Anatomy of the Digital Home

Parks' latest report, "The Digital Home: Here, Now and Ready for Integration," is no different. Analysts Stuart Sikes and Kurt Scherf write the products and services that make up the digital home are here, with some subcategories of the digital home on the verge of dramatic change. We've been writing about those changes for a number of years, but it's always encouraging when the trends are quantified and validated by respected researchers.

The report never mentions "integrators, but all of the subcategories require integrated solutions that manufacturers, service/content providers and retailers can't sufficiently provide on their own. Thousands of integrators are already delivering many of these solutions to a variety of customers, something many manufacturers and end users are still unaware of. Integrators should never miss an opportunity to let their manufacturer partners, particularly those in the IT space, know they're including their products in residential solutions. Overall, the report also provides a good picture of new opportunities integrators can leverage as they look to expand their product and service offerings, build incremental business and ultimately reap higher margins through residential sales.

The Anatomy of the Digital Home

Parks defines the "digital home" as having two-way connectivity between two or more subsystems. In other words, the digital home must start with a reliable, robust and secure wired and wireless computing and networking platform fed by a broadband connection. Very few homes have that complete platform. Integrators should spread the word to all potential and existing corporate and residential clients they can install the foundation that will support any digital components the client will eventually want or need.

Here's the breakdown of those subcategories Parks (as well as us) play a crucial role in the digital home and will continue to grow.

1. Broadband Connection.

Consider a broadband connection as the aorta of the digital home, carrying the digital information " online applications such as music, photography and video - to the home's main system, which then distributes it to the additional products. Revenue for online entertainment such as gaming, music and video over broadband will top $11 billion by end of 2010.

What It Means For Integrators: Many integrators use the installation of broadband connections to open the doors of new residential accounts. Partnering with service and content providers is growing more important because they have a large customer base and provide the first step of the home digitalization process. Although those providers are developing new digital services, they seldom offer additional products and value-added services. Integrators have a huge opportunity helping end users choose, configure, secure, upgrade and maintain home solutions designed to take advantage of that new content. Integrators charge from $25 to $175 an hour depending on the type of service they provide.

2. Wired and Wireless Networks.

Home networks can be considered the central nervous system of the digital home. The number of home networks has reached 20 million today, up from only 2.5 million in 1998, Parks reports. The initial and obvious benefit of the network is that it allows multiple users to access shared resources such as broadband, printers and servers.

What It Means For Integrators: The technology needs of a household with two working professionals and at least two school-aged children equal and often exceed those of a very small business. Products and solutions that attach to the network include PCs; printer; media players; centralized server for shared music, video, photos and gaming; flat-panel displays; AV entertainment; IP-based security; VoIP; gaming consoles; and distributed whole-house audio and video. Sure, consumers can buy manyof those products from big-box and online retailers. But they often buy the wrong products, suffer through compatibility and performance issues, become frustrated and give up on home technologies. The key for integrators is to become the family's trusted technology advisor and provider, something the Geek Squads or cable companies can't match.

The network also allows integrators to deliver billable remote services " full system management, monitoring and diagnostics, software security upgrades - that generate recurring revenue and limits expensive truck runs. More vendors of managed service solutions are offering scaled-down packages for the home, SOHO and small offices. They're also hungry to partner with strong integrators.

3. Media Adapters

Think of media adapters as the spine of the network. The adapters essentially act as wireless receivers that allow the transfer of digital files " photos, video, music - from a PC in one room to a display or speaker system in another room. Poor connectivity, dull interfaces, high prices, and difficult installation of initial units lead to low sales. New versions have greatly improved and the concept, which the public had a hard time grasping, is more widespread, especially since Microsoft included media adapter or extender capabilities in its Xbox 360. Other media adaptors include Linksys' Wireless Media Adapter, D-Link's Medialounge, Buffalo Technologies' LinkTheater and iCube Play@TV Digital Media Adapter. Parks also notes that networked attached storage and NAS media servers will grow as a primary source for safekeeping and backup of digital files. Those devices also enable streaming of content to a variety of platforms around the home. Media servers include Anthology Solutions' Yellow Machine, Buffalo's TeraStation line, Seagate's Mirra and customized Microsoft Media Center PCs. Maxtor and Iomega also produce a full line of storage and backup units specifically designed for the home and small office.

