AVaaS: It Just Does Not Make Sense

Next month, I have the opportunity to be part of an amazing panel at CCUMC on AVaaS. Being part of this panel has made me think more about the service and do some research on it. I don’t want to spoil the entire panel here, after all, I know that we will have a huge crowd and I want some surprises.

One of the things that has struck me as I read about AVaaS is that every perspective I have read is from the integrator’s point of view, or aimed at the integrator. The basic point is, you need to start creating new revenue streams and get away from the dying (dead?) revenue of box sales. The point is true, but simply making up new revenue streams does not mean they work or make sense. I have not yet seen one of these articles or presentations actually present a compelling case for the integrator. Let’s just do some quick math. Let’s say a collaborative room in a corporate environment may bring a firm about 30K in revenue. Let’s go a step further and say that fifty percent of that is profit and fifty percent is cost. The firm now needs to upfront that 15K. We will assume that over the period of the “service’ they want to get, at the very least, their cost of capital back. If we assume the cost of capital is 6 percent (what that firm could make by investing the money), then the firm needs to make back, $30,900. Yes, there is some other math that could put this in more detail (like annuitizing the cost of capital), but let’s keep the numbers round.

So, the firm, to make its profit, plus a couple pennies, needs to charge $515 for that room, over the next five years. This is no different than if the firm were to have sold the room upfront and put the money in the bank and withdraw $515 per month for five years. NO DIFFERENCE! The desired difference, is, of course, that there are customers out there who just can’t wait for the next best thing and will only have that equipment for two years and want to upgrade for an increased monthly cost.

Before I look at this from the customer perspective, I should make one assumption clear. From what I have read, most integrators look at AVaaS as different than managed services. So, for that per month cost, you are not getting maintenance, monitoring and day to day support.

Now, let’s turn to the customer perspective and think about the service. As a customer, I look at the $515 per month charge and despite what I am told, think that essentially, I have taken a loan out for the install. I am not getting any services for that money, I am only paying to keep what I have running and under warranty. We must remember that the customer is also in business. So, while we can imagine they always want the best the brightest and the shiniest, they are always considering the bottom line. In my experiences, one of the benefits of AV have always been that it has a pretty long life. We have rooms that are over eight or nine years old and running just fine. They are accomplishing their mission. There is no value to my firm, to spend money to upgrade those spaces. This is true for the large majority of rooms that I manage. They can easily go six, seven or eight years without thinking of upgrading. So, let’s go back to the numbers. If I have 70 spaces, and am being charged $515 for AVaaS each, then I need to budget $36,050 per month! That cost totaled over the course of a year is more than my maintenance, installation and upgrade budget combined. I would be paying for a service that I don’t need and certainly does not provide any value. I would have to convince my institution to increase the budget, not only to cover the rooms under the contract, but also to do basic maintenance and support of those rooms.

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The above description is in the view of a corporate customer, who needs the install to provide value to the company. I could see AVaaS being lucrative for high-end residential installs. Those installs don’t have a board and a CFO to answer to and the value there comes simply from how they feel. They are also more likely to want to go to the newest and shiniest objects as they come out.

In the end, the basic model of AVaaS, does not provide the same value as other aaS revenue models. Streaming music, for example, provides the user with something they want, but could not otherwise afford — unlimited music, anytime, anywhere. Software as a service provides upgrades, maintenance and support, so customers are not stuck with outdated software that is not compatible.

I am sure there are many that disagree with this line of thinking! If so, let me know! I am anxious to hear where I may be wrong! Tweet at me @stiner and let me know what you think. I could use all the thoughts and brainstorms to share with my friends at CCUMC.

Editor’s note: See other columnists’ take on AVaaS: Mark Coxon here, here, here and here, Joel Rollins here and here, Christopher Jaynes here, and two other contributed pieces here and here.

