by Charles Brewer, Lyra Research
In this short excerpt from an essential, one-of-a-kind report into the imaging supplies industry, Lyra Research reveals all there is to know about the ink jet market.
Ink jet OEMs have introduced a wide variety of cartridge designs to better meet the requirements of their increasingly complex ink jet machines. As noted in the hardware section, there are ink jet cartridges with print heads built into the cartridge and simpler ink tanks that feed print heads designed to permanently reside in the printer. Some cartridges contain one ink, while others are designed to supply the printer with several inks. Cartridges are further segmented by the amount of ink they contain, the number of pages they can print, and their purchase price. Just as there is wide variety in cartridge designs, there is a range of companies selling supplies for ink jet printers. Printer manufacturers and third-party supplies vendors compete fiercely for the market for ink jet cartridges, which is forecast to exceed $32.6 billion in 2011.
There are many different inks available for general purpose printing, office applications and photo finishing. Most OEMs now offer dye-based and pigmented inks. The black inks in most ink jet machines are usually a pigmented ink. The cyan, magenta and yellow inks typically found in lower-end units are dye-based, but OEMs have increasingly deployed pigmented colour inks in their higher-end machines, especially those targeted at serious photographers. The number of inks has also been expanded beyond the traditional CMYK (cyan, magenta, yellow and black) pallet to include lighter shades of greys, light magentas and light cyans for enhanced photo printing. Some ink jet devices use ink sets with as many as 12 colours including several shades of black along with green, red and other colours to provide the widest possible colour gamut.
A look ahead
Like the market for ink jet hardware, the market for ink cartridges is mature. Total worldwide revenue from the sale of ink tanks and integrated cartridges will be relatively flat from 2006 to 2011, growing at a compound annual rate of 1 percent (see Figure 1). Worldwide ink jet cartridge revenue is forecast to grow from about $30.8 billion in 2006 to $32.6 billion in 2011. Sales of cartridges with black ink will grow only modestly from $14.5 billion to $14.7 billion between 2006 and 2011, which represents a CAGR of less than 1 percent. The increased popularity of printers and all-in-one devices that use inexpensive individual ink tanks is fuelling sales of these SKUs. Worldwide revenue from individual colour tanks will grow at a rate of about 10 percent and increase from $4.4 billion in 2006 to $7.0 billion in 2011. Sales of tri-colour cartridges with cyan, magenta and yellow, the typical colour ink set for most digital prints, will decline as individual tanks grow in popularity. Revenue from tri-colour SKUs will fall from $11.9 billion in 2006 to $10.9 billion in 2011, which represents a CAGR of about -2 percent.
The chemistry used in today’s ink formulations is complex. For many years, most ink jet printers used dye-based ink sets but a shift is underway toward pigmented inks. In general, pigment-based inks are smear-proof and lightfast while dye-based inks are capable of slightly larger colour gamuts. Dyes, at the molecular level, are much smaller than pigments and can be formulated to bind with components in an ink solution. Dyes are not very resilient, however. Pigments, on the other hand, are tiny colourant particles dispersed and suspended in an ink solution that can stand up to more punishment. Pigment particles can clump together, or agglomerate, which can lead to clogged nozzles and feed lines. Pigments also have had a bad habit of falling out of solution and collecting at the bottom of a cartridge.
Inks continue to evolve
In addition to smearing easily and not being stable when exposed to light over a prolonged period, black dye-based inks lack sufficient optical density for most text output. Moreover, dye inks have tended to bleed into the substrate so edge acuity was an issue especially for text and lines. Because text printing is critical to most business applications, printer manufacturers began developing black pigment-based inks beginning in the 1990s in hopes of making ink jet technology more suitable for office users. While dye inks are still used for cyan, magenta, yellow and other colours, nowadays most ink jet units use pigment-based black ink.
Pigment-based colour inks are relative newcomers to the scene. Epson was one of the first to release pigment-based colour inks with the launch of the DuraBrite line in the Epson Stylus C80 in 2001. The firm solved the clogging problem by encapsulating the pigments with a polymer. The next year, Epson added a second brand of pigmented inks with the introduction of the UltraChrome line in the Stylus Photo 2200. The UltraChrome line featured an expanded ink set with light black, light cyan and light magenta as well as pigmented CMYK. Epson has since reformulated the DuraBrite and UltraChrome families several times, and there are currently a number of desktop and wide-format printers that use these ink sets.
Most printer manufacturers now offer pigment-based colour inks. Pigment particles are now designed to prevent agglomeration and to be more suitable for photo printing. These inks are becoming so popular, in fact, that the majority of photo media currently on the market has been re-engineered with coatings to better accommodate pigmented inks as well as dye-based ink sets.
