The November annual SSI Residential Issue includes a roundtable Q&A of three members of the Custom Electronic Design & Installation Association (CEDIA) Board of Directors: CEDIA Chairman Federico Bausone (Multimedia, Mexico City), Secretary Buzz Delano (Delano Associates, San Clemente, Calif.) and Treasurer Gordon van Zuiden (cyberManor, Los Gatos, Calif.). The range of the lengthy discussion exceeded the boundaries of the print piece, so below is an extension in which the three company principals address recurring revenue, competition, technology and more.
Could each of you speak about recurring revenue opportunities, specifically ones you’re seeing good traction on in your businesses?
Gordon van Zuiden: Recurring revenue is something we look at all the time because of the Holy Grail of adding intrinsic value to a company continues to be somewhat elusive. But I think we have a greater chance of getting there than ever before, only because everything is connected to the network. Everything has communication of the state, the status, and condition on the network. When we get the audio and video on there, the sprinkler system, the thermostat, the cameras, and we know their state and status, and we can get online and reboot remotely, we can check lamp lights, we can check inkjet cartridge, we can check streaming, we can check packet loss. When we can do all those things effectively and accurately then I think we certainly have a service plan to offer our client. I think in 2014 we’ll begin to see some of those things come out in fruition. I think you’ll see more and more companies with network operation portals that we can leverage and charge our clients to add that value to their homes.
Federico Bausone: We’re just starting as an industry with the whole recurring revenue model. We’ve seen some members use a digital concierge, others use a NOC [network operation center], others are “Let me get in and configure your iPod for you, your iPhone, and help you out,” which should be simple but we are seeing a lot more of that. Eventually it’s going to happen because this is something that the whole industry is talking about it. So we’re working it out, but we’re not the experts.
Buzz Delano: Think about it, while we’re still going to be selling lots of system design and hardware, it’s becoming much more of a services-based industry. Everything we’ve talked about, streaming and so forth, it’s almost becoming an amenities business. Businesses like Gordon’s and Federico’s, when they’re dealing directly with the homeowner they have to be experts in designing the right system for the customer’s life experience or what they’re looking for. But there’s so many more things they can do on an ongoing basis, it’s more service and amenities oriented.
For those specializing in security, what’s the best way for them to work seamlessly with custom home electronic systems providers so the residential customer gets the best experience?
Van Zuiden: We’ve aligned ourselves with an [security] installer. We’ve worked with him for 10 years. I find with these subtrades, there’s those that kind of are enlightened and they get it, and they understand where this direction is going; and there are those that say, “I can’t handle this networking stuff, the Internet. I don’t even want to know what an IP address is.” Those people tend to kind of stay with what they’ve always done. I don’t think it’s going to last very long, but the top 10% of those various trades have younger people onboard, know that’s the way it’s going. They are starting to reach out to people in the CEDIA community and say, “All my customers are asking for this from an iPhone, and iPad, or Android, or Galaxy. And I need to get them there, so how do I get them there?” Then they come in and we talk to them and we establish a relationship in the way of who does what in the scope of work. It becomes very healthy. That’s how it’s worked for us.
How do you keep the customers from being annoyed from either having things become obsolete that may be permanently installed in their homes or having to upgrade software often?
Bausone: How often do you upgrade a system and what does that upgrade mean in terms of lifestyle? I think that’s the key. If you’re going to upgrade a system, whatever software you’re using, and it’s going to disrupt them, then the customer is going to be pissed off. Because of the system that’s being interrupted. But if it’s a seamless upgrade, if it’s an iOS upgrade from one to the next, most of the time it doesn’t really affect the rest of the integration of the house. That’s what we do. How often we do it, at least in our experience, we try to do it when it really makes a difference to the customer. If it’s something that will be of value, then do it. If not, we’ll wait for the next update.
van Zuiden: It’s technology we’re talking about. That is the nature of the beast. People seem to buy a new cellphone every six months. The challenge, when we’re forced to upgrade to iOS 7 or Windows 8 or whatever and it’s a little different interface, it’s something we used to have say, “Why did we go through that hassle; what benefit do we get?” In some cases, it’s hard to answer, but you find if you don’t upgrade things you used to do fall apart and decay. You can’t even use them anymore, so you don’t really have a choice. All the new advances are on the new platform. You try to make it as painless as possible for the clients. We’re somewhat beneficial being here in Silicon Valley. We kind of know that’s the treadmill we all bought off on, but if you’re in other parts of the world maybe you’re not too thrilled with it.
