Wednesday, April 8, 2009

Fuji Xerox and/or Xerox Fuji?

I heard someone at Bloomberg quote someone else who said that the consolidation described in the snippet below is classic as recessions start ending and business reorganizes for the next stage of growth.
Pulte to Buy Centex for $1.3 Billion (Update1) - Bloomberg.com:
"April 8 (Bloomberg) -- Pulte Homes Inc. agreed to buy Centex Corp. in a stock deal valued at $1.3 billion.

Under the terms of the agreement, Centex shareholders will receive 0.975 shares of Pulte common stock for each share of Centex they own, the company said. Based on the closing price of Pulte stock on April 7, 2009, the transaction has a value of $10.50 per Centex share, representing a premium of 32.6% to the 20-day volume weighted average trading price of Centex’s shares."
OEMs + VARs + OPMs (Original Product Manufacturers)
Consider that in a user network economy the cost of channels can be minimized and eventually eliminated. Once the internet allows compare and contrast in real time, channel partners can focus on their real value as VAR's. The defensible advantage on the ground is the customer list.
Globals are at a serious disadvantage in being VARs at the bottom of the pyramid.

So that leaves a much simpler commercial model. There are OEMs, VARs, and OPMs. A PSP is mostly an OPM and every once in a while a VAR.

VAR's sometimes morph into OPMs. Costco has a huge bakery in their stores. Staples has offsite print production and a "quick copy store" in every location. Even Walmart is doing food preparation in the models they are now testing. Sometimes OPM's morph into VAR's. The ACE Group and DME are good examples of OPM's that successfully made the transition into OPM-VARs.

By the way, the printernet is a network of PSP's that morph into OPM's with a little VAR on the side.

But what's an OEM to do?
The price of boxes has to get lower to be able to keep and gain market share. But the margins on boxes is already razor thin and will only get thinner. The only place I can see left to economize is by reinventing the "channels."

The good news is that we've already seen this transformation and can learn from it. First, as usual, is the financial world. Remember the days when your stock broker controlled the channel and was able to charge a price fixed fee for doing a trade? The internet disappeared that.

Then we watched it play out for travel agents, insurance agents, real estate brokers, and selling books. Now it's time for those same dynamics to move through the print industry.

Back in the day, the blablabla was about the end of bricks and mortar. Tell that to Walmart or Costco or Staples. The next generation is about web+bricks and mortar. It's about frictionless connections between OEMs, OPMs and VARs.

Here's how I see it
As far as I can figure out most of the wonderful products rolled out by Xerox in the last couple of years are produced by someone else. I think, but do not know, that Fuji Xerox is the OEM. Meanwhile, both companies spend gezillions managing channels. Xerox in US/Europe/ Russia/ Middle East/India. Fuji Xerox in Asia and Australia.

Xerox is a VAR for global 1000 organizations, in the private sector, government, education and health. The great performance of XGS in MPS is playing out the company's DNA. With the recent announcement of the P&G deal and announcements over the last year in the UK, that looks like sustainable organic growth. They are moving in the right direction with independent copier and MPS as evidenced by the recent announcement of PagePak.

But, since their DNA is as VAR, it makes sense that they have a pretty terrible record of "invented at Xerox and monetized by someone else": ethernet, postscript, the Apple GUI, electronic paper. I'm concerned that erasable paper is going to follow this well worn path.

Meanwhile, as far as I can tell Fuji Xerox has the DNA of an OEM. Their research lives in an environment that has an easy path to manufacture. It is important to note that John Seeley Brown moved from PARC to the Board of Directors of FXPAL.

So . . .what might happen if a deal could be struck
Xerox could focus on being a better and better VAR for European language markets. Fuji Xerox could focus on being the VAR for Asia and Australia. And Fuji Xerox could bring their OE to global markets at the lowest possible cost.

PARC could be integrated with FXPAL. Fuji could compete directly with Rico and Cannon on the ground. Plus a reorganized company could give HP a real run for their money.

And all the extra people could be given a clear transition path to become entreprenuers or VARs networked with PSP's or MPS. Everyone could make a nice living without having to worry about the latest bet on Wall Street.

Plus they could use the Fuji Xerox model and stay way from "Wall Street," so they could focus on making money instead of managing the blablabla.

According to Schwab, as of today, the Xerox Market Cap is $4.1 Billion, with 86% of the shares held by institutional investors. If, as expected, the United States Federal Government fixes the accessibility and cost of health care, the whole transition could be a win-win-win.

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