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Thursday, June 30, 2011

What's in your house that you pay $8000 per gallon for?

Remember predictions of the "paperless office" decades ago? How wrong! Personal computing has driven consumption of paper to new highs. The skill in analyzing new trends, by the way, is to deduce which ones will result in the death of existing products (like typewriters), and which will result in higher demand for existing products (like paper). It's a gift to have 20-20 forward vision, and I've run into only a few people in my professional career who have that gift. 

But I digress. Over 80% of U.S. households have at least one personal computer. I don't have access to market research that would give a number for printer penetration in those households, but I suspect it's at least 75%. Most of those are inkjet printers, and many of them print color. Some also function as household photocopiers.

Paper is relatively inexpensive for most households. (Ignore for the moment the environmental cost of paper production.) On the other hand, ink is frightfully expensive.

Undoubtedly you've heard the phrase "give away the razor and sell the blades". The counterpart is for printer manufacturers to sell printers at low profit margins in order to obtain a lucrative annuity for ink during the life of the printer. I tend to disbelieve allegations that printers are sold at a loss, but it's clear that printer manufacturers like Canon and HP make an enormous profit by selling ink.

Some ink cartridges are priced at the equivalent of $8000 per gallon of ink. Developing inks that go exactly where you want them (and not where you don't want them), that dry quickly on paper without clogging the printer mechanism, and that do not fade too quickly after printing is a challenge. Modern inks require very clever chemistry and engineering to produce in large volumes. Anyone can see, however, that prices such as $8000 per gallon are not derived from a modest gross margin on top of cost; they're based on what the market will bear.

This week I paid $58 at Costco for a bundle of three ink cartridges for my Canon MX-330. Consumption of ink in this household of four is prodigious. Ink has risen sufficiently high on the list of annual household expenses that I take the time to shop for it.

However I have never trusted off-brand cartridges or inkjet refill kits. The argument that there are significant differences in ink from one printer to the next makes sense to me. Besides, most printer manufacturers go to great lengths to discourage alternatives to buying their branded cartridges. I have the time to shop for cartridges but not enough time to try beating the system. 

One tip I will offer, however, besides shopping for best price. Never trust an indication that a cartridge is running out of ink. Let it begin to run out before replacing the cartridge -- but then replace it immediately.

Kodak has tried to position its printers in the market as requiring the least expensive ink. I don't know that Kodak has won much market share with that strategy, however. Personally I am very loyal to Canon products. We're on our fourth.