Xerox Is Dreaming In Color

Will a big bet on color printing boost its share in this fast-growing market?

At first blush, the sales pitch left graphic designers at PrintManagement skeptical. Xerox Corp. (XRX ) was trying to sell them on a new digital copier called iGen3 that would take over some of the work the Cincinnati printer traditionally sent to offset machines. The color would be comparable, Xerox claimed in the presentation last March. And it would be economical for runs of fewer than 2,000 pages -- a proposition no high-volume offset-printing system could match.

These two claims intrigued the designers, who print millions of color pages every year. "We have clients that manufacture equipment for the food industry," says Brian Frank, PrintManagement LLC's co-owner and executive vice-president. In their product brochures, "a piece of chicken has got to make your mouth water." So Frank sent a host of jobs to Xerox' Rochester (N.Y.) compound, and when they came back, the designers put them next to the same prints run on an offset machine. Within a couple of weeks, PrintManagement signed a five-year lease on an iGen3 for upwards of $750,000.

Xerox needs to impress a lot more execs like Frank. The copier giant targeted the color market years ago, in part to escape price wars in low-end systems. It now enjoys a dominant 36% market share in high-end color copiers, where leases run $150,000 and up. But sanctuary in this niche could prove transitory: Rival Canon Inc. (CAJ ) is No. 1 in mass-market copiers that handle both color and black and white. Ricoh (RICOY ), Toshiba (TOSBF ), and Konica Minolta are competitive, too. And Hewlett-Packard Co. (HPQ ) hopes to move its corporate clients to multipurpose office machines with brilliant color palettes. "Color's the name of the game these days," says Peter A. Crean, a veteran Xerox scientist.

The stampede into color office gear is driven in part by the explosion of radiant Web pages, graphics-rich PowerPoints, and relentless blizzards of brochure marketing. And because color products require more supplies, profits in this segment are lush. Xerox' profits in the color copier market -- mostly on toners and other gear -- are three to five times higher than in the black-and-white market.


The growth curves are also alluring. While black-and-white copier sales are basically flat, color office machines that copy, scan, and fax are expected to swell from a $5.8 billion market in 2003 to $7 billion this year, according to Lyra Research Inc. in Newton, Mass. Xerox gets 24% of revenue from color sales -- but that's not good enough, executives say. To increase their share, the company is spending two-thirds of its $800 million annual research and development budget on color-related projects.

For all the intense research at Xerox and elsewhere, the physics of color is fairly elementary. Virtually all printed colors can be produced by combining four shades: black, cyan, magenta, and yellow. But the science of color is as much about human perception as it is about wavelengths of light -- and matching the color on a piece of paper with what's on a computer screen is no mean feat. Xerox dubs this challenge "true color" and it is sparing no science or engineering resources to master it.

Calibrating printed colors with their electronic counterparts is difficult because the colors on a monitor are literally luminous: You change them by adding light. On a page, in contrast, when you want to refine the palette, you mostly end up applying the color black to subtract light. Not surprisingly, the universe of colors you can see on a computer or TV screen is much larger than what you can ever get on a page.

So researchers have figured out how to trick the eye into believing that the two sets of colors match. For one thing, the perception of a particular hue is defined by colors adjacent to it. The same patch of yellow surrounded by a light blue background seems to grow brighter as you darken the blue that borders it. By deftly layering colors next to one another, printed images can emulate electronic ones.

But all this effort is wasted if the colors placed on the paper aren't "true." Here, nanotechnology comes into play. Traditionally, the toner used in photocopiers was ground up and sifted to get the most uniform particles. Today, after 11 years of development, toner in several of Xerox's high-end office color-copying machines -- and likely soon the iGen3 -- is made chemically, built up from molecules that measure just one four-hundredth the width of a human hair. This technique has improved color reliability. And because the particles are a uniform size, copiers and printers handle them efficiently, with little waste.

Rivals and some outside experts question how effective Xerox' research spending will be. Sam Yoshida, a corporate systems director at Canon USA Inc., points out that Canon can leverage its color research across a variety of digital products, including cameras, video, and copiers. That gives the company more bang for its research buck, he contends. And Michael Zeis, president of document specialist Blackstone Research Associates, expresses doubts about the potential market for products such as iGen3, which is designed for customized tasks. Because it's digital, the machine might run, for example, a few thousand high-gloss fliers for a resort, customized to the interests of many different groups of clients. But there is one big problem, says Zeis: Many companies lack sufficient information about their customers to really tailor their marketing in such a detailed way.

Xerox says its color strategy is far more than just neat science. Ursula M. Burns, president of business group operations, the company's $12 billion copier division, says return on R&D investment has been strong and that color innovations hatched originally for one machine migrate up and down Xerox' 30-product color line.

Solid ink is a prime example. The technology, which Xerox acquired five years ago, is an ink formed into roughly 2-inch-square pieces that are melted to make an image, creating deeper, truer colors on the page. At Behr Paint kiosks, located in 1,700 Home Depot (HD ) stores, it's a Xerox solid ink printer that spits out the sample.

Today the ink is used in printers, but Xerox has been working on a way to get it into digital machines that copy, fax, and print -- and plans to launch such a machine in the first half of 2005. Customers like the vivid colors, but just as important to Xerox is the lower cost base: Solid-ink systems have fewer disposable parts, and maintaining them costs 40% less than traditional laser systems.

For a company built on a leasing model, maintenance savings are a huge boon. "Solid ink is magic," says Burns. Well, make that science.

By Nanette Byrnes in Rochester, N.Y.

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