Going South

With rapid technology strides come both comfort and pain. Nowhere else is it
more evident than the IT peripherals segment that is on the impact threshold due
to a emerging paradigm driven by MFDs, TFTs, Digital Cameras et al. On the face
the cannibalization effect-single function inkjet printers and entry level
scanners being eaten by All-in-Ones (AIO) would sound Utopian now but it has
started happening. In the West the trend is gaining momentum like the CRTs,
being challenged by the TFTs and Desktops being challenged by Notebooks. While
it will take a while for this trend to catch up in India, one segment that has
already come into sharp focus is the Scanner market and the direction it will
take as a standalone product in the peripheral space.

Market dynamics

As per market researcher IDC, Scanner unit shipments stood at around 137,000
units during 2002 and witnessed 31% growth during 2003 with 180,000 units. For
the year ended December 2004, IDC pegs a figure of 177,000 units. A marginal
decline-not bad, one might say-but it is just the tip of the iceberg.
Analysts estimate a sharp 20% decline in scanners by end of 2005 with MFDs and
high mega pixel digital cameras denting into the scanner pie. With entry level
scanners stagnating with dull sales, most of the vendors are concentrating on
the mid and high-end scanner requirements that are driven by verticals like BFSI,
publishing and the government. Comments Susheel John, business development
manager, document products services and commercial imaging group, Kodak India,
"The MFDs, and digital cameras have definitely had a major impact on the
scanner market especially the personal desktop scanner market. Since MFDs are
becoming cheaper by the day, end users prefer to buy these products instead of
plain vanilla scanners. Definitely this will remain a trend into the future, so
much so that I believe over a period of time the personal desktop scanner market
will be wiped out."

The MFDs, and digital cameras have definitely had a major impact on the scanner market, especially the personal desktop scanner market” Susheel John, business development manager, document products and commercial imaging, Kodak India

A typical case of product obsolescence, entry-level scanners would soon
become history, but at the same time mid and high-end segments will offset the
void and will continue to grow. Susheel John cites four drivers that will enable
organizations to look for high-end production scanners-need to bring paper
based knowledge into their eContent, need for quicker turnaround of business
processes, legislation for acceptance of electronics such as the Sarbanes Oxley
in the US and, lastly, the falling cost of electronics storage.

Meanwhile,
enterprises have also acquired a lot of unstructured data in the form of paper.
The best method of recycling them is scanning, which will digitize them and free
physical storage spaces. Says Manu Sharma, country category manager, imaging
products, HP India, "Scanning is predominantly used for two applications-capturing
image and capturing documents. BFSI is one vertical that is doing some
aggressive buying. The niche applications in these verticals will continue to
drive the scanner market growth."

In terms of market domination HP leads the pack with 54% marketshare followed
by UMAX at 21% and Canon at 14%.

Changing equations 

While both entry-level scanners and single function inkjet printer volumes
are expected to decline dramatically during 2005, new technology enhancements
will bring in the much needed volume stabilization of standalone devices. For
instance, USB 2.0 is getting into the mainstream. Scanners with version two of
USB will bring in greater benefits to the customers in terms of data transfer
from their PCs. This will lead to more enterprises overhauling their old
scanners, mostly entry level, and migrate to faster and more functionally rich
scanners. While this will hasten high-end scanner market, it will also lead to a
market for used scanners. For instance, an entry-level scanner was costing
around Rs 6,300 in 2000. The resale value of the same now is a mere Rs 1,000 and
going down by the day. While a far more technically advanced scanners even on
the entry level space is available at Rs 3,500, cost conscious first time SOHO
consumers will opt for used scanners instead of newer ones. Hence vendors, in
order to drive higher end scanners, should launch innovative buy back programs,
enabling customers to migrate to new imaging technologies.

