SCANNERS: Warming Up ... Slowly

Despite recording17
percent growth in unit terms in 2001-02, the scanner market is yet to show
signs of maturity. While schemes are largely pushing sales, technical
issues with products continue. With MFDs also gaining popularity, vendors
and channels have to do that extra bit to ensure sunnier days ahead.

Fiscal 2002 was a year of sporadic buying for scanners, reflecting the
overall market sentiment. There was positive growth in 2001-02 with 1,20,000
units sold as against 1,02,564 units in 2000-01, making it a 17 percent jump.

The first three quarters were rather glum, posting a stagnant demand, while
the JFM quarter was the saving grace, pushing up demand with some e-governance
projects commissioned in OND quarter. "We have recorded sales of 3,000
entry-level units of scanners, of which 900 were installed on behalf of
government of Maharashtra," says Sanjay Agarwal, Product Manager, Rashi
Peripherals. The market also grew due to some increased home-segment buying.

The year 2001-02 also observed fierce competition between four major players:
HP, Umax, Benq, and Canon. As a result, entry-level scanner prices continuously
fell throughout the year. Starting from Rs 5,000-plus in the beginning of the
fiscal, the entry-level prices stabilized at about Rs 3,400 towards the end of
the year. According to IDC India, HP and Cannon gained marketshare at the cost
of Umax and Benq.

SCANNING THE MARKET

The fiscal 2001-02 saw HP controlling 41.3 percent market share, Umax at
23.4 percent and Benq at 21.2 percent (Source: IDC). Umax, the erstwhile leader
in scanners, lost its sheen last fiscal. Says Sanjay Varmani of Delhi-based
Groovy Communications, "In the entry level market, HP is a strong player
with about 55 percent market share, Umax is next with 25-30 percent."

According to market sources, the decline in Umax sales could be attributed to
the high failure rates of its products. When Umax started business in India in
1996, its marketshare was just around 20 percent while HP enjoyed a major chunk
of the pie with a share of 70 to 80 percent. By 1997-98, Umax took the lead
gaining over 50 percent marketshare.

But during 1999-2000, its share dropped to 40 percent with many competing
products coming in. "Last year our marketshare dropped further because of
some technical problem with one of our models (2000P)," says George Tsai,
Assistant VP, Sales Division, Umax Data Systems.

Umax also broke off ties with its Delhi-based distributor Summit Infotech and
consolidated relationship with Neoteric Infomatique, now its sole national
distributor. However, the confusion created by the whole episode affected Umax’s
performance. Umax now plans to introduce improved scanner models to solve the
technical problems of earlier models. It is targeting a marketshare of 30 to 35
percent for the current fiscal. "Players like Canon and HP are getting very
aggressive in this business and so even if we manage around 35 percent this year
it would be pretty good," says George.

Market sources attribute the drop in Umax’s marketshare also to its unclear
warranty policies. "Summit got out of business and customers were not too
satisfied with Neoteric’s service offerings," points out Ramesh Jain of
Marks Marketing.

Last fiscal also saw Rashi Peripherals, the erstwhile distributor of Acer
Peripherals (now Benq), starting Microtek scanner business. "After taking
over as national and exclusive distributor for Microtek we actually realized the
potential in the scanner market in India," says Sanjay.

Despite
being a late entrant (Canon also entered the market late), Benq managed to
establish itself well in the market. It claims to have successfully helped in
the transition of the market from parallel port-based scanners to USB port-based
ones. "We have also been instrumental in introducing the 600 dpi scanners
in the country," informs Tashi Gelek, MD, Benq India.

HIGH DEMAND FROM SMALL BUSINESS

Vendors pro-actively started offering schemes that attracted end-users.
According to IDC, small offices and businesses contributed 50 percent of scanner
sales while the home segment resulted in 24 percent sales. 17 percent came in
from large and medium organizations with Government and research organizations
accounting for nine percent of the total scanner sales.

