THE FUTURE OF VDP Research Reveals Long-Term Outlook for Variable Data Printing Market PAGE 40

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1 FEBRUARY 2013 VOLUME 51, NUMBER 2 Energized Young Professionals Enliven the Print Industry PAGE 24 THE FUTURE OF VDP Research Reveals Long-Term Outlook for Variable Data Printing Market PAGE 40 INKJET INNOVATIONS Installations Pick Up as Technology Advances PAGE 48

2 The Future of Variable Data Printing to 2017 U.K. research firm Smithers Pira s report provides hard numbers on the variable data printing market, focusing on its adoption in eight different market segments. By Heidi Tolliver-Walker All around us, we hear people talking about the opportunity offered by oneto-one (personalized) printing, also called variable data printing (VDP). But what s the real story? Can anyone put hard numbers to the market for these products? Smithers Pira, a market research firm out of the United Kingdom, has attempted to do just that. Its report, The Future of Variable Data Printing to 2017, attempts to put hard numbers where hard numbers can be put. One of the challenges with releasing hard numbers on VDP, however, is that on a digital press, clicks are clicks. In themselves, they don t tell you whether they are variable clicks or static clicks. Any distinction would have to be drawn from elsewhere in the company, and that s rarely if ever done, and certainly not sufficiently to apply hard numbers on a global basis. Therefore, there were two ways that Pira discusses VDP in this report. First is to discuss the total VDP market opportunity, which is the maximum number of pages that potentially could be produced using VDP workflows. To create this estimate, Pira combines its data on 100 percent digital output and digital overprinting to create a max ceiling for VDP output. Second is to discuss the trends in actual VDP jobs (whether for marketing or production) in light of Pira s data for digital only, digital overprinting, electrophotography (for which Pira includes both liquid and dry toner), inkjet and overall printing output.

3 First, we ll look at Pira s global numbers. Then we ll look in more detail at the product categories. Global VDP Market Opportunity Smithers Pira projects the global VDP market opportunity to be 656,756 million sheets in 2012, or 28 percent of total output in the areas covered in the report (which excludes catalogs and packaging). This is forecast to grow to 853,097 million sheets in 2017, or 34 percent of total output in the areas covered in the report. What s particularly interesting about these numbers is that, globally, Pira forecasts traditional print/preprint output to fall at 0.5 percent compound The New Powerhouse: Inkjet In recent years, the most significant technological development impacting VDP has been the emergence of highspeed color inkjet. While Pira forecasts electrophotography to grow at a modest 1.5 percent CAGR during , it forecasts inkjet to grow at the gangbusters rate of 14.2 percent CAGR. In Pira s market segmentation data, even when all other segment growth is negative, inkjet is increasing, often by double digits. And Pira s data is being released before the new generation of high-speed, highannual growth rate (CAGR) by So any rise in VDP market opportunity is not resulting from additional capacity, but coming directly at the expense of traditional offset. Indeed, Pira forecasts the market share for 100 percent digital output to almost double from 8.2 percent to 14.2 percent during the forecast period. While the lion s share of this digital output will be electrophotography, the fastest growth will be coming from inkjet, which Pira forecasts to grow at 14.2 percent CAGR. Largest Volumes and Growth Rates Not surprisingly, Pira found the largest VDP output volumes coming from mature markets such as North America Global VDP Market Opportunity by Sector, 2012 and 2017 and Western Europe, where digital print overall is showing strong growth (especially inkjet). Asia has the secondlargest VDP market opportunity, but this is based not on market conditions but on the extremely high volume of digital pages being produced. The most rapid growth in VDP market opportunity is coming from regions such as Eastern Europe, the Middle East and Latin America. In these regions, overall digital production volumes (sheets) are much lower than in the more mature markets, but Pira sees 20 percent or more annual growth in some of these regions. Based on the rapid adoption of digital, we might be tempted to assume that all of this growth in digital output translates into a similar rapid adoption of VDP jobs, but this may or may not be a valid assumption. Especially in emerging economies, a significant portion of this volume will remain static print, noted the author of the report. In emerging economies, we expect to see growth in VDP in outsourced, financial, and statement printing, as well in manufacturing where serialized tags and labels are a critical part of inventory management and control. In the more mature economies, VDP is also being driven by the ability of datadriven communications to improve ROI in marketing, but in emerging economies where the marketing environment is much less sophisticated (and direct mail is much less prevalent), Pira is forecasting more pragmatic adoption of VDP related to its ability to increase flexibility and efficiency and, in some cases, reduce cost. 42 PRINT SOLUTIONS FEBRUARY 2013 PSDA.ORG

