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.
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.