Says Nilesh Zaveri of Mumbai-based Apex Enterprises, "We sold 450
scanners in 2001-02, which is a growth of approximately 20 percent from the
previous year."

As compared to the earlier fiscal, the share of the home segment in
particular moved up. Sales figures got rolling in JFM quarter as vendors
targeted this segment aggressively through advertising campaigns and bundling
schemes.

In the large enterprise segment, the demand at best was steady while the
Government buying was sporadic. In terms of geography, non-metros showed an
inclination towards low-end products. The percentage of non-metros progressively
moved up throughout the fiscal and they finished the year 2001-02 absorbing over
45 percent of the total units sold.

SCHEMES DRIVE SALES

The tools that are currently used by majority of the vendors to accelerate
scanner sales are schemes/promotional programs focused on channels and
end-users. To increase end-user buying Microtek has rolled out two schemes.
First is for channel partners and is called "Dubai Dekho". "We
have given a very reasonable target to our authorized Rashi partners (ARPs) from
May to October 2002," comments Sanjay. For instance, for ARPs in B and
C-class cities the target is only 100 plus scanners to be sold over five months.
Against this Rashi plans to take top performers to Dubai from 13th October
onwards and certify the qualifying partners as MISP (Microtek imaging solution
provider).

According to Sanjay, this certification program is specially organized in
association with Microtek’s Singapore and the US divisions. Apart from this,
ARPs will also be visiting GITEX 2002, one of world’s largest IT exhibition.
Sanjay believes that apart from giving ARPs the direct recognition from Microtek,
this scheme would also act as a morale booster. "I don’t think anybody
has ever come out with an offer with such low monthly targets," he points
out.

The second scheme that is currently available on Microtek scanners is for
end-users. Rashi is giving a scratch card on the purchase of entry-level models.
The scratch card entitles buyers to a gift coupon offering gifts like Microtek
digital cameras, wrist watches, coffee mugs and T-shirts. "To attract more
customers we have kept the winning possibility of cameras and wrist watches very
high," adds Sanjay. According to him, one out of every 12 scanners will
carry a digital camera and three out of every 11 scanners will carry wrist
watches. According to Rashi, the scheme was started in May 2002 and since then
more than 100 cameras have been won by users.

Not to be left behind, Benq’s first promotional scheme offered gifts along
with the scanner; and the second promotion that is running currently gives away
a walkman free. "Our promotions like other vendors too will be an attempt
towards wooing the end-consumer. We will continue our promotions and at the same
time project our scanners as a value for money proposition," says Tashi.

To promote the Umax range of scanners, Neoteric, on the other hand has been
regular with its schemes for channels where they reward performing partners.
Recently, Neoteric has appointed 160 star partners and 50 power partners across
the country to sell Umax products. In its latest offer to the partners, Neoteric
has provided an option where they are given free demo of the products.

ON
ITS WAY TO MATURITY

Despite vendors putting such efforts, the scanner market needs to get more
mature as there are not many imaging requirements being generated currently.
Applications, lifestyles as well as corporate culture need to change
significantly for the market to really grow.

The trends which will fuel growth include a shift from parallel to USB
connectivity and an increase in Internet usage. Along with higher resolution,
48-bit color depth features like ‘Scan to e-mail’ and ‘Scan to web’ are
driving the demand.

Also marketing initiatives that are focused on educating users could act as
drivers to increase the utility of scanners to mainstream buyers, where the
latent demand may be huge. Vendors should also educate users about scanner
features and project price points as their USP in the market.

TECHNOLOGY TRENDS

One of the significant developments was HP’s transition from parallel-port
to USB-port technology in the second quarter of fiscal 2001-02. This also saw
other players catching-up with this new trend and introducing USB port-based
scanners. Gradually all vendors are expected to completely drop the old parallel
port technology by the end of the calendar year 2002.

