Home Networking Market Presents Pricing Issues

The home network presents a new revenue opportunity for small-business solution providers. But those entering that market must solve the pricing equation. While businesses are used to paying hourly fees and for service contracts, consumers,already hunting for rock-bottom product prices,find such costs hard to swallow. At D&H Distributing's Convergence Show in Harrisburg, Pa., solution providers in the IT, networking, home entertainment, audiovisual, security and other technology segments dissected the pricing issue in a roundtable discussion on the rise of home networking. Here are excerpts:

KEN BOSLEY, WORLD PREMIERE HOME ENTERTAINMENT: We do a lot of home networking, both wired and wireless, and for a lot of different applications,music, Xbox, PC to PC, etc. The problem we really see in the industry, more than anything else, is that most businesses are used to paying consultation fees, labor fees, technician fees, etc., in the range of $75 to $150 an hour. But most consumers are used to just buying a product and sticking it in [to their system]. So when people come to us and say, 'I want to do an Xbox Live, and I need a wireless network,' they're seeing prices of $59 or $79. And we know that even to design a basic system, install it, implement it and service it really costs quite a bit more. Most consumers at home aren't ready to pay a $300 bill to install a $59 part. And they're usually shocked and sometimes a little upset. One of our fears is that we have solutions that customers need and might quote a price of $695, $895 or $1,295, but when customers look at the components alone and they add up to $130, they're apprehensive.

CRN: How do you get around that?

BOSLEY: Most of our clients are very wealthy, and they just say, 'You know what, I don't even want to deal with this stuff. You make it work and send me the bill.' But we also have clients who do a Microsoft upgrade on their computer and lose their DNS settings. Or their neighbor gets a wireless system, and now they're on their neighbor's network. There are a myriad of things that can go wrong with the typical home network. And the next thing you know, their whole system is down, and it takes you three hours to fix it. I don't know what the normal rate is, but we charge $75 an hour. And that's a sizable amount for consumers who start out buying a $59 part.

CRN: So the problem really comes in with the service that's required because of the complexity of the products.

BOSLEY: We try to be all-inclusive and say, 'Here are the 19 things that could go wrong. We'll cover them, but we need some kind of a service agreement.' Or at least there's the expectation that you're going to charge 'X' amount of dollars every time service is needed.

CRN: Or maybe offer a deal where customers could pay you, say, $100 a month and you'll come in and make sure all of their systems are running at peak performance levels.

BOSLEY: But the only problem with that is that typically the cable modem is $30 a month, Xbox Live is about $10 to $20 a month, etc. It seems high to most people.

NATHAN BANEY, HIGH TECH HOBBIES: Once the consumer is paying for the product, they don't want to pay for support. They feel it should be free because they paid for the product.

CRN: So you're dealing with some level of sticker shock.

MIKE HAMLIN, APP-TECHS: I really think one of the issues you have to consider here,and as an industry we'll have to consider,is that most of our home network customers are businesspeople that had a value need that drove them to a home network. They wanted to be able to connect to the office from home or out on vacation. Right now, we have customers that will pay $1,300 or $1,400 a year to keep their grass green. But regarding the point that customers aren't comfortable paying $60 to $70 an hour for support, as an industry I'm not convinced that we've educated the consumer so there's a value judgment that's in sync with [a home network's] cost. I think it's incumbent upon us to go and sell that process, just as we had to do with businesses.

JIM CREWS, SWIFTEAGLE ENTERPRISES: We deal with all [types of customers]. And we've found that the average consumer doesn't really want to pay the money,as we mentioned earlier, the $65 to $75 an hour,whereas the businessperson who's taking that technology home doesn't mind paying for it because he knows the value of it. We had a dentist [as a customer] where we set up security and integration at his house. We had done work for him at his office, and he wanted the same thing there [at his house]. But the problem is that the average consumer can't do what these individuals [in the business world] can do. We're talking about [customers] whose mentality is, 'In the electronics industry, the price is bound to come down sooner or later, and then maybe I can afford it.' Right now, everything is fragmented. I had a situation with a guy who owned a small business, a three-person office where we had set him up with wireless Internet service. And he wanted the same thing at home. When we started telling him what the price would be, he said, 'Well, why does it cost that much?' I said, 'It's the same thing that it cost to put it in your office. It's no different.' But his mentality was, 'Well, these things have to come down in price. You have to do it cheaper at my house than at my office.' So we do have to educate the public.

BOSLEY: For consumers looking at home entertainment, we just simply give them a fixed rate and say, 'To hook up all the computers in your house is going to be X amount of dollars, and anytime anything goes wrong, here's where you'll be charged.' And if that's not a value to them, then we're not going to deal with them.

HAMLIN: We're doing something similar. We're calling it, in round numbers, '$100 per device,' let's say.

BOSLEY: To install?

HAMLIN: To sell or install. Let's say a retail price for a hub and a network card might be around $100,that's a little high, but you do $49 times two. We know it might be only 10, 15 or 20 minutes to get the thing in and load the driver, in the perfect situation. But you can round that out to maybe an hour.

CRN: So you're looking to go with a flat-rate pricing scheme?

HAMLIN: No, but in terms of an initial presentation or ballpark estimate.

CRN: And then if there's a problem %85

HAMLIN: If there's a problem, you're covered. The installer knows that you're covered. And we could always lower their finished price.

BANEY: It's extremely hard to sell tech support to a non-businessperson. They'd rather pay your hourly rate and take that chance that they'll only have one problem in a year rather than spend $200 or $300 on a service contract for a year. In general, as long as things aren't messed with and unhooked or reconnected, you might have one problem in a year, which could be covered by $75, as opposed to $300 on a service contract.

CREWS: We get a lot of calls from individuals who want systems in their house or want their systems integrated. And what we've found is that if we establish a price for the whole ball of wax, we're more successful with that than trying to get them into a contract or monthly service. They want to know, 'What's it going to cost me, right now, to do this in my house?' And the best price we can come up with, that's what they go for. In the case with businesspeople, on the other hand, they're familiar with service contracts, and that's OK with them.

CRN: What would you say the business proposition is for solution providers like yourselves? Is it more about designing a custom solution, installing it, or troubleshooting and support?

AHRON SCHACHTER, DATAVISION: It's 'A,' 'B' and 'C.' If you do 'A' and 'B,' you don't have 'C.' If you're going to show them what the expectations are, then you're able at a point to have a service contract.

Companies understand service contracts; residents would rather pay a one-time fee just to get it up and running. So if you spend some time to show customers what they're getting and how it works, the worst thing you can do is take more money from the customer who wants to give you the money to get an upgrade or get their system to do more. So to answer the question is, yes, customer service and paying for support is part of the equation.

BOB COLE, WORLD WIDE STEREO: I don't want to do any service. We did over a million dollars in labor last year, and we didn't make any money on it. We paid our guys, and that's pretty much it. What I market now exclusively are experiences. Any one of our proposals, we don't itemize a single thing. And if they want it itemized, we say, 'Well, that's not what we're selling. We're selling you the whole system; that's what you're paying us for.'