The subscription consumption model is one of the most preferred ways of utilizing technology and services in our personal and business lives today. With the evolution of technology has come an evolution in how we pay for goods and services. These changes happen when the seller clearly defines the value and the buyer realizes it. But, for whatever reason, the audiovisual technology sector has been painfully slow to adapt to creating value for the customers under this subscription consumption model.
It’s hard to grasp how the AV sector has all the components and ingredients necessary for building lasting lucrative value under this model. Yet, while other technology sectors in the same shoes capitalize on the opportunity, AV continues to flounder, haphazardly attempting to sell some hollow version of AV-as-a-Service (AVaaS) and then turn around with excuses on why it does not work.
I have heard some head-scratching excuses and reasons why the as-a-service model doesn’t work. Such as, “Why would I offer something my customers aren’t asking for” “We just don’t see a lot of AV-as-a-Service in our market” or “We try to sell it and customers are just not interested.”
I want to unpack these excuses by peeling back the layers and value of an as-a-service for integrators and customers. I believe you’ll find that the lack of success has nothing to do with customers not being interested and everything to do with how the value is being packaged and proposed.
True AV-as-a-Service Or A Misrepresentation?
When I began to dig into these excuses and asked questions about their offering, their sales process and how they were proposing their offering, I discovered a lot of inconsistency and a wild misunderstanding about what, why and how they were selling.
Below are two definitions to be most accurate in representing an as-a-service, especially when hardware is a part of the solution.
- Technology-as-a-Service is a subscription-based model for technology products and services when customers pay a monthly fee for access to hardware, software and other services.
- To subscribe to or otherwise pay monthly, for the use of technology products or services instead of purchasing them without ownership.
To verify these definitions, just Google this topic or go to the major technology research firms, and you will find similar descriptions. There may be small variances, but the two areas of consistency are monthly payment and without ownership (use or access). Therefore, if any offer falls short of that definition, it is not an as-a-service. And if claiming to be an as-a-service is a misrepresentation.
For a technology integrator to align with the definition and be classified as a true AV-as-a-Service, there are two models they can create. An integrator must either use their own money to create a monthly payment to represent a solution, or they need a third-party finance company to create one for them. In both scenarios, the monthly payment must include everything, the installation, hardware, obsolescence protection, software and multiyear services, all without ownership.
You cannot own a service. Any variation other than that might be of value, but it is not an as-a-service and shouldn’t be called an as-a-service.
Selling The Value Of An As-A-Service
The overlapping value of AVaaS is a culmination of two market drivers. There’s the desire for integrators to sell more services and build recurring monthly revenue or RMR while aligning with the subscription consumption model for customers with relevance and value.
Why Sales Are Missing The Mark
When this defined offering is positioned strategically and presented tactically to customers, there is a high success rate. There is a larger appetite for this value than is being conveyed and portrayed. Unfortunately, I am mostly witnessing AV integrators telling and not selling. They’re not finding the pain points and solving them. While many AV integrators are creating an AV-as-a-Service or something resembling an AVaaS, they are not changing how they position and sell it.
To be fair, the AV industry has sold only one way since its inception. When you have a current lump sum ownership model and add a monthly payment usage model, more than the offering must change for success.
Solving Pain and Selling a Risk-Mitigation Strategy
Executing an AVaaS is still about solving but it is also about mitigating potential risks that a CAPEX ownership model and project-based sales cannot. AVaaS is about mitigating system interruption or failure risk. It mitigates technology obsolescence risk and preservation of capital that can then be utilized for revenue-generating assets.
The Downside To Selling As-A-Service & Lucrative Upside
An AVaaS sale requires a mindset shift, and tactically pivoting the way you sell an AVaaS solution has little to no downside. The only downside is the customer says “no” and the outcome is the same result you receive today, they pay cash for your project-based sale, and you don’t capture the multi-year maintenance you desire.
However, the upside of selling AVaaS is a lot more lucrative. You win the project-based sale, capture five years of RMR at the point of sale, provide valuable differentiation and build greater customer lifetime value.
Lifting The Veil of Ownership For Customers
The logic and value behind an as-a-service are hard to argue. Beyond the risk mitigation that an AVaaS can provide, you have the economics of ownership and why using after-tax dollars to purchase and own technology should be questioned. Paying in cash or CAPEX may still be how many companies procure these solutions but that does not mean it’s smart, accurate or safe.
If you were informed as the customer or buyer of the following three facts regarding the makeup of the bill of materials (BOM), ask yourself, “Would I spend my capital or keep my working capital working?” If equipped with the facts, I believe, you would see value in a use-based subscription payment model, avoid making a large lump sum payment, and keep your working capital working.
- Non-Recoverable Cost: There is more air in these solutions than tangible assets. Look at a recent bill of materials you designed for a recent customer. Identify everything you cannot recover the day after installation. For example, design, labor, software, licensing, professional services, and warranty. They are all gone the day after installation. Now think about all the profit that is gone that you cannot see, i.e. manufacturer margin, distributor margin, and Integrator margin. What is left on that BOM? The hardware. On a good day, the non-recoverable cost is 50%, on a bad day as high as 80%. With AVaaS, customers can preserve their capital versus relinquishing it all in one fell swoop to pay for all of those non-recoverable costs.
- Non-Revenue Generating: In basic finance and investing CAPEX is used for things that create a return on an investment. Does an AV solution provide a financial return? No. It is just the opposite. Technology is a rapidly depreciating asset. Is an AV solution essential to how we communicate? Absolutely. But these two things are not the same. Instead of spending $100K at one time for new technology, a depreciating asset, reinvest the capital back in the company for a financial return.
- Technology Obsolescence: Lastly, look at the billion-dollar research and development budgets for public AV and technology manufacturers. I guarantee that what is bought and sold today already has a replacement in a beta test. Combine that with artificial intelligence and it questions the race to own these solutions. Technology ownership leaves its owners handcuffed to obsolete technology with minimal flexibility without spending more lump sums of capital.
When analyzing the true economics of ownership, it’s hard to argue its value. Any organization with even a rudimentary knowledge of finance could see the value in use-based procurement models for their technology solutions.
A Lucrative Opportunity For The Taking
AV-as-a-Service is still in its infancy. It is very new to those offering it. It is also unknown to many who would pay for it. But once it is positioned and proposed effectively customers prefer it. In my 30-plus years of experience working in the technology sales sector, I wholeheartedly believe integrators are on the cusp of tapping into the most lucrative opportunity the AV industry has seen. I have never witnessed a more perfect alignment of market demand from customers and the ability of solution providers to supply. I just hope that more integrators will better understand the irrefutable logic and value, be willing to make a change and capitalize on this unique opportunity.
Paul Metzheiser is managing partner at TAMCO.
