In terms of major challenges, there are the usual suspects, of course:
1. The vast majority of the industry remains stuck in the mud when it comes to generating managed services revenue. Only 1/5 of surveyed integrators earn more than 10 percent of their revenue through service contracts and 27 percent earn zero. Consider that Whitlock and Yorktel, CI’s 2015 Integrator of the Year, each secure about 50 percent of their revenue through managed services.
2. That lack of service revenue is rarely offset by project margins or labor revenue. Only 29 percent of surveyed integrators say more than 20 points on a project is typical in terms of hardware margin, while a staggering 21 percent say they typically get less than 10 points. Meanwhile, only 13 percent say they charge more than $100 per hour for technician labor and nearly a quarter bill under $50 per hour.
3. It’s difficult to overcome issue No. 2 in a market that is increasingly commoditized. Not only are manufacturers continually touting robust features from “out of the box” solutions, but integrators are dealing with competitors that may be on an equal plane when it comes to qualifications and certifications “but they’re just not valuing their services high enough,” says Bruce Kaufmann, president and CEO of Gaithersburg, Md.-based Human Circuit.
These challenges are well documented, but here’s one you might not have heard — the industry is in trouble because most integration firms aren’t evolving in sync with how some manufacturers are adapting their solutions to address customers’ changing needs.
How it’s supposed to work is manufacturers make products; they fully commit to the channel and rely on integration firms as dealers distributing their products; integration firms evangelize said products, use them to solve customers’ problems and make manufacturers look good.
When one cog breaks the whole system can crumble. While the system is not broken as we enter 2016, some have pointed out cracks in a cog.
The bottom line: Many integrators need to accelerate their abilities to solve customers’ sophisticated challenges. Otherwise, slow and steady will not win the race.
Time to Accelerate
Depending on whether or not they work in the health care market, integrators may or may not be familiar with Ascom, a manufacturer of nurse call and other communication devices. Whether they’re an Ascom dealer or not, integration firms might be intrigued by a strategic distribution decision the company recently made to sell its integrated health care communication solutions through Tyco Simplex Grinnell and Tyco Integrated Fire & Security, businesses with a combined 10,000 employees and 150 offices in North America.
It’s naive to think that Ascom’s decision to complement its formerly channel-only distribution model isn’t on the table for more mainstream AV, automation and security manufacturers that are decreasingly confident that typical AV integration firms — not all, but a significant majority — are sophisticated enough to commission, present, sell and service their increasingly network- and mobility-centric solutions to customers’ IT staffs.
The reality, says Wilson, is that as head of a trade organization that completely supports the channel, he has been playing “whack a mole” behind the scenes.
“As soon as one manufacturer says ‘we’re going to go direct unless you guys get your [stuff] together,’ I calm them down and all of a sudden another one pops up. I’m running around trying to keep my finger in the leaking dike,” Wilson says.
What’s happening is as manufacturers build their products and brands around mobility, remote manageability and become more software-centric — features that appeal to the emerging group of IT professionals who have tremendous influence over purchasing decisions in end user organizations — they’re increasingly concerned that selling through their AV integration channel might not be putting their best foot forward.
“Manufacturers are looking to roll out these products in the next year and they’re saying, ‘Chuck, where are your guys at in terms of the level of sophistication they need to be the kind of technology solutions provider that we sell through?'” Wilson says. “In many cases when they do their evaluations of the skill set of our members they’re finding that maybe 10 or 20 percent of them are good to go. So they’re wondering how do we beef up that channel? That’s what I’m trying to do.”