Case Study: Returning Home

Computer Connections President Jude Daigle says the home market quickly lost favor. "As PCs turned into commodities, we let go of that part of the market," he says.

But now Computer Connections is rethinking the home market in a big way. Whereas a few years back Daigle saw the home arena as a commodity market, he now sees huge opportunities.

Computer Connections, with annual revenue of $4.5 million, for years has generated a robust business putting audiovisual presentation systems in corporate conference rooms. "We started putting mini versions of those presentation and editing systems in people's dens. When we saw the Media Center operating system from Microsoft, we saw that as a platform that was going to have some legs that people could build on," Daigle says. "That's when we realized this was not just going to be just your PC; this was going to be mainstream to control all the digital technology in people's homes. And people needed someone to tie all this together because it still is a complicated technology to get your arms around. What we saw was the value-add that we could provide."

The value-add was the ability to bring IT networking experience to the home market, coupled with an understanding of how homeowners could incorporate digital technology into their lives. And Daigle saw another opportunity: As an Intel Premier Partner, Computer

Connections builds custom PCs and servers for its commercial accounts. Daigle reasoned that the company could build its own digital media centers using the new Microsoft Media Center operating system and Intel's new Viiv platform.

As a result, Computer Connections is launching a two-pronged assault on the home market. Not only is the company working as a home integrator, designing and installing custom home entertainment and control systems, but it is also building custom media centers and selling them to other home integrators. Daigle says that much of the current crop of home integrators come from the consumer-electronics, home entertainment side of the business and have limited experience in PCs and IT networks.

"Who better than a computer company to solve their needs?" says Nathan Hufford, who heads up Computer Connections' digital home business, of other integrators. "I go out and find out what these guys want--what is the critical factor in a media center system that appeals to the reseller, what kind of connections they need on the system, and what performance they need from an audio/video standpoint."

Daigle says the company took that input and worked with Intel to create new custom digital media centers. "CE integrators need a good, solid systems builder partner to join up with because they don't want to build their own machine and they don't want to use just the HP box," he says. "They want something a little more scalable, something geared to what they are trying to do. And that's what we build into our boxes."

What Daigle learned from his IT networking experience and his knowledge of the home integration market was that a robust media center needs to work with a wide variety of audio and video systems. "We put all the extra plugs and connectors and special backplane and quiet cooling that you need to have in a home environment," he says.

While Computer Connections' custom media center systems business is just getting off the ground--the company plans the official launch at CES in January--its home integration business is already well-established and growing.

"To be successful in the home market, you need to lay out a proper network, and a home network is generally more complicated to lay out than a small business," Daigle says. "The advantage that we have of being in the PC business is we live in that world. I can tell you by just looking at the house where you are going to have bandwidth problems. [CE installers] aren't going to have a clue."

But Daigle has enough marketing savvy to not talk network integration with homeowners out of the gate. As a rule, he won't take on a home integration project for less than $25,000. When people are spending that kind of money, he understands talking technical specs won't get the job done.

"Entertainment is where the pizzazz is; that's where people want to get off their wallets," he says. Once people decide that they want digital entertainment features throughout their home, Daigle says Computer Connections then designs a network, which lays the foundation for enhanced home control systems. That in turn opens up a dialogue where he can talk about added network features such as home security systems with remote access or lighting controls.

And Computer Connections has taken dialogue about home control to a new level. A few years ago, the company bought a house and property adjacent to its office with the idea of creating a training center for its employees. Computer Connections had a traditional showroom, but Daigle says it tended to show specific home entertainment and control devices in a stand-alone environment.

So with the help of Intel and D&H Distributing, Harrisburg, Pa., Computer Connections converted the house into a showcase digital home. "You can't just talk to people; you have to show them," says Daigle. "They won't get the message because it's too complicated. But now we can walk them around the house and they can see it and they say, 'Wow, that's what I want.' "

As the result of his two-pronged assault on the home market, Daigle projects that home integration and selling custom-built media centers to CE installers will be a strategic part of his business. His goal is to have digital home products and services account for $2 million in annual revenue by 2007, triple what it is today. What's more, while Computer Connections still considers itself a regional integrator, it's expanding nationally through its venture to sell its new media center to CE installers.

And Daigle expects hardware margins in the home integration space to dwarf those in the commercial side of the business. "We expect 15 percent to 20 percent in additional hardware margins and overall margins in the 40 percent range," he says.

The more robust margins in the home market also mean that Computer Connections can extend beyond the Pittsburgh area. The company recently did a project for a home in Beverly Hills, Calif., using its home integration products and expertise and local subcontractors. "We've learned that with this stuff, there is enough margin that you can get on a plane and go," says Daigle.