Growth of AV service sales could transform the market

If another argument was needed to persuade the AV industry it needs to get to grips with selling services, Covid-19 has offered it says Anna Mitchell.

As Covid-19 struck, 2020 saw corporates quickly increase their use of video communication, education establishments adopt remote learning, parliaments relax laws to continue the business of government from afar, doctors consult with their patients via laptop. The list of who started using, or expanded their use of, VC tools during the pandemic is endless.

But, despite the rapid rise in the use of audio and video technologies for communication, many AV integrators weren’t seeing any benefit. Zoom and Teams license sales were soaring. Laptops and conferencing peripherals were selling fast and in short supply. But when industry association AVIXA – who provides the most comprehensive data focused purely on the AV sector – released its 2020 Industry Outlook and Trends Analysis (IOTA) it was apparent that the additional spend to scale up remote operations either wasn’t benefiting AV, or at least wasn’t making up the loss they’d seen from on-site installation. As organisations’ needs changed, who they used to fulfil those needs also changed.

The AVIXA data shows that conferencing and collaboration solutions represented $10.7 billion [approximately €8.6 billion] in revenue for the EMEA pro AV channel in 2019. This declined to $10.3 billion in 2020, or approximately 4%. The association expects growth to resume, albeit moderately, in 2021 with revenues increasing 5% to $11 billion.

When we discussed that data with Sean Wargo, senior director of market intelligence at AVIXA, back in August 2020 he said: “The [data] suggests that investment was traditionally more in physical spaces; outfitting rooms with better technology for conferencing and collaboration. Clearly there's so much more spent on the services and software side that our industry is going to need to figure out how to get more in front of that.”

Wargo was at pains to point out that if the AV industry was to make that shift, the limited and slow growth that the report predicted could well be revised up. Conferencing software is a good place to start, but if service models can be adopted, the end result of providing all of a client’s AV needs, including hardware, for a recurring fee, comes with many benefits. 

With so much at stake, why is it taking so long for software and service sales to take off?

Time for a new strategy

Fardad Zabetian, co-founder and CEO of language-as-a-service conferencing platform KUDO, says many AV companies still see software as a sales enabler for hardware. The industry might not be saying this outright, but often product launches and business models tell another story.

“AV integrators, in my opinion, are in a great position to generate a new source of revenue by offering services and licensing, however there needs to be a fundamental change in the business model,” Zabetian says. “When you compare an enterprise software-as-a-service (SaaS) business model with a system integrator business model, there are some key differences. For an integrator, receiving a PO is marking the close of a sale, while for SaaS product, the sales process just gets started as the company makes money when the usage goes up.”

Zabetian argues that this turns a company’s entire go-to-market strategy on its head. “It would be like building a new business unit which is wired differently; focusing on smaller size POs with monthly billing with the land and expand approach with considering the Customer Lifetime Revenue (CLV),” he says.

Omer Brookstein, CEO and founder of SyncPro, provider of the CloudOS monitoring and management platform, agrees: “Once you’ve sold the basic license, you want to upsell. Not all system integrators have account managers or the right skills to sell recurrent.”

It’s a step too far for a lot of companies, many of which we shouldn’t forget are still finding more traditional models for delivering AV installations profitable. As Tobias Enders, CEO of German integrator GMS Global Media Services, says: “Lots of AV businesses fear losing revenue today in exchange of a customer relationship and the revenue of tomorrow.”

Meanwhile Wargo offers a neat summary, and a warning: “The business model for as-a-service (aaS) is a very different one to the more discrete project/SOW oriented work. The challenge is managing the costs to serve with an appropriate resource pool, which traditionally has been fully allocated to projects with a distinct start and end date. This can put a company under water quickly as client demands increase. The message here is to tread lightly with a complete operational plan, backed by capable vendor partners, before jumping in.”

“One of the core reasons why only a small number of system integrators manage [to sell services] is that developing this kind of offering and the platforms to support it is both difficult and expensive and only a small number of large companies can make that investment,” says Brookstein. “We strongly believe that this is the future for system integrators, and that those who successfully add managed services to their portfolio, will have a great advantage in our very competitive market. In fact, this is one of the main reasons we founded SyncPro.”

But not making that switch, at least to some degree, is also not an option. Brookstein sees a rapid decline in the cost of much of the hardware installed in deployments carried out today. A revenue model that works on percentages of low cost commoditised hardware is not sustainable.

“Some more specialist hardware for larger installations will still allow integrators to make money, but there’s more to be had from offering ongoing services: remotely deploying, managing and monitoring devices,” he says.

Integrators transitioning to service models may find some new competition.

The IT industry has far more advanced service models and also has some huge and established managed service providers (MSPs). Considering the crossover with the technologies AV and IT teams lay claim to, where does a shift to service leave AV? Brookstein says: “I definitely see that IT companies are going to want to take a bite but I think AV integrators can emphasise their benefits and their professionalism about AV. Many Zoom Rooms for example have additional equipment and that’s where IT integrators and IT companies’ solutions fall short. What about spaces’ occupancy data? Video and audio distribution? Professional mics and amplifier? There’s usually a lot more in many of the rooms that we need to monitor. AV integrators can definitely compete here, but there’s also room for partnerships.”

