Are things changing in AV distribution channels?
Will vendors do more direct sales? Does the plug-and-play trend offer fewer or more opportunities for integrators? As Tim Kridel found, the answers depend on whom you ask.
Looking for consensus? You won’t find it in a discussion of pro AV sales and distribution channels, except maybe this: Where there are challenges, there often are opportunities.
Case in point: Are big AV vendors going to do more direct sales?
“That’s definitely a trend because many manufacturers see the distributor as an opportunity for a bigger margin,” says Ennio Prase, CEO of Prase Engineering.
Harald Steindl, who was owner of Austrian audio specialist Mocom until recently founding HST Consulting, holds a similar view. Earlier this year, he told InAVate: “The AV distributor as a local representative of multiple brands in various countries will go away quickly. Brands will have to have their own sales offices in each and every territory. Most likely they will leverage traditional mega-distributors like Ingram Micro and such for logistics and finance. This is exactly the same model as IT products are currently sold.”
“By working through a distributor, resellers can streamline their product purchases for an entire project while expanding what they can offer customers.”Of course, one factor is the cost of establishing and operating sales offices. In many cases, it could be cheaper for a vendor to rely on distributors and integrators. Local partners also free vendors from the cost and hassle of navigating local laws, such as those governing labour.
Some distributors aren’t worried about the prospect of vendors going direct.
“We see the trend going in the opposite direction,” says Sam Taylor, Almo Professional A/V executive vice president and COO, who’s spent nearly three decades in the industry. “Many vendors simply don’t have the bandwidth to service resellers.
“By working through a distributor, resellers can streamline their product purchases for an entire project while expanding what they can offer customers. We provide our resellers with technical support, managed services that create recurring revenue in areas such as content creation, internet, live TV [and] advanced voice, as well as a multitude of training opportunities so our resellers can continue growing.”
Maverick is another distributor that expects more of the status quo for the foreseeable future.
“As a general trend, we are seeing less inclination from our vendors to bypass any element of the channel,” says Jon Sidwick, Maverick Europe vice president. “As the market broadens, our partners are even more reliant on the roles delivered by resellers and distributors. We do see some who are putting more focus on direct touch with blue chip users, but business and final sales are still being generated by and pulled through from the channel, as installation expertise is required to deliver the solution.”
Eggs in one basket
Another hot topic is whether exclusive distribution deals will become less common. The outlook depends partly on your view of how much an integrator is willing or able to devote itself to a single manufacturer.
“Exclusive distribution deals are actually becoming more pervasive,” Taylor says. “Many manufacturers realise that if their product availability becomes too wide, it tends to devalue the brand. When the manufacturer narrows the availability or makes it exclusive, distributors can dedicate more resources to that brand and provide more margin, greater technical support and faster service.”
Some exclusive deals end when a new product has built enough market share.
“Exclusivity has an important role to play still in the early investment stages in terms of creating a demand for new products within the channel,” Sidwick says. “This can continue further where a distributor and the vendor jointly invest in resource levels.
“At Maverick, we have some excellent recent success stories in this space, in particular where IT-led manufacturers or products look to expand into the AV space. Exclusivity allows manufacturers and vendors to take advantage of the vast pool of resources and relationships that distributors have, while also allowing companies like Maverick to broaden their expertise across more markets than ever, letting us give customers the most cutting-edge and competitive solutions.”
One related trend that’s been playing out for years is diversification, where manufacturers use R&D, acquisitions or both to expand their product portfolios into new market segments.
“As a general trend, we are seeing less inclination from our vendors to bypass any element of the channel.” Diversification lets vendors tap into hot, new segments, offer end-to-end solutions and spread their risk around. Their distributors and resellers often benefit, but the trend also can create friction in the channel.
“More and more manufacturers offer the whole pie or at least a significant part of it,” Steindl says. “The only way of making sure to get spec’d in total – and not because of their currently best-in-class product – is to go out directly and present the brand as a whole.
“The average installer, integrator or distributor, on the other hand, does have a portfolio. Nowadays they often do have multiple choices within their selected brands. Old wisdom is that you can sell a system only once. So distributors often combine multiple brands in order to keep every supplier happy at least a little bit. This is 100% against the big vendor, who claims ‘we can do it all.’”
