The Squeeze Is On

After recording five years of 30 percent sales growth, John Prince, president of Atlantic Home Technologies, says this year's revenue should be roughly equal with last year's.

"That's hard to get used to, so we're trying to work smarter," said Prince, whose company focuses on the mid- to high-level production-home construction market. "But even though business is flat, it's still good."

Most home integrators and custom installers would agree with Prince. Despite high gas prices, rising interest rates and a soft building and real estate market, business is still good. But as consumer needs evolve and competition increases, solution providers targeting the home are feeling the squeeze to adjust their businesses, skill sets and technology offerings to better serve the new convergence market.

"There's a constant barrage of differentiations and change that's going on," said Andy Willcox, president of the Custom Electronic Design & Installation Association (CEDIA) and president of ProLine Integrated Systems, Highland Park, Ill.

"Anyone who doesn't see this is fooling themselves."

Thousands of integrators and vendors will head to the annual CEDIA Expo at the Colorado Convention Center in Denver this week in search of new products and technologies, and to attend business and technology training classes to differentiate themselves in the increasingly competitive home integration field and emerging IT/A/V commercial market.

Prince is one integrator that isn't waiting. To combat flat sales, Atlantic Home Technologies will open its first showroom when the company moves into new 7,000-square-foot headquarters in Jacksonville, Fla.

"Some [integrators] are against showrooms, but from the research I've done, they help increase sales from 20 [percent] to 70 percent," he said. "There's something about seeing the product and allowing the customer to play with it as opposed to selling it off the Web site."

As they head to CEDIA Expo, Atlantic Home Technologies and other integrators are also seeking to drive sales by launching new online marketing plans, developing more effective Web sites, plumbing existing customer databases, creating solutions for the retrofit market, seeking easy-to-use products with more user-friendly interfaces and increasing the number of subsystems they sell to individual customers.

Prince feels his own sales would be lower if his company focused on the lower end of the production-home market, where a 1-point increase in the interest rate can add $125 a month to a mortgage. "That might take the buyer out," he said, adding Atlantic Home Technologies typically works on new homes in the $500,000 to $1 million range. "That doesn't happen in the higher end."

The squeeze on consumer spending is causing many integrators to remain focused on the luxury market at a time when they were hoping to expand their customer base by selling into the upper end of the middle-class market. As integrators wait for that market to ripen, they're developing different business roles or rolling out new solutions to get the most out of high-end customers and to tap entirely new markets.

"The state of the market is keeping me at the high end more than I desire," said Steve Cappo, president of eHome Integration, Sammamish, Wash., who has taken on a consultative role as more of his high-end clients and their family members request a variety of products and solutions. "In many ways, I've turned into a digital concierge," he said. "I've inserted myself as their trusted technology adviser."

Marc Leidig, president and CEO of Ambiance Systems, Clifton Park, N.Y., said business has slowed a bit in the past few months. But he is keeping more than busy by installing new technologies for his high-end clients, such as fiber-optic networks and control and automation solutions that help conserve energy. "I'm always testing the waters," he said.

Other integrators that once focused purely on A/V solutions are being forced to learn IT-related skills, especially as customers crave more network-connected solutions, such as distributed audio based on the popularity of Apple iPods, IP-based surveillance, VoIP, gaming and the slow but growing interest in Microsoft Media Center systems. "We're still doing a lot of A/V, but we're turning into more of a home IT company," said Nick McCullough, president of Norcross, Ga.-based Link Your House.