Teaming With The Trades

In the right crowd, that joke never fails to grab a few laughs. Well, it's now time for a new joke.

Over the past year, home builders have begun embracing new, cost-effective digital technologies to help differentiate their offerings and satisfy consumer demand in the production home and multidwelling unit (MDU) markets. Despite an inherent reluctance to bring additional subcontractors into the mix, home builders are searching for, and partnering with, a variety of digital integrators to help them choose, sell, install and support digital solutions.

Meanwhile, integrators of all stripes are developing their own partnerships with builders, architects and interior designers to win incremental business, increase sales volume, gain new margin opportunities and form long-term customer relationships. "Working with builders and architects has definitely helped us grow our business," says Kevin Hourihan, owner of Cyber Home Networks in Stormville, N.Y. "I'm now looking at the new IP-based systems because they're more cost-effective, easier to program and easier to introduce to the mass market."

With 1.6 million single-family housing starts and more than 150,000 condo starts estimated this year, there's plenty of business to go around. In capturing that business, though, integrators and builders still face a steep curve as they learn how to form lasting partnerships, share revenue and profits, select the right technologies and maintain customer satisfaction. Those growing pains, however, could be well worth it. "If integrators want to hit volume, they should be partnering with builders, because then it's like shooting fish in a barrel," says Ian Hendler, director of business development for the Integrated Networks division of Leviton, a supplier of electrical and wiring products in Little Neck, N.Y. "The homeowner can wrap the cost of the solution into the mortgage, which helps integrators compete with retailers that offer credit."

Of all the factors driving this partnership trend, technology is clearly at the top of the list. For years custom installers have partnered with builders, implementing expensive control systems and A/V products that were as difficult for integrators to program and install as they were for the customers to use. Moreover, those sales were limited to a tiny fraction of new-home buyers. The advent of cost-effective, open standards, IP-based systems and products has opened up an entirely new market that now makes what only the wealthy could once afford available to today's masses. "Over the last few years there has been an evolution in the decreasing cost and complexity of these systems," says Andy Willcox, president of CEDIA and president of ProLine Integrated Systems, Highland Park, Ill. "They're becoming significantly easier to put together and more user-friendly."

CEDIA believes the issue is so important that the group is dedicating its first Electronics Lifestyle Forum--at the Palace Hotel in San Francisco from Feb. 23-26--to explore how the formation of those partnerships can increase the sale of new technologies into the home and MDU markets. "Most of my business comes from builders, architects and interior designers," Willcox says. "You build a lot of word-of-mouth business by working with them."

The industrywide hunger to learn about and sell the latest solutions is making those partnerships more significant than ever. A small sampling of some hot new products geared to those markets includes control hardware and software systems by Control4, HomeLogic, Colorado vNet and Exceptional Innovation's Lifeware; Windows Media Center-based PCs and servers; audio distribution systems and iPod docking stations from the likes of Sonos, NetStreams, Russound and SpeakerCraft; innovative storage and smart server units from Maxtor, Iomega and Mirra; wireless networking gear from Linksys, Netgear, Buffalo and D-Link; low-priced large-panel plasma and LCD TVs; inexpensive DLP projector, screen and surround-sound packages; and Sony's NHS preracked A/V systems.

To show how much integrated home technology has changed over the last year, you didn't have to go much farther than the NextGen Home Experience showcase home at last month's International Consumer Electronics Show, where Exceptional Innovation's Lifeware control system ran off a Windows XP platform to control more than 200 devices and 14 screens. "Last year's NextGen home seemed like a bunch of vendors huddled alone in their separate corners," says Steve Cappo, president of eHome Integration, an integrator in Sammamish, Wash. "This year you had a home that's totally integrated, from the oven to the security system to HVAC. It was the tipping point."

Frank Daly, co-owner of Brownstone Builders and Associates, a Landenberg, Pa., outfit that builds the NextGen showcase homes as well as residential developments, couldn't agree more. Brownstone has such confidence in the Lifeware/Windows platform that the company is set to build 50 variations of the NextGen Home in Tampa, Fla., starting in May, with another 85 planned next year for a 200-acre development in Apopka, Fla., northwest of Orlando. Exceptional Innovation will be the lead technologist on the jobs and has chosen Exceptional Entertainment Experience, Naples, Fla., as its integrator. "We're taking what we've done for individual clients of our custom homes and applying it to a community," says Daly, who, like many builders pushing the integrated digital home reality, comes into the game with a strong IT background. "What the industry hasn't done is bring the technology to the mainstream home. It's been an afterthought. We now think the public is ready."

