The Future of the Scanning Hardware Market

As the editor and publisher of DIR, and more recently, Americas regional manager for infoSource, I've spent a lot of time covering the document-related hardware market. When I started back in the late 1990s, high-volume scanners were the primary market drivers with vendors like Kodak and Bell + Howell leading the industry. In the 2000s, we saw the rise of "distributed scanning" and explosive growth in the workgroup ($500-$2,000) segment of the market. More recently, we've seen the emergence of the personal segment (sub-$500) of document scanners, as well as more scanning on MFPs, as the act of document scanning truly becomes democratized. Of course, being able to take a picture of a document with a mobile phone, potentially puts a document scanner in everyone's pocket.

So, where is this all going? It's our opinion that the market is too fragmented and document scanning technology needs to become more standardized for it to take the jump to the next level and truly be considered mainstream technology. Basically, we need more consistent images and image onboarding/management processes to truly cross the chasm. So, how do we get there?

The new TWAIN Direct initiative is a step in the right direction. TWAIN Direct is designed to remove traditional drivers from the scanning process and enable scanners to be found on a network, similar to other peripheral devices like printers. The scanners would have to be running some bit of code in their internal memories that would enable them to connect with TWAIN Direct scanning applications, but it should be lightweight and not require a PC to act as an intermediary like document scanner drivers do today.

This is exciting because MFPs and apps on mobile devices could conceivably run similar code that would enable them to talk to those same applications. This could reduce the variety of connections that scanning software vendors have to create and upkeep and also serve to somewhat standardize the scanning process. Once we get that far, the scanning application vendors can invest their resources in what they are going to do with the scans once they get them.

I am not saying TWAIN Direct is the only way to accomplish this, but I would like to see some sort of standardized way to capture images across document scanners, MFPs and phones. They all have their place in the scanning hardware hierarchy, but for the industry to truly thrive, it is better if it's a connected, graduated hierarchy, vs. a lot of individual scanning platforms.

Lexmark ES Rebounds in Q2

Lexmark's Q2 results for its Enterprise Software (ES) division do not appear to be terrible. On Friday, the Lexington, KY-based MFP vendor announced its Q2 2016 results, and while overall earnings were disappointing, ES seemed to have rebounded from a very disappointing Q1. For Q2, Lexmark reported ES revenue of $167M, which represented an 11% YOY increase. But, before you get too excited, Q2 2015 only contained about a month and a half worth of Kofax revenue, as Lexmark's acquisition of the capture market software leader closed in mid-May last year. In the first complete quarter of Kofax revenue (Q3 2015), Lexmark reported ES revenue of $165M.

Of course, immediately upon announcing its Q3 numbers last year, Lexmark announced it was looking at selling either the whole or parts of its company, which sent the ES business into a bit of a tailspin. Things bottomed out in Q1 of this year when Lexmark reported ES revenue of just $143M, a 14% decline from the combined revenue of Lexmark's Perceptive Software and Kofax (which were combined to create Lexmark ES) in Q1 2015.

So, it's good to see that now Lexmark's ES business appears back on track in spite of April's announcement that the entirety of Lexmark was being acquired by a group of China-based investors led by Apex Technology Co., Ltd. and PAG Asia Capital. A week previous to the Q2 earnings announcement, it was announced that Lexmark shareholders had approved the "merger agreement." There was a lot of speculation that being owned by a Chinese entity could adversely affect enterprise software sales due to concerns about security related to a lack of regulation in China. In my research and conversations, I could find nothing to substantiate these concerns and apparently they didn't negatively affect sales in Q2.

I'm not exactly sure what led to the turnaround from Q1, except that perhaps once the deal for the acquisition was in place, the ES team was better able to focus on its business. ES President Reynolds Bish had told me in a conversation at Lexmark ES's Inspire event in early April, that the distractions related to a potential acquisition had taken a toll on his organization.

Of course, rumors continue to swirl that Lexmark ES will still be spun off and a decent quarter like Q2 should help increase its potential value. Although it's still hard to see Lexmark recouping the approximately $2B in spent rolling up ES in the six-year period from 2010 through 2015.

Lexmark Apparently for Sale

Today, Lexmark announced that its Board of Directors has "authorized the exploration of strategic alternatives to enhance shareholder value." After the announcement was made, Lexmark's stock rose more than 6% (as of this posting), lifting the company's market cap to $2.1B. This is not that great of a valuation for a company that bills itself as a "$3.7B global technology company that includes a $1.5B Higher Value Solutions business comprised of Enterprise Software (ES) and Managed Print Services (MPS)."

