Introduction

Figure 1: Total U.S. Office Document Solutions Market

This growth rate incorporates all revenue categories, including software licenses, professional/support services, software maintenance, and installation services. While software maintenance is expected to demonstrate a CAGR of 68% over the forecast period, installations are expected to show a CAGR of only 1%. The high growth rates for software maintenance are not surprising, as the revenues for this market are expected to be relatively small in the beginning of an emerging software market. The subscription rates for leading categories of software are increasing, and as the base of installed applications continues to grow rapidly, the compounding annuity from software maintenance fees that usually carry over multiple years will grow at a significant pace. The Relationship between Hardware, Software, and Services In many ways, the office document solutions market is an extension of the broader office equipment market, which includes the sale of copiers, printers, fax machines, scanners, and related multifunctional derivatives of the first three. Anyone who is familiar with the equipment market understands that this is a mature market with limited year-over-year growth, where margins on hardware continue to disappear and most of the profits are earned on the supplies and service annuity.   The need to preserve market share and maintain sales levels has left key players in the office equipment market blind to new opportunities concerning document solutions. Vendors who do not consider incorporating solutions into their sales model may be left behind. We have seen significant evidence (as tracked by some manufacturers and software developers) that software-based solutions are becoming an increasingly critical factor in the sale of office equipment hardware in the United States. Furthermore, as solutions take a lead in defining the prerequisites for equipment bids, those vendors pursuing value-added opportunities have shown an improvement in the margins for the associated equipment that is included in such deals. The equipment in these deals sold for as much as 8-12 percentage points higher than similar equipment sold without software or related professional services.   Concentrating on networked printer and copier-based devices that are sold into workgroup office environments, InfoTrends compared the estimated hardware revenues for devices sold with and without software solutions. The results are dramatic. Looking at revenue alone, forecasts show that hardware sold with solutions is expected to increase at a compound annual growth rate (CAGR) of 29% from 2004 to 2009. Hardware in this same category that is sold independent of any solution, on the other hand, is projected to decline at a CAGR of -11%.

Figure 2: Comparison of Hardware Revenue for Devices Sold With & Without Software Solutions