What It Means For Integrators: Don't expect Microsoft or most other manufactures to invest heavily in marketing the functionality or benefits of media adapters and servers to end users. That's your job. Most consumers don't realize these products exist but would greatly benefit from them once they're added to a solution. That type of advice, backed by quality installation and comprehensive product training, will deepen your value to the customer and lead to higher-margin product and service sales.

4. Digital Video Recorders: Parks notes that competition between cable and satellite providers has increased the penetration of digital video recorders (DVR) in homes. The analyst predicts whole-house DVR solutions and set-top media services will grow to meet demand for "flexible access to time-shifted television programming throughout the home."

What This Means For Integrators: The kicker here is "whole house." Although the set-top market is dominated by the cable and satellite companies, there's no way in hell they're building the infrastructure to install whole-house solutions. Those providers will have to partner with digital integrators to deliver complex solutions. Integrators should also keep a close watch on how Cisco will eventually go to market with the set-top boxes it picked up from the Scientific Atlanta acquisition. While the initial play is to distribute the boxes directly though service providers, Cisco will eventually have to figure out how to include its Linksys and KiSS products as part of a full solution. Cisco would be foolish not to partner with its deep stable of integrators to drive those sales. Smart integrators should start leveraging their Cisco/Linksys contacts for potential partnerships.

5. Converged Communications: The Voice Parks points out service providers will increase the integration of IP communications across networks, which will involve fixed and mobile solutions, as well entertainment applications. The communications/entertainment convergence will also drive IPTV applications, Parks notes, such as caller ID, instant messaging, video conferencing and the ability to view Internet-based videos on displays anywhere in the home.

What it means for Integrators: The future of communications is more than just the latest cell phone. It's about fully-integrated, seamless connectivity between fixed, wireless and cellular phones. Motorola has unveiled some unique technologies related to that but has yet to develop an integrator partner strategy. Integrators should familiarize themselves with the new technologies as part of their consulting/trusted advisor roles.

Not mentioned in the report is the growing awareness of integrated VoIP solutions for the home, SOHO and small businesses. Integrators should clearly present to the customer the ROI of all solutions when appropriate. With interest rates rising, gas prices skyrocketing and consumer spending in a squeeze, nothing captures a client's attention more than offering something that money they can save on household bills.

6. Home Control and Automation: The Brain

Parks gets into the meat of value-add integration (without quite calling it that) with its section on home control and management applications, "which remain a largely untapped market even after more than 30 years of products and solutions. While low bit rate protocols have helped solve the issue of low-cost and reliable communications, the challenge is in implementing these solutions into devices and systems that really matter for consumers," they write. Parks and others with an industry-wide voice could help advance that cause by recognizing and focusing on the expertise integrators have in bringing those types of applications to the sweet spot of the mass market. Organizations like CEA and CEDIA have made some efforts to market the skills of their integrator and installer members. They and others need to do more.

On the product side, a number of manufacturers " including Microsoft, Intel, Hewlett-Packard, HAI, Control4, Exceptional Innovation, Sonos and others " continue to create a variety of cost-effective home control, automation and audio distribution products. Integrators have to do their best to begin forming relationships with those and companies with similar target markets.

What's In It For Integrators: Think ROI, savings on energy and heating bills, lifestyle improvement and sense of security when selling to new customers. Technology once limited to the wealthy is now available to the upper middle class. That segment is cutting back on spending but willing to spend where it makes sense. Those purchases include everything from digital entertainment solutions to whole home control and automation. For many families, technology is a necessity. Many times, though, it takes a skilled integrator to prove why.