Ink Inc.

Just about everybody has a printer these days, and just about everybody needs ink, making it a big business for some and a huge expense for home and office computer users

It's one of the great ironies of the digital age. Ink, a substance that has been around some 5,000 years, has become an enormous cash cow for computer companies.

They sell the printers dirt cheap and, just like razor manufacturers, rake in the big bucks on the disposable component.

The "paperless office" turned out to be a trope. Consumers now eat up more and more paper and ink, both at home and at work. The advent of low-cost digital cameras and the improvements in printing technology mean people are printing out their snapshots at home. Businesses, both small and large, produce their own marketing materials. Students churn out fancy four-color reports.

Inks and toners for computer printers and multifunction printers (which do extras such as faxing, scanning and copying) were a $32.5 billion industry in 2003, according to market research firm IDC.

That same color inkjet printer that sets you back a mere $50 at Costco or comes free with a PC at CompUSA can guzzle $35 every time you replace the tri- color ink cartridge and an additional $30 for the black cartridge. With a scant 17 milliliters of ink in some cartridges, you end up paying about $2 for a few dribbles. Do the math the other way, and you're paying about $8,000 per gallon.

Laser printers are now as cheap as $150 for black-only and $500 for color, but the toner cartridges are guaranteed to induce sticker shock. It's about $130 for a black cartridge that holds 500 grams; color ones can run more than $300, and you generally need three -- one each of cyan, magenta and yellow.

"If you were to fill up the tank of your car with Hewlett-Packard or Lexmark ink, it would cost $100,000," said Gerald Chamales, chairman of Rhinotek Computer Products, a Carson (Los Angeles County) manufacturer of ink and toner cartridges that are compatible with name-brand printers. "If you filled an Olympic-size swimming pool with ink from HP or Lexmark inkjet cartridges, it would cost $5.9 billion with a B."

Rhinotek is among a horde of companies selling products that promise to shave 10 to 70 percent off ink and toner costs. Do a Web search and you'll be plagued with pop-up ads on the topic for days to come. There are remanufactured and recycled cartridges, "compatible inks," ink refill kits, bulk inks and toners. The latest wrinkle: stores where you can take your cartridges for a refill.

By most estimates, third parties have less than 20 percent of that market, with the bulk of it dominated by HP, Epson, Canon, Lexmark and the other big printermakers, all of which make cartridges, ink and toner specifically designed for their own printers.

But the seemingly high cost of ink isn't the whole story behind high prices, according to the folks who make the printers.

"There's an enormous amount of technology in these things," said Pradeep Jotwani, senior vice president of the supplies organization in Hewlett- Packard's imaging and printing group. "You get as many as 18 million droplets fired every second as you're printing a photograph or color document. We have to design the silicon with the appropriate kind of nozzle and appropriate kind of ink so it can get heated, fired through that nozzle, land on paper and cool in a millionth of a second so it doesn't bleed into the adjacent drop."

HP spends about $1 billion per year on research and development for imaging and printing, he said. The company has nearly 9,000 patents in imaging technology, 4,000 of them in consumables, which include cartridges, ink and toner. "This isn't trivial stuff," Jotwani said.

Still, the Palo Alto company reaps rich rewards for all that intellectual property. Its imaging printing business (which includes both printers and supplies) amasses annual sales of about $23 billion and enjoys 14 to 16 percent operating profits. Although HP doesn't break out sales and profits on inks compared with printers, Jotwani said the supplies side makes more than that average 14 to 16 percent profit.

The rising tide of ink seems like a golden opportunity for a variety of companies that hope to offer consumers a lower-cost way to refill.

Lakeloads of ink

"You could probably fill two or three of the Great Lakes with all the ink that's sold," said Frank Romano, professor emeritus in the School of Print Media at the Rochester (N.Y.) Institute of Technology. "Everybody and his uncle wants to get into that market."

The generic inkmakers often piggyback on the printer companies' technology by remanufacturing and refilling used brand-name cartridges. That's legal, as long as they don't violate existing patents. Conversely, the printermakers cannot bar customers from using so-called after-market products because of antitrust laws.

Cartridge World is a leader in the new category of stores that refill ink and toner cartridges, like a Jiffy Lube for your printer. A franchise that started in Australia and has 170 stores there and 335 in Europe, the company last year set up shop in the United States, with headquarters in Emeryville.

It has 45 U.S. stores now, including ones in Berkeley and Foster City, and expects to have 150 in the country by year-end and 500 by next year, according to Burt Yarkin, chief executive officer of Cartridge World North America. "We're awarding new franchises at over one store a day in the U.S.," he said. He wants the stores to be as commonplace a neighborhood fixture as the corner copy shop or dry cleaner.

The Cartridge World store in downtown Berkeley is just steps from the UC Berkeley campus. With a bright blue-and-yellow color scheme, dozens of signs and brochures explaining the business, it looks like a new variation on a Kinko's or Mailboxes Etc.

Co-owners Mirna Wong and Ken Wong invested close to $150,000 in the store, which opened in January. They get a steady stream of customers who bring in cartridges to be refilled for about 40 to 50 percent off the cost of new ones. About one-third are students, one-third small-business owners and one-third home users, Ken Wong said. Not all cartridges can be refilled: Some have computer chips that tell the printer the cartridge is empty even if it's been refilled; some are simply too old.

