The Threat Of Direct Sales
Maybe it's because customers are demanding it ? or maybe suppliers are eyeing enhanced profits. Whatever the reason, direct selling has become a looming dark cloud for many pro AV systems integrators.
Maybe it's because customers are demanding it — or maybe suppliers are eyeing enhanced profits. Whatever the reason, direct selling has become a looming dark cloud for many pro AV systems integrators.
When he's not busy managing his successful AV systems integration business in Wayland, MA, David Gormley sometimes ponders the unknown: How much prospective business in his own backyard is being siphoned off by competitors whose pitch is so compelling that he's out of the running before the gun sounds? For Gormley, president of Adtech Systems Inc., it's a nagging worry that's become more pronounced as the manufacturer-direct business model has edged its way into the pro AV marketplace in recent years.
“As big PC makers like Dell and Hewlett-Packard and resellers like CDW come out with more AV solutions like projector-in-a-box products, how many potential customers are bypassing me directly?” Gormley wonders. “There may be projects out there we're losing that we don't even know about. When potential clients stop calling me to even find out if we can do a job, that's a worry.”
It's a concern shared to varying degrees by a growing number of systems integrators/resellers. Witnessing direct-selling powerhouse Dell's expansion into projectors and display devices — and moves by manufacturers like Barco, Harman Pro Group, and InFocus Corp. to open up alternative distribution channels — some fret it's evidence equipment suppliers are looking to do an end-run around them. Others say it's simply a natural byproduct of both commoditization and increased user-friendliness of technology that are forcing systems integrators and others to adapt to a changing marketplace.
While the motivation for and impact of direct-selling is up for debate, there's no doubt it's happening. But there's some question as to whether the trend has truly accelerated or whether nervous integrators are just more closely scrutinizing the practice.
Dell's move into the market lends credence to the former theory. It's become the poster child for those agonizing over the emergence of direct-selling in the pro AV market. While Dell made its name selling desktop computers, the Austin, TX-based company has expanded aggressively into the AV component “box” market —one it sees dovetailing with its business of selling IT gear to business customers.
LEAVING LESS TO CHANCE
Some in the pro AV channel may call it betrayal. Others, simply counterproductive. But ask AV gear manufacturers why they're sidling up to end-users, and the answer is likely to be similar — something along the lines of: “We're just helping create demand.”
In other words, while they may be dabbling in direct selling to give customers more choice, the broader effort really is all about direct marketing. And, while manufacturers say there's a big difference, resellers and integrators haven't quite seen it that way.
None saw that more clearly than Bose Corp. In the late 1990s, the Framingham, MA-based audio systems manufacturer decided it was time to get closer to the end-user. Instead of relying solely on integrators to specify its products for jobs it found, the company's Professional Products group started a direct marketing effort seeking to sell end-users on Bose products, creating in effect, demand “pull.”
The channel's response was anything but supportive. “It was just short of us being figuratively shot in the street,” says Tim Dorwart, the sales and marketing director for the Bose Pro group that conceived the approach.
Dorwart, now an executive with Cerwin-Vega/KRK Systems, says integrators saw the move as heresy of sorts. Any attempt to bypass the channel was viewed as upsetting the industry's apple cart and potentially jeopardizing integrators' business. Still, Bose pursued its strategy, drawing channel supporters who ended up partnering with the company on Bose installs in the process. But since he left Bose in 2000, Dorwart says the company appears to have backed away from the approach. (Bose wouldn't respond to inquiries about the status of its end-user-direct program.)
To this day, Dorwart defends his decision to change Bose's business model, and he's a forceful advocate for manufacturers opening lines of communication to end-users.
“We perceived a demand for higher quality and easier-to-use sound solutions, but we had no organized way of taking our message to the market,” Dorwart says. “There was no real marketing effort in the pro AV industry; if you wanted a sound system you had to find an audio contractor through an ad or word-of-mouth networking. Our idea was to try to demystify the process, talk in plain English, and change that model, in the process adding more water to the pond, not taking more out.”
