It was philosopher Herbert Spencer who coined the term “survival of the fittest”. Spencer, a passionate advocate of the ideas of Charles Darwin, believed that struggle forced individuals to improve themselves as well as weeding out the few totally unfit to survive. While it’s fairly safe to assume that Mr. Spencer did not have the AV industry in mind whilst formulating his theories, they have, nonetheless, an eerily prophetic ring of truth about them in today’s business environment.
In the natural world, changes in the environment place pressures on those creatures reliant upon it for survival. Being the biggest or strongest does not necessarily guarantee success in any struggle for survival – just ask any Tyrannosaurus Rex. Instead, fortune tends to favour those able to adapt sufficiently quickly to avoid extinction. So it is with business: For many years, the corporate installation market was a reasonably well-ordered and stable environment: Lighting, audio and video companies each had their place within a well defined hierarchy of manufacturers, distributors and dealers. That this established order is changing, is now beyond dispute. For those able to adapt to the new environment, these changes have presented a great deal of opportunity. Others, not quite so quick to move with the times, have been less fortunate: “Everything evolves”, says John Midgley of Beyerdynamic GB. “The company that stands still runs a real risk of being left behind”. John continues:” It’s sometimes a little frightening to think of where we might have to go in the future, but the company which doesn’t evolve to meet the needs of its markets and customers will inevitably end up with the dinosaurs.”
There have certainly been some notable extinctions in recent times which graphically illustrate the harsh reality of survival in today’s install markets. Understanding the forces driving change within the industry is more crucial than ever for those keen to avoid a dodo-esque epitaph. Some industry commentators have pointed to the AV systems installation business evolving as a two tier industry consisting of multi-discipline systems integrators and smaller “bang and hang” installers. But this belies a far more complex situation, involving many different players, each pursuing their own survival agenda against the backdrop of a changing business environment.
On the large scale, macro-economic pressures have had an industry-wide impact. The last couple of years have been particularly tough for many business sectors which has led to sluggish performance in the traditionally rich hunting grounds of the corporate installation market, as well as slowing development in potential new markets such as education and retail. When times get hard, major installations and refurbishments are one of the first casualties of corporate belt-tightening. But while previously postponed projects are showing signs of springing back into life, many are being closely re-examined in the light of continuing economic uncertainties. In today’s hard-nosed economic climate, any capital expenditure has to be more clearly justifiable in terms of return on investment rather than merely achieving the “wow” factor. Lavish, big-budget AV projects undoubtedly still exist, but in general, customers are demanding more bang for their buck.
Nevertheless, greater reliance on data visualisation and multimedia in the business world continues to be a powerful driving force in the corporate market. Technologies like videoconferencing and collaborative working are gaining popularity due to demonstrable savings of time and money they offer business customers. Today’s systems often need to integrate with existing presentation and network facilities, deliver greater flexibility and greater demonstrable benefit. Whereas on face value, this would seem to be a positive trend for the audio-visual installer, satisfying this demand places far greater demands on the skills and knowledge of the installer. Put simply, there’s often a lot more involved than Lumens and Decibels. Alan Moore of Audeo Limited comments “There is no such thing as a generalist technology supplier anymore. All technologies are getting more specialised and therefore the depth of knowledge required, as opposed to the breadth, is much greater”. For examples, one has only to consider the high degree of network integration now built-in to contemporary room control systems and presentation devices. Alan continues, ”The appropriate expertise is a prerequisite for being able to properly specify and install these kind of products”.
The influence of the information technology sector on the presentation systems industry has been profound and far reaching. In many applications, there is now no clear delineation between the two. The inevitable result has been a vast increase in the number and type of manufacturers producing presentation products, but more importantly, a fundamental change in the way these products are developed, marketed and distributed. Nowhere is this more clearly illustrated than in the displays industry.
For many years, technologies like DMD, plasma and LCD microdisplays were the jealously guarded preserve of a handful of manufacturers serving a largely homogenous pro-AV market. Manufacturing volumes of specialist high-end products were then, and remain to this day, comparatively low and so prices remain relatively high. Competition based mainly on performance means that development costs are a significant overhead for manufacturers; a cost which must be recovered through a higher profit margin. Distributors are also able to recover their overheads via their profit margin where no alternative to the established distribution channel exists. Where supply and demand are balanced, then the whole system reaches equilibrium.
But the arrival of the big IT-biased corporations into the presentation arena has upset this finely balanced system. The new arrivals have bought with them their own marketing philosophy which operates in quite a different way to the traditional structure of the AV industry. Widespread proliferation of display technologies like LCD, plasma and DMD, combined with much larger manufacturing capacity, has enabled these companies to commoditise some display products in much the same way as they have already done with PC’s, monitors, printers and scanners, to name but a few examples. A high rate of production means that the overhead recovery per unit can be reduced, but only if sufficient sales volumes can be achieved. The Law of Demand states that as prices drop, so market demand increases. Growing demand, thereby increasing sales volume to the necessary level, means dropping prices. Not just at the factory gates, but throughout the supply chain. While the IT channels have evolved to work in this way, some distributors in the established AV channel geared to low volume/high margin operation, were not. The word “were” is significant: Faced with savage competition on price which eroded profit margins on individual unit sales to practically nothing, and with little else to offer in terms of added value, a good number have simply been priced out of the game.
