Moving In: The Door Is Open In Digital-Home Space

When it comes to consumers, Intel and Microsoft are saying, "Don't touch that dial." They hope the combination of the hardware giant's Viiv interconnection standard and a new version of Windows out of Redmond will lock households into a PC-centric view of entertainment, home automation and security.

And where Intel and Microsoft go, distributors are sure to follow. For example, Tech Data has been working with hardware manufacturers to create a set of solutions. And all the distributors see VARs as a potential tool to reach this market. "[Digital-home products are] a reasonably complicated proposition...and the VARs are all about value-add," says Michael Schwab, vice president of purchasing for D&H Distributing.

But according to those that have been there, VARs entering this market from the IT world face new challenges: entrenched competitors, difficult-to-find customers, tricky technologies and products, and significant investments of time and capital.

Digital homes imply product sales beyond PCs: plasma televisions, high-fidelity speaker systems, security cameras, sensors and device controllers. Margins easily run 30 to 40 points, Schwab says.

"An average job [of completely setting up a home for entertainment and security] would cost $50,000 to $75,000," according to Tacoma, Wash.-based Universal Computer president Phillip Mohammed.

Mohammed sells to home builders because retrofitting a house is difficult at best. Wireless isn't as reliable as conventional wiring, and pulling cables in an existing residential construction is difficult. The builders can fold the cost invisibly into the overall price of a house. It's good business--when he can find it. Unfortunately, the market is limited: Although the median home price in his area is roughly $300,000, digital homes have cost $500,000.

"This is a pretty affluent consumer," says Joshua Feinberg, co-founder of Computer Consulting 101, a business consulting firm for resellers, integrators and consultants. "It's a fair statement that this probably wouldn't be affordable for households with under $100,000 annual income, and maybe more. That's an extremely small market."

VARs are used to marketing through trade shows, niche publications and targeted mailing lists. Identifying consumers that will invest in complex entertainment and home-automation systems is harder, however. So is the sales process. A VAR might entice a business by showing how technology could lower costs or increase efficiency. "There's no ROI case for the digital-home user market," Feinberg says.

VARs must learn to create the emotional appeal that is typically necessary to motivate consumers. Those moving from straight corporate IT sales will find that they face powerful and experienced competitors. On the low end, a big-box retailer can offer many digital-home products, and may, like Best Buy, have a technical service department that could cover home installations.

"Then you're also competing with the current residential integrator pool...that has been handling residential audio and video for a long time, and they understand the challenges of residential business," says Karl Werner, director of Tech Data's Advanced Technologies Group.

To really be in the game, a VAR will also have to learn the intricacies of good video and sound systems.

"Just being able to listen to a pair of speakers and know whether they're good or not is something the A/V guys have trained themselves to do for 10 years," says John Cox, president of Annapolis, Md.-based residential media system manufacturer Xperinet. "The IT guys say, 'Sounds good to me.'"

But the most difficult part is understanding and providing the level of service these consumers expect. "You're going to get a phone call Saturday night at 11 o'clock when a guy...invites his guests to his theater to see his movie, it doesn't work, and he expects you to come down and fix it [then]," Cox says.

Nathan Baney, owner of High Tech Hobbies, a Mifflintown, Pa., integrator with a retail storefront that includes a range of products from PCs to paintball equipment, agrees that exemplary service is the key to consumer success. If someone orders a home theater, his tech team will bring out the system and set it up. "If they don't like it, we'll take it back," he says. "We're in business to make people happy." Of course, there's customer service and then there's business. His company would make a Saturday night call--at three to four times its usual rate. But the approach to service has booked Baney's time out a month in advance without spending a penny on advertising in the past five years.

Those who want to enter this market need to start slowly learning the vagaries of audio, video and automation--by converting their own homes, then doing a job for a business owner they know. Then they can use the experience to build a suite of products that will form a reliable offering and give customers a reliable experience.

Erik Sherman is a freelance writer based in Colrain, Mass.