Despite ample criticisms that Bose's approach reduced integrators to poorly paid hired help, Dorwart insists it helped Bose, end-users, and integrators who installed systems on projects that Bose initiated.
While they may not be following Bose's exact strategy, other AV gear manufacturers are clearly taking a similar direct marketing approach.
Harman Pro Group, which is the umbrella organization for products sold under names like JBL Professional, Crown, AKG, dbx, Soundcraft, and BSS, has steadily opened up lines of communication to end-users. But the company has been careful to keep the channel in the loop.
“We do some prospecting on our own, and because we have recognized brand names we'll often get calls from end-users,” says Mark Gander, vice president of marketing for JBL Professional. “But typically, dealers are ultimately involved in most of our work because we're committed to supporting the contractor and consultant model.”
Barco, a Belgium-based display and presentations gear provider, is taking its message more aggressively to end-users partly because its gear has grown much more complex and capable.
“We're expanding our ‘solutions selling' approach that gets us out of the mindset of just selling more boxes,” says James Durant, market development manager-broadcast, for the company. “The Barco of the past was ‘do you want this or that projector?' Now, we have projectors that are solutions-based. We're taking the approach of marketing our solutions, because the market is changing from one where users have to buy bits and pieces of gear and then hire an integrator to put them all together.”
Explaining the company's move into selling AV gear, now chiefly projectors and flat-panel displays under both its own brand and those of other manufacturers, Dell spokesperson Maggie Beery says it fits the company strategy of entering large, fast-growing markets in which technologies are standardizing — and capitalizing on gaps that may exist in current market offerings. Forging relationships with vendors and suppliers, the company is aiming to make selected AV gear more accessible to a broader range of individual and business customers.
Of perhaps greater concern to integrators is the approach Cambridge SoundWorks is taking. While the Andover, MA-based loudspeaker manufacturer's roots are in selling direct to consumers, the company also appears to be taking aim at certain segments of the professional AV market.
On its website, the company touts its ability to deliver “incredible deals,” not just on its factory-direct loudspeakers, but also on complete audio systems made up of components from other leading manufacturers. The company also plays up its ability to offer a range of advice related to installation, connection, system design, and maintenance — the type of value-added services typically provided by consultants and integrators. But judging from the company's website, price is the real focus. The stated philosophy of Cambridge, which couldn't be reached for comment: “We believe the only good value is when you get a great price on a great product.”
Then there are manufacturers with a long history of not only serving the pro AV market almost exclusively, but also of honoring the traditional distribution channel model that kept integrators and resellers as part of the mix. More of them are dabbling in direct sales as part of their effort to broaden selling and marketing channels.
Take Barco, the Belgium-based supplier of projectors and other visualization and display solutions. As projects in which its equipment are used have grown more complex and its products have evolved, the company has been selling more of its products direct. Such sales are part of a broader strategy of getting closer to end-users as project needs dictate, says Jim Durant, Barco's market development manager for the broadcast market.
“What's happening is we have customers in several broad markets, as well as certain segments within those markets, that are more desirous of dealing direct,” Durant says. “They see an added value of purchasing gear through one organization and putting more responsibility on us as the manufacturer to deliver our portion of the solution. We, as well as other manufacturers, will go direct not because of a desire to boost our margins but because the market is dictating that.”
While direct is accounting for more of the company's sales in all of its markets, Durant says the largest share is done with Barco's broadcast industry customers and, more particularly, in that market's studio set design segment. He estimates about half of the business Barco does in the broadcast market is handled direct.
In its other major markets, however, Durant says Barco still moves the majority of its products through systems integrators that find the jobs and specify/install Barco technology as part of the total systems solution. In markets such as government, house of worship, and rental & staging, resellers remain a vital link for selling Barco solutions, he says.
