Originally appeared in High Volume Printing Magazine
By Chuck Gehman
Last year in High Volume Printing, I wrote a series of articles about e-commerce and the Printing industry. At that time, a large number of new “dotcom” companies were aggressively marketing their online e-commerce solutions to both printers and buyers. The climate in the industry was one of fear, uncertainty and doubt: that these companies were going either going to extract a “tax” on the already margin-strapped printing business, or would steal customers and eliminate the important service and relationship elements that printers had worked so hard to build over the years.
What a difference a year makes. Since the publication of the first installment in my series last year (April 2000 High Volume Printing), we’ve seen both a crash of tech stocks and the disappearance of capital markets, most especially for dotcoms, as well as a large number of the print-related e-commerce companies either going out of business or being acquired at fire sale prices by “brick-and-mortar” businesses or by stronger Internet players. Of the companies profiled in my series, 10 of 19 are either out of business entirely or were acquired by other companies (see Table 1.)
This article will attempt to answer the big questions on the minds of Printers today. Why did this happen? It’s not as simple as “they deserved it.” Is there any value at all in doing business online? The answer is yes, but it’s not whether to do it, rather how. And finally, things are tough all over— not only are dotcoms failing, but a lot of Printers are downsizing, cutting costs and even shutting down operations (announcements in the press about Mail Well, Quebecor, RR Donnelley and others.) In this environment, why does it make sense to pursue an e-commerce strategy?
Capital markets and the “new” economy
When the dotcom boom started in earnest way back in early 1999, it looked like anyone who didn’t raise tens of millions of dollars (and then spend it quickly on “growing” the company) was an idiot. I can vividly remember meeting with companies like Impresse at VuePoint in April 1999 and they were saying things like “our biggest challenge is managing the growth.” Venture capitalists with big funds were encouraging companies to take the money, develop technology, hire sales forces and operations staff and acquire customers at any cost… get big quick. Profit was not necessary at that time: it was a land grab.
They staked their claim, they got the most people using their system so they could achieve “critical mass,” and then (at some undefined time in the future) they might have to worry about turning it into a real business. But they’d only have to do that after the IPO, at which time the VCs would have their “exit,” and public market investors would have to worry about revenues and the bottom line. Looking back on those days, and analyzing the prevailing mood at the time, it’s easy to understand how companies got caught up in this whirlwind.
The VCs themselves aren’t entirely to blame, either. They were being spurred on by the large institutional investors who put millions into their venture funds, and who in turn were hearing nothing but euphoric predictions from sector analysts at large investment banks. At this writing, Congress and the SEC are investigating the role that analysts played during the “bubble” period in inflating stock prices and helping to push IPOs out the door of investment banks, generating huge fees for those banks (If you want to learn more about this, pick up any issue of Forbes or Fortune magazine over the last few months.)
Alas, for both the companies themselves and their venture investors, things didn’t quite work out the way they had hoped. In a very short period of time (less than a year), the IPO market disappeared. Companies lost enormous valuations virtually overnight. Stocks that traded in the hundreds of dollars were reduced to dollar stocks, or were delisted, or went bankrupt. Worse still, adoption of these new systems and applications was much slower than anticipated. It’s still not entirely clear which came first: slow adoption, leading to the collapse of the capital markets, or the perhaps the capital markets slowing and the “euphoria” of the boom disappearing causing adoption to slow.
What happened in our industry
For the printing industry, which we all know is generally quite conservative, adoption of this new “paradigm” began slow and remained slow. Companies that were giving away services experienced much lower growth than their business plans had anticipated. At a certain point, investors who no longer had an exit in sight and had poured huge amounts of money into a company, became disenchanted, to say the least. They begin to wonder whether the management team of the company in question knew what they were doing. And when all of your investments are doing poorly, you become very critical about who and what you are going to continue to fund.
