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The Second Time Around
Hanan Sher
Benny Landa's beard is a little grayer than it was in the mid-1990s � back when he was a superstar in the local business media, the speaker everyone came to hear on the high-tech conference circuit. In those days, Canadian-born Landa was on a roll: Indigo, the company he founded in 1976, had launched a machine that seemed destined to revolutionize the printing industry, and had become the first Israeli tech firm to reach a valuation of $1 billion, based on the price of its shares on NASDAQ. Even George Soros, the Hungarian-born financial wizard, bought Indigo shares.
The roll ended abruptly in 1995, when the orders for Indigo's revolutionary digital printing presses stopped coming in and its stock price � which once had pushed the total value of all shares to a stratospheric $3.5 billion � crashed. Landa slipped out of the public eye.
Now he's popped back into view, with the announcement that computer giant Hewlett-Packard, which already owns 13.4 percent of Indigo's shares, is paying $882 million for the rest. Indigo will become HP's digital printing division, and remain in Israel, under the terms of a deal that culminates a recovery process which has included years of agonizing self-appraisal. Indigo went back to basics to fix a product Landa admits was launched too early. What's more, the firm was forced to develop not only a marketing strategy for its wondrous printing machines, whose prices begin at several hundred thousand dollars, but the market for them as well.
The comeback, clearly, caps the story of a product that came out before the world was ready for it. Before 1993, when Indigo's first E-Press machine hit the market, nobody had heard of its digital technology, which combines the quality of mass-production professional offset printing with the capacity to tailor-make each copy of a brochure or magazine for an individual user; that kind of personalized production had always been too slow and too expensive � changing even one letter on a page of conventional printing involves stopping the press and changing the metal printing surface that transfers ink images to paper. Because its printing surface is digital, Indigo's machine could do the same job instantly, changing images with each impression without ever stopping the press.
That offered endless possibilities. Bloomingdale's, for example, could stop sending the same 200-page catalogue to all its preferred customers, replacing them with, say, 8-page brochures of products the specific customer might want. The printed material addressed to Mr. Cohen could offer him a pearl necklace for his wife's birthday, coming up in three weeks, to match the earrings he got her last year � and at the same time suggest an appropriate present for his nephew's bar mitzvah next month.
But no matter how good the technology was, the commercial printing companies which were the natural purchasers of Indigo's machine were not equipped to sell it to their customers, the corporations who lay out most of the $400 billion a year spent on commercial printing worldwide.
"Commercial printing for hire is a mom-and-pop business, made up of 400,000 small family companies," explains Landa, now in his early 50s, wearing black jeans and a short-sleeved shirt as he sits in his modest office at Indigo's HQ near Rehovot. "Most of them are used to having customers knock on the door with a print job, and didn't even have a sales force. The imaginative ones thought our machine was the future, but their customers did not bang on the door saying "Give me digital printing."
The lack of demand from end-users was only the start of Indigo's troubles. There were problems with the costly machines, which cost several hundred thousand dollars each, particularly when the quality of the color reproduction didn't quite match up to conventional offset printing. "We did not have a lot of experience to realize how reliable the product was, or wasn't," shrugs Landa. "You can identify reliability after many millions of pages printed on machines. Our test data suggested that the product was reliable enough. It wasn't."
The drop in sales signaled that something was wrong. Landa and his staff were stunned. "We thought we were the best in everything, that we knew better than everyone else, that we could create a revolution by ourselves and lead the world," says Landa. "But our total conviction was shaken: If everything was so great, why didn't things happen as they should?"
It's unusual to hear any CEO � much less an Israeli CEO � own up to that kind of hubris. But Landa doesn't stop. "I was a big part of the problem, because I led the company. And the company was arrogant because I was arrogant," he admits.
Indigo needed more than a quick fix. "We had to do a lot of engineering to develop the product, we had to create end-user awareness and we had to build applications to help our customers develop business," he says. "And to fix all three meant we had to go back to the basement, to fundamentals, which would take two or three years and a lot more money. So we radically revised our business plan," he recalls. "Before that, we were the great inventor who could do it by ourselves," Landa says. With the help of former PR firm owner Mimi Sela, taken on as vice president for strategic alliances, "we realized that as an Israel-based company we needed strategic partners."
Reinventing the company and its product took time and money, and Indigo had some of both. There were substantial revenues from licensing special ink technology used by virtually all the major makers of office printers and copiers, a business it had developed in the 16 years before it got into digital printing. Indigo also raised $100 million in a private stock placement, and built alliances with leaders in the copying and office-printer industry like A. B. Dick and HP.
The time and money was used to create 90 improvements in the basic technology of digital presses, which come in various configurations and sizes, the software that runs them and the materials it uses in the printing process. And then it installed the changes for the hundreds of customers who had already bought Indigo machines. "We progressively brought them up to a level of performance and quality where they stopped struggling, and became profitable. It was a turning point," says Landa, his voice reflecting the confidence he must have felt.
Sales and revenues started to rise about two years ago, and have kept on rising steadily. In the first half of 2001, for example, they equalled $90.7 million, up from $76.7 million in January-June 2000. And even though the company hasn't turned a consistent profit, Landa sounds buoyant in predicting that digital printing � which currently accounts for only 2 percent of commercial printing's $400 billion annual turnover � will eventually replace most "dumb" printing, the endless duplication of the same set of images. Why else, he says, would such big names as Xerox, Heidelberg and Afga have entered the digital printing business with products of their own.