Distributors and resellers have to add value in the eyes of both the vendors they rep and the customers they target. Otherwise, they’re middlemen that can be cut out to boost margins and get lower prices, respectively. So it’s worth looking at how they can add value.
Offering the lowest price isn’t necessarily the way. Sure, it will win some customers, but they often are the ones unwilling or unable to be upsold on managed services and other offerings with fatter margins.
“The margin has been shrinking and shrinking and shrinking,” Prase says. “The only rescue plan is to add value and start selling professional [services].”
The catch is that to offer higher value services, integrators and other resellers first must invest in the staff and other resources necessary to provide them. The old adage is true: You have to spend money to make money.
“The most successful resellers are those who provide the best customer experience,” Taylor says. “The resellers who invest in education/training to learn the trends and focus on the best outcome for their customers are the ones that are going to survive and thrive.
“They also realise they can’t do it alone and [thus need to] incorporate third-party services. This allows the reseller to instantly expand its offering to the customer without the hassle of having to manage it in-house. And because many services provide revenue-generating opportunities, it’s a worthwhile investment for everyone involved.”
Distributors can help lower an integrator’s cost for standing up value-added services. For example, in autumn 2015, Almo launched Connect, which gives integrators a way to bundle broadband into their service packages for applications such as surveillance and signage. Integrators refer clients to Almo, which analyses their bandwidth needs and 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.
“In AV, it is extremely rare for someone to charge you for a training course. In IT, you pay for everything.”Connect is noteworthy for another reason: Almo created it because so many broadband providers approached it about ways they could serve the AV market. That amount of interest suggests that if AV can’t or won’t help those providers sell broadband, they’ll turn to someone else, starting with the IT integrators that have already expanded into AV.
“Our top five accounts today are IT/AV companies, not conventional AV integrators,” Prase says.
But IT integrators don’t always have to be adversaries.
“We are also seeing many partnerships emerge, where rather than competing against IT resellers, AV companies are competing with a partner to win and deliver end to end AV/IT solutions,” Sidwick says.
The IT world also is worth studying for potential revenue models.
“In AV, it is extremely rare for someone to charge you for a training course,” Prase says. “In IT, you pay for everything.
“Sell your expertise. Sell more maintenance contracts. It’s still very rare that the [AV] contractor is selling, on top of the dealer, a maintenance contract. That’s why we like to work with the IT guys. They contemplate all of those techniques that generate recurring revenue.”
Plug and play = less expertise?
But expertise gets harder to sell as the selection of plug-and-play AV products grows. That trend is another reason why some AV pros speculate that vendors will increase direct sales.
Integration isn’t limited to making one vendor’s product work with another vendor’s product. It also can mean making the new products work with the client’s existing equipment, workflows or both.
“Can installers really think they are ‘allowed’ to make money for combining two stubborn products, which have both been suggested, offered and sold by the same company?” Steindl says. “Customers are willing to pay for integrating into their existing work flow, their existing building structures, etc.
“So what we call plug and play nowadays is simply removing obstacles and hindrances, which were still there for no good reason. Case in point: Soldering an XLR takes absurdly long time compared to pretty much every other trade.”
For vendors, plug and play helps reduce sales barriers by lowering the complexity and thus cost of using their products. Of course, less complexity means fewer opportunities for integrators to add value.
“It might sound very harsh, but the vendors don’t think that they are responsible for job protection of all those installers,” Steindl says. “They want to move their product.
“This new model does not need less resellers, but for sure bigger ones having different skills. Take the average IT integrator as a reference. Is the ‘black art’ in knowing all the different cables and connectors? For sure not. So why does our industry still glorify this kind of wisdom?”
The plug-and-play trend will likely weed out resellers that focus on box sales. The survivors and thrivers will be the ones capable offering managed services. One example is content creation and management for digital signage. That’s because clients often underestimate the resources required to refresh content, which is key for maximising the return on their signage investment.
“Instead of having to focus on the technical details, the reseller is now freed up to provide the customer more, such as additional products for a systems integration project like digital signage or services like content creation help complete the project,” Taylor says.
So will the plug-and-play trend mean vendors will require even fewer resellers?
“Actually this trend means the exact opposite,” Sidwick says. “As products become easier to integrate and deploy, the routes to market and business opportunities increase. We are seeing a dramatic channel expansion based on product accessibility and ease of installation, which means more opportunities than ever for resellers to provide ever more innovative solutions.”