Observing
such high prices, Connecticut research consultant Zel Dolinsky wants to
know the reasons for them. "How come, with printer prices falling, ink
prices are still so outrageous?" Dolinsky asks. "I'm appalled."
Ink
jet and toner cartridges are fanning angry sparks in the ink cartridge
replacement market--a $21 billion field, according to Lyra Research.
Consumers
are annoyed at the price of authorized replacement ink cartridges, and
tempted by third-party substitutes that don't always work flawlessly.
The
major vendors, including Canon, Epson, Hewlett-Packard, and Lexmark,
are at odds with independent manufacturers of alternative inks. In fact,
some big vendors are suing third-party makers of cartridge clones for
alleged patent violations. Meanwhile, second-tier ink cartridge makers
say they simply offer consumers a choice--at prices that are sometimes
75 percent below what major vendors charge.
That leaves consumers
in printout purgatory. They must either pony up for name-brand ink, or
risk substandard printouts by buying replacement ink jet cartridges from
a generic distributor. As
PC World has found, however, plenty of
worthy third-party replacement ink jets are also available.
The
big-name vendors say that the third-party ink is inferior to brand-name
versions. And certainly, the brands dominate; together, Canon, Epson,
HP, and Lexmark account for 84 percent of the ink replacement market,
Lyra Research reports.
Recently, the controversy has caught the
attention of overseas regulators. Trustbusters in the United Kingdom and
at the European Union are examining the way Canon, Epson, HP, and
Lexmark price ink and do business. In the United States, at least one
state is attempting to protect consumers' right to purchase third-party
alternative goods.
The Real Cost
The
printer supplies industry has adopted the practice of cell phone and
razor blade sellers: Charge low prices for initial equipment, then make
money from ongoing fees for additional needed components. Vendors sell
consumer printers at cost, or even sometimes at a 20 percent loss, say
financial analysts at Bear Sterns who track Epson and HP. But on the
flip side, both firms earn a 60 percent gross margin on ink jet and
toner cartridges, says Bill Hand, financial analyst with Bear and
Stearns.
Those numbers are not exactly true, the vendors say. HP
does make money on its printer hardware, according to Pradeep Jotwani,
senior vice president of imaging supplies. In a prepared statement,
Epson says that it "makes a reasonable profit on both" printer hardware
and ink.
Still, consumers grouse about the "give away the razor
and sell the blades" business model. Hence, the birth of a market for
recyclers to refill used cartridges, or sell cartridge clones at half
the price of the brand-name items.
Protecting Profits
Not
surprisingly, printer vendors characterize this aftermarket as a
financial threat, Hand says. "It's fair to say at least 80 percent of
overall profits [from within Epson's and HP's printing divisions] come
from supplies," he says.
Lexmark has tried to suppress the makers
of aftermarket cartridges by integrating a microchip, dubbed a "killer
chip," inside its own laser jet toner cartridges. If a Lexmark printer
doesn't spot the Lexmark chip inside a cartridge, the unit won't work.
The only way to reuse the cartridge is by sending it back to Lexmark,
which will refill the empty tank and reset the microchip for another
use.
If you try to refill the Lexmark toner cartridge yourself
with third-party toner, or if you use a compatible cartridge that lacks
the microchip, the printer won't accept it. The microchip and Lexmark
printers have the intelligence to "expire" toner cartridges and use only
Lexmark goods. Critics worry that it's only a matter of time before
Lexmark introduces the chip to its ink jet product family.
Epson
integrates chips to authenticate its cartridges, too, but it takes a
slightly less extreme approach: You can reuse its ink jet cartridges by
refilling them. But a used Epson microchip and cartridge lose some
functions, such as the ability to record ink levels.
Down the Inkwell
Caught in the middle, many consumers remain angry about the high cost of ink.
"I
know they're in the business of making money, but sometimes you can go
too far," Dolinsky says of the recurring ink jet cartridge costs
associated with his $150 HP DeskJet.
Predictably, HP and others
say their cartridge prices aren't high considering the cost of
researching and developing the technology and then manufacturing the
equipment. "These aren't just bottles of ink you put inside of your
printer," Jotwani says.
He points out that HP's ink jet cartridges
are very sophisticated. For example, each has 40 microscopic nozzles
that precisely expel billions of ink dots across a page. HP is also
fastidiously attentive to ink quality, Jotwani says, to assure uniform
viscosity and color.
Calling ink prices high may largely be a
matter of perspective, some analysts say. When printers cost $500, no
one complained about $30 ink jet cartridges, says John Shane, CAP
Ventures analyst. But since 1996, the average cost of a personal ink jet
printer has dropped by 60 percent, according to CAP Ventures, from
approximately $426 to an average of $169 in 2002. Meanwhile, CAP
Ventures also reports, the average price per printed page has risen by
12.5 percent, from 8 cents per page to 9 cents per page, in the same
timeframe.
CAP Ventures says that it doesn't count the cost of the
printer itself in figuring prices per page; it's based largely on the
cost of cartridges. The analysts attribute the higher per-page costs
largely to the fact that the average page printed today contains more
cartridge-draining graphics and images than even a couple years ago.
Ink Angst Goes Global
High ink jet prices among dominant ink manufacturers have caught the attention of U.K. and European Union regulators.
Following
a year-long investigation, a U.K. agency called the Office of Fair
Trade (OFT) has recommended that Canon, Epson, HP, and Lexmark more
clearly tell consumers their likely long-term printing costs. Printer
makers have until October 2003 to better communicate the total cost of
printer ownership, after which they face possible OFT monetary fines.
In
December 2002, the European Union launched a similar investigation. "We
are evaluating barriers to entry into this market, prices, and
contracts that lock businesses into long-term relationships with OEM ink
makers," says Tilman Lueder, European Union spokesperson.
Both
investigations stem from consumer price complaints. Overseas regulators
say that the gripes also came from remanufacturers and generic vendors,
who claim that Epson and Lexmark are making it very hard to make
compatible aftermarket clones.
The Law and Lexmark
Lexmark is challenging the third parties in court. Last December, the printer vendor sued North Carolina-based
Static Control Components, which makes and sells clones of Lexmark's microchips to recyclers.
Lexmark
is accusing Static Control of contravening the
Digital Millennium Copyright Act, which makes it illegal to circumvent any digital technology used by a company to protect its intellectual property.
Many
Lexmark buyers agree to return the cartridges to Lexmark in exchange
for a rebate. This enables Lexmark to limit competition in the
aftermarket, say analysts. A judge in Lexmark's home state of Kentucky
has
ruled in favor of Lexmark; and for now, Static Control is forced to put its microchips on ice.
Consumer Rights Rally
A twist to the Static Control case came on August 7, when North Carolina Governor Mike Easley signed into law
a bill
giving North Carolina residents the right to refill any ink jet or
toner cartridge. The law doesn't directly address Lexmark's DMCA
concerns, but it bolsters buyers' rights.
Under the North Carolina
law, consumers and businesses that have contracts with service agents
can refill or use third-party cartridges despite printer manufacturers'
user agreements requiring consumers to use only the vendors' ink. The
bill does not address warranty issues.
European regulators are
considering a law to ban printer and cartridge manufacturers from using
Lexmark-style "killer" chips that leave expended cartridges unusable.
The EU claims that the use of such chips just loads landfills with empty
cartridges.
Lexmark declined comment for this report. But the
public will likely be hearing a lot more about the cost of printing.
Spending in U.S. retail stores on toner and ink jet cartridges is
forecast to jump 43 percent by 2007, to $26.3 billion, according to Cap
Ventures.
By
Tom Spring,
PCWorld
