The new model

About two months ago Tom Milner surfaced on the InAVate LinkedIn group explaining how low product margins had driven him from the reseller market and pushed him into AV service. Anna Mitchell caught up with him to learn more about the model and why it fits the UK market today.

You’d have to be very mad or very brave to have started a company in the UK at the beginning of this year. Market conditions weren’t exactly conducive to nurturing new business as the UK started to crawl slowly out of a devastating recession. But, it was in January 2010 that Tom Milner started business as Service and Support Ltd.

Milner was driven by a new business model, based on maintenance and service, that he was eager to implement, arguing that the margins are so poor on equipment that there is little benefit in acting as a reseller.

“It’s quite possibly the worst possible year you could start a business,” he states frankly. “It was dire throughout January, February, and March into April. We were lucky and picked up a large maintenance contract in May and June was a good month but again July was horrible. But, since then it’s been great. We’ve got some fantastic work coming up and business seems to be picking up in the general corporate AV workspace; things like boardrooms, interactive whiteboards and presentation suites. That’s all booming.

“We’re not a reseller, we do not sell equipment in any shape or form because we cannot afford the capital cost of providing equipment. Starting out, we just can’t afford it and to be honest that model is not likely to change because there are no margins in it.”

Milner says third party maintenance contracts prevalent in the UK IT industry were partly the inspiration for his business model. “I’ve learnt a lot from the IT model because, although not in terms of technology, it’s actually a good seven or eight years ahead of the AV industry when it comes to business approaches.

“Right now,” he continues, “there’s an awful lot of cost savings to be made, and will have to be made, in small to medium business to ensure their survival.” Milner knows this only too well from his own experiences. “Coming into our first year now it’s horrible. But, actually if we survive and we carry on moving onwards it will just get easier and easier. If we can survive now, we can survive anything.”

One of the most prominent casualties for the UK AV market this year has been the education market and, according to Milner, it wasn’t an entirely predictable one. “One of our first projects earlier in the year was in education. It was something that looked like it was very big and now there is next to nothing in that area, which is appalling really.

“The hit came after the change in government and I don’t see anything changing in that marketplace for a couple of years. Obviously there are some new school projects that didn’t get cancelled and may still be up for grabs but it’s a very limited marketplace. A lot of the typical education resellers will be very much concentrating on those remaining projects. But, for us it’s not a market we’ll pursue.” And as the government slashes spending across nearly all departments, Milner pinpoints defence projects as experiencing a massive squeeze adding, the “the public sector has just died a death”.

Milner can see good times to come for the AV industry, which he says is currently biding its time until the “next big thing”. But what could that be? With all the hype, marketing and investment surrounding 3D it could be the next driving technology for the industry. Milner is not so sure and argues that the technology isn’t quite there yet and in digital signage arenas says it often works to the detriment of the advert. “It’s not slick enough for what the cost of the sets are. The cost is prohibitive. Vendors have to push it because they’ve assumed it’s going to be the next big thing for them. Unfortunately I think they’re going to catch a cold on it. Maybe with some product development it will work well in three or four years.”

Service and Support has a certain amount of work in the videoconferencing marketplace but Milner says the amount of resellers flooding the sector have turned it into a commodity market. “There are too many resellers out there trying to make a fast buck,” he argues. “I don’t think there is enough general knowledge about what benefit to a business videoconferencing can be yet. It’s only multinational companies that have truly grasped the benefits of videoconferencing and what it can save them in terms of costs like airfares. There are an awful lot of companies out there that use it all the time. But, often I think they use it for the wrong reasons.

“Don’t get me wrong I think some of these videoconferencing systems are absolutely brilliant. What they can do is fantastic compared to the old ISDN products four or five years ago. Broadband has helped us immensely in that respect. But, still, videoconferencing is a market I’m wary of because it’s flooded. I predict some of the resellers will go bust and this year is going to be a massive test. The resellers that deal in the medium to high-end versions of the equipment are better placed to survive because they’ve actually got some fairly good maintenance revenue from it that will keep them afloat. The ones selling the £400 - £500 kits will install a lot of them and then they’ll reach saturation. And, why bother taking out a maintenance contract on something you can replace for £500? That’s why it’s become a commodity market.”

Unsurprisingly Milner pinpoints the 2012 Olympic Games as great opportunity for the UK AV community, adding that any big construction project breeds AV work. But, it’s hard to quantify as many of the manufacturers and integrators that have landed the lucrative contracts are gagged due to pressures from the sponsors that have paid millions to dominate the press surrounding the event.

But, Milner does say he feels another big thing looming on the AV horizon is digital signage. “I think we may see some larger roll-outs as a realisation dawns on the retail marketplace that digital signage does work.

“But, I think the digital signage industry has got to get a lot smarter about how it sells itself into the marketplace. A lot of the deals that are out there, for example software as a service, are the right way to go but they’re still not enticing enough for the customer to grab hold of. Because, ultimately the software companies and the resellers still want to make the sort of 40 to 50 per cent margins that they’re used to making. Life is not like that anymore. There’s probably 20 per cent in it if you’re really lucky. Most of the time it’s about 12.5 to 15 per cent.”

So where will the UK AV market go from here? “I don’t see [the] education [market] coming back to the AV marketplace for at least another two years. There’s too much in the UK to recover before there’s any large-scale investment again.

“In fact, on the whole I don’t think many people in the AV industry are expecting to take home big bonuses in the next couple of years and for the small businesses the key for the moment is just to survive. If they can do that, with markets like digital signage set to explode, they’ll be in the right position to really benefit from it.”

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