This editorial blog is written by an NSCA Community member in the interest of sharing diverse opinions. It isn’t intended to represent the views of NSCA.
Can anyone advocating AV as a service provide data showing success with RMR based on a hardware-intensive model?
Author and entrepreneur Seth Godin wrote, “Don’t find customers for your products; find products for your customers.”
Listening to our customers and, more broadly, the market is a fundamental requirement that all successful entrepreneurs adhere to. Yet, once again, attendees at NSCA’s Business & Leadership Conference (BLC) were reminded that we have failed to transform our organization into a managed services industry—and we’re not charging a sustainable profit on hardware, either.
To focus on this issue, NSCA created its Pivot to Profit conference in 2016 to help integrators create successful plans to transition to AV as a service (AVaaS). NSCA CEO Chuck Wilson stated from the outset, “This event will help integrators take on the challenge of knowing when they’re ready—and to what degree they’re prepared—for the transition to an RMR business focus.”
NSCA wasn’t the only organization that sold this vision of the future. We’ve heard this message from industry consultants who sell expertise in transitioning sales teams, from M&A experts who help owners exit, and from virtually all other industry events.
More than five years have passed, and hundreds of thousands of dollars have been spent on helping integrators transition to RMR. But what has the market told us? Are there strong indications that our customers want to consume AV as a service? I don’t doubt that many NSCA members have clients who do. But I wonder: Could we have spent those energies on something with far greater market adaption?
Will RMR Work in a Hardware-Intensive Model?
I was on a conference planning call last week when the subject of AVaaS came up for our fall event. I rhetorically asked, “How many conferences did ChatGPT attend on how to sell AI to the market?” I assert that we should invest our time and effort in offerings the market demands rather than working around the clock to create demand that does not naturally exist.
Let’s take a brief look at what I mean. Currently, I’m writing this article within the Office 365 offering—a service model that has been a force multiplier for Microsoft in market penetration, customer loyalty, and profits. The free market provides continuous feedback. The cost of the offering is shared across all end-users. All customers receive the same product, and support is consistent. No customer’s software differs. The product cannot become obsolete because the entire solution is updated regularly for the life of the subscription—and at no additional charge. There are no meaningful comparisons between AV as a service to software as service.
Undoubtedly, the security industry and other industries lend themselves to RMR. Industry veterans such as Wilson and Bill Bozeman, former CEO and president of PSA, frequently refer to their hard-earned success in recurring revenue. Still, it’s hard to find success with the differences in custom audiovisual offerings. Until the overwhelming cost of an audiovisual solution transitions to labor, it seems like we will expend enormous amounts of energy to make AV as a service successful. Furthermore, regardless of the resources invested, the return will remain severely constrained until hardware becomes a minor portion of the service offering. Is this unique to the AV industry?
While the successes of XaaS are constantly publicized, losses are not. While writing this article, I contacted a former CMO of a large automobile manufacturer and requested data to back up my assertion. His response was short and to the point: No CMO will advertise that their automobile as a service plan failed, but the majority of them did. In July 2022, The Verge published an article titled, “The future of cars is a subscription nightmare.” In that article, they state, “Ford, BMW, Cadillac, and Mercedes-Benz have all pulled the plug on their vehicle subscription services.”
I’m suggesting that XaaS in every hardware-intensive industry will broadly fail. The market is screaming to the business community that customers do not want this service. Can anyone advocating AV as a service provide data showing success with XaaS based on a hardware-intensive model?
Drive Profits and Customer Loyalty—with Less Effort
During a roundtable discussion at BLC 2023, there was a reluctant push for integrators to raise project margins, but also the emphasis that RMR isn’t the silver bullet.
Our value as integrators is our ability to provide professional services. There is no long-term play in building around hardware margin. We should embrace leading manufacturers that empower integrators to deliver superior services at a lower cost and greater scale.
I see two main hardware constraints that are different for AV than they are for security. First, many AV products are available directly to the consumer. Customers frequently find displays and videoconferencing equipment online and present the integrator with their research. Second, manufacturers continue to develop and improve solutions that customers can self-perform. This trend is not likely to reverse.
To remain relevant, it is incumbent on integrators to demonstrate their value in services. Our clients are becoming more knowledgeable and sophisticated. We should be embracing these partnership opportunities to go deeper into their organizations. We must elevate our abilities to be subject-matter experts and strategists for end-users instead of wasting our energies on futile attempts to squeeze an extra few points on hardware sales. Our clients know the costs. They have sophisticated procurement software. Our industry should be wholly dedicated to developing product/service offerings that complement our end-user community.
We can look to the larger IT community to understand where AV integrators are headed. They’re happy to provide a switch, but they aren’t going to mark that switch up 20%. More likely, it’ll be a cost-plus fee with the profit being derived from services.
Let’s ask ourselves: Where can we drive profits and customer loyalty with less effort and investment? I strongly suggest that the answer isn’t found in AV as a service nor in selling hardware for an extra 5%.
I wish all NSCA members luck with their initiatives!
Brent Berger is partner at Bridges SI.