By: Louella Fernandes, Principal Analyst, Quocirca
Published: 4th October 2010
Copyright Quocirca © 2010
Xerox is on a mission: to reinvent itself as a leading business process and document management company, disrupting the legacy perception of a brand which is synonymous with photocopiers. Its acquisition of the services company ACS in 2009 for $6.4 billion was a bold move in this transformation aiming to combine the Xerox brand, global reach and innovation with ACS's established IT outsourcing (ITO) and business process outsourcing (BPO) business.
Indeed, ACS's heritage in business process management and information technology services means Xerox is already processing 37 billion public transport fares annually, processing 900 million healthcare claims annually and handling 1.5 million phone calls daily in 150 call centres. Consequently, thanks to the ACS acquisition, Xerox services revenue has climbed to 50% of its total sales in 2010, from 23% in 2009. The market opportunity is real. According to figures quoted by Xerox, it has now moved from focusing on a $132 billion global market, which included office and production hardware and document outsourcing, to a $500+ billion market, which now also includes the thriving BPO and ITO segments.
Ready for real business
The ACS acquisition has signalled a new era for Xerox, and catalysed significant investment in the Xerox brand. Its global "Ready for real business" campaign demonstrates how businesses can outsource areas such as document management, business process management or IT services to Xerox, enabling them to focus on their core business. Its microsite http://www.realbusiness.com/ highlights its work with companies such as Marriott Hotels & Resorts, Target, Procter & Gamble, The New York Mets, Ducati and the University of Notre Dame. These case studies highlight Xerox's capabilities beyond the printed page, demonstrating its credentials across IT outsourcing, customer care, finance and accounting and human resource support, as well as its breadth of reach across many verticals—all areas where many do not realise Xerox is participating in.
Traditional equipment sales not forgotten
With a business rooted in the printed page, Xerox is not giving up on its traditional printing, copying and document management businesses which now accounts for 44% of annual revenue. However, the highest revenue opportunities are in colour print, where adoption is still low, representing only 30% of its installed base. For all vendors in this market, the key to broadening the reach of colour products is to drive down the cost of colour printing. Xerox is banking on its latest ColorQube printer, which uses solid ink rather than ink cartridges, to achieve this. Xerox claims ColorQube printers can reduce the cost of colour printing by 62% and produce 90% less waste than comparable color laser devices.
With SMB customers accounting for approximately 60% of revenues from its mid-range business, Xerox must continue to capture further sales through the IT sales channel. One way it is aiming to differentiate here is through its partner led managed print service, Xerox Partner Print Services (XPPS). With over 150 partners engaged, this service, which also supports multivendor products, promises to help garner Xerox more services revenue through the channel. Nevertheless the IT-centric reseller channel is a hard nut to crack when it comes to print services due to the need to incorporate cost per page printing, break/fix and supplies replenishment. In response to the need for simple service packages in this area, other vendors, such as HP, are also coming to market with value print services, which aim to increase service revenue for channel partners.
Leadership in enterprise managed print services (MPS)
For some time now, the burgeoning managed print services market has helped printer and copier companies to move from a mature, low margin hardware business to one which offers long term customer relationships and recurring revenue opportunities. With contracts 5 years long, MPS enables vendors to manage the complete print environment of a customer, and gain predictable revenue streams from printed pages, often across a heterogeneous printer fleet.
According to Xerox it has retained 100% of its enterprise MPS clients who have signed a contract since 2001, it manages around 1.5 million devices through its MPS contracts, over 50% of which are manufactured by competitors. Its most recent addition to its MPS suite—mobile print—was a result of the Xerox and P&G Innovation Council, enabling employees to print directly from smart phones.
Due to its long established heritage in delivering managed print services (now part of its Global Document Outsourcing division) and its broad service portfolio, which encompasses the office environment to the print room, Quocirca considers Xerox a leader in the MPS market. However its closest rival HP is performing well, boosted by is dominance in the office print environment, its acquisition of EDS and its strategic alliance with Canon.
Expanding market reach
The ACS acquisition means that the combined company can now pursue opportunities across the document outsourcing, ITO and BPO segments, exploiting the respective customer bases of Xerox and ACS. Xerox already has signed managed print services (MPS) deals for companies that were existing ACS customers, such as Ingersoll Rand. According to Xerox, such cross selling initiatives are taking place in more than one hundred accounts across all regions, which have generated over 10 ACS signings to date and a $2.5 billion pipeline.
With only 8 months having passed since the ACS acquisition closed, Xerox still has some way to go to before it can offer an integrated Xerox/ACS offering. This is likely to be more challenging in Europe where the profile of ACS is lower than North America—currently 90% of ACS revenue comes from the US. Nevertheless, Xerox recognises that a global company still needs localised presence and offerings, especially in a diverse region such as Europe, and is working to develop a consistent global approach which is complimented by local and regional delivery capabilities.
The ACS acquisition certainly promises to set Xerox apart from its competitors, and success in Europe will require Xerox to truly integrate its offerings, build out a European service organisation and demonstrate the pedigree of ACS in Europe. Particularly in the document outsourcing market, Xerox should remain watchful of companies such as Canon and Ricoh who are expanding their capabilities. Meanwhile HP's IT and networking heritage positions it well for companies looking to outsource both the desktop and print infrastructure.
Certainly ITO and BPO bring added value to the Xerox Enterprise Print Service portfolio, but Xerox will face challenges developing an integrated sales strategy given the different stakeholders across MPS, ITO and BPO engagements. As with any acquisition, success will rely on the investment in staff and training but probably most fundamental is whether Xerox will retain ACS as a separate brand.
Quocirca believes that although the European market presence of Xerox may do well to push the ACS brand, ultimately the best approach would to be recast ACS as Xerox Enterprise Services or similar, to avoid confusion and support a cohesive go to market approach. For now, Quocirca expects that the majority of synergistic opportunities will reside in the US region. Mindful of this, Quocirca will be watching closely how Xerox approaches and executes on its promises to the European market.
Posted: 4th October 2010 | By Sarah Lafferty :
Thanks for this Louella. I was definitely in the camp of people who associated Xerox with copying services so I really learned something new.
Posted: 5th October 2010 | By Koby :
I agree with most of the writers comments. Indeed, Xerox is moving away from the box seller to service provider area.
However this segment is full of Giants and indeed the competition for Xerox will not be easy. Almost any big name is in this area, is a service provided with box making abilities. HP had their own outsourcing arm and with the acquisition of EDS they have a serious presence and range of services to offer. IBM has a big presence in the outsourcing and business process area, Dell acquired Perot Systems last year.
I am sure though that Xerox and ACS combination will be beneficial to both companies as they compliment each others skills and provide additional markets to both organisations.
There is also the cross benefit of their own needs that will save to both organisations considerable amount of money, thus increasing profitability, providing they can retain the brains that can make it happen.
I wonder though how the business opportunities will be translated into business success, in crowded and experienced markets.
Lets face it, it is Business to Business sell to large organisations and those organisations do have the expertise to scrutinise any offer/tender submitted to them with great detail and understanding. The Public Service more so, as they have the responsibility of Public purse and regardless UK or any other European Countries, the public scrutiny just adds to the levels of complexity and understanding in any approval process.
To my humble opinion, the HPs and IBMs of this world have a competitor in form of Xerox/ACS and regardless the branding of this merger; they regard a specialist competitor with a great concern.
Posted: 5th October 2010 | By Louella Fernandes :
Thanks for your comments Koby. I totally agree that the Xerox/ACS now offers the specialist competencies that will differentiate them in the market.
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