PARTNER CHANNEL: Dealers Find a New Home for Converged Services

Posted: 07/2002

Dealers Find a New Home for
Converged Services

By Bill Ablondi

HOME SALES ARE UP and so is unemployment. The economy is described alternatively
as stumbling and recovering. Consumers were expected to sit on the sidelines
after their first quarter burst of spending, but it’s not happening. The
"force" in this economy remains with households as Business Week
recently announced: "The only double-dip will be on your ice cream
cone." Let’s hope it is right.

What does this mean for you? As
housing starts continue to rise, high-end residential markets may offer
opportunities for phone installers, resellers and VARs to extend their current
product and service offerings and enter new markets. Parks Associates’ first
quarter 2002 survey of dealers designing and installing home telephone,
entertainment, security, lighting, networking and control systems and the
associated infrastructure indicate sales volumes in 2002 will improve
significantly compared to 2001.

Housing starts are key to business
growth for these specialized electronics installing dealers. The most economical
time to install the structured wiring, in-wall speakers, sensors, control
systems and related infrastructure is before the walls are in place. Remodeling
and retrofit projects also generate new business, but 75 percent of residential
custom electronics installation business in 2001 was in new construction.
Approximately 9 percent of the 1.2 million housing starts in 2001 were for
residences with a retail sales price of $350,000 or more — the threshold of the
high-end market.

In 2000, 52 percent of houses were
built with two or more stories, up from 47 percent in 1991. Similarly, 35
percent were built with four or more bedrooms in 2000 vs. 28 percent in 1991.
Houses are getting bigger, costing more and are packed with amenities. The
National Association of Home Builders recently reported the typical $350,000
home has 3,000 square feet, multiple phone lines, whole-house wiring, multizone
HVAC, a security system and, of course, central vacuum. The buyer of such a
house also is installing a whole-house audio system, home theater, lighting
controls and a computer network, which provide opportunities for phone
installers, resellers and VARs.

Parks Associates, a market research
and consulting firm that specializes in tracking the evolution of new
technologies into U.S. households, recently established a market research panel
to monitor the adoption of innovative products into upscale America through
custom installing dealer channels. Parks Associates polls the panel comprising
about 300 dealers throughout the United States, with quarterly online surveys —
each probes different aspects of dealers’ businesses and tracks trends in the
market from their perspective.

Dealers’ Expectations for Their Residential
Installations Business in 2002 vs. 2001

Source: Installing Dealer ePanel – 1Q02, Parks Associates

To qualify for the panel, dealers
must be installing electronic systems in residential markets. About 90 percent
of the dealers polled generated 50 percent or more of their installation revenue
from residential customers in 2001. The median revenue per installation was
$15,000 to $20,000 for product categories including:

  • Telephone Systems

  • Intercom Systems

  • Structure Wiring

  • Home Controls

  • Security Systems &
    Monitoring Services

  • Whole-House Audio

  • Home Theater

  • Direct Broadcast Satellite

  • High-end Lighting

  • Home Networks (excluding
    structured wiring)

  • "No-new-wires"
    Networking (Wireless, Phone & Power Line)

  • Power Quality/Surge Protection

Installing Dealers Optimistic
About 2002

Installing dealers are in constant
touch with their customers and prospects, so they have a keen sense for the
state of the market. Many economic observer decree consumer spending continues
to fuel the economy. Dealers that were asked about business prospects for 2002
compared to business in 2001 underscore that observation. About 80 percent of
dealers expect their residential installation business to grow in 2002 compared
with 2001; fewer than 2 percent expect a decline and 16 percent aren’t sure (see
chart on page 40).

Will their expectations be fulfilled
or are they merely disappointments under construction? We can’t say for sure,
but past research of installing dealers completed by Parks Associates indicates
they have a better feel for the market than do manufacturers that are one or
more steps removed from the ultimate customer. A combination of consumer
research, analysis of technology trends and manufacturers’ product development
efforts and channel research, e.g. the Installing Dealer ePanel, provides Parks
Associates with the ability to triangulate on where the residential market for
electronic systems is headed.