Please identify two or three of the biggest challenges you currently face in your businesses, and how you’re dealing with or managing them.
Bausone: Our biggest challenge is to merge from an AV to an IT and to all the benefits this will bring. We’ve been around for a long time and this is changing and changing quickly. We are learning the network. But it’s not something that came natural to us. This came afterwards. Except for Gordon, for everyone it’s just embracing that and taking that as a competitive advantage for the next years; I think that’s a big challenge we have as an industry in general.
van Zuiden: I would add what truly is a real challenge now is that we talk about the wonders of this mobile platform for control. So when you just look behind that a bit, you realize you’re counting on a level of performance—the goal is to make it as reliable as the light switch that always goes on and off. It seems like every staff meeting, and Monday morning is our staff meeting, the discussion always focuses on the reliability of the communication between the mobile platform and the systems in the house; specifically the wireless reliability, the handshakes of wireless, the strength of wireless, the different standards in wireless; the control of it. We’re not there yet for having a really seamless, robust mobile experience in the home. It was OK when you had a laptop roaming around and you were just surfing the Internet or doing E-mail. It worked pretty well for that. But home control requires a level of responsiveness and low latency. We’re not quite there yet, with what we need to be in this space. That’s a big challenge. There are a lot of products that are coming out or have been out that are offering that. They’ve been available in the enterprise but I think at the residential level we’re learning a lot of these things now, and trying to come up with the right solution in a difficult environment. Unlike the enterprise it’s not 5,000 flat square feet with drop ceilings. Every home is different and every client is different. The devices don’t have particularly strong cell receivers on them. That’s a big challenge for us now, is creating a level of reliability of communication between these mobile devices and the systems they control.
What about your people? How do you get quality people and is training more challenging now than it used to be, or easier?
van Zuiden: We consider ourselves experts in a lot of things. So getting people to have expertise, we train at CEDIA, and I think we do a great job of it, but to really become a senior person in this field you need to know a lot about a lot of different things. Finding good, qualified, experienced people to cover the range of solutions that we offer is not easy. That is a challenge, finding qualified people.
Bausone: At least for us, it’s like any other very specific industry. You can’t just trace a NAD or just find the expert on everything we do. So we go from one section and then cross train him onto the other things that we do.
What about the competition, do you find it’s more competitive as we’re moving forward, or less so, or different competitors? What’s the landscape looking like for you guys?
Bausone: In our case, since we started 25 years ago, there was no one, then more people, the more people, and the more success you have the more competitors you get. That’s the nature of the beast. Right now in our area we have a lot of competition. How do you differentiate? Every single company has their own strategy to differentiate from their competitors, which is a good thing, because that means our industry is growing. I always used to say we’d love to have the home theater like a kitchen; every house has a kitchen. Just some homes had a home theater. Now most homes have a place where they gather together. So now there’s more of a market, which means that there’s more people that can supply that market. The same pretty much goes anywhere. If it’s successful as an industry then you have more people going, and you have more demand.
van Zuiden: There’s been more buzz at the consumer level now about the connected home space by far this year. Look at the public awareness of things like the success of Nest. You read all the venture capital columns in the morning paper and they’re almost all talking about what they perceive as a tremendous growth in the connected-home space. That’s far from a plug-and-play space, so it still requires a lot of expertise on our side. That makes it potentially healthy, but also you’ve got to be careful. Because we vet the best-of-breed products for our clients and we have always been the best at setting up the best projector, and the screen, and the receiver, and speaker quality, so we’re really strong in that. Now we have to also be strong in vetting the best-in-breed of these various streaming devices, and networking gear, and thermostats, and pool control. We’re trying to vet the best of breed in categories where we were not as familiar with. That represents a challenge and opportunity. But our new competition is probably like what I see at CEDIA, some of this new growth in the industry comes from the IT and networking space. We’re finding that those people who know that well plus these other subsystems are good competitors. Those who don’t know it well don’t last very long. It always changes. There’s not that much barrier to entry in this field. Anybody who runs down to Lowe’s and picks stuff up, and puts it in their home, can hang up a shingle and say, “I can do this for you now.”