Xerox Pushes IT Services To Make Up Declines in Revenue

Partners are at odds on whether the initiative will spur conflict among Xerox resellers who have likewise looked to IT to shore up sales. One says conflict is ‘inevitable,’ another doubts Xerox would be so brazen.

Xerox CEO John Visentin said the company will expand its IT services offerings, selling them through the company’s Xerox Business Solutions offices, with nearly a third of those locations expected to begin offering IT by the end of the year.

“We see significant opportunity for IT services within the SMB space,” Visentin said during the company’s second quarter earnings call Tuesday morning. “Today, three of our Xerox Business Solution cores offer IT services to clients such as the 10th-largest school district in the United States. With the competition fragmented and often regional, XBS is well positioned to capitalize on this growing market.”

Visentin said the company is “ramping up” its operations and capabilities to expand IT services to a dozen of its 37 XBS cores by the end of the year, with the hopes of rolling those offerings out to the rest of the “cores” by 2020.

Xerox posted higher earnings per share, but lower revenues in the second quarter, with sales coming in at $2.3 billion, off by 8.8 percent year over year. Equipment sales fell 10.2 percent in the quarter ending June 30. Xerox said net income came in at $184 million for an earnings per share of $0.79. The company also adjusted its outlook for the year, lowering it to a six percent decline in revenue.

Shares traded at $33.29 following the call, off 65-cents.

Xerox has had a difficult road with its XBS business, which was previously known as GIS. The unit provided a regional storefront to Xerox’s direct selling business, and in some markets competes with Xerox’s own partner solution providers for managed print business. However, the decline in that market prompted the company to lay off roughly half of those employees earlier this year. In February, the company listed 186 XBS office sites across the country on its website. There are fewer than 100 listed today.

As part of the consolidation, the company moved remaining employees to “core” locations that it now plans to use to sell the IT services. Visentin said the firm will move quickly to capture that business.

“This month we started working with American Express to market to their small business card members, through the AmEx offers program, and other channels to further increase our penetration of the SMB market,” he said. “This multi-month, multi-digital program focuses on increasing business owners’ awareness of DocuShare, XMPie, and workplace multi-function printers.”

Xerox Accredited Master Elite Partner Josh Justice – who was recently ranked the No. 2 Xerox reseller in the country – told CRN that the move from print to IT services has been a boon to his business, and he sees it as natural that Xerox too should get in on the business.

“Ten years ago I saw the need as a print services provider to enter the IT services business. It is a natural combination for any solutions provider and it has provided great benefit to our business in terms of additional business with clients, additional revenue for our company and greater knowledge within our company with so many incredibly talented IT professionals,” he said. “With our IT services, we focus on small to medium size businesses and we have a 98% annual retention rate with these clients. We leverage our IT relationships to sell print and our managed print relationships to sell IT services.”

Justice said he does not think Xerox will compete against its own VARs for IT work.

“I do not think so,” he said. “There is a lot of IT opportunity out there and a lot of it us untapped. Based on past experience with Xerox, I could not see them aggressively trying to compete with their channel partners for their IT clients if the partner offers this service. All channel partners should look to get into IT services as it provides a complete package to your clients.”

However another partner said that while Xerox vowed during a recent partner summit in Atlanta, that the XBS cores will only sell to customers in under-served markets, the nature of IT services means they will inevitably find themselves butting against partners who have transitioned to become MSPs.

“It is inevitable. There is going to be conflict,” said one partner who asked not to be named. “ Maybe they’re going to say conflict is good, that it makes everyone work harder. I guess that could be it, but on the direct side they’re laying people off left and right. All the support is off shore. The people on the phone don’t understand the business. The billing is never right. How is Xerox going to interface with the customer themselves when they’ve let all those people go?”

During the call, Xerox CFO William Osbourn said the company is spending money now on hiring and training the workforce necessary to carry out the transition to IT services.

“We are hiring individuals in the software sales areas, specialists to help us go grow our software sales revenue,” William Osbourn Jr., chief financial officer. “Our expanding our IT services offering, we had a few cores within our XBS operations that were already selling this. We’re going to be expanding it over the second half of the year to over a third of our XBS operations. There’s costs in getting people trained, and hiring people on to offer those services.”

In June, Xerox launched a new partnership with HP. Visentin said by 2020, HP will make DocuShare Flex Xerox’s cloud based management platform, available on PCs and tablets sold to SMBs in the US. When it was announced, the deal was seen as Xerox making a bet on its software, which will now be available via some HP devices. Visentin appeared to confirm as much during the call.

“Growing our software and services business is key to reversing our revenue trajectory long-term, and we are gaining traction with several new clients, such as Morgan Stanley and Motorola,” he said.