4 resolution inkjet presses have begun to achieve widespread market adoption. Expect the inkjet numbers to soar throughout the next few years. Other technological developments in VDP are related not to production, Pira reported, but to the enabling technologies like web-to-print architectures that put VDP into the hands of nonprofessionals (thereby increasing its reach), as well as software designed to help users aggregate, search, and analyze data more quickly and effectively. Although VDP is a technology-driven process, VDP itself is dependent upon and influenced by human factors such as the ability to develop, manage and search databases; develop multichannel marketing campaigns; and market and sell these applications. Pira s report called this the human factor. This human factor includes the development of compensation structures to support VDP sales efforts and the ability of individuals to prioritize the time, effort and cost associated with transitioning to or developing VDP applications. Within the corporate environment, it also includes the ability and desire to break down traditional walls of corporate culture and reach across departments to develop and coordinate these jobs in other words, easier said than done. Product Sectors for VDP Next, the report looked at VDP adoption in each of eight market segments: business forms; business ID; checks; coupons, tickets and tape; direct mail; tags and labels; security; and transactional printing. Many of these sectors are under threat from paperless alternatives, notably business forms, checks, transactional print and direct mail. According to the report: While digital s growing share will generally mean that digital output will grow, conventional printing output in many of the areas under review is declining and, in the longer term, [even] digital printing volumes will begin to tail off in some cases. Business Forms In 2012, Pira projects the VDP market opportunity for business forms to be 62,204 million sheets. This is forecast to grow to 65,646 million sheets by Although these are significant volumes, this is a CAGR of only 1.1 percent. Although the report calls this VDP market opportunity, we must remember that it is really 100 percent digital plus digital preprint/overprint. So while the opportunity is there for some VDP, nearly all of the volume will be traditional print/preprint (97.3 percent). In 2012, only 2.7 percent of business forms are projected to be produced using 100 percent digital methods, although this is forecast to rise to 7.5 percent by Digital overprinting is projected to rise to 15.2 percent by Business ID In 2012, 100 percent digital production plus digital preprint/overprint for business ID (e.g., business cards, letterheads) is projected to be 74,231 million sheets. While the overall market is forecast to decline by 3.6 percent CAGR, digital output is forecast to rise to 94,956 million sheets by This is a CAGR of 5 percent. Although overall print output in this market will be dominated by electrophotography, Pira reported, the most rapid growth is coming from inkjet. Still, inkjet s 16.4 percent CAGR between in this market can be deceiving because inkjet is starting from such a small base (projected 3,206 million sheets in 2012). Digital, particularly electrophotography, is taking a big bite out of the analog volume in the business ID market. In 2012, Pira projects 90.2 percent of the volume to be traditional print/preprint. By 2017, however, this is forecast to drop to 83.5 percent, with 16.5 percent coming from purely digital production. While there is some data-driven production of business forms, Pira forecasts the majority of this output to remain short-run and, in some cases, static for individual jobs. Checks In 2012, Pira projects the VDP market (since by definition checks are 100 percent VDP) for checks to be 12,764 million sheets. This is forecast to drop to 9,395 million sheets by This is a decline of 5.9 percent CAGR. 44 PRINT SOLUTIONS FEBRUARY 2013 PSDA.ORG

