Printing remains a bright spot for HP, with pre-tax profit growing to 8.5% in 2013, reaching nearly $4 billion. HP is looking to drive further growth in its printing business, which currently represents 22% of its overall revenue. While hardware sales were up by 5% in Q1 2014, supplies revenue dropped by 5%.
One reason why it is seeing its supplies revenue is falling is a result of lower consumer print volumes, as well as the continued threat from the use of aftermarket (third party) consumables. HP is looking to address these challenges, initially for its consumer inkjet printers, through Instant Ink.
This subscription programme, already available in the US, is currently being extensively piloted in the UK with general roll out through May 2014 and will subsequently be expanded across Europe.
What is HP Instant Ink?
Similar to a mobile phone plan, the subscription model for Instant Ink delivers the benefits of predictable costs, automated delivery of large capacity ink cartridges and a simple process for recycling used cartridges.
As HP puts more ink in each large Instant Ink cartridge, fewer ink cartridges are manufactured and shipped, and empty cartridges are returned to HP for recycling in pre-paid envelopes.
Customers enrol in the Instant Ink programme when they purchase an eligible printer and enrolment card. Customers choose from three monthly plans based on the predicted number of pages per month.
In the UK, this is £1.99 for up to 50 pages, £3.49 for up to 100 pages or £7.99 for up to 300 pages. During printer set-up, the customer creates an account to register their printer and sign up for Instant Ink online. HP will then send the Instant Ink cartridges to the customer. Once an ink cartridge is installed, the service and monthly billing cycle starts. The printer monitors usage via HP’s web based dashboard and customers can monitor their usage, manage roll over pages and track additional pages as well as recycled cartridges.
HP claims that the £1.99 per month plan can save £78 annually, the £3.49 per month plan saves £162 annually and the £7.99 plan saves customers £516 annually. These estimates are all based on the Instant Ink subscription prices for one year, in comparison to the average cost of a selected OEM ink. Customers are not locked into any plan and can change plans throughout the life of the printer.
This effectively means 3,600 pages per year would cost around £96, a little over 2.5p per page. If printing full colour photographs and documents, HP Instant Ink would certainly be a cost-effective alternative to buying ink on an ad-hoc basis.
According to HP, the programme seems to have been well received. HP indicates that it now has more than 2,000 pilot subscribers, with 50% of customers that purchased an eligible printer signing up for the Instant Ink programme.
HP claims it has had a 99% retention rate after the 6 month pilot duration. Also impressive is that in the US, HP reports double digit growth in hardware sales in pilot stores, versus single digit growth in control stores.
In the UK, initially, Instant Ink will be available on selected HP Envy and Officejet models. HP already offers Instant Ink on its new Officejet Pro printers in the US. In Europe, it plans to expand Instant Ink to its Officejet Pro 8610 and 8620 devices in the second half of 2014.
HP’s strong market position enables it to drive innovation. It's Instant Ink program is the first step to accelerating the shift of consumer printing from a transactional to subscriptions model. This is already a proven model in the telecoms world and the convenience and lower costs of a monthly plan may appeal to many customers.
The introduction of Instant Ink marks a significant change in the printer industry characterised by changing usage patterns as consumers print less. Instant Ink certainly simplifies the print experience and will appeal to consumers who are often frustrated with the high cost of ink and the inconvenience of ordering ink after it has run out.
For HP, it means gaining access to data on printing habits and driving ink affordability. By shifting customers from compatible or remanufactured ink, HP will be able to protect and expand its OEM supplies business. However, the model is predicated on the need to purchase new hardware.
Perhaps the most interesting opportunity is scaling this service to the SMB space. According to industry estimates, the business inkjet market is growing year on year, as it becomes a more affordable alternative to traditional laser devices. HP has been accelerating the penetration of business inkjets and Epson is also expanding its presence in this market .
A subscription program like Instant Ink will be an attractive way for SMBs to manage their print costs and minimise the administrative burden of ordering ink. Nevertheless, Instant Ink remains a variation of the razor and blade model that the printer industry has thrived on.
While success of this program will ultimately rely on securing new printer purchases, HP Instant Ink certainly offers a strong differentiator to competitive inkjet models that still rely on the subsequent ad-hoc purchase of costly ink.