Lexmark's Transformation Focused On Software, Services

Software integration, enterprise content management and business process management will all define Lexmark's future, as will the channel, which Lexmark is keen to develop as an integrated entity focused on how to make customers' printing, imaging and business processes smarter, simpler and more cost-effective.

Those were some of the key takeaways from a Lexmark event in New York Wednesday, where Lexmark's top managers updated media on the company's evolving market strategy.

Much like Xerox, HP, Ricoh and other major printing and imaging competitors, Lexmark is going through a strategic transformation as its legacy hardware businesses gives way to an increasing interest by customers in smart printing and fleet management, managed document services, business process technologies and software sales.

Lexmark is also going through a corporate transformation this year, which marks its twentieth anniversary since being created following a spin-off from IBM in 1991. Paul Curlander, Lexmark's CEO for 12 years, retired this past spring, succeeded by Paul Rooke, who like Curlander has been with the company since the beginning.

In the past 18 months, Lexmark has made two acquisitions that the company is banking will aid in its transformations. FIrst, for $280 million in May 2010, was Perceptive Software, a specialist in enterprise content management software. The second, for $50.2 million this fall, was Pallas Athena, a Dutch company specializing in business process management, document output management and process mining software.

Those focuses, with which Lexmark intends to built a software-focused solution provider channel as well as strengthen its legacy printer reseller, VAR and systems integrator channels with new capabilities, are what set Lexmark's strategy apart from its rivals', Rooke said.

"The way to think about it is we're adding to our toolbucket of technologies, as you've seen with business process management and enterprise content management, to help customers become more efficient," said Rooke in an interview with CRN. "We're not in there asking them to outsource their business to us. We think we can add far more value by being the provider for them of combinations of solutions, as opposed to just outsourcing."

It hasn't been an easy road. Lexmark in October reported third quarter revenue of $1.035 billion, above Wall Street predictions of $1 billion, but missed on profit estimates, with the expectation that fourth quarter revenue to be down mid-single digits. During its Q3 earnings report, Rooke mentioned the floods in Thailand and the macroeconomic climate as "headwinds" but also emphasized how Lexmark's emerging software focus is creating market expansion and cross-sell opportunities. Lexmark is also leaving unprofitable businesses behind; it confirmed it will exit the consumer inkjet printing business by the end of this year.

From the channel perspective, the challenge now is to get Lexmark's VAR partners on board with the shift, which means less emphasis on traditional hardware sales and break/fix repair services, and more emphasis on software implementation and selling customers on managed services, business process management and ECM.

"I'm a strong believer that in just a few years, partners will feel as strong a demand for these things as we feel for developing them now," said Marty Canning, Lexmark vice president and president, Printing Solutions and Services. "Lexmark is trying to change the game, and we're looking for partners who want to come with us."

NEXT: Lexmark In Transition

Printing is still a focus business for Lexmark, which according to Canning has been more nimble than competitors in the transition from traditional A3-sized machines, which print at 11 x 17 inches, to A4-sized multifunction devices.

"I see Xerox and HP and some of our other competitors as trying to preserve something that's a little like sweeping water up a hill," Canning told CRN. "They're trying to preserve the A3 product platform when it's just not in the best interest of customers. A4 is superior and more cost effective and sustainable."

Added Canning: "There is a better mousetrap. If you go into certain emerging markets right now, A4 is dominating A3. The interesting thing about this is that A4 customers that weren't raised on this A3 break/fix model don't understand why anyone would ever pay for it."

But Lexmark's bigger focus is more options for partners, from Lexmark Fleet Manager, a remote print management suite, to the Virtual Solutions Center, which is essentially a Lexmark-hosted app store from which authorized partners can procure and customize applications for customers.

Lexmark's cloud strategy is also coming into focus. Earlier this fall, for example, it made its enterprise-grade Print Release solution available as a hosted application, deployable via SaaS, to let IT administrators more effectively manage printing jobs and also enable printing via Apple iOS- and Android-based mobile devices using the Lexmark Mobile Printing App.

What the channel is seeing in printing and imaging is a paradigm shift, Canning said. The move away from printer resale with break/fix contracts and toward smart software integration and a broader, more sophisticated set of solutions tied to printing and imaging is inevitable.

"A lot of competitors and some of the channel partners want to preserve the way things are now because they feed this huge break/fix model," Canning said. "I think the truth of the matter is that the customer value proposition will win out."

NEXT: Lexmark, Perceptive and Software

When Lexmark acquired Perceptive in May of last year, Perceptive's main go-to-market model was a direct sales channel with a select few reseller partners. But for Perceptive, which became a standalone business unit of Lexmark following the acquisition, the exposure to the broader Lexmark channel is getting attention for its ECM software and creating a potential blend of ECM, managed print and other services to which partners now have access.

Scott Coons, Lexmark vice president and the CEO of the Perceptive Software business, said the goal is to ease Lexmark partners into ECM sales.

"There are great traditional resellers that have never been a part of the strategy to represent us," Coons told CRN. "Well, we're changing our strategy and we're excited about it. Our goal is to stay in touch with [Lexmark partners] so that as they're ready to do more with software -- with ECM or even BPM -- we're there and we become their partner of choice. It's not, 'Who can I sign up today' it's we're in it for the long haul and we want to pull in resellers so as their business changes, they come with us."

What's coming next for partners is a greater emphasis on application development. Coons agreed many VARs, along with ISVs, have increasing interest in app dev and the Perceptive platform will be made available to meet those opportunities.

"There is good stuff out there," Coons said. "Normally I would have said we'd thought of every way to bend and twist our software, but I've seen some stuff that is just incredible."