That Enterprise Software business, of course, includes Perceptive, Kofax, ReadSoft, Brainware, and some other ECM-focused companies that have been rolled up since 2010. Most recently, Lexmark acquired Kofax for $1B in a somewhat surprising deal. It followed up by appointing Kofax CEO Reynolds Bish as president of Lexmark ES, which has about a $700M annual run rate.

Unfortunately, investors were less than thrilled with the guidance Lexmark presented for its overall business in conjunction with its Q2 earnings report, which dropped the company's valuation by 20% on a single day in July. Although the stock has bounced back slightly over the past few weeks (including today), it is still trading at more than 25% below its July peak.

Lexmark has made a concerted effort to shift its business from hardware-centric to a software and services focus, stressing its growing ES and MPS revenue. Unfortunately, it appears that investors are still valuing the company based on its declining hardware and supplies revenue. Stated Jean-Paul Montupet, lead director of the Lexmark Board of Directors, in relation to this, "We are extremely proud of what the Lexmark management team and employees have accomplished in the transformation of Lexmark. While the Board is encouraged by the company's future prospects, the Board does not believe Lexmark's current share price fully reflects the intrinsic value created by the company, and the Board has concluded it is appropriate to explore strategic alternatives as the next step to unlock this value."

What specifically those strategic alternatives are is not mentioned, but speculation is that the company could be sold either to a private equity company or another high-tech company. HP, which had long been discussed as a possible landing point for Kofax and has a partnership history with Lexmark, is one possible buyer. However, to me, a private equity buyout at this point would seem to make more sense. After all, less than six months ago, Lexmark paid $1B to pick up Kofax, so selling the whole company to someone else for anything close to its current market valuation would seem unlikely. After all, Kofax was a $300M-plus company and Lexmark is a $3B-plus company. The math just doesn't make good sense.

What makes more sense is to take the company private, which would conceivably enable those who agree with Lexmark's management's transformative vision to stay on board as investors. The company would then be able to work on really affecting the changes it wants to without the worry of meeting quarterly numbers - which are going to be very hard to meet as the formerly hardware-driven company de-emphasizes hardware. When the transformation is complete, and Lexmark is operating as primarily a software and services business, it can then go public again, conceivably with a more favorable valuation.

At least that's the way I see it shaking out.

Your thoughts?

A Dialogue with Xamcor's Paul Carman on Lexmark-Kofax Deal

The following is a correspondence between Ralph Gammon, the editor of the Document Imaging Report, and Paul Carman, President and CEO of Xamcor, discussing what this deal means to the companies involved, as well as the industry as a whole.

Ralph Gammon of DIR: So, no surprise that an MFP vendor has announced plans to acquire Kofax. What is surprising is that it was Lexmark, instead of Xerox.

Paul Carman of Xamcor: I agree. Of course, it’s no surprise that Lexmark made another software acquisition , as they have been very active in building their software capabilities. However, Kofax does come as a bit of a surprise. With Brainware, an earlier acquisition, and then ReadSoft closing some months ago, the capture space didn’t seem to be the next logical area of opportunity.

To read the rest, please click through to the Xamcor site. 

Part II of the interview, in which we discuss if there is any merit to a shareholder rights-focused law firm filing a complaint against Kofax for not maximizing shareholder value.

Lexmark Attempting To Corner the Market on Capture

Wow. That really caught me by surprise. About 4:30 today it was announced that Lexmark was acquiring Kofax for $1B net of cash. I was just finishing up my Kofax Transform conference story and about to start writing my piece about how Xerox was going to integrate the Kofax technology into its organization. It really made a compelling story. And the rumor circulating around AIIM last week, was the the Xerox-Kofax deal was going to close any day...Then I heard something about Kofax asking for too much, and the next thing I know Lexmark announced it had made a bid of $11 per share, or about a 47% premium over what the Kofax stock was trading at today. It's also more than 3x Kofax's 2014 reported non-GAAP reported revenue of $297M -so from that perspective it's not a bad deal.

There is a lot to like about this deal from Perceptive's standpoint. It's latest and most aggressive move in an already aggressive ECM software strategy. That said, there is certainly some overlap with the recent ReadSoft acquisition, as well as its previous Brainware acquisition. But, if you are going to transition from a hardware to a software vendor, you might as well go hard.

I wouldn't be surprised to see Xerox make a counter offer, but if $1B was already too rich for their blood. But still, if I was Xerox, I would be looking to find some money somewhere, because they really were planning on investing a lot in this partnership and now Kofax is in danger of being taken off the market by a competitor. Exciting times.