In 2006, Canon’s Lucia line of pigmented inks debuted in two of the firm’s higher-end photo devices. The 17-inch-wide imagePROGRAF iPF5000 uses a dozen Lucia-branded PFI-110 ink tanks and the imagePROGRAF iPF9500 is a super-B-sized printer with ten PGI-9 tanks, which carry the Lucia brand. Hewlett-Packard (HP) added pigmented inks to its Vivera ink family with the launch of the super-B-sized Photosmart Pro B9180, which uses the HP 38 tanks featuring CMY inks, light magenta, light cyan and three shades of black ink. Canon and HP had only offered black pigmented inks in their respective desktop ink jet machines prior to the release these larger-format printers. Lexmark expanded its Evercolor ink line to include pigmented inks under the Evercolor 2 brand, which debuted in late 2006 with the introduction of several different units including the P350 portable snapshot printer and the X9350 all-in-one device.
Kodak’s new all-in-one units employ a unique pigmented ink set. The firm’s new EasyShare machines employ one Kodak 10 tank with black ink and the Kodak 10 colour tank contains CMY and photo black inks along with a clear, water-soluble, polyurethane-based "ink" that accelerates drying, optimises gloss and protects the printed image. The pigments in the black and colour inks are promoted as having some the smallest particle sizes in the industry. Kodak said that it uses a patented toner-grinding process to make 10-nanometer pigment particles. The Kodak 10 tanks are also unique because the firm has said it will only use these cartridges in future machines so that consumers are not confused when they need to find replacement cartridges.
One should not think that the flood of pigmented inks signals the end to dye inks. Most desktop ink jet machines, with the exception of units from Epson, Kodak and Lexmark, are based exclusively on dye-based colour ink sets along with a pigmented black ink. Dye-based HP Vivera inks are available in a variety of colours and in various SKUs including the HP 02 and 88 tanks and integrated cartridges such as the HP 90 series and the new HP 74 and 75. In 2006, Brother released its Innobella line of inks in its LC-51 tanks, which includes dye-based CMY cartridges and a pigmented black tank. Canon refreshed its dye-based inks sets several years ago with the introduction of the ChromaLife100 brand of inks. They are featured in a number of Canon tanks and cartridges including the CLI-8, CL-41 and CL-51 SKUs. These dye-based inks are paired with pigmented ink in the PGI-5, PG-40 and PG-50 SKUs. After being a pigment pioneer, even Epson released a line of dye-based inks under the Claria brand. The new ink made its debut in the Epson 77 and 78 ink tanks used first by the Epson Stylus Photo R260, R380 and RX580. These SKUs are individual ink tanks that feature the cyan, magenta, yellow, light magenta, light cyan and black dye-based Claria inks.
As inks have evolved, the cartridges themselves have also become increasingly complex. Most ink cartridges these days contain electronic chips that communicate with the printer. When installed in the printer, the chip communicates the identity of the cartridge, making it impossible to install the wrong cartridge. The chip also tracks ink usage, enabling the printer to warn the user when ink is low.
Such chips have become the curse of the refilling and compatible industry. Third-party companies have developed ways to reset most of the chips, but full functionality is lost in many cases. This can result in serious problems with some printers that feature cartridges that monitor the device. For example, some chip sets insure that a print head is being supplied with a sufficient quantity of ink. This is a critical function because running a print head out of ink can quickly burn out thermal print heads and cause clogs in piezo-electric print heads.
Many firms including Canon, Epson, HP and Lexmark have enhanced the performance and complexity of their ink cartridge chips. Some of Canon’s latest ink jet cartridges sport chip sets that have so far proven impossible for third-party supplies firms to reset or emulate. The CLI-8 and PGI-5 tanks noted earlier feature ASIC chips based on 120-bit encryption that has stymied all efforts to reverse-engineer it. Third-party supplies vendors have not been able to cut this Gordian knot and market fully functional alternative tanks for Canon units that employ the CLI-8 and PGI-5. There have been various third-party products to refill these tanks as well as several compatible tanks that require end-users to harvest the original chips from the spent OEM cartridge. These products have met with limited market acceptance, which has allowed Canon to retain the vast majority of the market share for the CLI-8 and PGI-5.
More sophisticated marketing
As ink jet cartridges and inks have become more sophisticated, so have printer vendors’ marketing messages about these products. As noted above, the roster of OEMs that are branding their inks includes Brother (Innobella), Canon (ChromaLife100 and Lucia), Epson (Claria, DuraBrite and UltraChrome), HP (Vivera) and Lexmark (Evercolor and Evercolor 2). Manufacturers claim that branded inks are part of an overall "printing system" that includes the hardware, media and ink. When used together, these systems provide superior performance. Branded inks, for example, will last an extended number of years when printed on a like-branded photo paper with a specific printer. By branding their inks and providing test data, the manufacturers are able to create brand equity that rationalises their inks as superior to third-party inks.
Another ink cartridge marketing practice is producing printers that can accept dual-yield cartridges. For example, HP released a new set of integrated cartridges with the launch of the HP Officejet J5700 in 2007. The cartridges include the HP 74 black cartridge and HP 75 tri-colour SKU along with the HP 74 XL and HP 75 XL cartridges, which contain more ink and have greater page yields. The standard HP 74 and 75 have lower purchase prices, making them more attractive to consumers who are concerned about what they must pay at the cash register. The XL versions of the cartridges, conversely, cost more but provide lower per-page costs. Going forward, HP has said it will offer all new cartridges in standard- and high-yield sizes. Other vendors including Canon, Epson and Lexmark are all marketing high- and standard-yield SKUs. The high-capacity cartridges from most manufacturers generally contain twice the ink as the standard cartridges, but cost just 25 to 50 percent more.
