Prospecting For Profits
Where's the action going to be for systems integrators in 2006? Pro AV recently polled our readers in an informal survey to find out just that, asking them which vertical markets will generate the profits of tomorrow.
Where's the action going to be for systems integrators in 2006? Pro AV recently polled our readers in an informal survey to find out just that, asking them which vertical markets will generate the profits of tomorrow. See where systems integrators believe the best opportunities lie this year for pro AV. Not surprisingly, the five hottest categories cited by respondents included house of worship, corporate, government, higher education, and K-12 education. Probing a little deeper to see what technologies and product types would drive these markets, video projection and displays topped the list, followed by sound systems. However, next came some more striking findings.
- 34.8 percent of respondents expect media streaming to be hot in 2006.
- 33.9 are looking for growth in recording and archiving for distribution and streaming.
- 24.3 percent think 2006 is the year for digital signage.
To add some perspective to these numbers, here's a little more detail from respondents' crystal balls. Although the markets themselves may not surprise you, some of the respondents' predictions might.
HOW: serving the underserved
“Way too much emphasis has been placed on the 3,000- to 5,000-seat churches, and the small church segment has had a blind eye turned to it,” says Robin Parker, founder of Suffolk Audio in Suffolk, VA.
Now in its fifth year, Suffolk Audio serves a broad mix of clients, but Parker says the most exciting and promising part of his business these days is reaching out to the under-served smaller churches. “Our customer base right now is the small church, and specifically the small black church market,” he says.
Parker has designed and installed AV systems for churches “as small as 50 to 75 people,” he says. “To me, a big customer is someone willing to spend $4,000 to $6,000, which is not a lot of money, but they can get a lot for it.”
Making money in this segment, though, requires a different approach from larger projects, Parker says. Part of this strategy is not worrying too much about where the customer buys equipment. Suffolk Audio takes pains to carry quality hardware, Parker says, because “I don't want to develop a reputation as being the cheap guy.”
But he also knows he's often being compared to music stores, home electronics stores, and Internet sources. Parker's answer is to offer customers a sales proposition based on professional advice and service. “If you can get a hot deal on a mixer or speakers, go for it,” he says. “Bring it here, and I'll put it all together for you and make sure it works properly.”
This flexible approach has seemed to pay off. “In the bid world, profit margins are always on the low side,” Parker says. “You don't dare go over about 30 percent, and more often you're at 15 or 20 percent.”
On typical Suffolk Audio jobs, profit margins can exceed 50 percent. “So who's winning?” he asks. “In the bid world, the bid winner is often the first place loser. Who wants to sit around a table with razor blades and see how much we're willing to bleed to get a job?”
Emphasizing flexibility, service, and willingness to work with client-supplied hardware pays off in another way, Parker says. “These churches are as connected as your arteries,” he says. “If I do one church, I have two more calling me right away.”
For most small churches, the first opportunity to work with a professional systems integrator comes when worshippers become impatient with unintelligible sermons and echoing sanctuaries. Upgrading the audio system has usually been the route by which integrators get in the door. Lately, however, that may be changing — a trend that may fuel a surge in business in 2006, says Jeffrey Lipp of Lipp AV Design in Buffalo Grove, IL. “In the last couple of years I've had a bunch of smaller churches and synagogues interested in video projection,” he says. “Typically, that interest has been in the larger evangelical churches in the past.”
Now, Lipp says, he's frequently called on to install video projection in churches of 250 to 500 seats. “Five years ago, that would have been unheard of,” he says.
Usually, Lipp answers this interest with a “workhorse” install projector carrying a price tag of about $4,000, coupled with a relatively simple control system. It's the extras that offer the profit possibilities for Lipp, because he, like Parker, often finds himself competing with low-end retail outlets as a source of hardware. “They see the cheap projectors on sale at the computer stores and think that's their budget,” Lipp says. “How much more do you put in to make that projector a system? We need to show them what they get for the extra $16,000 or $20,000.”
These clients are often doing out-of-the-box things with their projectors. One synagogue, for example, is regularly showing popular movies “just as something to do for the community,”
Lipp says. Most churches have quickly gotten comfortable with using PowerPoint to display scriptural texts and hymn lyrics. More and more congregations are also finding uses for DVD duplication systems, which enable them to record such special events as weddings and bar mitzvahs, and then distribute discs to family and friends.
Lipp says he's even having preliminary discussions with some small churches about image magnification systems. All of these developments were hard to imagine in a small church just a short time ago. “This smaller church market really has come up all of a sudden,” Lipp says.
Corporate may drive 20 percent growth
Focusing on particularly promising market segments like corporate applications could help national AV systems integrator SPL Integrated Systems Inc. grow its business by 15 to 20 percent next year, says Jeff Fink, vice president/sales at SPL in Columbia, MD. However, he realizes that growth challenges the integrator to become more of a “partner” to the client — not just an equipment vendor. Declining prices and profit margins can mean success is going to be harder to achieve — even for companies doing a large volume. “If you're just selling a commodity, someone will always sell it cheaper,” Fink says.
SPL tries to bring a holistic approach to corporate clients. “If you pick your clients right, you can grow this business,” he says.
Driving this opportunity is the fact that in corporate America, “the push for the bottom line is so great that anything a company can do to cut expenses is going to be welcome,” he says. “Collaborative technology is what will drive the corporate business this year.”
Within the huge corporate environment, SPL is seeing particular growth prospects in the financial world. “Even some very technologically phobic parts of the financial business” are embracing collaborative tools, Fink says, citing venture capital firms as an example.
Venture capital specialists have traditionally stressed personal connections and face-to-face interaction, but they're increasingly finding that today's conferencing tools deliver these values at drastically lower costs than traveling. Although desktop conferencing is booming, that's not really the focus for a company like SPL, Fink says. “What keeps us in business are the big rooms,” he says.