"Niche applications in verticals such as the BFSI, will continue to drive the scanner market growth” Manu Sharma, country category manager, imaging products, HP India

While
we take a closer look at the cannibalization effect from MFDs, which sure is a
value proposition, but at the same time we have to realize that those
enterprises which have good volume of scanning images and documents, should opt
only for standalone scanners rather than MFDs. Some industry analysts aver that
MFDs functionality in many cases was not optimally used. For instance, some
consumers predominantly use MFDs for printing only and hence less of copying and
scan happens. To avoid situations like that, standalone devices in unique demand
situations will yield optimal benefits than a converged one. So, per day demand
patterns for copying, printing, and scanning has to be ascertained for informed
output device buying decisions. Hence, it is still a debatable decision if an
enterprise should choose MFDs (just because it does many things for a price of
one) in lieu of standalone scanners if its needs are primarily scanning.
Moreover, if we look at the vendor strategies for MFDs, the all in one
capability is the core USP they pitch on. And, similarly, their scanner market
strategies are heavily bent on SMBs and large enterprises. Both the MFDs and
mid/high-end scanners are targeted at the SMBs, and this creates a very
ambiguous market out there and puts SMBs in a dilemma of choosing the right
size, right fit imaging products. But in the end, it does tilt in favor of MFDs
as the growing print and copy volumes put MFDs in a sweet spot. But standalone
scanners sure have their place under the sun with serious imaging demands
continuing to drive sales.  

Says Rajeev Singh, manager-product consumer imaging and information division,
Canon India, "Standalone scanners will not be cannibalized by MFDs because,
apart from mid-end and high-end scanners, another factor that will drive sales
among standalone scanners is the trend towards the scanning of negatives, which
will catch up during 2005. Iforesee scanning of still photograph film negatives
gaining ground and becoming one of the major drivers in this segment."

Analysts are also buoyed by the demand from the government vertical for
scanners. With almost every state fancying a slew of G2G and G2C services, it
calls for a huge demand for scanners. For instance, in departments like
registration the need to scan documents is a perennial function. With huge
demand still out, vendors will go aggressive in getting the maximum yield from
the government sector during 2005.  

New breed of scanners 

A major trend during 2004 was the entry of production scanners. HP upped its
ante by bringing new product lines targeted for the large enterprise demands.
Meanwhile, one player who needs a closer look is Kodak India. The company offers
state of the art production scanners in India. These scanners are typically
meant for scanning huge demands on any given day. For instance, production
scanners are used in demand scenarios like 1,000 to 60,000 pages per day. These
are unlimited duty cycle scanners with prices ranging from Rs 50,000 to Rs 60
lakh. Speeds may range from 35 images to 640 images per minute. Says Susheel,
"We vend only production scanners to meet various customer needs. Key
vertical segments that buy our offerings are BFSI, government, transportation,
hospitals, and educational institutions. We have sold our whole range of
scanners in India for various applications and customer needs. We see our
biggest growth happening out of India in the departmental and workgroup scanner
market. Scanners priced between Rs 50,000 to Rs 3 lakh with daily duty cycle of
1000—3000 and speeds of 20 pages per minute to 50 PPM, form the departmental
and workgroup scanner market."

Typical applications of workgroup scanners are wide ranging. For instance, a
courier company may use it for capturing proof of delivery (signed POD's are
scanned and uploaded) for better customer service response or for capturing
document required for customs clearance; hospitals will use it to capture and
manage their medical records.

What emerges at the end of the day is that the Scanner market in the country
is signing out of its stable times of the past. As Susheel put it, "Going
forward, customers will look at the MFD to serve their purpose of one-off
scanning while investing in production scanners to handle their specific
business processes; these scanners need to be very user friendly and ensure that
scanning business documents is a simple one touch operation, and produces nice
clean images that occupy minimum storage space." Despite vendors'
optimism, up ahead looms a upset year where, in MFDs, average selling value is
expected to slide further and, by mid 2005, most vendors will see significant
decline in their entry level scanner offerings. Meanwhile, to offset the volume
decline, vendors will resort to price cuts in the mid end and high-end scanners
that will secure the scanner market growth in the days ahead.

Shrikanth G in
Chennai