The nature of today's building market coupled with the public's embrace of new technologies is helping to drive the overall market. As property in hot markets depletes, builders are putting up production home developments on large tracts of land beyond the suburbs. Not only are they building out, they're building up with MDUs. This has allowed integrators to move downstream, tapping into a brand-new market fueled by tech-savvy parents and teens, as well as a fresh wave of baby boomers at the height of their earning power, or newly retired, who want the same technological benefits they grew accustomed to at the workplace or drooled over at their neighbor's house. "Our direction is downward; we're working with more production builders," says Lee Travis, CEO of HomeTechnologies, Bellevue, Wash., who is implementing full solutions into more $550,000 homes than the $2 million homes that used to command his attention. "We know that we have to grow in these other areas or we'll miss the critical mass window."

That shift in business is important, integrators say. As the prices and margin of high-end products continue to drop, integrators have to find new revenue streams that will increase sales volume. "Three years ago 50-inch plasmas were $20,000, then they were $10,000 and now it's common to see them around $5,000. When you add in margin slippage, we now have to sell five times as many," Travis says. "The question is, can we do five times as many installs? Our custom business is not going to grow fivefold, but our production and MDU businesses will."

The beauty of this new building market is that it's open to integrators of all sizes. While the large builders obviously look for large integrators, smaller integrators like Hourihan find that several successful home installations backed by a strong relationship with the builder or architect can lead to bigger things. When forming these relationships, it helps to offer them demos or, better yet, set up solutions in their office or home. Many builders are still technology challenged but wind up addicted after they've played with a well-integrated solution that can add clear value to the homes they build. "For smaller integrators, this is a matter of growing their business. As long they have developed the skill sets, they have to start somewhere," Willcox says. "There's a hell of a lot of business to gain. I fully recommend they go out and try to form relationships with builders."

Hourihan, for instance, met one of his close partners, Barry Cohen, owner of JBC Development in Pound Ridge, N.Y., at a National Homebuilders Association meeting a few years ago, struck up a conversation and wound up installing a full control system in Cohen's home. Unfortunately the system was a dog. With a less attentive integrator, the relationship would have ended there and Cohen would have wound up building dumb homes for the rest of his career. But Hourihan answered the 3 a.m. calls, put in the miles and did what he could to get the system to work. He ended up replacing it for free with an HAI system, which, Cohen says, has worked trouble-free to this day. Cohen appreciated Hourihan's dedication and plans to hire him in the next few months to integrate a 20-unit subdivision. "The fact that I had the first system in my house day and night, even if it was a lemon, gained me some very good hands-on experience," says Cohen, who recommends Hourihan to his friends and other builders. "That integrity, reliability and honesty is very important because most subcontractors in this business aren't very reliable."

Hourihan also installed a full control and entertainment system for architect Kenneth Siegel of North Salem, N.Y., and has since built a strong relationship that will lead to multiple jobs. "What got me was the way Kevin was able to translate what I said, what the client wanted, into an actual proposal," Siegel says. "By working with Kevin and using these products I've become better educated and will be able to answer my clients' questions with firsthand knowledge. I feel I've become a better architect."

Putting the product in the hands of builders, architects and home buyers is crucial to sales. Integrators should convince builders to set up some type of solutions center where they can meet face-to-face with the home buyer, find out their needs through a formalized checklist and demonstrate how different solutions can add value to their lifestyle.

While some of the big national firms, like Pulte Home and KB Homes, have their own IT divisions, many more would rather outsource. "Integrators are important because, as builders, most of us don't have the time or resources to take this under our wing. I can't build the internal knowledge," says Eric Simon, CTO of Brookfield Homes in Del Mar, Calif., and a former commercial solutions provider. "We have to partner better with integrators so we know what the hot products are, the profile of the buyer and what they need. Those elements must be married together."

Many marriages, however, often fail over financial disputes. Before formalizing partnerships with builders, it's best to sign a pre-nup in the form of a solid contract and well-defined work plan. Integrators also should have all the certificates and licenses they need to work in a particular state. Builders and integrators generally follow several payment structures. First off, the lowest-priced wiring package usually wins the bid. Builders generally demand a percentage from products sold to the buyer during the planning of the home. After a builder's commitment to the homeowner ends, usually after one year, the integrator is usually free to keep all revenue from additional sales.

"Historically, technology has been the ugly stepchild that builders let the homeowners worry about. But we're at an age where consumer technologies have become cost-effective enough and proven enough of a value that builders need to offer it to buyers to help them build their dream house," Simon says. "That is not going to go away, and that is why we need to form stronger partnerships and relationships now."

Architect Ken Siegel, integrator Kevin Hourihan and builder Barry Cohen say an acceptance and understanding of home technologies is driving new business.