AV Firm Puts A New Spin On Service
New thinking about maintenance agreements generates a major new revenue source for TEi.
ABOUT A year and a half ago, TEi (Tech Electronics Inc.), of Norcross, GA, decided to take a fresh look at an old topic, maintenance contracts. The result was a new revenue stream that generated $100,000 in its first year.
That fresh look has also led the company into a whole new business, and it's a transition CEO Sean Matthews says other AV integrators need to consider if they want to stay viable.
TEi was “very ingrained in the AV industry,” Matthews says. “Ninety-five percent of our business came through the AV channel.” The company made automated controllers for computer-based classroom control systems and similar applications, integrating with the widely used control products of Crestron and similar companies.
This basic orientation exposed the company to a classic triple-whammy. Every time a vendor came out with a new piece of hardware, TEi incurred one-time engineering costs to adapt to it. The company felt increasing pressure from the IT community to respond to every change in computer technology, such as the rapid adoption of USB connectivity.
And revenues flowed in the all-too-familiar peaks-and-valleys pattern. “We faced the challenge of always searching for the next project,” Matthews says.
The answer was to find some source of “annuity” revenue — regular income TEi could count on.
Getting this steady revenue from maintenance and service agreements is hardly a new idea, Matthews notes. “The AV industry has always tried to have these agreements,” he says. “The problem is that AV products can't really be maintained.” Apart from replacing projector lamps, he adds, there really isn't much “maintenance” the company could sell to clients.
For Matthews, this quandary reflected a broader and deeper challenge to the AV business. “The IT people have complete control of what's being specified,” Matthews says.
Moreover, AV professionals increasingly find the subjects they know most about — such as displays — aren't as central as they once were. “Because we have all this AV experience, we have a solid understanding of displays, but IT departments are very quickly catching up or supplanting us,” he observes. “Displays are the simplest part, and they're easy for the IT guys to learn.”
The reverse, though, hasn't been true: “Even though there has been all this talk about convergence, the AV channel is really ill-prepared to integrate software products,” Matthews says.
TEi, then, set out to transform itself from a hardware-oriented AV company to a software developer. One of the first fruits of this strategy was a new approach to ongoing revenue.
Software maintenance is fundamentally different from hardware maintenance, Matthews notes, and features almost continuous upgrades that are expected to take place with minimal client involvement or awareness. A familiar example is the way Microsoft feeds Windows updates to users' computers whenever they're available. Users enable automatic updates, and then don't think about it again.
TEi created a new product it calls a Software Maintenance Agreement, which includes priority technical support, remote diagnostics, and free upgrades for the many software components involved in a typical conferencing or presentation system these days.
Supporting this service is a group of products TEi licenses from Simtrol, a software company specializing in device control and monitoring based in Norcross, GA. These tools, such as Simtrol's OnGuard software, enable TEi to monitor clients' systems from any location at any time, using a standard web browser, and access information about device status and health in real time. Much of the software required to prepare clients' systems for this service was also installed remotely.
As a result, TEi can monitor all peripheral devices on a client's network, and perform routine software updates invisibly. “You won't even recognize we're there,” Matthews says.
Matthews says the new Software Maintenance Agreements produced $100,000 in new revenue in their first 12 months. He expects similar growth in the coming year, along with a 93 percent renewal rate among previous subscribers. Best of all, Matthews says this revenue is 86 percent profit.
Costs to provide the service are modest and don't increase in lockstep with the number of customers. These costs include license fees to Simtrol and other companies, plus some labor costs and shipping via Federal Express.
Adding this kind of service requires building up a networking knowledge base that many AV integrators simply don't have, Matthews says. But he notes that the knowledge required isn't encyclopedic — the ABCs of networking are all that's needed — and this know-how is going to be absolutely essential if the AV company wants to take advantage of the next “killer app:” digital signage.
Displays, after all, are only a part of digital signage; networks are its lifeblood. “It will be virtually impossible for the AV channel to sell into and support the digital signage craze without network experience and training,” Matthews says. “The Simtrol products not only help you create digital signage content, but also help you control and monitor the entire system.”
Digital signage is also supporting a new “annuity” revenue stream for TEi. In July 2005, TEi also launched a new service to distribute syndicated data feeds to digital signage media players, at $59 per player per month. That may not sound like much, Matthews says, but “we have more than 1,500 channel players in the U.S. In a perfect world, $59 times 1,500 equals $88,500 per month, times 12 months equals $1.06 million. You get the picture.”
But the average AV systems integrator need not jettison its core business and become a network designer overnight in order to realize this sort of revenue stream, Matthews says. It can be an add-on to a traditional AV product/service offering. “You can learn it, but it takes discipline; it really does,” Matthews says.
A number of providers offer networking training and certification options. The AV company, though, has to commit to taking its people out of the field, where they're generating income, and invest the time it takes them to learn new skills.
For TEi, the path to the future is clear. “We've begun to discontinue our legacy products and focus all of our energy on software products,” Matthews says. “We can adapt to software requirements faster than to hardware, and this emphasis has also identified revenue streams for us that just weren't available in the traditional AV channel.”
John McKeon is an independent consultant and writer based in the Washington D.C. area. He can be reached at email@example.com.