CRN Interview: Xerox CEO Aims To Create Value For Partners

Xerox this week launched a new channel push -- including new programs and partner-friendly products -- and showcased its research-and-development strategy. Chairman and CEO Anne Mulcahy sheds light on the Stamford, Conn., document giant's channel plans and other issues in an interview with CRN Senior Editor Edward F. Moltzen at the company's partner summit in Orlando, Fla.

CRN: Last week, it was announced that Xerox's Palo Alto Research Center (PARC) is making a strategic investment in a company called Powerset that's developing natural language search technology. Is Xerox going to be competing with Google?

MULCAHY: (Laughing) It's hard to tell. But I do think that there's a field of natural language search that has not yet been optimized, and certainly PARC has a legacy for research over decades in natural language search that I think is world-renowned. I do believe that at some point, it's been difficult, but when it becomes feasible to use a natural language search approach it will take off and challenge the current Google architecture. So we are pleased to be an investor and equity partner and participant in [Powerset], and it's very consistent with a model we have for PARC.

CRN: Regarding Xerox's channel push, was there anything specific where everyone inside your organization just looked at the situation and said, 'Working with the channel is the best way to grow, and this is the way we have to do it.'?

MULCAHY: I wouldn't say it was just cultural, I would say it was culture. It was investment -- how much can you stretch at what point in time? It was technology. It was having the right set of capabilities as well to create value for the channel. I think all of those pieces needed to come together to make it a real robust approach to getting a return as it relates to both the channel and Xerox.

During the last 18 months, we clearly have been focused on sources of growth and have identified three of them. And that's our services for enterprises, color and SMB. SMB is absolutely just an extraordinary opportunity for Xerox because of the fact that we are not well-represented there and it's a new source of revenue. I think that over the last two years, we feel a lot more comfortable with our relationship with the channel, our ability to extend our reach there and the timing of all these product introductions so the portfolio is rich. And not just the product side of it, but services and solutions side of it -- being able to present solutions like PagePack, Docushare and Scanflow Store. All of these add meat around the bones that differentiate us for the channel as well. So I think a lot of things came together. ... And we're willing to be smart about extending our reach in all of our channels in a way that delivers growth.

NEXT: How Xerox will deal with the competition. CRN: The document technology market is very fragmented and has a lot of player. Hewlett-Packard is the market share leader and has a number of touch points that Xerox doesn't, such as servers, desktop PCs and notebooks. How does Xerox, with its document solution focus, take on a company like HP that's really pressing its channel to lead with its products, top to bottom?

MULCAHY: We do it through expertise and focus and relationship. Breadth has one set of attributes. But I think to the extent that we really work to train, develop and work with the channel on the document expertise part of it so they can really be trusted advisers to their clients, that's a big deal, too. The depth of knowing there is a full suite of capabilities in a company that is really responsive and desirous of building a stronger relationship and a win-win proposition has been extraordinarily received by the channel. We play in a way that is all about value, depth and relationship that differentiates itself from some of the broad-based, kind of IT suites of products out there.

CRN: There's no more margin in hardware, you hear these days. And HP has been making noise about being aggressive on price. Given that dynamic and history, is Xerox in a position to tell the channel, 'Partner with us and we'll take you through any price war.' ?

MULCAHY: I think we're in a position to say we can give them a better return than many of our competitors in terms of the value proposition. We take this competitive positioning very seriously. If you take a look at the [latest Xerox] product introductions, you'll see the highest-speed color printer at the lowest price point. Our intent is to get out there and be competitively advantaged. But I also believe we are not quite as focused on the 'price war' approach as well. We see that particularly in the inkjet world and some of the battle zones between HP and Dell and others.

The reason why the services and solutions part about this is so enormous is that when you're selling a solution that entails more than just the product, the actual price point of the product becomes less important. If you look at the statistics, we know a lot about services-led sales. The revenue uplift and the margin uplift when you can sell a suite and a solution vs. just a stand-alone product is quite impressive. So I think it's not in the best interest of the channel -- or Xerox -- in the long term to have only price per box as the weapon it fights with. A lot of what you're seeing announced [by Xerox] is saying, 'Let's really look for the meaningful solution of the SMB customer that gives you some opportunity to sell more revenue, deliver more value and actually have less focus on price per box.' I think that is something that needs to be important to the channel and is clearly important to Xerox as well.

CRN: The printer sector isn't easy right now for a lot of companies. IBM is getting out, Dell is kind of stepping back and Lexmark has had its difficulties. How can Xerox ride this out and continue growing?

MULCAHY: (Laughing) Well, I think we've probably had more experience than most at riding out bumps in the road and pressures in the marketplace. We're tough and resilient and focused. We also understand the peril of getting in and getting out and, therefore, have been most thoughtful about ensuring there's a business model we feel strongly is supportable and profitable for the channel and Xerox.

We're not going to go into the low end of the [market]; we're not going to be on retail shelves. We have business-to-business kinds of capabilities. And that means small business, not just big business. I think we're pretty focused on how we're approaching it. We're not trying to be everything to everybody. I don't think you'll hear us making lots of grand claims as well. We want to earn it. We want to develop deep relationships. Nothing gives me more confidence in our ability to be successful as when I get stopped in the hallways by folks who feel that Xerox is a better partner than anybody else they're dealing with. We want to have a reputation for being a great partner and have a well-defined -- but also focused -- set of capabilities that will be in there for the long term.

I think we're going to make money from day one. We're not out there to kill a competitor. We're out there to build great partners. And with that kind of focus, you have a better chance of winning on your own rules vs. competing with somebody else's.

