It's a Small World Afterall - The Economics of Office Technology
From an outside perspective, the world of office technology might appear to be a dying industry. With original equipment manufacturers (OEMs) struggling to post results reaching their prior year’s performance, one has to question the staying power of the industry and why there continues to be an interest in investing in the space.
Even with the recent impact of COVID, which set up easy year-over-year comparisons for OEMs, many are still finding it challenging to post consistent year-over-year performance, let alone growth. Xerox’s 2021 results might be the clearest indicator that being a manufacturer is not easy these days.
While the last several years make for some difficult analysis, even prior to the recent challenges associated with COVID, working from home and digital transformation, it was clear that the industry had reached maturity and was poised for a steady decline. Whether it was a reduction in printed pages, price erosion due to extreme competition, or the shift from traditional A3 to A4 MFP technology, all signs indicated that the industry was on a steady downward trajectory and vendors capable of achieving the same level of revenue as the prior year would be considered “best in class.”
So why the continued interest in the industry from the likes of investment firms, and in particular, private equity?
The office technology industry is an interesting study in economics and economic displacement. While there is no doubt that the overall size of the industry is shrinking, eliminating most avenues of growth for OEMs already selling to and servicing the entire market, the story is quite different at the micro level of the market where dealers make their living. If we look at the market from a dealer’s perspective, while the overall market may be mature, the opportunity for dealers is expansive.
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