The Hard Truth about Soft Serve (Ices)

Unless you’ve been in a hole the last few years, you most likely have noticed the increasing conversation in AV about software, managed services, and IP based signal distribution. Given all of the buzz and apparent end-user demand for all of the above, surprisingly, only a select few AV companies have turned the corner on one or all of these categories.

Why is that?

The truth is that selling soft services is hard.

It’s even harder if your business model relies on a 50/50 split between hardware sales and labor. And exponentially harder if it relies on hardware margins to mitigate losses that occur due to labor inefficiencies or poor job costing.

My theory is that three main things are stalling the evolution of AV from hardware to software and services.

  1. Business models — The reality is that businesses need to make money. The easiest way to do this is by collecting a high profit margin on a high priced item and then charging a premium price for installation of that gear. The software model flips that on its head. There is no high priced hardware and the software is typically sold on a subscription basis which still yields high margins but on a lower priced sale. The long term benefits are great, but the short term impact can be painful. Proliferation across a large number of clients is the only way to build the revenue stream back up to what it was in the hardware based business model, and that transition could be deadly if not managed well. No wonder some companies are gun shy.
  2. Sales Plans — The second reality here is that sales people are revenue driven creatures. Commissions and bonuses are paid on sales, and selling hardware produces big amounts of income at a time. But how does a salesperson get paid on a yearly subscription service? Even if the integrator can plan the transition, how motivated is the sales team to promote solutions that directly affect their own personal paychecks? Salespeople have families and bills just like everyone else, and for the company to move int a softer ecosystem, they have to be willing to man the front lines of that battle.
  3. Liability — Finally, many AV companies are not ready to assume liability for their customers computers and networks. I was at a trade show the other day where we loaded some software on a partner’s laptop to play content on one of the screens. He said, ” I’m glad you touched my computer because now everything that goes wrong with it for the next year will be your fault.”  The client’s attitude could be that “if you touched it, then you broke it.” That’s scary. And if you think its a scary thought to be responsible for their individual PCs, you can multiply that anxiety when you start thinking about touching the whole corporate network. I once heard an integrator tell his team that they were watching video over IP but they did not want to sell it yet because they didn’t provide the switch and they didn’t want to touch it.
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In my humble opinion, these are the three major things that need to be overcome in AV in order to realize the promise of software, managed services and IP based distribution.

The good news is that other industries may hold some clues how to do it and I’ll share those in my next blog!

Do you have thoughts on why software, service and IP have been slow to take off in AV? I’d love to hear them in the comments below.

About Mark Coxon

Mark Coxon is an AV industry native and blogger for the rAVe BlogSquad. You can reach him directly at mark@marketexplosion.me.

  • Very good read, and completely agree with it.

    I personally feel the biggest issue is #1 The Business Model, I’m a long time End-User, and have seen that all 3 of these hold true. But #1 is still the big one, and it has a lot to do with the “old ways” of doing things. How do you make money, by selling AV boxes of course.

    The fact remains that a lot of integrators have relationships with manufacturers; nothing wrong w/ that in principle, as they need to stay ahead of the curve w/ new tech, and product releases being more frequent, and the best way to do this is a direct relationship w/ a manufacturer. But how do you get that direct access, usually and historically by selling their gear. Again, nothing inherently wrong w/ that if you’re doing it because you truly believe that is the best option for the customer. But if you’re selling it because you want to maintain that direct access to the manufacturer & turn a profit at the same, I feel you’re in breach of a moral and ethical law to protect your customer. AV is in need of a culture change, we need to change the way some of our colleagues think. We too can get stuck in a rut, it happens to all of us, which is why you need fresh eyes & ears to say hey, nope not working. But then, you’ve also have to do something w/ that info, can’t just listen just to say I listened.

    #2 Salespeople: I have seen this “sort of” remedied by some companies that do not offer commission based incentives, and only offer a higher base and a typical end of the year or quarterly bonus structured, which is not defined as being tied to any particular sales milestones. But rather based on company success, which yes Success=Sales, I get that, but it’s less pressure on the individual and becomes a shared goal now; not a competition to sell, sell, sell.

    #3 Liability: A very well worded contract indemnifying contractor or integrator of liability should be able to resolve this. If the service being sold requires access to corporate hardware, networks, etc..the customer must make their network, ITSec team, or whomever available to service provider to ensure there are no “oops, there goes the east coast data center” moments. Okay that was a little bit of a reach, but you get it.

    • Mark Coxon

      Gabriel, Thanks for reading.

      I enjoyed your comments here, as well as your weekly thoughts on #AVinTheAM on Twitter.

      I wrote a follow up piece on business models that I think mirrors a lot of your thoughts on #1 above.
      http://www.ravepubs.com/selling-soft-serveices-hurdle-one-business-models/

      As for #2, I agree wholeheartedly and am writing another follow up piece on that so I won’t waste all my “ink” here, but I think the method you suggest works very well in smaller firms, and most of the integration firms, by at least by sheer numbers, meet that description.

      On the third, liability is always tricky. I wish I had the legal chops to provide a one size fits all answer, but I think the real answer is it depends, and there will be verticals that are easier to navigate in this regard than others. Finance regulations and HIPPA compliance come to mind as immediate concerns that may be beyond many integrators’ risk tolerance. That being said, creative partnerships with internal IT or with 3rd party IT firms could very well be the answer.

      Thanks again for reading!

  • Luke Jordan

    Totally agree.

    The deterrent for us is we are committed to staying local, and like that we aren’t scaling globally.

    I don’t see us being able to support enough clients locally using this business model so we would have to grow enough to manage more than just our region. Time will tell how the decision to stay where we are pays off.

    • Mark Coxon

      Luke,

      Thanks for reading and commenting.

      There are definitely regions with a higher density of large businesses where a service model could generate enough revenue in a small geographic location.

      I am always a fan of being self-aware as a business and not offering services that you know may not be delivered to the standards you have set.

      That being said, I know some smaller firms like yours that have had success in expanding and covering national accounts with service based revenues. They typically start with one or two of their most loyal clients. These clients are typically already asking if you can support more sites based on the performance you’ve proven locally. They may not have brick and mortar in those locations, so they typically leverage either a buying group like PSNI or an extended AV labor force through someone like Herman Integration Services, etc.

      This allows them to meet their SLAs while engaging with like minded professionals with footprints in those territories. They may also hire a local person in that market as a remote employee that can add onsite assistance, customer management, and/or business development. I.E. One company I know and work with has an office in CA with remote employees in Shanghai and Orlando, as they do a lot of theme park and entertainment work, and that is where those markets are hot.

      Whatever you choose, I think you are right not to expand beyond the point that you can support the work in the way you want to as a company, as a reputation is a hard thing to recover:)

  • Mark Coxon