Xerox Signs on As Kofax Reseller

Today Kofax announced that it has signed a global partnership with Xerox. Under the terms of the agreement, "Xerox will sell, market, deploy and support Kofax TotalAgility," with support from Kofax sales and services staff. Kofax TA represents its integrated line of products including capture, BPM, analytics, e-signature and data integration technologies.

Couple interesting points about this:

• The Xerox executive quoted in the press release talks about Kofax TA being part of Xerox' next-generation MPS offering. The concept of MFP/printer vendors moving more deeply into ECM was factored into our recent 2015 DIR prediction that there will be a major ECM/Capture acquisition by any MFP vendor in 2015.
• Somewhat along those lines, Hyland Software also recently announced a new global partnership with Xerox. Can we connect some dots here?

Is HP Split the Right Move?

Last week's big news (well, aside from Kofax pre-reporting disappointing fiscal 15 Q1 numbers) was HP's announcement that it plans to split its software, services, and storage business from its PC and printers business. From what I can tell, it appears to be about an even split revenue-wise. In HP's more recently reported quarter (ended July 31), revenue from Personal Systems and Printing (which will become HP, Inc.) was $14.2B, while revenue from everything else, including Enterprise Group & Services, and Software (which will become Hewlett-Packard Enterprise), was $14.3B. Earnings of $2.7B were similarly split.

So, why is HP breaking up the company? Well, the most straightforward answer was given to me by Chad Stigall, senior manager, solutions portfolio at value-added document imaging distributor Cranel.

@DIREditor they are two different businesses. PC-with Dell going private they have to be competitive and Solutions needs freedom.
— Chad Stigall (@chadstigall) October 6, 2014

And that certainly makes sense, and maybe I'm looking at this from too narrow of a perspective, but my perspective is one that comes the document imaging industry and from the context of that market, I'm not sure splitting up the two business makes sense.

I already felt this way, and then here's the quote I got from Canon's Tom O'Neill last week when working on a story on the latest version of the MFP vendor's uniFLOW fleet management software. "“You’re going to hear more from us on the benefits of an integrated solutions and platform strategy,” he said. “We have several Canon group companies based in Europe, like NT-ware [which develops uniFLOW], I.R.I.S., and Therefore [a document management ISV]—we are able to integrate their technologies with each other, as well as directly into the imageRUNNER ADVANCE platform.

"This will help us create a very strong integrated solutions platform that we believe will relieve a lot of the frustration and pain for our dealers and channel. Nobody wants to have to manage three or four different vendors to create a solution, and Canon understands that. Also, customers aren’t looking to buy a device or software like uniFLOW or Therefore. They are looking to buy solutions to their problems, and we want to provide that to them in a way where the technology is transparent."

So, Canon is talking about combining hardware and software into solutions and HP it talking about splitting up its hardware and software businesses. Lexmark, which continues to roll up software under the Perceptive Software flag, seems to be heading the same direction as Canon. And so is Konica-Minolta, although in its case it is rolling up services businesses to combine with its hardware business. Xerox took a similar approach to KM-although on a much bigger scale when it acquired ACS a few years back, which is now known as Xerox Services and is a very large focus for the copier pioneer.

So, why is HP heading in a different direction than these competitors and spinning off its printer business on its own? Well, for one, the printer business is not being spun off on its own. It's being tied to the PC business--which is ironic if you remember that a few years ago there was a war when some of HP's investors wanted to split off the printer business from the PC business. But, the two were kept together and since then HP has made two huge acquisitions, of EDS (services) and Autonomy (software)--and now the plans are to spin off those two acquisitions as part of Hewlett-Packard Enterprise.

Here's my issue. EDS was acquired in 2008 and Autonomy in 2011- and I really don't think HP has done a good job integrating them into their core business. So, it seems to me they are punting. Really? Is now the time to give up on this integration just when all your competitors are either moving towards this type of model and/or have already achieved it on some levels?

The only plausible excuse for this split from my standpoint is that HP is ahead of the game. In other words, the integration of hardware, software, and services is all a big sham and what every hardware vendor really wants to do is move to a strictly higher margin software and services model and eliminate their hardware. Isn't this what Kofax did when it sold DICOM? And HP is just the first MFP vendor to admit this and dump the hardware-albeit in a fairly graceless fashion.

Now, I'm not saying this is valid, and I certainly don't expect Perceptive to dump the Lexmark hardware business anytime soon, but, really, isn't that what HP is kind of trying to do here?

So, the next move would be for them to pick up the hardware-free Kofax, whose market cap has dipped below $600M and add it to their Hewlett-Packard Enterprise business and move on from there. Where does this leave the MFP/Printer/Scanner business? Well back where it started before any software and services were brought into the mix, and if one is to believe the current trends in the market, that's not necessarily an advantageous place to be.