These installs can cost anywhere from $40,000 to $500,000. Although there's no typical configuration, Fink says profit margins can be about the same across the size range — again, largely because SPL's strategy emphasizes consultation, guidance, and support rather than making money on hardware. This consultative approach gains importance because Fink also sees some changes coming in the hardware picture. Big plasma displays remain popular. In fact, Fink says 63-inch screens are the most popular item. However, SPL is increasingly advocating different technologies like LCDs and DLP rear projection. “We sell a lot of 63-inch plasmas, but you have to reinforce the wall tremendously” to hold the display, Fink says.
LCD panels haven't competed in larger size ranges in the past, but will do so in the future, he adds. “Once LCD reaches comparable size, then the heat, weight, and burn-in issues with plasma will rule,” Fink says.
And for even larger displays, DLP rear projection is taking hold. “It can be built into millwork, it looks great, and works wonderfully,” Fink says.
Some new challenges are also cropping up to complicate life in the corporate lane, Fink says. For example, the proliferation of wireless networks has confronted SPL recently with some settings in which a wireless control system in a conference room couldn't function due to interference — often from sources that could not be identified and remedied. “We will have more and more issues with anything wireless,” Fink says.
A jump for digital signage
Digital signage networks, which generated no revenue at all two years ago for Diversified Systems Inc. of Kenilworth, NJ, account for about 10 percent of the company's business today — and are poised to become dramatically more important in 2006, says Senior Vice President Kevin Collins. “It won't be the largest sector we're involved in, but it will grow more than the other areas,” he adds.
After years of promise, signage is catching on because the business models for it are starting to make sense at last, Collins says. (For more information on trends in digital signage, see “The Power of Digital Signage” in the June 2005 issue of Pro AV, or visit our online archive at www.proavmagazine.com.) “The models and research are in place now to demonstrate the value,” he explains. “The early adopters paid more for digital signage and got less. Now people are paying less and getting more.”
But like many other prospective growth fields, succeeding in digital signage will require companies to take a different approach. “These are unlike traditional AV installs, where you design, build, install, and give the client the keys,” Collins says.
Instead, the integrator's involvement with a digital signage job often goes on indefinitely, as the integrator becomes involved in maintaining both the network and the content being distributed over it. “We don't necessarily create the content, but we manage it,” Collins says.
While there may be less revenue at first than in more traditional installs, the opportunity for continuing revenue is significant. At present, the marketplace is evenly divided between LCD and plasma displays, Collins says, with larger displays (more than 40 inches), which are generally plasmas. “We also see a fair amount of projection, either rear or front projection on suspended surfaces,” Collins says.
But these systems need more maintenance and can be more complex to install, so projectors continue to play a relatively small role in the market, he adds. Similarly, clients today are divided between satellite data distribution and IP systems. IP's big advantage is its ability to address each location separately, Collins notes. “When you get up to a large number of branches, there's a cost breaking point” at which IP becomes the more attractive choice, he adds.
Education moves away from projectors
Barry-K Gilbert, an education sales specialist with Sound Engineering in Livonia, MI, sees a continuing “clamor” for technology in America's classrooms in 2006, but thinks the specifics may change. “A lot of school districts are looking to put projectors in classrooms, but they may also be looking at LCDs and plasmas,” he says.
For one thing, CRT monitors are getting harder to find. “CRTs are going the way of the dinosaur,” Gilbert says. Moreover, LCDs are easy to mount and easy to connect to computers, and as their prices decline and sizes increase, LCDs will become more popular with school buyers, he believes.
Sound Engineering seeks out jobs that transcend mere equipment sales, he adds, because purchases of hardware are almost entirely a bid process and almost entirely price-driven. “The jobs we're after are a little more involved, have control systems, or some facility-wide dimension,” he explains, adding that these jobs are found more often in post-secondary settings than in the K-12 market.
Because the education niche is shaped by bond issues and state funding, Gilbert sees steady, regular activity in the field for the foreseeable future.
In government, action at more local levels?
Audio Video Resources in Phoenix has long specialized in government installations, and looking ahead to 2006, CEO Mark Temen says that while he anticipates significant growth, he also draws a clear distinction between his federal business and the work being generated at other levels.
Temen says he anticipates 2006 business will grow by about 20 percent in AVR's military contracting, and about the same percentage in the municipal market. However, the federal side's short-term picture is much hazier. As of late December, Congress had not approved budgets for many agencies, which were operating on continuing resolutions and, as a result, on financial “bare bones.”
Most of AVR's work for military customers is training support, and a lot of routine training has been deferred while personnel are on active duty in Iraq. As troops return home during 2006, there could well be a “catch-up” surge in training applications and AV buying.
Temen sees the largest opportunities in state and local governments, and this view is reinforced by InfoComm International's 2005 study of these markets, which estimated these levels of government spend $1.2 billion annually on AV.
“There has been a great migration of population, both to warmer climates and away from disaster-vulnerable areas,” Temen says. “The more desirable regions are seeing enormous growth, and they're pressed to the limit.” Moreover, many local governments are losing personnel to the private sector, and the managers who remain are hard pressed to meet their workloads.
One consequence: “Videoconferencing has become almost a necessity.”
Traffic management systems are a particularly strong application area, Temen says, and these systems, with their distributed, networked video cameras and central control facilities, often serve a second purpose in security and emergency planning.
State and municipal governments should be increasingly important customers for AV integrators in 2006, Temen believes, and the federal government, which “has been a good market in recent years,” should be good again once the budget picture is clarified.
John McKeon is an independent consultant and writer based in the Washington D.C. area. He can be reached at email@example.com.