From a marketing standpoint, many of these companies committed the ultimate sin of bypassing the Printer and going directly to the print buyer— either getting in the middle of the transaction with a “tax” or by attempting to turn print into a commodity business with auctions or exchanges. This was exacerbated by arrogant and demeaning messaging in the industry trade media, often (though perhaps not intentionally) characterizing Printers as old fashioned. This was interpreted by printing company executives as a “you’re either on it or under it” ultimatum. Adoption among print service providers quickly fell to zero, unless they were forced by their corporate customers to start using a particular system.
Worse still for the young e-commerce companies, even the print buying community, who could look to believable case studies documenting the benefits of these applications, was slow to take advantage of these opportunities. This was caused primarily because corporate IT was just coming out of the Y2K process, and secondarily because the larger companies were planning e-procurement initiatives (i.e., SAP, Ariba, Commerce One) that were more important than the niche of Print spend.
Another key aspect that really confused the market, and threw a number of these companies into turmoil, was pressure from investors to change business models. As the rate of adoption of these services failed to materialize they way companies predicted in their initial ambitious business plans, companies were pressured by their boards and investors to change their market focus. In several cases, companies brought in new management, changed from selling to printers to selling to the Fortune 1000, and weren’t given enough time (with their dwindling cash) to execute the new plan. This is what happened to both MediaFlex and Collabria, which resulted in good companies with strong technology and great people being shut down.
Finally, the sheer number of dotcoms marketing to the graphic arts industry before the shakeout began was simply overwhelming. At the peak, there were as many as 240 different companies selling Internet applications, all with different features, benefits, pricing models, with many of them simply repackaging technologies from other software developers. With some of these companies, it was obvious at first look that they were not serious contenders—they didn’t even have real business plans or value propositions.
However, there were quite a number that had plenty of money, technology and smart people, making the it all the more difficult for Printers to choose a partner. According to the Dotcom Watch on PrintPlanet.com, at this writing there are still over one hundred of these companies operating today. Recently, we’ve seen an amazing phenomenon where some of these companies— even though they still had plenty of money— either at the behest of the management team themselves or their investors decide to call it quits and give the money back!
Fortunately for both prospective customers and the remaining companies, it is becoming more apparent which companies will survive. Even more heartening for these survivors is that, because there are fewer companies, it’s a lot easier for Printers wanting to make the jump into e-commerce to compare features and benefits and make a real decision.
So, is there value in doing business online?
A big problem today, after this shakeout (ok, it probably isn’t quite over yet… let’s give it another couple of months), is that there is now a new fear in trusting online service providers with mission critical applications— a fear they might go out of business. E-commerce companies today are primarily ASPs (Application Service Providers), who run these sophisticated applications in central data centers.
But there is a still a great value in working with ASPs. The biggest benefit to printing industry companies is that there are major cost efficiencies. Printing companies, except for the very largest, have small IT departments. Even in the larger companies, there are too many projects for the number of IT staffers that are available. With the cost cutting and emphasis on the bottom line that comes with the current downturn in the economy, outsourcing to an ASP starts to look like a very good idea.
In a recent article in InternetWeek (July 9, 2001), Rodric O’Connor, vice president of Technology at Putnam Lovell securities, talks about his desire to run all of his applications through Internet-based ASPs. This is impressive when we hear it from an investment bank that can’t afford downtime, and actually has substantial in-house IT resources. When building a Customer Relationship Management application (CRM), O’Connor estimates that having the bank’s own IT staff do the work would have cost over half a million dollars in initial expenditures and $150,000 per year in annual expenses. The ASP model appealed to O’Connor because he could get the same benefits at an annual flat subscription fee of $70,000 with no major startup costs, and he could deploy the application in almost no time at all. In the same article, Kirk Brauch, formerly with RR Donnelley and now technology director at myfujifilm.com (a new ASP offering from Fuji), talks about how Fuji is launching an ASP service for the graphic arts community by taking advantage of other ASPs to create and manage the service.
The time to market advantage of working with ASPs may be the biggest benefit of all. Even if your company has the resources and talent to develop your own applications, how long will it take? In addition, these companies continue to provide a time and cost saving advantage, by continuous improvement of their applications. Are you going to be able to keep up with systems that are developed by companies that are spreading the cost of development and operations over a large number of customers that are similar to your own? Not only that, these providers are getting the benefit of all the input that those companies bring to create better applications over time. Despite the gloom and doom of the “dot bomb,” there is still tremendous innovation happening at small companies working on “Internet time.” There has never been a better time to partner with these companies to give your business a competitive advantage.