Nuance Numbers Reveal Acquisition Motive

Nuance's Document Imaging division revenue was down significantly in its fiscal Q3 2014. For the three months ended June 30, the Burlington, MA-based ISV reported $52.4M in revenue for the division, a drop of 16% compared to last year's Q3 results. According to Nuance's prepared remarks associated with its financials release (which came out on Aug. 11), " Bookings strength was supported by two new partnership extensions with HP and Lexmark. Growth from these partnerships was tempered by weakness in the MFP scan business."

This would explain Nuance's decision to acquire Notable Solutions, Inc. last quarter, which was its main independent competitor in the MFP scanning market.

Perceptive Software Shows Significant YOY Profit Improvement

From Lexmark's year-end/Q4 2013 report:

For 2013: Perceptive Software revenue was $224 million. Perceptive Software revenue, excluding acquisition-related adjustments of $16 million, was a record $239 million and grew 48% compared to 2012.

For Q4 2013: Perceptive Software revenue growth of 60% in quarter (70% non-GAAP, 15% organic growth), 43% in full year (48% non-GAAP).

From transcript of conference call (on SeekingAlpha.com):

"We delivered strong year-to-year improvement in Perceptive Software's profitability for the quarter and the year, and we expect continued Perceptive Software operating margin expansion in 2014 and beyond."

"Perceptive Software, delivered significant year-to-year improvement in profitability this quarter, up $9 million, driven by the 2 factors we've been focused on. First, we delivered solid Perceptive Software growth year-to-year, including good license revenue growth. Second, with the actions we started to take last year, we've been able to reduce Perceptive Software's organic cost and expense growth without negatively impacting revenue growth. And for the full year 2014, we expect to achieve double-digit software revenue growth and remain committed to delivering a positive and expanded software operating income margin."

FY2013:
"Perceptive Software had a slight operating loss of $2 million, an improvement of $23 million versus 2012. We expect continued substantial improvement in Perceptive Software operating income in 2014."

For 2014: "Perceptive will grow a bit faster than 15%, MPS a little less than that."

Business Imaging Expo Less than Five Weeks Out

The Business Imaging Expo, being put on by 1105 Media, is set for Dec. 10-12 at the Mandalay Bay Convention Center in Vegas. The event is aimed at Office Imaging vendors, dealers, and channel and is expected to draw around 1,500 total attendees, including 75-100 vendor exhibitors.

A pair of executive summits kick things off on Tuesday, Dec. 10: one on MPS, and the other on workflow, which has a focus on ECM and document imaging technologies. Featured speakers include Pam Doyle of Fujitsu, Bruce Orcutt of Kofax, and Ron Glaz of IDC.

“This is a brand new event that is a mix of everything we cover,” said Amy Weiss, editorial director for 1105 Media’s Office Technology Group. Weiss oversees three publications: Recharger Magazine, The Imaging Channel, and Workflow. “We see this event as really representing the future of the office imaging market. The tagline features ‘service, supplies, and solutions’ and we see opportunity where those three areas converge. We hope to provide some cutting edge content and information for attendees looking to address the future of the market."

Early-bird rates are in effect until Nov. 15. You can register online at businessimagingexpo.com/events/bix2013

Mobile, Cloud, on MFP Dealers', Users' Minds.

From this week's premium DIR:

 “Our new app fits the needs we have been hearing about from our dealers for some time. In addition, we like to bring in our VIP accounts to the TABS corporate office—and nine out of 10 of them have been asking what our plans are for mobile and cloud applications. It’s something that’s clearly on the mind of all Toshiba’s customers.” 

- Tony Venice, manager, strategic product management, Toshiba America Business Solutions, 

discussing TABS' new e-BRIDGE Print & Capture Mobile Software

Has Lexmark Found Formula for Software Success?

Lexmark announced its second quarter 2013 earnings (click on Q2 2013 Earnings) yesterday, with both revenue and income exceeding analyst guidance.This is certainly good news for Lexmark and its shareholders, who saw their stock jump approximately 5% in yesterday's trading. However, the most interesting thing from our perspective was how much credit Perceptive Software is being given for the strong quarter.

Perceptive is a suite of ECM software products that Lexmark began acquiring back in 2010 when it bought Kansas City-based Perceptive Software. At the time, Perceptive was a traditional document imaging/workflow ISV with about $85 million in annual revenue. Since then, Lexmark has rolled up several other ECM-related software companies under the Perceptive umbrella, including advanced document capture specialist Brainware. In Lexmark's latest quarter, Perceptive generated approximately $60 million in revenue, including 34% growth. It also achieved "a modest operating profit for the quarter."