Primary Factors Inhibiting Growth of Residential Installations Business in 4Q01

Source: Installing Dealer ePanel – 1Q02, Parks

Parks Associates sees healthy growth
in high-end residential markets across the above mentioned product categories.
High-end lighting, security systems and "no-new-wires" networking are
expected to lead the growth. Security systems essentially are a "must
have" in houses selling for $350,000 or more. Lighting complements security
systems, home theater and whole house audio systems. Growth seen by dealers in
"no-new-wires" computer networking corroborates Parks’ consumer
research, which indicates the adoption of broadband Internet access is prompting
installation of home networks.

A great 2002 is not a slam-dunk
however. Dealers are counting on steady economic improvements to bolster
consumer sentiments prompting them to take advantage of historically low
mortgage interest rates, move up to larger homes and invest in more amenities.
In addition, dealers are counting on manufacturers to continue introducing new
products to entice homebuyers.

There’s one other key ingredient
required to make 2002 a banner year … marketing.

Installing dealers say "lack of
consumer awareness of products we sell/install" was equal to the poor
economy in the fourth quarter 2001 as a factor inhibiting their business growth.

This speaks volumes about the
marketing efforts required to educate consumers, builders and architects
regarding electronic entertainment, communications, contral and security
systems’ value in terms of enjoyment, security, energy efficiency and resale
value. Builders well versed in these benefits can differentiate their properties
from the pack, command a premium over comparable houses not as well equipped and
sell them faster.

It’s not that manufacturers haven’t
invested in marketing. Rather, it’s that many of the products have come down in
price thereby becoming affordable to a wider customer base — people who may
purchase if aware, but are not seeking out theater, audio or networking products
to support an avocation. In addition, many builders may not be aware of lower
cost home controls, networking, security and lighting systems. Understandably,
they are loath to add anything to a house that will add cost without increasing
margin and salability. Manufacturers are stepping up to the challenge as they
recognize the need to reach a broader audience with their message and support
the dealers in the trenches.

Is It Time To Look Beyond The

Many telecommunication specialists
already are looking at complementary products. No-new-wires networking may be an
excellent choice for many to explore. This category includes wireless networks
and those using electrical or phone lines as the physical link. Standards groups
have formed around the alternative technologies: HomePNA for phone-line
technology, HomePlug Powerline Alliance for use of electrical wires and HomeRF
supports one of the wireless technologies. WiFi or 802.11b an IEEE Ethernet
standard for wireless networks becoming popular in commercial markets also is
penetrating the home market. Discussing the alternatives and surrounding issues
is beyond the scope of this article, but the no-new-wires category is definitely
one on which phone installers, resellers and VARs should keep their eyes

Home controls, especially
environmental controls and energy management systems may compliment the offering
of those currently centered on phone systems. Cost-effectively managing power
consumption is growing in importance in consumers’ minds and is being supported
by utilities competing in an increasingly deregulated marketplace.

Security systems are a "must
have" in homes being built to sell for $350,000 or more. Standard security
systems coupled with medical monitoring capabilities for many senior citizens
offer opportunities for telecommunication specialists to expand their offerings.
Technologies being employed by security systems installers include
networked-based video surveillance, wireless sensors and telecommunication
sub-systems. Phone installers can leverage their skills and extend their product
portfolio by moving into this category.

Economic conditions are in flux,
uncertainty reigns — so what’s new about this? The time is right for phone
installers, resellers and VARs to explore a host of opportunities to leverage
their capabilities, add products and grow their businesses in high-end
residential markets.

Bill Ablondi is an affiliate of
Parks Associates, a Dallas-based market research firm specializing in emerging
technologies and services for the home.



National Association of Home Builders


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