These examples (and many more abound in the IT trade press) show that by doing your homework, and really approaching the ASP relationship as a partnership, you can overcome the fear of loss of control and take advantage of the cost-saving and value-added benefits that these service providers bring.
The best way to deal with these fears is by employing thorough due diligence. Make sure the company that you are thinking of working with is stable. If the company is profitable, or has profitability in sight, all the better. Ask for references from existing customers. Is there a way for you to backup your data in the central system to your own site? What happens if the company’s servers go down? Is there appropriate backup and redundancy in place? Can you buy a server and install the applications at your own facility? (This can be expensive, because these systems are complex, but it’s nice to know you can do this if you desire and can afford it.)
Does it still make sense to pursue an Internet strategy?
The first step toward having your company really take advantage of the benefits of using the Internet for e-commerce is to develop a serious strategy. Since there are still many choices of vendors, there is plenty of competition for your company’s dollars. You don’t have to spend tens of thousands of dollars today to get a functional online presence up and running for your printing company.
The key to success when partnering with an ASP is to focus on the value for your company. My suggestion would be to shy away from companies who talk about “supply chains” and spout corporate-speak buzzwords that leave you wondering what their systems do even after you’ve spoken to a sales representative for half an hour. If you can’t identify a clear value proposition after spending 30 minutes on the phone, there probably isn’t a good match for your company.
According to Harvard Business School professor Michael E. Porter (quoted in Internet World magazine, July 15, 2001), what you should avoid is working with companies that use the Internet to “shift the basis of competition away from quality, features and service toward price, making it harder for anyone in their industry to make a profit.” In a nutshell, that’s what many of the failed printing industry dotcoms attempted to do. Instead, look for applications that help you, according to Porter, “link one activity with others and make real-time data created in one activity widely available, both within the company and to outside suppliers, channels and customers.” According to Porter, keeping up-to-date on Internet technology is necessary, but shouldn’t be confused with having an Internet strategy: strategy is the art of “competing differently.” Having a strategy could mean focusing on creating deeper and better relationships with key customers.
Seek to partner with companies who provide applications that help you use the Internet to leverage these three major business goals: First, they should help you get more business out of existing customers. The applications should help you make it so easy for customers to do business with you that you are their first and only choice.
Second, they should drive more margin from existing business. The applications you choose should make your employees, and your operations better. They should help you free up your sales reps and CSRs to do more of the relationship management aspects of their jobs— instead of processing paperwork, faxing and playing telephone tag. Many of the online applications also address digital workflow problems, like preflight or variable printing applications, as well. These tools can save your company time and money by allowing the applications to do work that would previous require the labor of highly valued technicians in your prepress operation.
Finally, an ebusiness web site should help you get new customers. Let’s not forget that having an Internet presence beyond a “brochure-ware” web site is still not the norm for printing companies. Not everyone has one, so implementing a great online service with your brand on the web shows that your company is visionary. How many times have we heard “I put up a new web site that took months to create, and I didn’t get one new customer.” That’s really missing the point: a web site isn’t an advertisement for your company, or at least it shouldn’t be. It should help to differentiate your company from the competition. It will help you win the business of the many prospects out there that won’t do business with you unless you do have a functional online presence. And that’s more and more businesses everyday.
In Summary
There’s never been a better time to explore the opportunities that e-commerce can afford your company. It’s a buyers market, and vendors are typically bending over backwards to meet the needs of prospective customers. The options abound and with some careful planning, you can really leverage the Internet for your business without selling the farm.
Despite the dotcom problems of the last year, there are major benefits to be recognized by companies in the graphic communications industry by pursuing an online presence. Don’t let fear, uncertainty and doubt guide your strategy. Partner with the right company and move ahead, and you’ll be certain to reap the benefits.