OEMs have demonstrated willingness of late to compete on price. The price of ink cartridges used in desktop ink jet printers has been declining over the past few years. Figure 2 shows the dropping price points of various HP cartridge SKUs released since 1990. The same trend can be seen with other printer manufacturers’ ink cartridges. However, while the initial purchase prices of ink cartridges are trending down, there has been no discernible downward trend in cost per page. Figure 3 shows the cost per page of HP black, standard-yield cartridges released since 1990. As can be seen, the trend line goes from about four cents per page in 1990 to more than five cents per page in 2007. This is because of the large numbers of very low-end printers that manufacturers have launched.
One of the printer manufacturers making a lot of noise about the cost of printing these days is Kodak. The legendary cameramaker, as noted earlier, introduced its desktop ink jet all-in-ones with the promise it would interrupt the industry and the way it does business. One way the firm will accomplish this is by selling its Kodak 10 black cartridges for $9.99 and its colour cartridges for $14.99. At these prices, Kodak claims consumers can print black-and-white documents for three cents per page and 4×6-inch snapshots for as low as 14 cents. These prices are among the lowest in the industry. Moreover, Kodak has telegraphed this message near and far, making consumers keenly aware that such low costs are achievable. The firm faces many challenges if it is to be successful in such a mature market. If it is, however, it is a sure bet that Kodak’s low-priced consumables strategy will play a large role in its success and that other OEMs will be forced to follow suit or lose share to Kodak.
Third-parties come on strong
Although the printer manufacturers have placed large obstacles in front of them, third-party companies, collectively known as the aftermarket, have been able to ship more products every year. Sophisticated chip sets, high-tech ink formulations and daunting OEM patent portfolios have only served to slow down the aftermarket but not stop its relentless pursuit of the consumables market. Within months of the release of a new cartridge, aftermarket companies are able to develop methods to remanufacture, refill, or clone the OEMs’ products. Collectively, third-party companies often have double-digit market shares within a year or two of new cartridges being introduced to the market. Recently, however, the chips have become more difficult to reset or clone, and OEMs have become more vigilant to any violation of their patents on cartridges and inks.
Decline in aftermarket share
The aftermarket currently has close to an 18 percent share of the worldwide ink cartridge market in terms of revenue. However, Lyra forecasts that share will decline to just under 16.5 percent by 2011 (see Figure 4) due to barriers such as chips and lawsuits, the OEMs’ stepped-up marketing efforts and willingness by OEMs to compete on price. It should be noted that this is the first time that Lyra has ever forecast that third-party ink jet supplies vendors will lose share. In a $31.6 billion worldwide market, however, 17 or 18 percent remains a significant piece of the pie.
When one looks at the market in terms of units, the aftermarket share approaches 30 percent. This is due to the fact that the aftermarket sells its products at a significant discount to OEM prices. There are many reasons for the relatively large share held by the aftermarket. Consumer dissatisfaction with the high prices and low yields of OEM ink cartridges is one reason. Another is the rapid growth of the office superstore and mass-merchant channels. Many of these channels carry aftermarket brands as well as store brands that are made for them by aftermarket companies. Moreover, retail refill shops have been expanding rapidly in the past few years and all of these factors have combined to increase consumer awareness of alternatives.
One of the most significant factors inhibiting third-party companies is the steep increase in lawsuits filed by printer manufacturers alleging patent infringement on the part of various third-party supplies firms. OEMs such as Canon, Epson, HP, Lexmark and Xerox have filed complaints in courts around the world claiming that their intellectual property has been violated, and most have won their suits. In 2006, Epson filed complaints with the US International Trade Commission (ITC) against more than 25 manufacturers and resellers of compatible Epson cartridges. In 2007, the ITC ruled in Epson’s favour and issued an injunction prohibiting third-party companies from importing compatible Epson cartridges into the US. Courts in Europe have also ruled against Epson compatible makers and forced them to stop selling their products in the UK, Germany and other markets. HP and Canon have conducted successful legal battles over the past two years in both Europe and the US.
The lawsuits have been good news for retail cartridge-refilling operations. The industry has grown throughout the decade and has seen rapid growth over the past two or three years. Many of these operations, including Cartridge World, Cartridge Depot, Refill Ink and Rapid Refill Ink, are franchised. Historically, the widespread availability of Epson and Canon compatibles reduced consumer demand for refilled Epson and Canon ink tanks. It was cheaper to sell compatibles to consumers than to refill these tanks. Now that the compatibles industry is slowing down, the refillers are beginning to see more than HP, Lexmark and Dell integrated cartridges. Lyra sees the refill industry as a bright spot in the aftermarket industry as a whole.
This feature is taken from the 2008 Imaging Supplies Outlook, a joint publication by imaging industry experts Lyra Research and OPI. If you did not receive your copy with this month’s OPI magazine then please contact email@example.com