Xerox launches Ink Wars salvo to mid-market

Xerox formally launched the ink wars into the midrange color printer market today with the introduction of two new Phaser printers that use low-cost consumables. As I blogged last month in a sneak peek at today’s announcement, Xerox is trying to do in the midrange color printer market what Kodak attempted earlier this year in the low-end ink jet market with its EasyShare All-in-One line. But a steep premium on the printers up front may turn off many users.

Selling lower-cost ink isn’t an altruistic gesture on the part of Kodak or Xerox. The strategy is to gain market share by tapping into user frustration with the high cost of ink. Both vendors are marketing a line of printers that use low-cost consumables as a marketing weapon to gain ground against entrenched market leader Hewlett Packard.

In a recent head-to-head test of Kodak and HP printers the EasyShare’s cost per page came out to be considerably less than for the competing HP C5180. But there’s a catch: You pay more for the EasyShare printer up front. The difference, however, was only about $50 and if you do much photo printing, the lower cost consumables quickly make up for that.

Xerox has released two Phaser 8860 series color printers for the midrange business market: the 8860 color printer and 8860 MFP multifunction color printer both use a new, lower cost solid ink formulation. The resin-based ink sticks, which look like over sized crayons, can be applied at a lower temperature. That creates less wear on the print engine, says vice president of marketing David Bates. “You get more vivid colors. It’s drier and there’s no waste problem as with liquid ink jet,” he says. Solid ink is also more environmentally friendly because there’s no ink left over in a cartridge when it’s “empty” and no cartridge to throw away.

Bates claims that the 8860 series printers make color printing as cheap as monochrome printing. That may be true, but it's a better deal only if your print volumes are high enough to justify the premium you’ll pay up front to buy the printer. “It will appeal to those who have decided to buy color and print enough to consider a different set of economics,” Bates told me during our meeting last month.

Here’s the tricky part: Xerox wants you to pay $1,000 more up front for its color printer to get the lower-cost ink. The 8860 series platform is functionally similar to the 8560 line, which sells for $500 to $1,000. “It’s a new product on similar platform but with different ink, heads and plumbing [but] the physical specs are similar,” Bates says.

Xerox’s cost to build the 8860 isn’t any more than for the 8560, although the ink is cheaper to produce. But Xerox will sell the Phaser 8860 color printer for $2,499 and the Phaser 8860MFP multifunction printer for $3,999. HP’s Color LaserJet 4700n color printer retails for $1,599.

On the consumables end, Xerox sells black ink for $216 and color inks for $72 each (you’ll need cyan, magenta and yellow) and claims 14,000 pages per stick. Xerox compares that against the LaserJet 4700n’s black toner cartridge, at $178.99 for 11,000 pages; and the 10,000-page color cartridge, $253.99 each (All comparison numbers are Xerox’s).

There’s no free lunch here. Currently, printer vendors sell you the printer at a very low margin in order to gain a captive audience for the high-margin consumables during the life of the printer. Manufacturers zealously guard their consumables business from third party vendors through lawsuits and special marketing deals with retailers that force competing generics off the shelves.

But neither Xerox nor the other players can keep shareholders happy by selling printers at the very low margins seen today unless they make up for it on the inks. Xerox may want to gain market share, but turning that model on its head may not go over well with price-sensitive small and mid-sized businesses when the price delta on the printer is this high.

Does it make sense for your office? According to Xerox, you’ll need to print 31,383 pages before ink savings make up for the extra up front cost. If you do 4,000 pages a month, you’d recoup that in about eight months. The average lifespan of the printers is 3-5 years. Xerox claims the 8860 series is economical starting 1,000 pages per month. Does that make sense for the term of your lease? You'll have to do the math and decide for yourself.

It appears that Xerox isn’t fully committed to this strategy. Bates readily admits that businesses may complain about the cost of consumables but most still buy based on the up-front purchase price. This is more of a marketing experiment. “We [want to] know if the market is going to pay $2,500 for the machine going in,” he says. If customers balk, Xerox has hedged its bets. It will still sell the lower-cost 8560 series with the higher priced ink. But that won’t give it an edge over HP.

Bates says Xerox’s ultimate strategy is to offer users choices. “My personal view is that we’re becoming more like the cell phone industry where there’s a plan for everybody rather than one size fits all.”

Choice is great, but using the cell phone industry as a business model? God help us.