March 18, 1996
Kinko's Adds Internet Services to Copying Business
By LAURIE FLYNN
s a recent college graduate in the early 1970s, Paul Orfalea would spend evenings cruising the dorms of the University of California at Santa Barbara, hawking pens and spiral notebooks from an oversized knapsack. Each outing would bring about $40.
Some 25 years later, Orfalea's knack for selling school supplies has evolved into one of the biggest chains of business-office support outlets in the country. And the company has begun looking at the possibility of a public stock offering, perhaps later this year.
His chain of Kinko's stores has grown to roughly 850 outlets, with a presence in every state and four foreign countries, and employs 20,000 people. Customers can enter most any Kinko's store at any hour, day or night, and arrange for professional color printing, get business cards made or pay by the hour to use a personal computer. And at 150 Kinko's locations, customers can use a special room to conduct videoconferences with clients or colleagues across the country.
Now, like so many other companies, Kinko's Corp. is entering cyberspace. In the next nine months, the company will introduce Internet access, to be used by traveling executives or the small-business and home-office customers who depend on their local Kinko's for part-time use of information technology.
Since each Kinko's store already has banks of PCs, Orfalea considers Internet access the obvious next step, as more small business users are drawn to the global computing network, but don't themselves have -- or want to have -- the technology to link to it.
Some Kinko's stores will be able to help business customers set up home pages on the Internet's World Wide Web.
"The Internet's important," Orfalea said, using the philosophical tone that employees say is his trademark. "We're encumbered by words. We're going to move more and more to pictorial representations." Then, revealing the pragmatic marketer lurking within any rich philosopher, he added, "Besides, you don't want to carry a computer around with you just to check your E-mail."
At a handful of test stores in Seattle, Houston and Philadelphia, Kinko's customers -- whether or not they already have Internet accounts -- can view pages on the World Wide Web, conduct research on the Internet and send and receive graphics over the global network.
At the Kinko's store in Bellevue, Wash., just outside Seattle, the majority of Internet users so far have been business travelers staying in nearby hotels.
To provide its links to the Internet, Kinko's is working with Uunet Technologies Inc., a large access provider based in Falls Church, Va.
Public Internet access is not an idea that originated with Kinko's, of course. But so far it has tended to be available only through universities, some public libraries, and a handful of urban "cybercafes," which typically cater to students and recreational Internet users.
By contrast, the Kinko's Internet service will be aimed at business users, and included in the $12 hourly rate Kinko's charges for computer usage.
The company once considered college students as its bread-and-butter clientele, which is why the first Kinko's stores were all near campuses. More recently Kinko's has focused on small business owners and the growing hordes of people who work from home.
Whether Internet access brings in new business or simply keeps customers on Kinko's computers longer remains to be seen. The service is expected to enhance Kinko's image more than its profits. The focus of Kinko's business remains professional printing technology.
"They've done for the document reproduction business what Fed Ex did to mail -- they leapfrogged it," said John Houck, president of Satisfaction Works, a consulting firm in San Francisco.
Like most Kinko's printing customers these days, Houck prepares his documents at his office, then brings them to Kinko's for the professional execution that is only possible using high-end printing equipment.
Some customers submit print jobs over Kinkonet, a service that uses dial-up modem lines. "We provide people access to technology they couldn't necessarily afford," Karen Sophiea, Kinko's vice president of marketing, said.
For small business owners like Houck, it is Kinko's the print shop that keeps him coming back.
"The cost of entry to the Internet doesn't stop us like the cost of a Xerox 5090," he said, referring to a high-speed color printing machine, which fills nearly an entire room.
Capital investments of that sort are a far cry from Orfalea's original vision for Kinko's -- if he ever had one. He describes himself as mechanically inept, and a poor reader. "If you can't fix things and you can't read things, then you can't get a job," Orfalea said. So, after graduating from the University of Southern California with a degree in business, he created his own.
With a $5,000 loan from Bank of America co-signed by his father in 1969, Orfalea, who was then known as Kinko for his curly red hair, rented a small garage on the street that most students passed on their way to class at UCSB.
From there, he and a few friends sold about $2,000 worth of notebooks and pens daily. Soon his tiny "store" was so crowded he often had to wheel the self-service photocopying machine out to the sidewalk so people had room to operate it.
The garage operation and the dorm-to-dorm sales he conducted were a hit among college students. So Orfalea and his partners, which then included a local surfer named Brad Krause, first expanded into the San Fernando Valley, just north of Los Angeles, and into the Pacific Northwest.
From the start, Kinko's was organized as something of a franchise operation. Orfalea owns 100 stores outright and has an equity stake in all of them. But the major stake of each franchised shop is held by one of 127 owner-operators.
While this arrangement has served Orfalea and the store owners well through years of locally controlled expansion, it appears ripe for change. Though he declined to be specific, Orfalea said the company was undergoing a reorganization that would result in a more centralized arrangement, which should be in place in the next few months. Such a move is presumably in preparation for a public offering.
As a private company, Kinko's does not disclose much about its finances. But Lloyd Greif, president of Greif & Associates, a Los Angeles investment banking firm, estimates the average sales of a Kinko's store to be about $750,000, putting sales for the entire company between $600 million and $650 million.
Maintaining its current rate of growth is by no means a sure thing. In the business-services business, the company is facing more competition every day.
Office-supply chains like OfficeMax Inc. and Office Depot Inc. have opened office service centers that compete with Kinko's copying, business printing and electronic document businesses.
And then there are Kinko's long-standing rivals, business printers and copy shops such as Alphagraphics and Sir Speedy Inc., a unit of KOA Holdings Corp.
But so far, no one of these companies offers Kinko's range of services, such as in-store computer rental and video conferencing. And none have followed Kinko's lead in turning the corner copy shop into a cyberport.
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Copyright 1996 The New York Times Company