Benq claims to be building up on its strengths in the 600 dpi segment and is
hoping to make a transition to 1200 dpi products soon. "We have emerged as
trend setters in this market and will continue to do so, with our range of new
scanners slated for launch in the coming months," says Tashi.

Another trend noticed last fiscal was a clear move towards ultra sleek (six
to eight inches in thickness) models in the lower and mid-range scanners.
Vendors also introduced models that do not require separate power-supply cables,
further making the product attractive for home and SOHO customers.

TACKLING TROUBLES

Scanners are not spared from its share of problems too. Typical problems
that it faces are that of lamps going bad or dust accumulating on the lens or
mirrors. However, vendors attribute these problems to the usage and to some
extent to the regional environment as well.

If a user has brought an entry-level model and if it is over-used like a
professional model, then the chances of bad performance increase. Some vendors
have even attributed the high dust content in the air as one of the reasons
behind scanners not giving optimum performance.

However, vendors assure that they are more than keen to address these issues
by bringing in better products and putting a sound warranty policy in place.

MFDS MAKE A DENT

The emergence of multi-functional devices (MFDs) has made a dent in the
scanner business. Also the popularity of digital cameras in the home segment has
given users an alternative to store photographs digitally. Some believe that
this would have acted as a deterrent to the scanner business, albeit in a small
proportion.

Several channel partners believe that MFDs are slowly making a dent in the
overall scanner sales. Today, an entry-level MFD is available at price point of
about Rs 15,000. On the other hand, the combination of an entry-level printer
and scanner is available in the market for a little under Rs 15,000. This has
attracted several medium to large enterprises and corporates to opt for MFDs
owing to its space-saving advantage.

HP considers MFDs as a growing segment and has plans to promote it along with
its printers and scanners. "There are defined markets for this product
category. There exists up-selling opportunities from printers to multi-function
products for partners," says V krishnan, GM-Marketing, Imaging and Printing
Group, HP India Pvt Ltd.

SCANNERS TO STAY

Despite the growing popularity for MFDs among enterprise and corporate
buyers, the price tag for these products has kept several other buyer segments
like home and SOHO at bay. Beside, in such devices there is always a risk that
if one function goes bad one may not be able to use the remaining functions.

Channels Expectations Programs targeted at end-customers Regular supplies of point-of-sale material and demo stations Brand and image support Training and updation of product knowledge and services Roadshows to educate end-users about scanner features

However the channel is perturbed about the entry of MFDs in the market. Says
Sanjay Varmani, "MFDs are making a dent in the market. An entry level MFD
is in the Rs 15,000 bracket, while a printer and scanner costs Rs 11,000 to
12,000. But the scanner of the MFD is a superior product and if one were to buy
a similarly superior scanner, the combination would just be a little under Rs
15,000."

Adds Nilesh Zaveri, "There’s a price gap between a scanner and MFD.
But in the future, those who want to buy printer and scanner may think of buying
MFD, especially if prices comes down to Rs 8,000 - 10,000." Girish Rathod
of Compex Systems finds MFDs catching on with corporates, but adds that it still
has a long way to go in small business segment.

However, vendors are also quick to add that an MFD trying to do the job of a
scanner will not be up to the mark. They feel that scanners will continue to be
in demand. Affirming this George says, "I don’t think popularity of MFD
will reduce demand for scanners. The SOHO segment can think of going for a MFD
only if the cost comes down appreciably."

Today, the MFD market is at a very nascent stage in the country. In the
present condition, price and technology remain as prohibitive factors. And so,
scanners will still continue to be dominant in the market because of low prices,
at least for the home segment.

As of now, the scanner business is entering a phase of maturity and volumes
are not exactly encouraging. Yet, there is adequate space for companies that can
provide innovative products that are technologically advanced. At the current
operating margins of five to 10 percent, partners too can look at scanners as a
good business proposition.

SUNILA PAUL,
in Bangalore with inputs from
NELSON JOHNY in Mumbai
and MOHIT CHHABRA in New Delhi