The impact of IT can also be a positive if they’re the ones buying. Jon Dew-Stanley, director of technical, services and support at distributor Midwich, says: “IT departments have adopted a subscription model for a while now; whether it's network switches or Office 365 licences, the businesses generally are quite comfortable in paying a subscription, a fee per user, to be able to access the equipment they need, be it software, equipment or services.”

All change please

Everyone’s talking about the “new normal” but – while much has changed - the reality is there isn’t a single narrative of what that looks like. Currently, while still in the midst of the pandemic, flexibility is more important than pivoting a business to serve a single version of what our new world looks like.

Once again, could supplying services be the answer?

Wargo says: “Much of the investment towards the support of remote work and collaboration has been on equipping individual users in a home setting and expanding licensing to accommodate. Typically, this involves purchases made outside of the pro AV channel and so would not necessarily benefit integrators and installers. There are exceptions in the form of bundling and bulk purchasing, but these are likely more the exception than the rule.

“The much bigger opportunity is represented by the return to offices as companies look to redesign workspaces to account for more remote collaboration and a fluid workforce who shifts between telework and on-premise activity. Managed services also have potential for growth as AV firms look to support scaled up systems for conferencing and collaboration.”

One company who has spotted that trend and reacted is distributor Midwich, launching a Hardware-as-a-Service (HaaS) programme partly in response to trends fuelled by the pandemic. Midwich delivers HaaS as part of its Mi Services offering that includes Mi Support, a break/fix warranty and help desk function; Mi Hardware, a wrap of Hardware-as-a-Service and Mi Support; and Mi Cloud, which is SaaS for things like proactive monitoring, licencing, renewals and content creation.

Dew-Stanley says that the huge rise in Teams and Zoom usage as the pandemic hit effectively supported remote workers but often wasn’t well suited to infrastructure in place at offices.

“There’s now a desire for a hybrid scenario that will see a mix of home and in office working,” he argues. “Many meeting rooms are equipped with kit that doesn’t talk to Teams or Zoom. If IT departments have rolled out this new infrastructure during lockdown, getting back to the office, you’re going to need something else to make it work.

“There are a lot of stresses on businesses at the moment and they need to spend wisely. HaaS begins to come into play where an organisation can simply subscribe to take hold of the equipment needed to make a workforce successful. You can increase or decrease it in line with staffing levels.

“If you need to bring more people back from furlough schemes, or bring people who were operating at home into the office you can scale. It helps with social distancing too as people have to repurpose meeting rooms designed for 12 into spaces for five or six people. You can’t have people hovering around a single laptop, the hardware in the space will have to be different.”

Underlining that the pandemic is forcing a shift in spending behaviour for many companies, Gary Schellhas, quality assurance manager at US integrator IMS Technology Services (IMS), outlines: “Due to the pandemic many customers have had building shut downs and all capital expenditure has pretty much stopped. Everyone is waiting. AV-as-a-service (AVaaS) takes a lot of upfront cost away so there’s a lot of interest in the idea that we’d install a bunch of rooms with the client paying for them over the next three to five years.”

Scaling is central to service models. Brookstein says when something is sold by the space or by the user there is no barrier to entry to smaller customers. The other advantage is you give yourself the chance to access a client’s OpEx budget which could be vital if a CapEx budget has been eaten up or the company simply wants to shift its purchasing model.

Schellhas says if a client eliminates capital expenditure it also doesn’t have to negotiate with procurement teams. “There’s a lot to be said for that,” he continues. “It’s been a slow start but there’s a strong argument for a large upfront outlay on technology you’re going to have to change in four to five years anyway. With a service model we maintain the kit and make sure it’s always up to date. That’s a huge benefit for clients.”

Low cost of entry and a scalable model of recurring revenue is great when your client is happy and growing. But, Brookstein cautions it works the other way too. “What tends to be forgotten is it’s harder for clients to contest a one off installation they’re not happy with. If they don’t like your service, they’ll stop it. It’s a lot of hard work to maintain a customer. 

“Those familiar with services will know the term ‘churn rate’ – the number of customers leaving your service by moving to a different one. Customer success is way more important with services than it used to be be when selling physical products for a one-time fee."

The opportunities are clear and the demand is there is for AVaaS and delivering ongoing monitoring and support but if AV integrators want to deliver that, are they supported by manufacturers and the channel?

Enders thinks more could be done: “Some of the larger hardware vendors have some good financing models to enable the wider channel to develop ‘as-a-service’ concepts,” he acknowledges. “However, the traditional model of selling hardware is still based on CapEx and doesn’t support the channel in creating services portfolios.” 

There’s a way to go but with channel-led services like those offered from Midwich, and platforms like SyncPro that lower the barrier of entry for AV integrators large and small, a service revolution could be starting. What the pandemic has shown is that in offering services, AV integrators have a better chance to continue to deliver value to clients when their situations and needs change. In addition to being more flexible, offering wrap around services – the most crucial being proactive monitoring - that deliver additional value and return on investment will offer further incentive for clients to buy their AV as a service.

Images: kerenby/Shutterstock.com [Top]; dennizn/Shutterstock.com

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