This last point is significant because in previous quarters, while Lexmark had reported some strong growth for Perceptive, it was losing several million dollars per quarter. Here's an explanation of the Perceptive turnaround from Paul Rooke, Chairman and CEO of Lexmark, as quoted from the Seeking Alpha transcript of today's investor call. "We delivered improved Perceptive Software profitability this quarter, up $10 million sequentially and up $4 million year-to-year, driven by two factors. First, we delivered record Perceptive Software revenue, growing more than expected, driven by record licensing revenues as we closed several large enterprise customer licensing deals during the quarter. Second, this increased licensing revenue contributed to a larger gross profit margin increase than expected.

"We also stated last quarter that we were taking additional actions to further reduce Perceptive Software's cost and expense growth to improve profitability without negatively impacting revenue growth.We started to execute that in the second quarter, and we'll begin to see the benefits of these actions starting in the second half. Going forward, we expect to continue driving double-digit software revenue growth and remain committed to delivering a positive software operating margin in 2013."

That's encouraging sign number one for Perceptive.

The second positive sign are synergies that Rooke discussed, which are being developed between Lexmark's Imaging Solutions/hardware business unit and Perceptive. From the Seeking Alpha transcript: "As proof of these synergies, we're beginning to win software solution deals in ISS accounts across a range of industry segments. In fact, over the last two quarters, we've won over 20 new capture, content and process software deals across a range of ISS banking, retail, manufacturing, government and healthcare accounts, and our sales funnel continues to strengthen. We're also beginning to see the reverse happen as well, where ISS is capturing MPS deals in Perceptive Software healthcare accounts."

Basically, this was always the vision - that ISS' large global presence would be able to turn what was essentially a North American SMB-focused ISV like Perceptive, which strengths in a few vertical markets, into a worldwide, cross-industry ECM power. What's neat is that if the Perceptive success continues, the Lexmark blueprint could provide a plan that will be copied (no pub intended) by other printing hardware vendors - all of whom have at least been dipping their toes in the water regarding an increased software focus. If Lexmark can jump all in and succeed (it really has invested a ton of money and resources in Perceptive - and made more of a commitment to software than any of the other hardware vendors), perhaps the other vendors will follow.

What will this mean? It could mean acquisition/buying sprees by hardware print vendors of ECM and capture ISVs. Hyland, DocuWare, Open Text, Kofax? Could they all and more be swept off the table by hungry hardware vendors in the next couple years? If Lexmark's Perceptive plan continues to pay dividends (and admittedly, one quarter does not a successful business make, but Rooke is projecting the success to continue), then why wouldn't the other hardware vendors follow suit?

One more thing, I thought was interested that came out of the Rooke's call with financial analysts. I thought he did a very good job expressing exactly that the big vision is for a combined print/MFP/ECM conglomerate like Lexmark is evolving into. Here's a quote from the Seeking Alpha transcript:

"Lexmark is rapidly moving its value proposition from a provider of only printing solutions, a partial response to the unstructured information challenge that all of our customers' face, to a provider of unstructured information solutions, a more holistic response to this challenge, encompassing: output management, to optimize paper output, a big part of the unstructured information challenge for the time and place it's needed; content management, to make unstructured content, both paper and digital, available at the time and place it's needed; and process management, to automate and integrate those manual, often paper-based disconnected process challenges to improve workflow efficiency."  - I think that makes a lot of sense and does a good job explaining the synergies, from a technology and marketing standpoint, between print and ECM technologies.

Percetive Growth Still Not Fast Enough for Lexmark

This week's issue of the DIR newsletter features a cover story on the re-branding that is underway at Perceptive Software. Perceptive was an ECM vendor that was acquired by Lexmark in 2010 and is now operates as the Enterprise Software Group within Lexmark. Its ECM suite has been fleshed out by a series of software acquisitions that Lexmark completed in 2011-2012. These include capture, search, and BPM technology, as well as vertical market specialist ISV. The details of how these products are being integrated, as well as still taken to market separately, are in the DIR article.

This week Lexmark reported its third-quarter results, and Perceptive's quarterly revenue came in at $41 million, which represented 88% growth from the previous year's third quarter. A good bit of that was due to the aforementioned acquisitions, but organic growth was still 22%. This is no doubt above market growth rates, but, it is apparently significantly below what Lexmark had budgeted.

According to Rooke (as quoted in a transcript of Lexmark's recent conference call to discuss quarterly results, "While Perceptive Software's revenue was up strongly year-to-year, it was less than we expected, driving a larger-than-expected operating income loss as we continue to invest for growth. Now for the next several quarters, we plan to limit Perceptive Software's expense levels to allow expected revenue growth to catch up and deliver positive operating margins in 2013."