New demands on integrators
However, as it continues building up its direct-selling capabilities, Barco is leaning harder on its reseller network. Noting that some of the impetus for going direct has come from frustration on the part of Barco and end-users with certain integrator practices, Durant says the company wants to work with integrators who can add value and not just a percentage to an equipment sale.
“The stronger push by end-users for dealing direct with manufacturers is a result of things like a lack of proper project management and after-installation support by integrators, and the existence of so many contract clauses that address issues like design conflicts and non-compliance of gear, all of which can end up leaving it up to the end-user to resolve,” he says. “Customers are getting tired of the finger pointing, and so manufacturers, in turn, are expecting more from their partners.”
But it's probably safe to say that such disenchantment is a two-way street. Though many integrators may grudgingly acknowledge some manufacturer complaints, some argue that the growing practice of manufacturers dealing direct amounts to a betrayal.
Despite rapid commoditization in some areas of technology, equipment sales remain an important source of project leverage and profit for integrators. Denied the ability to freely select components they deem essential to a customer solution and to take a fair markup, some integrators say their delicate pricing structure is at risk.
“Equipment, even in a low-margin project environment, is still a significant contributor to our profit margins,” says Fred Curdts, executive vice president of SPL Integrated Solutions, a Columbia, MD-based integrator. “When we can't sell the equipment at a profit, which helps to cover our overhead, we have to compensate for that loss of revenue by factoring more into our labor rates.”
Aside from the profit consideration, Adtech's Gormley says equipment sales are an important source of security for an integrator. For example, without equipment to repossess in the event a client fails to pay, Gormley says resellers are exposed. Given those realities, he says jobs in which equipment isn't part of the package can be trickier to make work.
“My prices are based on an equipment sale,” he says. “As an integrator you need a certain amount of margin, but that can be hard to make up by charging more for labor. Even the idea of selling hardware at cost and charging more for labor won't work. Customers are going to balk at paying higher labor rates.”
Not yet a crisis
At current levels and in its present form, however, manufacturer direct sales don't appear to pose a major threat to resellers' core business model. According to Sanju Khatri, principal analyst with iSuppli Corp., an El Segundo, CA-based industry research firm, the practice is now limited to components that are either very complex or very simple. She says the bulk of the hardware in jobs of average complexity still is sold through integrators that also do the installation and/or design.
Even if end-users buy key components direct, the need for integration services is strong — even growing as some would say. As users demand more functionality from AV systems, few have the in-house capabilities to design and install complete systems. And manufacturers, while beefing up end-user-oriented technical consultation and service capabilities to complement the direct sale, certainly aren't in the business of systems integration, much less service after the sale.
Mike Vergauwen, president and chief operating officer of AVI Midwest, a Chicago-based integrator, says while he's still not totally comfortable with the idea of his suppliers selling direct, he understands some of the motivation. He doesn't, however, see the practice posing a major threat to his business.
“To get the kind of market exposure they need, manufacturers need companies like ours to find selling opportunities, and most still look to us to sell their equipment,” Vergauwen says. “When we find manufacturers going direct, we try to get in front of them and let them know what we bring to the table. As a company we're focused on jobs in which unique, complex, leading-edge technology is used and in which people need our resources.”
While manufacturers' moves to direct selling may be putting pressure on integrators to step up their performance, there's little evidence they think the traditional channel-selling setup is threatened by their pursuit of alternative selling methods. And most insist there's still a role for integrators/resellers.
“The systems integrator remains a critical part of our solution,” says Ben Smith, director of Americas marketing for InFocus Corp., a Wilsonville, OR-based manufacturer of display and presentation hardware that started selling direct four years ago as part of a push to open up alternative selling channels. “As we continue to see the convergence of AV technologies, the integrator still has a definite role to play. But our first and foremost strategy is to let the customer decide where and how to purchase our products as opposed to having one channel or another dictated to them.”
Tom Zind is a freelance writer and researcher based in Prairie Village, KS. He has written for a variety of business-to-business publications and can be reached at firstname.lastname@example.org.