Scott Tiner

About Scott Tiner

A trained educator, graduating from the Boston University School of Education, Scott is interested in the integration of technology and education. He works at Bates College managing the Client Services portions of Information Technology. Scott directs the Service Desk, which is responsible for the support of all classrooms and computers on campus. He also oversees the campus training programs and specifies and purchases computing equipment for the campus. He stays very active in the AV and IT fields, having presented at both regional, national and international conferences. Scott writes columns and blogs regularly for rAVe [Publications]. In order to continue to develop and strengthen his leadership and management skills Scott has attended the Management Institute and the Leading Change Institute, sponsored by EduCause. He earned his MBA form the Peter T. Paul College of Business and Economics, at the University of New Hampshire. During his time in graduate school Scott developed an interest and expertise in leadership and team building. As an experienced speaker and writer, Scott is always looking for new experiences to share, learn and grow. Scott can be contacted via LinkedIn, on Twitter at http://www.twitter.com/stiner or via email at stiner08@gmail.com

  • qwerasdf

    opex vs capex…

  • David Riberi

    Hi Scott: Thanks for addressing what could potentially be an elephant in the room regarding AVaaS. However, I think there are two assumptions underlying your argument that are not 100% accurate.

    First, while other integrators may not see AVaaS as different than managed services, we at LightWerks most definitely do not. I agree that if people’s definition of AVaaS is just converting an up-front purchase to a lease, then there is nothing novel, profitable, or interesting about that. We’ve done that for years…and frankly with very limited success. Hence, I believe AVaaS MUST at least include all of an integrator’s relevant managed services offerings as part and parcel of the integrator’s AVaaS offering.

    Second, your description of not having the budget for the monthly payment in your real-life scenario is a little bit of an apples-to-oranges comparison. In your scenario your company already paid the up-front cost (i.e. capital) of the installed system so you certainly did not budget for large monthly (operating) expenses. But if companies save the money on the front-end, and budget for the term of the arrangement, the money will be there. And I believe savvy CFOs will recognize that by re-deploying the capital they would have spent on the front-end, they can actually make a better return on that capital than the cost of the “leased/financed” portion of the AVaaS agreement.

    I want to add that this is not just an academic discussion for me. We currently have a major customer evaluating embracing our still-evolving AVaaS offering and I’m hoping to hear whether they go for it or not in the next couple days. I’ll try to comment again here once we learn the outcome.

    Lastly, in addition to the discussion here (here comes the shameless plug), I would also love to let people know that I have started a “members-only” LinkedIn Group called “XAAS (Everything as a Service)” that is meant to be a forum to have this kind of debate. If people would like to join this group, please apply for membership at https://www.linkedin.com/groups/12055119/. Thanks again for discussing this meaty topic!

    • So…how did it go with the customer?? Interested to know!

  • Raymond Pryor

    Hello. Thanks for the article topic. This is a very interesting topic. This topic is what I call the Adobe effect. Adobe decided years ago to change their license model to a subscription based model. This model was not put into place to benefit the consumer. It is true that many of us could purchase products on a perpetual or concurrent usage basis, and be fine with using the same product until new hardware comes out that forces you to upgrade the software….but, that might depend on scale.

    If you have a small shop versus a large campus, you decision might be different.

    For example, I work on a college campus that has adopted a bring your own device concept. We approached the BYOD movement from a fiscal responsibility point of view. We wanted to identify a product that will allow us to eliminate the need to purchase physical machines for instructional class rooms. In order to do this, we needed to find a product that would allow wireless projection with the capability to show video and internet without lag. If we found such a solution, we would not need to replace 120 computers every 4 years. Instead, we would continue to purchase faculty computers, but change them to mobile devices. Doing so has allowed me to shift resources to other projects.

    We actually use the Barco WeConnect product that is pictured in the article. We have deployed the solution in approximately 70 instructional class rooms, 2 collaboration labs, 2 huddle spaces, and many for upcoming new constructions projects. The quality of the product along with features, and support model justifies what we pay.

    While I realize the read is long, I feel I needed to put the foundation out there. In my environment, there is a selling point associated with having innovative technology available to the community. Our closest competitor is 3 blocks away from our campus. It is not uncommon for for prospective students to schedule visits between the institutions the same day. My goal, from a technology perspective, if for the families to walk away saying that King’s has better technology than the closest competitor.

    As a result of our decision, we have see an increase in enrollment in the programs that are showcasing the technology. The increase in enrollment off-set the investment within the first semester.

    So in closing, while the initial costs might seem significant, I believe the benefit might outweigh the cost if you were to take a slow and steady approach to your deployment. Develop a plan and see where you can offset the costs over the long run.

    While AVaaS is a new concept, it is not likely going away. After all, even the cell phone industry continues to make changes that benefit the company more than the consumer, but I do not see people doing away with their phone.

    Hope this helps with the discussion.