Unfortunately, despite Perceptive's growth, Lexmark reported that its segment operating income was negative $8 million. This begs the question: What kind of growth is Lexmark expecting?

Lexmark certainly paid a good premium for Perceptive and some of the complementary ECM technology it bought, so it obviously was expecting some significant returns. But, to tell the truth, a lot of people I talked with thought an MFP hardware vendor like Lexmark could not successfully run an ECM software operation like Perceptive. But, to date, it seems that Lexmark has done everything it can to nurture Perceptive's business, buy acquiring complementary technology, while also allowing it to operate fairly autonomously. And this has worked to the tune of 22% organic growth - which certainly seems like a far cry from failure. Let's hope that unrealistic expectations don't spoil this success and that limiting expenses doesn't end up limiting Perceptive's success.

 
Rooke added that Perceptive's growth reflects, "slower growth in EMEA than expected and the delay in the closure of a number of large transactions in North America. With regards to EMEA, we continued to make progress, although slower than expected, and are making changes in sales leadership that we believe will accelerate growth. In North America, although we are disappointed that several large transactions did not close in the quarter, the majority of them, we believe, were deferred and not lost, and we expect them to close over the next several quarters."

Toshiba's Forward Thinking

In my last newsletter, there's a story on Toshiba America Business Solutions (TABS) launching a new business unit - Toshiba Managed Business Services (TMBS). No surprise here that an MFP vendor is trying to expand further into services. After all, we've written about Ricoh, Canon, Xerox, and HP all trying to do the same thing. With paper volumes declining, hardware just isn't enough to pay the bills anymore.

What's interesting about TMBS, however, is the range of its focus. It is targeting four main areas within the enterprise market:

• Managed Print Services
• Document security, workflow/capture
• Barcode systems
• Digital signage and kiosks 

Now we all know what MPS is, but here's what Chris Applegate, Director, Enterprise Services, TMBS, had to say about his organization's focus on MPS. “The MPS space has become overcrowded. You’ve got MFP vendors, big box office equipment providers, VARs, and even large technology distributors playing there. And their value propositions all sound alike.

“Basically, they tell the same story. They provide a baseline assessment and an analysis. They then help customers right size their fleets by doing things like replacing inefficient desktop printers with workgroup models. And they provide software to manage that new fleet of printers.

“We believe that creating a lower cost per printed page is only a foundation for managed services. The true value is in reducing print. The paperless office is a myth, but running an office with less paper can be a reality today. We help customers choose when paper is the best solution."

The focus on digital signage and kiosks is designed to offer an alternative solution to printing. In a world where more and more formerly printed materials is now being read on tablets, this makes a lot of sense. I always tell people that a number of years back at a Xerox Tech Expo I saw a lot of "digital paper" solutions previewed that I think foreshadowed today's tablets. I think even better "viewing" technology is on the way.

Healthy Coopetition
The other forward thinking strategy employed by TMBS is its vendor-agnostic approach. Included in TMBS software portfolio is Lexmark's Perceptive software suite, as well as some HP security software. Yes, both HP and Lexmark make MFPs that conceivably compete with Toshiba. This is the second time I have heard TABS commit to this vendor-neutral approach. The first was two years ago, when they launched a professional services group - and they said that it was not about the hardware anymore. I can't say for sure whether this is lip service or reality, but it certainly makes sense. Integrators selling scan-focused document imaging solutions realized it was not about the hardware brand several years ago.

Canon's I.R.I.S. Strategy

A couple weeks ago, Canon, through its European subsidiary, announced it was planning to acquire document capture ISV and systems integrator I.R.I.S., which is based in Belgium, outside of Brussels. Following is a Q & A put together through a correspondence with the Canon PR department about how the two companies will work together going forward. Basically, it sounds like Canon will enable I.R.I.S. to operate primarily independently, but that the companies will now be able to share more intellectual property. (As far as I know, the only current jointly developed product between the two organizations is the Advanced Scanning module in Canon's UniFlow platform.)

1. How will the acquisition change the way that Canon is currently working with I.R.I.S.?        

Canon anticipates leaving I.R.I.S. Group as a stand-alone company within the Canon group (in line with the acquisition of other software companies in the group). This should allow I.R.I.S. Group to keep its focus on high-quality product development.

Canon has no intention to change any of the strategic relationships in place between I.R.I.S. Group and third parties.

2. What will change at I.R.I.S. as a result of the acquisition?

See answer to question 1.

