The Squeeze Is On

"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 and Installation Association (CEDIA) and president of ProLine Integrated Systems, Highland Park, Ill.

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

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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.

McCullough said business is strong but, like other integrators, he's feeling the squeeze of higher gas and CAT 5 cabling prices and has raised prices to compensate. But no matter what income bracket his clients are in, they're willing to pay for solutions that make sense, especially when it comes to connected high-definition televisions and a hot-selling home basic network platform that includes Media Center PCs, a Windows Xbox 360 gaming system/media extender, and a Yellow Machine storage/server.

"If people have credit cards, they're going to buy it whether they can afford it or not," McCullough said. "We're so busy now, if they don't want to pay my price, I'll move on."

Integrators aren't particularly anxious over whatever slowdown there is in middle-class consumer spending. This gives some high-profile vendors, such as Microsoft, and relative newcomers like Control4 and Exceptional Innovations, maker of the Windows XP-based Life|ware control and automation system, time to either hone their products or build up proven sales and support models. Despite those issues, most integrators say they are keeping a close eye on those companies, mainly because they offer lower-priced integrated solutions that can help attract new customers.

Bruce Webster, vice president of sales at Colorado Custom Electronics in Denver, said business is "very good" with Control4's home control and media distribution products, which are leading the charge as some of his best-selling solutions. "They're filling a gap we couldn't fill before," Webster said, adding that his company's solution sales average between $25,000 and $30,000, mostly to new construction. "They're not AMX customers, but they want a little more than whole-house audio. It gives you a lot of opportunity to sell more things."

Control4 will unveil at CEDIA Expo version 1.3 of its software, which is designed to improve the performance of a system's user interface and add compatibility with most remote controls. It will also roll out its Foresite Web-based management tool, which allows dealers to generate additional income by remotely programming lighting, heating and security controls, said Eric Smith, Control 4's CTO.

"We're signing up a lot more dealers and builders," he said. "They're offering the Control4 systems as a standard instead of an option. We're also seeing a lot more IT guys, as well as traditional CEDIA dealers, who are going after new markets. You can make a lot more money cranking out the same thing over and over as opposed to dealing with clients that want everything custom."

Avocent, a Huntsville, Ala.-based manufacturer of KVM switches and IT infrastructure management tools, recognizes that more commercial IT integrators are joining the CEDIA ranks and that more traditional CEDIA members are diving deeper into commercial IT/A/V accounts, said Matt Nelson, the company's director of marketing. Avocent will introduce its Emerge MPX1000 HDMI Multipoint Extender for the digital signage and display market at the conference.

"There's a huge opportunity in digital signage for the IT guys, but there's still a learning curve," Nelson said. "The pro A/V world has been doing it very aggressively, but the whole networking side is very complex and foreign to them. Their two worlds are coming together. This should also allow us to get into other markets."

Netstreams, an Austin, Texas-based manufacturer of cost-effective IP-based audio distribution systems, also recognizes the convergence of commercial IT and pro A/V markets, integrators and solutions. The company will introduce its Streaming Music Manager, which auto-discovers most any network-connected device with audio files on it and then consolidates those files into one list, and its doorLinx IP-based intercom solution. But Netstreams will also display its Panorama high-definition video distribution and control system, which the company is driving into commercial markets, said Netstreams CEO Herman Cardenas.

"Our biggest challenge is education, in helping the dealers understand the new world of IP. It's a very scary proposition for them," he said. "But once they understand it, they know it."