NEXT: What's Xerox doing in R&D? CRN: How important is R&D to Xerox right now, and what gets you excited about what Xerox is capable of doing?

MULCAHY: One of the most exciting aspects of Xerox is that it's an innovation-focused company. It places its bets not just on engineering but on research as well. Four global research centers -- that's how you get to a Powerset, but that's also how you get to a lot of the software solutions that you're seeing really surround our products now. And for a billion dollars in R&D, we've placed a lot of bets on innovation and differentiation, and I'm thrilled at the direction that's taking.

Our ROI is certainly a lot better than it was a few years ago. Two-thirds of our revenue is coming from products and technologies that we've introduced in the last two years. So that kind of pipeline is a great indicator of where we want to be. If you look at the patents filed by Xerox and Fuji-Xerox, we were up 26 percent this year in patent filings, which is also an indication we've ratcheted up our focus on innovation.

And you saw solid ink today [at Xerox's partner conference], which is certainly a big bet for us. A reason we love solid ink is that we think it has inherent advantages over liquid ink technology. And the economics that make it comparable to liquid ink technologies but with extraordinary environmental implications, I think that's finally beginning to count. There have been lots of companies out there that kind of tout it, but I think the substance of true investment in environmentally responsible technology is going to be a real marketing proposition and that it's time has come. I love solid ink just for that reason. So, yeah, great quality, great economics, being able to stretch it into higher-speed markets is very exciting for us because that's where most of the pages are. Comparable to any of the low-cost technologies you're hearing about but also a real leader from an environmental perspective. What's not to like? I think we have a real opportunity to create another leadership technology in the whole field of color printing.

CRN: Is Xerox better-protected from the third-party ink market than other companies?

MULCAHY: The big threat is obviously on the refiller side, and a cartridge-less technology gets you out of the whole refiller scenario. Solid ink is very well-patented. There actually was one third party that we sued and won in court, a successful defense of our patent protection. And it's an amazing technology. It looks really simple; it's not. The cost of entry to manufacture solid ink is pretty significant. It has been a huge part of our R&D investment. So it's not easy to replicate. We think it's well-positioned, from a defense perspective. And the one real test we've had, we've won. So we feel pretty good about it.

CRN: What are your thoughts on potential acquisitions as the industry sharpens its focus on workflow, software and solutions, rather than hardware?

MULCAHY: I think more is better. I think we're starting to build. I actually began my job in general markets by doing the Tektronix acquisition back in '98 and '99. I think it was a perfect fit for this company. If you think about today's [partner] event, I don't think we'd be here if it wasn't for that acquisition. Not just in terms of things like solid ink technology, but all the channel relationships and expertise we acquired. So it was a great acquisition. We obviously put the breaks on for a lot of years afterward for a lot of reasons, called cash. Now that we're really in good shape again, we did a few [acquisitions] this year.

XMPie is one that's absolutely right up the alley of solutions and services in the personalized communications piece of it. We literally acquired a vertical practice in Amici, which is litigation support services, a natural fit with our services portfolio. But we believe there is a lot more opportunity for us to augment the portfolio. I'd say our No. 1 priority is software and services. But we're opportunistic as well. Distribution is on our radar screen, and innovative technology. We're open. While it won't be the mainstream part of our business --in other words, we won't be an 'acquisition company' -- we think the ability to support our business through acquisition, it's time has come. And we intend to do more vs. less of what you've seen.

NEXT: Mulcahy's take on managed services and partner training. CRN: What's your thinking about VARs that want to become managed service providers?

MULCAHY: Terminology wise, managed services is interesting in the sense that, I mean, we've always referred to it as just the outsourcing of print services within a company. And quite frankly. described that way. it has been kind of commoditized. It's a very competitive, driven approach. There's a recognition that just managing the in-place services is not as interesting as being able to kind of transform and add value. And that's really our focus now. It's not so much managed services but professional services and value-added services that go in. And that's where these assessment processes come in and look at your current [workflow] state.

In days past, managed services meant, 'Just come in and manage it. Take it off my hands. I don't want to do it. You do it.' The real opportunity today is to do it right and re-engineer and optimize the infrastructure. Getting companies that live in the paper world to digitize. How do they digitize their information? How do they create storage and retrieval capabilities? How do they do much more effective client communication with the use of personalized data? The real opportunity is moving away from pure managed services to a more value-added approach that is more attractive in the sense that it's more profitable and less of the big, vanilla IT services play and [focuses] much more on an expertise type of approach. That's where I think the resellers have such a great opportunity.

CRN: Training and education are increasingly important to solution providers. Many are willing to make the investment, but some can't afford it. It's also an area where some Xerox competitors will pay the cost of training and education on new technology. Is Xerox in a position to match that kind of investment?

MULCAHY: The answer is, our intent is to certainly provide more training and support -- particularly in these areas. We've had the experience of delivering something really cool to the channel and having it sit there because people just really didn't know how to market it and it wasn't getting traction. It's not sufficient to just have great stuff. People have to feel comfortable with it. There's got to be a knowledge level for it to be top-of-mind when resellers are talking to their customers.

So we do understand it's important. I think you'll see a big part of this rollout -- particularly the set of solution providers we're going to be engaging for the entire Xerox portfolio, which is a very big deal and we have something like 600 targeted resellers we'd love to embrace this. Training is going to be a huge part of it. So we're going to provide a lot of support and infrastructure and training to make sure that it's not just a lip-service offering but a huge opportunity and that they are comforable supporting much more sophisticated technologies, as well as the workflow and software that goes along with them. I can say our intent is to invest in that area with training and support.