3. Does Canon have plans to market the I.R.I.S. products through its channels worldwide, or still primarily in Europe?

Canon anticipates leaving I.R.I.S. Group as a stand-alone company within the Canon group (in line with the acquisition of other software companies in the group [Therefore and NT-Ware]). This should allow I.R.I.S. Group to keep its focus on high-quality product development.

4. How will the operation of I.R.I.S. Professional Service group change under Canon?

See answer to question 1.

5. Can you tell me anything about the timing of the acquisition? e.g. why the decision was made to buy the whole company after spending three years as an equity partner?

The relationship between Canon and I.R.I.S. Group has developed very well since 2009 with Canon contributing well to the sales of I.R.I.S. Group’s products and both companies working together to develop new solutions.

However, the relationship is limited in its nature to that of a strategic commercial relationship due to the mutually agreed rules between Canon and I.R.I.S. Group that govern sharing of information.

Canon has a long standing strategy to develop end-to-end solutions in the business environment for its customers. This is better achieved when the relationship between Canon and I.R.I.S. Group is stronger and not subject to the current restrictions.

Canon Announces Print/Scan Mobile Apps

Canon has announced a pair of apps that enable users to scan to and print from their mobile phones and tablets utilizing ImageRunner MFPs. The apps are for the iOS and Blackberry operating systems.

From a press release, "The Canon Direct Print and Scan for Mobile application provides communication between Canon multifunction products (MFP) and an iPhone and iPad, allowing users to perform print and scan functions between the two devices, such as scanning from the MFP to an iOS device or printing from an iOS device to an MFP."


The iOS app is free at iTunes and will work with compatible ImageRunners and Image Runner ADVANCE devices. "Through the app users can remotely manage "scan options from an iOS device (e.g., select paper size selection, select scan resolution, duplex printing, color vs. black and white, select number of prints, collate and more)."


The app for Blackberries is also free and does basically the same things as the iOS app. It does require that users purchase a MEAP application to run on their hardware. (Go figure, a Blackberry app being more inconvenient than an Apple app....market dynamics are hard to change.) Canon seems to have an Android mobile app for scanning and printing photos but not yet for documents. Not sure why Blackberry was ahead of Android in the development cycle. Probably made sense when development started.

IKON Re-branded as Ricoh

It's official. This is the culmination of the 2008 acquisition when Ricoh paid $1.6 billion for the digital copier super dealer that was also the largest North American partner of its chief rival Canon. The deal seemed like an expensive proposition at the time, but it also seems to have achieved what Ricoh was looking for - increasing its U.S. distribution significantly, while putting a bit of a hurt on its fiercest rival. Xerox, which paid $1.5 billion for ACS, may have been the biggest winner in the deal.

There have clearly been some bumps in the road involving the integration of  IKON and Ricoh, including the resignation of Jeff Hickling as president and CEO of Ricoh U.S. last year. Hickling had been the president and COO of IKON and initially much of IKON's executive management was given huge roles within Ricoh's U.S. services business. We're not sure how much of the ex-IKON management structure is still in place, as the Hickling change took place shortly after the Ricoh Convergence event, which I attended and was the last time I had a briefing on Ricoh management.

Suffice to say, the acquisition of IKON should now be considered completed. It always made sense from a strategic standpoint, as MFP vendors have been forced to move from a hardware to more a services model. Hopefully, now all the logistics have been worked out.

A look at Lexmark's Acquisiton of Brainware

Sorry it took me so long to get around to this, but I've been catching up on a few things. Chances are by now you've seen that Lexmark paid $148 million to acquire Brainware. My first reaction was "Wow. That seems like a lot of money." But, then I started doing some research and apparently, Harvey Spencer Associates has Brainware ranked ahead of Top Image Systems in worldwide market share, and, as we recently reported, TIS recently reported annual revenue of close to $30 million.

 So, Lexmark apparently paid less than five times revenue- which is still a pretty good premium. Lexmark hinted that more financial details about Brainware may be available during its first quarter earnings call in April.

For those of you who don't know Brainware, it is an intelligent data capture (IDC) ISV. From what I understand, most of the heavy lifting on the development side is done in Europe, with the sales and marketing headquartered in Ashburn, VA. Brainware has enjoyed meteoric success in the invoice capture market in the past 5-6 years.

Formed out of the ashes of the flameout of German ECM ISV SER, Brainware's management team spun the company out of a call center software business and aggressively grew sales by focusing on ROI related to invoice capture. Unlike some of its competitors, Brainware has historically de-emphasized the workflow piece of the invoice processing equation and really focused on what it terms as "straight-through processing." This involves automatically extracting enough information off of invoices so that they can be matched with P.O. and shipping data and automatically posted to an accounting/ERP system without anyone having to approve them.