He makes his case forcefully. "Virtually all commercial printing is marketing communications, bought by big corporations to reach their real or potential customers," he says. "And if once upon a time customers were anonymous, today marketers know a great deal about them, from customer profiling and credit card data."
One of the most effective ways of using that accumulated data is in targeted mailings � which on occasion have been designed to resemble wedding invitations, for example. These are much less likely to go straight into the trash than old-fashioned direct mail ads. "The return rate on 'dumb' mail is typically 1 percent," says Landa. "It's 8 to 20 percent on targeted mailings. And that's a fantastic difference."
At a recent seminar run by Seybold Report, a mass marketer described the effectiveness of one targeted marketing promotion: "The average order value from someone who brought in one of these cards they stuck in the mailbox was $254. If you take an 8-percent return rate, that's $21 of revenue for every one of those cards they stuck in the mailbox. Take a stack of 1,000 of these that came off the press, and there's $21,000 of revenue."
It's that kind of return, Landa says, that has caused some e-commerce companies to set up Indigo machines in their warehouses. "So if you order a gift from Harry and David, the gourmet food firm, you can also order a personalized greeting card printed on the spot and inserted in the package. Even if it's ordered on the Internet, it's extremely personal � and it's from you," he elaborates.
As Landa spins it, the Hewlett-Packard sale isn't about money, even though quite a lot of it was involved (the Landa family holdings alone will be worth about $500 million in HP shares). Indigo realized that there was no advantage in going it alone. (Perhaps that realization dawned rather too late for the people who had bought in when Indigo was selling at $60-plus a share in 1995; the price, which fell to a low of $1.75 in 1997, was back up to $6 in early October 2001.) It also came to a belated understanding of the limit-ations of being an unknown in a market that, because of its size, inevitably would attract big-name competitors � where having the best product might not be enough.
"If print service providers are about to spend hundreds of thousands of dollars on a machine from a small foreign company, they're bound to ask themselves, why shouldn't we just buy from someone we know, like Xerox or Heidelberg," says Landa. "And even if it may be an inferior product with a household brand name," he adds, "they may not make the right decision."
HP, he asserts, was an ideal match, both because of its expertise with copying machines and laser and ink-jet printers (a business he says is worth $20 billion a year) and because of its access to the higher levels of corporate customers. "Today a big company's marketing department decides it wants 10,000 brochures, so it goes to the purchasing department, which tries to get the lowest bid for the job. It's a simple mechanical process, and if the commercial print shop suggests that they use digital printing, they're simply not interested," explains Landa. "Commercial printers don't have access to marketing departments, which could make the decision for digital targeted printing."
Indigo's acquisition by HP, with a sales force of 30,000, makes things very different. HP can get straight to the real end-user, the top executives who decide on the purchase of big-ticket items, including the computer systems sold by HP and Compac, which HP recently acquired. "Until now we have been in a 'push' mode, selling machines to customers who try and convince corporate end-users about the power of digital printing," says Landa. Now the process is reversed � HP can recommend the services of print shops using machines from its new Indigo division in the executive suites, as a logical extension of the HP or Compac systems that are already in place.
"Corporations are already used to buying HP gear," confirms Seybold Report, in an analysis of the deal. "HP's products in the high-end server and storage markets already utilize a dedicated sales force that calls on many of the right companies."
More than anything else,though, HP is a brand everyone knows. In the mid-90s, Landa recalls that Xeicon, a spin-off of the Agfa film company, produced a digital printing machine he calls "a souped-up copier," using powder toner rather than printing ink. Xeicon marketed through companies like IBM, Xerox and Agfa itself, "and you could not have more marquee names than those," says Landa. "And even though their product was far inferior, in 1995-97 they sold more machines than we did, and three years ago had a 65 percent market share."
Even before the HP deal, Indigo had gradually increased its market share with its improved product and other services, to what Landa claims is 75 percent. And Landa insists that Indigo will maintain that edge, though there will be more brand-name competition in the near future � Xerox has announced its DCP and NewSprint lines, which it will begin delivering late next year, and Heidelberg, a German-based multinational maker of conventional printing presses, with 400,000 of its units operational around the world, has just started to sell a new digital press called NexPress. "We can go at higher speeds, give higher quality and lower cost per page than the others," Landa insists.
Competition, though, is almost certain to enlarge the digital market � which today accounts for only 2 percent of all commercial printing. Eventually, Landa argues with the conviction of a prophet, all printing will be digital. "There's not a printed product that won't benefit from being digital," he says � including magazines. Instead of printing 1 million copies at two locations in the United States, for example, "Business Week can print 5,000 copies at 200 different locations. Look at all the costs you save, in shipping via airplanes and trucks, burning all that diesel fuel. It's ridiculous."
As Landa puts it, his choice was between keeping Indigo independent as the leader in a niche market, or seeking to "win big, to go for the gold." But even now, when Indigo is no longer Landa's company and when he's moved upstairs from Indigo's CEO to become a special adviser to HP chairperson and CEO Carly Fiorina, he still sounds like he's itching to take the front line role. "I always envisioned that Indigo would lead the printing revolution, and I would lead Indigo into the digital era," he says. "It's happening now."
(November 5, 2001)
Business
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