Right now, the Berkeley store is breaking even, with sales and expenses each running about $24,000 a month. Neither of the two co-owners is collecting a salary, they said. They hope to turn the corner to profitability in August when students return to town, Ken Wong said. They're already looking at opening a second store in Oakland.

A technician, such as the Wong's son, Matt, 17, selects the compatible ink for that printer from among hundreds of bottles, drills a small hole into the cartridge and injects fresh ink with a syringe. The cartridge gets popped into a printer for a quick test run. The whole process takes less than 10 minutes. Because laser cartridges take about 45 minutes to refill, the shop will swap out a refilled one so customers don't have to wait. The Wongs offer tips such as encasing a used cartridge in plastic wrap and storing it in the refrigerator to keep the printheads moist until it can be refilled. "The whole philosophy of the store is to reuse what people already have as well as save money," said Mirna Wong.

Recycle it instead of tossing

In fact, environmental concerns are another driver in the ink market. Millions of cartridges that get tossed end up in landfills. HP addresses this problem by providing postage-paid envelopes for customers to return cartridges, which the company recycles at a plant in Tennessee.

The biggest market for recycling old cartridges is the army of companies selling cheaper ink. They buy old name-brand cartridges, fix or replace worn parts and insert new ink or toner. That's the only way they can get around the forest of patents protecting much of the technology. The process has spawned a new fund-raising channel for schools and charities, which encourage supporters to donate their used cartridges so the organizations can resell them.

"A whole economy has developed of people all over the world who collect cartridges," said Chamales, the Rhinotek chairman. (His company uses the shells of name-brand cartridges if there are intellectual property issues with making a new one.) "The most valuable recyclable product in office technology is laser and inkjet cartridges."

House brands try to compete

Plenty of big names are getting in on the lower-cost ink wars. Office Depot, like several other major store chains, sells its own line of cartridges, often remanufactured from recycled cartridges.

"In general, the savings can be anywhere from 10 to 25 percent to the end user versus the HP, Epson, Canon, Lexmark, etc.," said Gabe Miller, merchandise director for machine supplies at the 900-store chain.

Some printermakers are unenthusiastic about the competition.

"Staples and CompUSA have their own house brands, and we do surprise visits, talking to salespeople as if we're not Canon to get an understanding of how they pitch to the customer when we're not in the store," said John Lamb, senior marketing manager for consumer imaging group products at Canon U.S.A. "They pitch these inks incorrectly in most case. Our cartridge size (may be) identical from one (printer) to another, (but) the inks are different. In third-party cartridges, the same ink tank works in both, and that's incorrect. You're losing some color gamut, possibly getting color shift."

The third-party ink sellers interviewed for this article -- Rhinotek, Office Depot and Cartridge World -- all offer guarantees if their print cartridges malfunction or, worse yet, cause a problem with a consumer's printer (most manufacturers won't fix problems caused by use of a third-party cartridge).But many third parties can't make such claims.

In fact, independent lab studies by magazines such as PC World and Consumer Reports say that the pricier name-brand inks do indeed produce clearer, cleaner printouts that last longer. With thousands of inks on the market, they tested only a handful of the low-cost ones and found that some did produce results as good as those from printermakers, but some had significant problems with both quality and durability.

Despite the potential for problems, with ink costs so high, many experts say consumers increasingly will rebel against the brand-name inks -- which means the printer manufacturers eventually may moderate their prices.

Dell Inc., for example, has its sights riveted on inkjets as a lucrative opportunity. After just one year in the market, it has a 10 to 11 percent market share and is turning a profit, Dell CEO Kevin Rollins said in a May interview with The Chronicle. The Round Rock, Texas, company would be happy with just a 10 percent profit margin, less than the 14 to 16 percent enjoyed by HP, Rollins said. Like HP, Dell wants to sell printers at a low price as a loss leader and make its money on ink, he said. Still, even Rollins wondered about the consumer costs.

"The question is how much can you prop up that ink profitability before actually you all scream and say, 'That's too much for ink. That ink costs more than a Dom Perignon or a Chanel No. 5. It's the most expensive liquid on the planet,' " he said.

TIPS FOR CONSUMERS

If you're shopping for lower-cost ink or toner, remember:

-- Plain black text has fewer chances for mishaps than color images.

-- For photo printing, color fidelity and longevity are important. Check out reviews at Wilhelm Imaging Research, www.wilhelm-research.com, which tests inks for fade resistance.

-- Buy replacement inks that are advertised as specifically tailored for your printer, not so-called universal ones.

-- Ask if the inkmaker can provide independent laboratory testing data to show how well its inks work and how long the prints last.

-- See if the manufacturer belongs to a trade association such as the International Imaging Technology Council or has Better Business Bureau backing.

-- Look for companies that guarantee to fix or replace your printer if their ink causes any problems such as clogged print nozzles. Printer manufacturers generally will not fix problems specifically caused by use of ink made by someone else.

Source: Chronicle research.

CHART:

BLACK GOLD

The ink in your computer printer is among the world's most expensive liquids, with a price per ounce outpacing brand names like Dom Perignon Champagne and Chanel No. 5 perfume and dwarfing household products like milk. See how it stacks up, in price per ounce:

Printer ink: $60.88

Chanel No. 5: $260

Dom Perignon: $4.53

Milk: 3 cents

Source: Chronicle research