Brainware has also done some high-volume forms and remittance processing implementations, but to date invoices has been its real sweet spot. It sounds like Brainware will be working closely with the Perceptive development staff on additional data capture applications in markets like higher education and healthcare where Perceptive has a strong presence.

Perceptive is the document management ISV that Lexmark bought in 2010. Lexmark paid more than 3 times revenue for Perceptive, which is in a market where companies have historically had a lower valuation than the IDC market where Brainware plays. So, Lexmark has a history of paying a good premium for software vendors.  And, if you remember, HP paid like more than 10 times revenue for Autonomy last year. That fact is hardware vendors typically have to pay a decent price to get a decent software vendor.

Part of this is because I think the general consensus is that hardware companies don't know how to run software businesses. And this was certainly a widespread concern when Lexmark bought Perceptive. But, you know what, I think because Lexmark has done such a good job allowing Perceptive to remain autonomous, there were really no similar questions that came up this time around. In the meantime, last year Lexmark acquired a BPM software provider, Pallas Athena, to compliment Percpetive and recently reported 30% organic growth for the Perceptive business.

There's a ton more I can write on this, which will show up in my next premium issue. But, for now, it appears full speed ahead for Brainware as part of Perceptive, taking advantage of the Lexmark resources. And Lexmark now has pretty much a full capture, workflow, document management suite, putting it on the cutting edge in the world of MFP vendors.

Capture + MPS on the Horizon

There is certainly a lot of interest in introducing document capture and management applications into managed print services contracts. One of the most active discussions I've ever seen on LinkedIn, for example, has focused on the question of will "the next big move for MPS providers will be document capture / workflow?". The discussion takes place within "The Document Imaging Group"  and has more than 60 comments since being started a year-and-a-half ago - the last one coming just a couple days ago.

So, scanning is definitely a hot topic among those in the MPS market, but how much of it is really being sold with MPS implementations today? DIR recently sat in on a briefing about a number of MPS infrastructure players getting together to deliver a solution providing end-user information to resellers to help them improve their MPS deployments. Unfortunately, from our standpoint, the whole discussion focused on print.

We followed up with a question to Doug Johnson, senior VP of MPS for Supplies Network, a St. Louis-based organization which services some 6,000 North American resellers, providing them with products like toner, paper, IT supplies, and data storage media. Supplies Network also has a hosted MPS offering, which was discussed in the briefing. We were introduced to them through DocSolid, which offers an MFP capture platform designed for cloud environments.

Johnson told us, "To date, scanning (and particularly solutions around the scan function--content repurposing, further document workflow, storage, archival, retrieval, etc.) has largely been ignored in the MPS engagements between resellers and end users. We believe it is due to a lack of solutions that are integrated across the scanning value chain. An efforts like the one we recently discussed [on printing], eliminating white space across scanning solutions to create a seamless end-to-end solution, is needed."

 

So, while there clearly is plenty of interest in scanning in the MPS world, it seems the logistical pieces have not been put in place to really unleash it. This is not surprising, considering that printing is still the lead dog for MFP vendors and dealers, and they are still figuring out how to properly deploy it in MPS environments.

We also did a teleconference last week about a re-org at Xerox that discussed MPS, but was almost entirely focused on printing.  Here's two interesting quotes that came out of that teleconference, which may explain some of the interest in printing: "Retail printing is $700 billion market," and "direct mail is growing exponentially." (The figure I found showed that the market for direct mail is actually predicted to shrink slightly over the next five years, but it's still worth well over $10 billion annually, so I guess when you compare it to the document capture software market size of under $3 billion [per Harvey Spencer Associates], you can see why the MPS focus remains on print.)

But - remember, the document capture market is growing in double-digits and someday will catch a declining printing market (if indeed it is declining), which explains all the interest in document scanning amongst, apparently forward-thinking people in the MPS market.

Lexmark Reports Strong Fourth Quarter for Perceptive

Perceptive Software apparently saw its revenue jump 40% in the fourth quarter of 2011 - up to $31 million. Part of that is attributable to the acquisition of BPM and output ISV Pallas Athena, which was announced in October, but 30% of the growth is said to have nothing to do with the acquisition. The fourth quarter growth rate is probably more in line with Lexmark's expectations than the third quarter growth of 15%, in which Lexmark seemed somewhat disappointed.

Part of  Lexmark's acquisition strategy was to expand the primarily North American Perceptive business internationally - taking advantage of Lexmark's worldwide footprint. That strategy seems to be paying off. Also it seems that while a restructuring plan has been put in place at Lexmark, there will be more hiring, rather than cuts, related to the Perceptive business.