2016 CI: State of the Industry Report

The AV integration industry has settled into slow-and-steady growth but those that don’t accelerate their ability to deliver IT-friendly solutions will hit a wall.

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Meanwhile, the fact that the percentage of revenue stemming from service isn’t growing may be a sign that other parts of the business are growing more quickly. Mountainside, N.J.-based Verrex, for instance, has been focusing on developing its managed service revenue for several years. It traditionally earns 15 to 20 percent of its revenue on global managed services, which include service contracts, preventive maintenance contracts and staffing services for large customers.

“We want to continue to grow those percentages,” says VP of global sales Bill Chamberlin. However, Verrex finds that as a result of service contracts customers end up being happier with their systems and realizing full utilization in their investments.

“It inspires more use of the system, so they build more systems,” Chamberlin says. “So you see the percentages kind of level out.”

Whether the percentage grows or not, focusing on managed services helps a company like Verrex to position themselves as experts and trusted advisors — a step that’s increasingly critical in combatting what’s known as the commoditization of the AV industry.

During the past year Microsoft announced its Surface Hub collaboration solution, which serves as poster boy for a trend in which perhaps less robust and certainly more well-known products at least perceptually provide alternatives to what formerly would have been a more custom-designed solution.

As InfoComm’s Labuskes notes, it speaks to those two opposing trends challenging integration firms, in that systems are becoming more sophisticated while customer’s expectations are for total simplicity.

“On one side you have things becoming more complex and on the other side you have things becoming easier and easier and that you provide them for less and less and less cost,” he says.

During an NSCA event panel discussion on industry commoditization, Wilson called out manufacturers for their role in devaluing custom integration. Some manufacturers, he said, “intend good things when they say stuff like, ‘This product is simple. Anybody can install it. You can put up 10 of these in a half a day.’ That kind of thing.”

However, what Wilson called “the race to simplicity and plug-and-play” is making it difficult for integrators to sell the value of a custom solution that will likely deliver more return on investment and utilization than a plug-and-play product. “As an industry we have to be mindful of how we say things, how we position things and to realize that integrators need margins,” Wilson said.

Manufacturers ought to be concerned about their integration partners’ profitability, he added. Without profitability on projects firms can’t put money into developing their longterm strategies and therefore can’t be effective evangelists for their brands. “Profitability is the key to everything as we move forward.”

Indeed, there are several keys to moving forward. Integration firms need to accelerate their businesses in multiple directions. Firms that fall into the “have nots” as opposed to the “haves,” as Wilson describes them, need to focus on pushing forward their ability to provide the types of network-centric, mobile and remote manageable systems that manufacturers want to sell.

While this might seem like the passing trend of the moment, it is not. It won’t go away. I sat in front of a representative from a well-known and respected manufacturer who told me that his company is nervous about AV integrators being their feet on the ground when selling to IT departments, adding that IT directors refer to AV integrators as “the ones who install things that break.” That’s not a reputation the industry aspires to have with the most important group within customers’ organizations when it comes to making buying decisions.

Meanwhile, integration firms need to focus on improving their managed services, overcoming commoditization and increasing project margin. InfoComm’s Labuskes knows all this, but says there is still plenty of reason for optimism.

“I don’t want to be all storm clouds and gloom and doom,” he says. “The magic is that everybody in the world is becoming more expectant of AV being a ubiquitous part of their life. So the opportunities faced with those challenges are infinite.”

At the end of the day, the state of the industry is solid. Over 40 percent of surveyed integrators say the overall business climate is “very good” or “excellent.” However, the better money is on the 35 percent that say the business climate is “good but with still room for improvement.” Only with improvement in those key areas will slow and steady end up winning the race.