Xerox Exec: Our Managed Print Margins Beat HP's

Xerox North America President Russell Peacock said VARs that partner with Xerox can make better margins on managed print services than those that partner with HP. And despite HP's market dominance in printing and imaging, he said, Xerox is the one leading the way on managed print services and the software and annuity models that will define the market going forward.

"I think we've got a mature set of competencies and tools that we can leverage," Peacock said in an interview with CRN editors at Xerox's midtown Manhattan showroom this week. "I'm not sure the HP legacy is as rich. They clearly want to leverage EDS, and you know, prior to EDS being acquired, EDS worked with Xerox's Alliance Partner Prorgam. We were working with a number of deals and I would conclude from what I know that we were a long way ahead of where EDS was."

Peacock ascended to his new role in February and became a corporate senior vice president. He's been with Xerox since 1982, and the channel is a specialty -- for many years prior to his new role he was head of Xerox's North American channels group.

Peacock is taking over the helm of Xerox's North America business at a most interesting time: Xerox has a new CEO, with Ursula Burns having taken over for Anne Mulcahy in July 2009; managed print services and many of the annuity models starting to dominate the printing and imaging channel have finally taken hold for many VARs; and Xerox itself is positioning to become a services powerhouse, having finished its acquisition of Affiliated Computer Systems for $6.4 billion in February.

Last week, Xerox also reported first-quarter earnings that handily beat analyst expectations, with the ACS acquisition catalyzing a 5 percent year-over-year growth in quarterly revenue.

According to Peacock, Xerox saw the managed print services train waiting at the station long before many of its competitors, and PagePack, Xerox's managed print services suite, is now in its third iteration.

It's here where VARs are growing with Xerox, Peacock said, thanks to annuity services models on top of hardware and software sales. And that's translating into better margins for partners than they can get with its leading competitors in the space, he said.

"I'd be very surprised if that is not the case," Peacock said, when asked if VARs can make better margin with Xerox's managed print offerings than HP's. "In building this spectacular array of value-added resellers around the globe, HP resellers have become highly dependent on HP and their business model is very mature. You know that adage about no one ever being fired for buying IBM? In the printer area it has been true for a long time for HP. That's great for HP, but it also means, if I'm interpreting the messages I get from resellers, resellers are saying: 'Give us an alternative to HP.' "

There's more money to be made with a print and imaging vendor that understood the managed services piece and brought channel opportunities to bear faster and more efficiently than others, Peacock argued.

"These guys say, HP runs their business model pretty tightly and there's not an enormous margin opportunity [in] working with HP," he said. "The success we've had so far at Xerox is born of great tools and services that work, and yes, we believe that there are a few extra points of margin for customers in there as well."

NEXT: More From Peacock On HP

Peacock acknowledged HP's dominance in the space but noted that due to HP's market share in print, it's asking its customers to open their wallets repeatedly for new managed print services programs.

"We respect and admire HP, of course, and they have an incredibly powerful brand that commands incredible loyalty from their partner community. I wouldn't dilute their opportunity to be successful in this marketplace at all, given that they've built this extraordinary market leadership position on the back of the imaging and print group," Peacock said.

He said he didn't doubt HP's ability to do the types of things Xerox can do for business processes and document management, but said HP's current model wouldn't translate into profits for the channel the same way.

"If you've got 60 percent of the market, depending on how you define the market, for every client already spending money with you, every time you solve a new problem for them you're diluting your profitable revenue stream by 20 [percent] to 25 percent," Peacock suggested. "It's an interesting dilemma for them. I've never heard Mark Hurd or V.J. [Vyomesh] Joshi or Todd Bradley talk about that, but we have a set of proven services we know can help us take market share from HP, and it feels like we're not asking the customer to spend any more money."

Has HP gotten a little too used to being No. 1 in the space?

"If we're talking about the printer environment, they've been the lords and masters for a long, long time," Peacock said. "We've won skirmishes and battles on the laser front, maybe, but on a tech-by-tech basis we're probably about the same. We're proud of our array of products and I'm sure HP is proud of theirs. But we've suddenly got this opportunity to differentiate ourselves from all of our competitors without asking the customer to spend more money, and any incremental round we win, we're winning at our competitors' expense. If you do the math -- if you're promising 15, 20, 25 percent savings, it's impacting your revenue stream."

Peacock said Xerox's R&D engine is humming and the company will continue to invest in hardware and software development to support advanced services needs such as auto-replenishment of supplies, auto-meter reading, and security policy for different machines.

"We've got a full-time team developing the technology road map and the software tools specifically for managed print services," he explained. "There's a whole bunch of stuff being done in the background as we speak, and as the market goes from $20 billion to $60 billion, we will start pulling the grapes off the vine while ensuring the base platform is modular and capable of improvements."

The goal, Peacock said, is to use each of its channels, from Xerox Global Services to agents to resellers, to make not "one plus one plus one plus one equals four," but get to "five or a higher number than four."

"Each channel is in varying degrees of maturity but all are recognizing that managed print services is the key to the pots of gold at the end of the rainbow," Peacock said. "All of our channels have kind of been operating in silos. There are overlaps and adjacencies, but I think there is opportunity for us to take a more holistic view and recognize that each is slightly different, but we're playing in the same kind of document management space."

Expect Xerox to take and maintain market share, Peacock insisted -- it's in the best position to do that now than at any time in the past 10 years.

"This is a tough market full of very, very competent competitors, but the door is ajar for Xerox to barge through, given the foundations we've laid," he said.

NEXT: ACS' Effect On The Xerox Channel

As for ACS, Peacock said that in the initial stages, Xerox would "apply the lessons" it learned from the 2007 acquisition of Global Imaging Systems.

"In the first instance, we're going to let ACS be ACS," he said. "Their core competency is in business process outsourcing. We flirted in that arena with Global Services, but the lion's share of that business is in document management services rather than in classic BPO or ITO. Obviously, there are overlaps and adjacencies but not a huge amount."

The document management space isn't going to post major growth in the next three years, Peacock said, BPO is. Its compound annual growth rate is about 6 percent, and to play in the BPO arena more effectively Xerox needed to admit it didn't have the ability to scale Xerox Global Services as fast as it wanted.

"We're very pleased with the progress of Xerox Global Services, but it became increasingly clear that to convince the client base around the world we could scale as a BPO player with the capabilities of an IBM, we'd need to acquire," he said. "That's why ACS felt like a good fit."

Growing ACS' footprint internationally and beyond its traditional North American base will be a major priority, Peacock said.

Opportunities for Xerox VARs to make money as part of ACS-led services deals are also emerging.

"We're early in that story," Peacock said. "But there will be areas we can look at going forward."

Edward F. Moltzen contributed to this story