Xerox: Color at a Black-and-White Price

While B&W printers and components currently rule market share, a new Xerox printer aims to put color into more paper at a similar cost

Imagine a world in which 80% of televisions and computer monitors are black and white, in which bar charts appear not in the colors of the rainbow, but in barely distinguishable hues of gray, and in which you have to guess whether the actor you're watching on TV is blonde or brunette. It's a laughably outdated idea, even to those of us who actually remember when media was only available in shades of gray.

Of course, there is one world that has remained stubbornly monochromatic, and that's paper. This year IDC, a Framingham (Mass.)-based IT research firm, predicts only 21% of the printers sold in the U.S. will be color machines. The reason is cost. While a black-and-white page can cost less than a penny-and-a-half to print, make it in color, and the price tag is anywhere from 9¢ to 13¢.

No one wants to get color into the office more than companies that manufacture printers; they love the high margins those machines bring. But without addressing the price differential, they've only gone so far. Now Stamford (Conn.)-based Xerox (XRX) says a machine hitting the market Sept. 24 will do just that. In a release announcing the launch, Ursula Burns, president of Xerox, says the company can now make printing a page in color as inexpensive as black-and-white. "Now, business can take the locks off the color printer," she declares.

Color Conversions

Color for the price of black-and-white is a dramatic promise. But on closer examination, Xerox's latest gambit seems destined to fall short of launching a color printing revolution. Though its new technology is great in many ways—including a lower cost of ink and environment-friendly packaging—the new machines carry a high price tag. That, combined with plenty of competition from Hewlett-Packard (HPQ), Canon (CAJ), Konica Minolta (4902.T), and Samsung Electronics, makes it hard to see this as a knockout blow. "It's clear when you look at the price that the target is not every color user out there," says Angèle Boyd, a group vice-president at IDC.

Boyd expects the move to solidify Xerox's 10% market share in U.S. color printers—it's No. 2 behind HP's dominant 40% share—but not greatly increase it. "I don't know that it's going to move the needle that much," Boyd says. Globally, the market for laser color printers and similar machines is $5.1 billion; for black-and-white, it's $10.1 billion.

Improved Bottom Line

Five years in the making, the new printer, called the Phaser 8860, is clearly a technological step ahead for Xerox. The machine uses a technology called solid ink that Xerox acquired in 1999 when it paid $950 million for Tektronix's (TEK) color printing business. Unlike ordinary toner, which has to be thrown out or recycled, this technology's color comes from crayon-like sticks of magenta, cyan, yellow, and black that simply melt as they get used up. They also require less packaging. Improvements have been made to the durability of the images, too, making the new printers more comparable to HP laser printers.

Less waste and other improvements to the technology have enabled Xerox to significantly reduce the cost of the new toner, but the machines themselves are being offered at a higher price than those of competitors. The Phaser 8860 will sell for $2,499, a $900 premium to an HP machine that prints the same amount, and $1,600 above Xerox's current offering, the 8560/DN.

For businesses that mainly print in color, the math makes sense. Joe Balla, director of information technology at Watson Realty, a realtor with 45 offices in the Orlando and Jacksonville (Fla.) areas, is a longtime Xerox customer who has been using the color printers for nearly a year as part of a test launch prior to the full rollout. His 2,000 real estate agents use color in their brochures to stand out in buyers' minds, but the cumulative bill adds up. The company spends more than $1 million a year on color printing. Balla has found that after 10 months with the new machines he's reduced his toner cost by one-third. "It pays for itself in two to three months if you print a lot like we do," Balla says.

Savings vs. Skeptics

According to Jim Rise, who runs Xerox's solid ink business unit, frequent users will see a savings of 50% over the lifetime of the machine when both hardware and components are factored. For companies that make a lot of copies, a black-and-white copy of a black-and-white document costs less than a penny-and-a-half to make, but a black-and-white copy of an original with lots of color costs closer to 5¢. Xerox's new machine makes a color copy at 5¢, about half of what printing it on today's machines costs.

But analysts are skeptical that this device will make converts of the 80% of the world still printing in black-and-white. For one thing, in larger companies, the IT staff buys the hardware, while the operations staff buys the toner and components. So a higher price tag on the machine may be a hard sell to a group that won't see a budget benefit from cheaper inputs. And because the machine itself is more expensive without printing more pages per minute, it's easy to see how competitors with cheaper boxes will sell against it. "It's a very competitive market," says Shannon Cross, founder of independent firm Cross Research. And one in which price really counts.

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