5 According to the report: While digital s growing share will generally mean that digital output will grow, conventional printing output in many of the areas under review is declining and, in the longer term, [even] digital printing volumes will begin to tail off in some cases. Until recently, the production of checks was 100 percent VDP overprint. However, with the growing commercial adoption of high-speed inkjet with MICR and other security printing capabilities, printers have started producing checks on plain paper stock. Companies such as DST Output are producing live jobs, although this trend is lagging behind data refinement at this point, noted the author of the report. Watch for inkjet beginning to reshape this market by Coupons, Tickets and Tape In 2012, Pira forecasts the VDP market opportunity for coupons, tickets and tape to be 6,927 million sheets. This market segment is forecast to grow to 10,341 million sheets by Although the volumes are low, this is a CAGR of 8.3 percent. Although there is opportunity for VDP growth and innovation in this market sector, as in business ID, Pira expects nearly all output to be traditional print/ preprint (98.3 percent). Due to the influence of digital processes, Pira forecasts traditional print s market share to drop only incrementally by Only 2.9 percent of the coupons, ticket and tape output is forecast to be 100 percent digital. Digital overprinting is expected to rise slightly in this sector (from 5.9 percent in 2012 to 6.6 percent by 2017), but coupons, tickets and tape are not expected to be influenced heavily by VDP during the forecast period. Direct Mail In 2012, the VDP market opportunity for direct mail (defined as all addressed advertising mail, including postcards and fliers, but excluding catalogs and transactional print) was projected to be 264,112 million sheets. Although direct mail is forecast to decline by 0.1 percent CAGR overall, the VDP market opportunity is forecast to rise to 313,570 million sheets, equating to a CAGR of 3.5 percent. According to the report: While we tend to think of direct mail as being one of the robust markets for VDP, this market sector is still more traditional than much of the discussion might suggest Digital production is booming, especially in the developing markets, but use of true relevance-driven, 1:1 data-driven communications is growing more slowly. The report cited regulations tightening the freedom of marketers to gather and mine data in locations like the United Kingdom, along with the data mining, sales and corporate culture issues related to marketing and selling VDP. Consequently, the cause of any significant expansion in the direct mail market is likely to be static, targeted, and short-run digital rather than marketing and promotion. Still, the data provide encouragement that the high percentage of direct mail now being done digitally is a wide open door for VDP in the right markets. In 2012, 86.7 percent of direct mail was being produced using traditional print/preprint. In 2017, this is forecast to drop to 76.9 percent. This means that by 2017, nearly one-quarter of all direct mail globally will be done on some kind of digital press. As part of this trend toward digital production, the report forecasts consistent growth in digital overprinting, reaching 63.3 percent market share by Growth is expected in almost every major global market during the forecast period. As with the other market segments, the future of direct mail is inkjet. While on a global basis, the CAGRs for print overall, analog and electrophotography are all negative during the next five years, inkjetprinted output is forecast to grow at a CAGR of 18.1 percent. Labels In 2012, Pira projects the VDP market opportunity for labels to be 65,468 million sheets and forecasts this market to grow to 145,574 million sheets by This is a CAGR of 17.3 percent. In a market with a CAGR of 6.6 percent overall, this is a huge window of opportunity for VDP. Growth will be driven by inkjet, which has a CAGR of 31.4 percent triple that of electrophotography. One of the most compelling trends driving growth in the label market is not personalization or marketing, but the demand for serialized labels for inventory, tracking and control. Digital overprinting is forecast to rise from 6.2 percent share in 2012 to 7.7 percent in Security In 2012, the VDP market opportunity for security documents is projected to be 59,792 million sheets and is forecast to grow to 93,158 million sheets by PRINT SOLUTIONS FEBRUARY 2013 PSDA.ORG

6 Although security print has tremendous potential for VDP, most of the volume is still traditional print/preprint (89.9 percent market share). However, due to the influence of digital and VDP processes (particularly inkjet), Pira forecasts traditional print/preprint volume to drop to 83.2 percent by The remainder of the market volume is forecast to be 100 percent digital. Digital overprinting is still forecast to rise to 24.3 percent of the market. Transactional In 2012, the VDP market for transactional documents (like checks, transactional documents are, by definition, VDP) was projected to be 111,153 million sheets. Pira forecasts this to rise to 120,417 million sheets by While the overall market for transactional print is down in 2017, the VDP opportunity is up 1.6 percent CAGR as 100 percent digital output continues to cannibalize preprint/overprint. As with checks, high-speed inkjet is making its mark in this sector and will continue to erode traditional preprint. Over time, we ll see more of this volume moving to 100% digital production, noted the report. Growth But Not Looking at these trends in aggregate, what we see is a market that offers tremendous potential for VDP but in which VDP itself is growing slowly. In the United States, the strongest trends that come out of Pira s data are the move from analog to digital, particularly inkjet, and in the world of VDP, from monochrome to full-color variable. In themselves, these shifts don t change the volume of VDP on a percentage basis. They just mean that particularly for those already in the VDP marketplace, the opportunity is to increase the value of existing jobs by adding color or removing inefficiencies in the production stream. Otherwise, volume of pure VDP is growing slowly, largely driven by production and cost efficiencies rather than marketing applications, although the conversion of lower value monochrome/ overprint applications to 100 percent fullcolor VDP is occurring more quickly. This may be at odds with the VDP is growing like gangbusters perception being fostered in many places in the industry, but it s the story that the numbers themselves are telling. PS Heidi Tolliver-Walker has been a commercial and digital printing industry analyst, feature writer, columnist, editor and author for nearly 20 years. She is a frequent contributor to Print Solutions. PSDA.ORG FEBRUARY 2013 PRINT SOLUTIONS 47