But the impact of increased competition has also exerted a more subtle effect on the industry. For manufacturers, gaining market share is now increasingly dependant on adding value to products rather than achieving big leaps forward in performance. With projectors, for example, more esoteric refinements like improved lamp life, lower fan noise, network and wireless operation all help to differentiate one product from another. But this presents a problem for manufacturers: Adding features that customers don’t need in their particular application increases costs unnecessarily which creates commercial disadvantage. The lesson learned from the IT sector’s long experience of volume markets, is to segment the market and address each sector individually. Products aimed at specific markets – the home user, budget-conscious businessman or high-end professional – can be specced and priced as appropriate to demand. More importantly, the channels to market can be different in each case. The profoundly important lesson, for both manufacturers and distributors alike, is that market specialisation is not only still possible, it is vital.
Consequently, there has been significant change by the larger manufacturers from product-focused to market-oriented divisions. The hallmark of this re-organisation is in the way that these divisions now encompass a range of products which have direct applications in specific markets. For example, Sony’s retail division provides video servers as well as certain models of plasma and projection products; Barco’s digital signage products, including variants of their LED event screens, are handled by their media division. Although the core product technologies might remain common across a range of divisions, individual models are becoming more specialised by the inclusion of added value features. The role of the specialised distributor has therefore become more, rather than less important to manufacturers because of the expertise required to support specialised products in the market, and is quite separate from the concept of “box-shifting” .
While commoditised, user-friendly plug-and-play technologies are well suited to bulk distribution, a lot of the products required to satisfy the increasingly benefit-conscious customer, are not. Alan Moore from videoconferencing specialists Audeo relates a cautionary tale of the results of manufacturers choosing an inappropriate method of distribution: “A few years ago, a particular manufacturer decided to change their distribution from multi-tier to single tier, thereby levelling the playing field between distributors and resellers. By allowing virtually anyone to get access to the product, a price war developed between value-added distributors and bulk distributors. The value added distributors become uncompetitive on price because resellers were only interested in box-shifting. The result was that the product became effectively unsupported in the market, where it quickly gained a reputation with customers as being unreliable and difficult to use – not because it was a bad product, but merely because resellers and end-users lacked the expertise and resources to install and set it up properly. The manufacturer suffered a big loss of market share as a direct consequence and has since switched back to a multi-level, value-added distribution model”.
Successful distributors in today’s installation markets share a belief in the importance of acquiring the correct mix of products and expertise appropriate to their specific markets. John Midgley of Beyerdynamic GB says, “Distribution companies, if they are to survive, must focus on providing solutions, a breadth of products and technical support to help their customers”. Beyerdynamic distribute Beyer audio products in the UK, but now also Cue touchpanel controllers and a whole range of associated products which, as John puts it, “Have a natural synergy with our markets”. But it’s not just breadth of product range that’s important. The right skill base is essential too: “In the past good sales skills were the key, but now our skill set is much more technically led with a strong project management bias. As the market becomes more competitive, it’s become necessary for us to employ specialists to be able to offer a complete solution”.
AC Lighting are another well known distributor now also offering a wider range of services. Richard Bewley of AC Lighting says their project division, AC Projects, was formed “to answer the demand for end-to-end solutions. We felt it was appropriate to have a specific division capable of offering a service which includes audio and AV as well as lighting”. As with Beyerdynamic, it is the in-house expertise which adds the all-important value aspect: Peter Keiderling of AC Projects explains,” We are very much in touch with all the latest products, so we are able to offer our expertise to consultants and designers who know what they want to achieve but might benefit from our help in finding the best solution”. Peter identifies the adding of this kind of value as “Very important. All the major players offer similar pricing, but it’s going that extra mile that makes the difference”.
So with distributors now getting more involved with installations, does that create potential for a conflict of interest with existing customers? “We are mindful of the projects that we get involved with so as not to end up competing with our customers”, says Peter Keiderling. “Projects remain a small part of our turnover compared to sales and distribution. We remain very active in supporting our sales customers by offering services like our extensive product training programme.” Richard Bewley prefers to see AC’s projects division as offering an additional service to existing customers which enables them to compete more effectively in their respective markets; working with them rather than competing. Alan Moore says Audeo are quite happy to support resellers as well as end-users. “If we are working with an AV company, we will provide the telecoms and IT expertise for them. If our customer is an IT company, we provide the AV and telecoms expertise, and so on”. Audeo’s in-house expertise is in effect a tradable product in its own right, independent of revenue streams from equipment sales. Alan continues, “We are an accredited Cisco partner, even though we don’t sell Cisco equipment. Why? Because it means it gives us the credibility to talk directly to IT personnel and for them to recognise that we know what we are doing”.
But what of the installers themselves…is the “bang-and-hang” installer doomed to fall victim to the process of natural selection? Not necessarily. In this complex web of interdependencies, there are still opportunities for smaller operators to thrive provided they understand their markets. A major AV distributor recently commented that one of their best customers has, virtually single-handedly, built a £ million-plus turnover business selling and installing projectors into the education sector, armed with little more than a mobile phone! The keys to success? High quality salesmanship, a keen understanding of the market’s requirements and extremely low overheads. For others, the answer lies in either acquiring the skill set to be able to deal effectively with technologies like networks, or forming strong alliances with others with the necessary expertise. If nature teaches us anything, it’s that it’s not necessarily the biggest that wins in the long term.
If Charles Darwin were alive today, he would probably concur that while the multi-product/multi-disciplined, value-added distributor model appears to offer a good survival strategy in a highly competitive market, evolution is a continual process. He might also point out that the most significant factors for long term success are adaptability, willingness to evolve and a keen environmental awareness.
Consequently, I bet he wouldn’t be just selling projectors for a living.
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