As hardware margins thin, integrators look to services for new revenue and more profit. Tim Kridel explores opportunities in equipment leasing, content management and broadband – and why everything that glitters isn’t necessarily gold.
If there are two things that AV pros can agree on, it’s that hardware margins keep getting slimmer, and that services are one way to offset that decline. But which services, and how to expand into them, are where things get less clear cut.
Take equipment leasing, which provides recurring revenue and long-term customer relationships that can be useful for identifying other sales opportunities that might be missed with sporadic contact. In theory, it should be a huge opportunity. Leasing is common in enterprise IT, which increasingly also is the same department that buys AV. But integrators that offer leasing say it hasn’t caught on, for a variety of reasons.
“We’ve sold very little in that mode even though we believed there was this huge market opportunity,” says Julian Phillips, Whitlock executive vice president. “Partly there’s a lack of maturity in the buyer. Even though IT services have been procured this way for years, there wasn’t that level of understanding and maturity in the AV buyer even though that buyer might be reporting to the CIO and even though we’ve been told by many customers you have to do this.”
For example, some clients in the energy sector told Whitlock that they needed to come up with a model that would enable them to shift their AV spending from capex to opex.
“That’s what they told us three years ago,” Phillips says. “So we did and put it in front of them, and they said, ‘Nah, we’ll just carry on as before.’”
Whitlock continues to offer leasing but doesn’t promote it.
Opportunity cost
Leasing also highlights some of the fundamental questions that integrators must grapple with when deciding whether and how to pursue a new opportunity: What are the costs and risks? Should we partner or do everything in house?
In the case of leasing, one option is to partner with a firm that specialises in that. For example, clients would have contracts with a wholly owned subsidiary of the leasing firm, but the subsidiary would bear the integrator’s brand.
“There are hardly any AV integrators, including us, that have the financial strength to stand up great big contracts on our own books,” Phillips says.
The partnership question also sometimes is about whether it’s the best way to provide a high-quality service at scale. For example, some integrators have expanded into content creation and management after seeing their digital signage clients overwhelmed with those tasks. Some of those integrators have partnered with ad agencies and other firms that are experts in content creation. Others have taken the more expensive and riskier route of hiring people with that expertise in the hope that there will be enough demand to offset that additional overhead.
“From my background in the IT sector, I was not always completely aware of what the impact would be on my network resources with regard to the AV projects.”
Other types of services offer different partnership options. For example, the May 2015 InAVate looked at the reseller and referral models for getting into enterprise telephony, including the revenue potential and risks of each. Sometimes it’s possible to start out by simply providing the partner with sales leads and pocketing the finder’s fee. Then, if it turns out that there’s enough demand, the integrator could decide whether to start supporting those services on its own, which entails more cost and risk.
AV distributors occasionally broker partnerships. One example is Almo Professional A/V, whose new Connect service gives integrators a way to bundle broadband into their service packages for applications such as surveillance or signage. Connect is initially available on a referral basis, where Almo shoulders tasks such as identifying the client’s bandwidth needs and analysing their bills to see if one of the Connect partners can offer a better deal. In return, the integrator gets a monthly referral fee for the life of the contract.
Who really understands the market?
Connect also is an example of how connectivity is another potential opportunity for integrators.
“The resellers who are implementing these AV solutions are perfectly positioned to discuss with the customer the bandwidth requirements for their project to be pulled off successfully,” says Eric Olson, Almo business development manager. “As we’ve seen over the past ten years, there’s a never-ending requirement for more bandwidth.”
Technologies such as 4K will increase the burden, but clients don’t always realise that.
“From my background in the IT sector, I was not always completely aware of what the impact would be on my network resources with regard to the AV projects,” Olson says.
But telcos, cable operators and other broadband providers certainly are aware. In fact, Almo created Connect because so many of them approached it about ways they could serve AV applications. That amount of interest suggests that if AV can’t or won’t help those providers sell broadband, they’ll turn to someone else, probably the IT integrators that are already muscling into AV.
If AV pros have an edge, it’s that they understand the unique requirements of services such as videoconferencing. That’s one reason why Whitlock chose to partner with Masergy.
“I get approached by the broadband providers all the time,” Phillips says. “We basically said, ‘We’re going to put our eggs in the Masergy basket.’ They understand high-quality video networks. They built one and have been running it for years.
“I’d rather go with someone who has that deep understanding of video across the enterprise with a global support model than I would take a generic broadband product and try to figure out how to squeeze it into what’s a very specialised market.”
Partner up?
Partnerships are one alternative to trying to do everything in house. Some vendors provide another option: software-as-a-service (SaaS) platforms that AV firms can resell to their customers on a subscription basis.
One example is Barix’s new SoundScape, a streaming service for centrally managing and distributing live and scheduled music and advertising over IP networks. The basic service includes licenses for 50 Exstreamer SoundScape players that would be installed at each site, such as the stores in a retail chain.
“An AV integrator can offer the service inclusively to the client in its own SLA at a price they determine,” says Reto Brader, Barix vice president of sales and business development. “The cost for SoundScape to the AV integrator is defined. The integrator packages this cost together with the price for his additional service, support, content and so on into the comprehensive offer to the client. The AV integrator does not need to buy any software or infrastructure upfront to facilitate the service to a customer.”
“It’s probably 15% to 20% of the time that customers are exploring [leasing options].”
Eliminating those upfront costs should be appealing to integrators that want to offer this type of service but haven’t because they were uncertain about the demand and revenue. SoundScape also is attracting firms that already offer such services but dislike having to build and support everything on their own.
SoundScape also has parallels with digital signage. Some integrators offer content services that include advertising, with the client and integrator both getting a royalty. As with other types of content, the integrator has to decide whether to become an ad agency or partner.
The more, the merrier?
In telecom, services strategies often are built around “stickiness”: the more a consumer or enterprise gets from a provider, the less likely it is to leave because doing so is a hassle or triggers higher fees for unbundling. Thus part of the business case is reduced costs, such as marketing and sales to replace customers that have churned partly or entirely. Sales overheads also can be reduced if it’s cheaper to upsell an existing customer than to ferret out additional ones.
There’s evidence that those benefits apply to AV, too.
“It absolutely is sticky,” says AVI-SPL’s Laezza. “It’s very hard to rationalise switching providers.”
But there are a few caveats. For example, a bundle of services within a single application type – such as everything an enterprise could possibly need to do when collaborating – might prove sticker than a bundle of unrelated services such as signage and UC. It’s also easier to churn with some services because doing so doesn’t require ripping out hardware or retraining employees.
“The stickiness for certain services is better than others,” Laezza says.
It’s tempting to consider offering as many services as possible to keep customers, drive new revenue and maximise profits, but that strategy risks becoming a jack of all trades and a master of none. For example, an AV firm’s salespeople then might not understand the nuances of all the services they sell, and it comes back to haunt when customer support costs are unexpectedly high.
That was a risk Whitlock weighed when it considered getting into the cellular infrastructure business, a market that InAVate explored in the April 2015 issue.
“I could see the demand for this, but I suddenly thought, ‘This is going to stretch us way beyond what we should be doing,’” Phillips says. “So part of this is also about discipline. If these opportunities present themselves, make sure you have a business plan behind it.”