will be wiped out."

A typical case of product obsolescence, entry-level scanners would soon
become history, but at the same time mid and high-end segments will offset the
void and will continue to grow. Susheel John cites four drivers that will enable
organizations to look for high-end production scanners-need to bring paper
based knowledge into their eContent, need for quicker turnaround of business
proce-sses, legislation for acceptance of electronics such as the Sarbanes Oxley
in the US and, lastly, the falling cost of electronics storage.

Meanwhile, enterprises have also acquired a lot of unstructured data in the
form of paper. The best method of recycling them is scanning, which will
digitize them and free physical storage spaces. Says Manu Sharma, country
category manager, imaging products, HP India, "Scanning is predominantly
used for two applications-capturing image and capturing documents. BFSI is one
vertical that is doing some aggressive buying. The niche applications in these
verticals will continue to drive the scanner market growth."

In terms of market domina-tion HP leads the pack with 54 percent marketshare
followed by UMAX at 21 percent and Canon at 14 percent.

Changing equations 

While both entry-level scan-ners and single function inkjet printer volumes
are expected to decline dramatically during 2005, new technology enhan-cements
will bring in the much needed volume stabilization of standalone devices. For
insta-nce, USB 2.0 is getting into the mainstream. Scanners with version two of
USB will bring in greater benefits to the customers in terms of data transfer
from their PCs. This will lead to more enterprises overhauling their old
scanners, mostly entry level, and migrate to faster and more functionally rich
scanners. While this will hasten high-end scanner market, it will also lead to a
market for used scanners. For instance, an entry-level scanner was costing
around Rs 6,300 in 2000. The resale value of the same now is a mere Rs 1,000 and
going down by the day. While a far more technically advanced scanners even on
the entry level space is available at Rs 3,500, cost conscious first time SOHO
consumers will opt for used scanners instead of newer ones. Hence vendors, in
order to drive higher end scanners, should launch innovative buy back programs,
enabling customers to migrate to new imaging technologies.

While we take a closer look at the cannibalization effect from MFDs, which
sure is a value proposition, but at the same time we have to realize that those
enterprises which have good volume of scanning images and documents, should opt
only for standalone scanners rather than MFDs. Some industry analysts aver that
MFDs functionality in many cases was not optimally used. For instance, some
consumers predominantly use MFDs for printing only and hence less of copying and
scan happens. To avoid situations like that, standalone devices in unique demand
situations will yield optimal benefits than a converged one. So, per day demand
patterns for copying, printing, and scanning has to be ascertained for informed
output device buying decisi-ons. Hence, it is still a debata-ble decision if an
enterprise should choose MFDs (just because it does many things for a price of
one) in lieu of stan-dalone scanners if its needs are primarily scanning.
Moreover, if we look at the vendor strategies for MFDs, the all in one
capability is the core USP they pitch on. And, similarly, their scanner market
strategies are heavily bent on SMBs and large enterprises. Both the MFDs and
mid/high-end scan-ners are targeted at the SMBs, and this creates a very
ambi-guous market out there and puts SMBs in a dilemma of choosing the right
size, right fit imaging products. But in the end, it does tilt in favor of MFDs
as the growing print and

copy volumes put MFDs in a sweet spot. But standalone scanners sure have their
place under the sun with serious imaging demands continuing to drive sales.
 

Says Rajeev Singh, manager-product consumer imaging and information division,
Canon India, "Standalone scanners will not be canniba-lized by MFDs
because, apart from mid-end and high-end scanners, another factor that will
drive sales among standa-lone scanners is the trend towards the scanning of
nega-tives, which will catch up during 2005. Iforesee scanning of still
photograph film negatives gaining ground and becoming one of the major drivers
in this segment."

Analysts are also buoyed by the demand from the govern-ment vertical for
scanners. With almost every state fan-cying a slew of G2G and G2C services, it
calls for a huge demand for scanners. For insta-nce, in departments like
registration the need to scan documents is a perennial function. With huge
demand still out, vendors will go aggre-ssive in getting the maximum yield from
the government sector during 2005.

New breed of scanners 

A major trend during 2004 was the entry of production scanners. HP upped its
ante by bringing new product lines targeted for the large enter-prise demands.
Meanwhile, one player who needs a closer look is Kodak India. The company offers
state of the art production scanners in India. These scanners are typically
meant for scanning huge demands on any given day. For instance, production
scanners are used in demand scenarios like 1,000 to 60,000 pages per day. These
are unlimited duty cycle scanners with prices ranging from Rs 50,000 to Rs 60
lakh. Speeds may range from 35 images to 640 images per minute. Says Susheel,
"We vend only production scanners to meet various customer needs. Key
vertical segments that buy our offerings are BFSI, government, transportation,
hospitals, and educational institutions. We have sold our whole range of
scanners in India for various applications and customer needs. We see our
biggest growth happening out of India in the departmen-tal and workgroup scanner
market. Scanners priced bet-ween Rs 50,000 to Rs 3 lakh with daily duty cycle of
1000—3000 and speeds of 20 pages per minute to 50 PPM, form the departmental
and workgroup scanner market."

Typical applications of work-group scanners are wide ran-ging. For instance,
a courier company may use it for captur-ing proof of delivery (signed POD's
are scanned and uploa-ded) for better customer ser-vice response or for
capturing document required for cus-toms clearance; hospitals will use it to
capture and manage their medical records.

What emerges at the end of the day is that the Scanner market in the country
is signing out of its stable times of the past. As Susheel put it, "Going
forward, customers will look at the MFD to serve their purpose of one-off
scanning while investing in production scanners to handle their specific
business processes; these scanners need to be very user friendly and ensure that
scanning business documents is a simple one touch operation, and produces nice
clean images that occupy minimum storage space."

Despite vendors' opti-mism, up ahead looms a upset year where, in MFDs,
average selling value is expected to slide further and, by mid 2005, most
vendors will see significant decline in their entry level scanner offerings.
Meanwhile, to offset the volume decline, vendors will resort to price cuts in
the mid end and high-end scanners that will secure the scanner market growth in
the days ahead.

Shrikanth G in
Chennai