We just got back from the CEDIA Expo (Custom Electronic Designer Installer Association) trade show in Denver. I consider this our “home” show because I launched the D-Tools product line at this same show in New Orleans exactly 10 years ago.
CEDIA has always been a very successful show for us. I come from this industry and this is our target audience. Not only did it launch the product in 1998 but it has provided us with a consistently solid Q3 and set us up for strong year end throughout the history of the company.
However I was a little worried this year. A typical CEDIA installer caters to residential builders and upscale clientele. The real estate and economic woes of the past year have greatly affected both markets and thus the ability of our clients to purchase our software.
In addition as this market has matured there are now a number of smaller software companies competing with D-Tools at some level. For the most part this is just simple proposal software at a low price point, but in a tight market price can sometimes cloud the judgment of a buyer and the lowest price can win.
Like I said I was worried going into the show. A good CEDIA sets us up for the rest of the year and visa-versa. As it turns out I had nothing to worry about. CEDIA 2008 was the second best CEDIA in the history of the company both from an immediate revenue generated and number of leads captured standpoint. (insert sports analogy here)
So why did this happen? Everything pointed the other way. This is what I think is going on with the residential installation market and how it relates to our recent success at CEDIA.
The residential installation market has always enjoyed good margins on equipment. I think this has been a mixed blessing. On one hand high equipment margins can allow an integration company to grow and prosper faster. On the other hand high equipment margins may hide some inefficiencies on the installation, service and labor side of the business as well as mask some internal business process and work flow issues.
In addition these types of residential systems are getting easier, cheaper and quicker to install. In the recent past a high end residential system could easily cost hundreds of thousands of dollars and take man-months of labor to complete. Now a lot of that exact functionality and performance can be had for a fraction of that amount. This means more end users can afford these systems but the total dollar amount to the system integrator is dropping. Since the integrator can not do anything about equipment prices or margins they have to manage their labor better if they want to maintain profitability and growth.
To me this sounds like the IT industry in 1996. Back then a simple router could cost thousands and it took a Cisco certification to set up. Now that same performance level of router is $99.00 at Fry’s with a $30.00 rebate. What the global IT industry learned over the past 10 years as it grew to a $3.4 Trillion business is that you need to charge for ALL of your services and you can not rely on the profit from equipment to cover any inefficiencies on the labor side.
I think that is one of the reasons we had such a successful show. While our competitors tout the importance of a generating an accurate proposal we tout the importance of having an entire business process that starts with the proposal. In any case a proposal is just a clients permission for you to start the actual work. A proposal that starts in D-Tools SI can be used for entire project life cycle.
As the residential integration market matures I think that integrators will need to place more emphasis on selling their services such as design, management and maintenance. If I was an integrator I would try and run my business profitabily from service derived income and consider any profit on equipment as a tip.