Large firms dominate printer supply arena

Hewlett Packard

Smaller manufacturers of printer supplies trying to break into the federal market have had limited success when competing with bigger, more established companies, such as Hewlett-Packard.

Although the government spends approximately $2 billion a year on printer supplies — with laser and inkjet cartridges accounting for the second largest amount of money, next to paper — only a few developers have emerged as major suppliers of the government.

Government reseller CDW Government (CDW-G) Inc., for instance, has contracts with 25 to 27 printer supply vendors. Yet more than 50 percent of their federal clients buy printer cartridges from HP, according to Todd Jung, category manager for peripheral management at CDW-G. Lexmark International Inc., Xerox Corp. and Canon Inc. are the next most popular sellers, but there are few others who come close to matching the sales of these big names, Jung added.

"Some customers have tried other brands, but they usually stick with the OEM," he said. "Mostly it's just that they think cartridges are built to be compatible with the printer brands. Or, if something went wrong with the replacement cartridge, there is no warranty to cover it."

HP controls a little more than half of the printer market in the United States, and the company's printer supplies also dominate the market.

Pradeep Jotwani, senior vice president of HP Supplies, says the company's continual success is a result of its reputation for having quality printers.

"People are buying printers because they want good output, and they want it reliably," Jotwani said.

Part of keeping up a printer's quality involves maintaining it with the proper materials. "We have to develop a printer and its supplies to work together," he said. "All toner is not created equal." HP organically grows toner, he added.

Jotwani added that HP "ink is just not any ink" and the company ensures that its ink will work through high temperatures and the printing process and archive well. "People buy our cartridges because they get better imaging print quality that lasts longer than if they used cartridges that weren't designed for our printers."

Smaller supply manufacturers, however, claim they make cartridges that rival HP's quality, are compatible with HP printers and are less expensive.

International Laser Group (ILG) is a Woodland Hills, Calif.-based manufacturer that has made inkjet cartridges since 1989. The company guarantees that its cartridges will work as well as or better than those of any other brand.

The company has experienced "tremendous growth year after year," according to Gary Michaels, chief executive officer at ILG. Michaels credited the company's success to the fact that in 14 years it has had only a 15 percent employee turnover rate in its manufacturing division.

"I've tried very, very hard to build a company of 200-plus independent- minded decision-makers," Michaels said.

ILG has a General Services Administration schedule contract and government customers that include the White House, he said. Company officials boast of having only a 2 percent customer turnover rate.

So why haven't companies such as ILG matched the sales numbers of larger companies such as HP?

"Many of the companies are small [and are] often local rather than regional or national, and not strategic in their business development," said Jennifer Thorwart, a research analyst at IDC, an information technology consulting firm. Thorwart added, however, that superstores such as Staples Inc. are now branding third-party-compatible cartridges at prices about 12 percent lower than those of larger manufacturers.

She also said that not all compatibles are alike. "Either quality deteriorates as cartridge capacity gets lower, or they don't last as many pages."

Jung said small manufacturers will continue to have a hard time entering the supplies market.

"It's going to be harder and harder for third parties to compete because they don't have the new technology," he said. "The bigger names are beginning to build the technology specifically into the cartridge. For example, some cartridges have a certain technology that sends out an e-mail to the user saying, 'I'm low. Get a new one of me.' They're building these features and smaller companies just won't be able to keep up."