2016 Commercial Integrator State of the Industry Report

Commercial Integrator's State of the Industry Reports gives valuable insight into the AV Integration industry that technology decision makers should know.

January 4, 2016 Tom LeBlanc Leave a Comment

CI Research and NSCA surveyed 140 integrators and consultants for the 2016 State of the Industry report.

While respondents aren’t wildly optimistic, they’re feeling positive and perhaps more realistic than last year. Only 8 percent said there’s room for improvement in 2015 while 35 percent feel that way about 2016. NSCA’s Chuck Wilson “feels good” about these numbers.

Anything from “little changed” on up is good news, says NSCA’s Chuck Wilson. That’s at least about 5 percent growth and that’s where the construction industry is looking in terms of growth, too. In the construction world, that’s a big number. “There is nothing wrong with slow, steady growth,” he says.

By now, it should surprise nobody that an IT director or professional is the most common decision maker within clients’ organizations, according to one-third of survey respondents, far outpacing all traditional point persons. In fact, as the role of IT increases, those other parties’ purchasing influence is going down dramatically, NSCA’s Chuck Wilson says.

All markets are looking relatively positive this year.

Corporate — by far the industry’s largest vertical — is looking the most positive.

This question tends to generate a lot of optimism. This year it’s more measured than in the past, but a whopping 68 percent expect to grow more than 5 percent in 2016.

It’s no surprise that video-related projects are highly anticipated. AVI-SPL saw two consecutive record-breaking months in the second half of 2015. The driver of the growth, according to VP of marketing Kelly Bousman, was AVI-SPL’s ability to win a cluster of very big and very video-centric projects.

The vast majority of the industry remains stuck in the mud when it comes to generating managed services revenue. Only one in five surveyed integrators earn more than 10 percent of their revenue through service contracts and 27 percent earn zero. It’s noteworthy that some firms find that as a result of service contracts customers end up being happier with their systems and noticing full utilization in their investments.

“It inspires more use of the system, so they build more systems,” Verrex’s Bill Chamberlin says. “So you see the percentages kind of level out.”

This is perhaps the most accurate indicator of how 2016 will begin and the good news is that respondents are slightly more optimistic than they were in 2015.

The highest percentage of companies are pretty flat while a good chunk is seeing growth year-over-year — another example of the industry’s slow and steady incline.

A snapshot of how surveyed integrators anticipated their billings and orders will look like end of year.

It remains a troubling stat that only 29 percent of surveyed integrators say more than 20 points on a project is typical in terms of hardware margin, while a staggering 21 percent say they typically get less than 10 points.

No surprises here with AV-centric integration firms making up the majority of the responding group.

We’re still seeing AV hold its place as the most prevalent category, with automation and control coming in second.

It’s easy to point out that most integrators are dramatically under-charging their clients, but it’s much harder to overcome the challenge since firms are often dealing with competitors that may be on an equal plane when it comes to qualifications and certifications “but they’re just not valuing their services high enough,” says Human Circuit’s Bruce Kaufmann.

So the market is slow-and-steady for most and extremely dynamic for the well-positioned. But again, how deep do you want to go when discussing the state of the industry? The more you dig, the more you find credible folks who are worried about the viability of many of the industry’s AV integration firms.

In terms of major challenges, there are the usual suspects, of course:

1. The vast majority of the industry remains stuck in the mud when it comes to generating managed services revenue. Only 1/5 of surveyed integrators earn more than 10 percent of their revenue through service contracts and 27 percent earn zero. Consider that Whitlock and Yorktel, CI’s 2015 Integrator of the Year, each secure about 50 percent of their revenue through managed services.
2. That lack of service revenue is rarely offset by project margins or labor revenue. Only 29 percent of surveyed integrators say more than 20 points on a project is typical in terms of hardware margin, while a staggering 21 percent say they typically get less than 10 points. Meanwhile, only 13 percent say they charge more than $100 per hour for technician labor and nearly a quarter bill under $50 per hour.
3. It’s difficult to overcome issue No. 2 in a market that is increasingly commoditized. Not only are manufacturers continually touting robust features from “out of the box” solutions, but integrators are dealing with competitors that may be on an equal plane when it comes to qualifications and certifications “but they’re just not valuing their services high enough,” says Bruce Kaufmann, president and CEO of Gaithersburg, Md.-based Human Circuit.

These challenges are well documented, but here’s one you might not have heard — the industry is in trouble because most integration firms aren’t evolving in sync with how some manufacturers are adapting their solutions to address customers’ changing needs.

How it’s supposed to work is manufacturers make products; they fully commit to the channel and rely on integration firms as dealers distributing their products; integration firms evangelize said products, use them to solve customers’ problems and make manufacturers look good.

When one cog breaks the whole system can crumble. While the system is not broken as we enter 2016, some have pointed out cracks in a cog.

The bottom line: Many integrators need to accelerate their abilities to solve customers’ sophisticated challenges. Otherwise, slow and steady will not win the race.

Time to Accelerate

Depending on whether or not they work in the health care market, integrators may or may not be familiar with Ascom, a manufacturer of nurse call and other communication devices. Whether they’re an Ascom dealer or not, integration firms might be intrigued by a strategic distribution decision the company recently made to sell its integrated health care communication solutions through Tyco Simplex Grinnell and Tyco Integrated Fire & Security, businesses with a combined 10,000 employees and 150 offices in North America.

It’s naive to think that Ascom’s decision to complement its formerly channel-only distribution model isn’t on the table for more mainstream AV, automation and security manufacturers that are decreasingly confident that typical AV integration firms — not all, but a significant majority — are sophisticated enough to commission, present, sell and service their increasingly network- and mobility-centric solutions to customers’ IT staffs.

The reality, says Wilson, is that as head of a trade organization that completely supports the channel, he has been playing “whack a mole” behind the scenes.

“As soon as one manufacturer says ‘we’re going to go direct unless you guys get your [stuff] together,’ I calm them down and all of a sudden another one pops up. I’m running around trying to keep my finger in the leaking dike,” Wilson says.

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Tom LeBlanc

Tom has been covering B2B technology since 2010. He’s editorial director for MyTechDecisions and its sister brand Commercial Integrator. Before that, he covered the residential technology market for CE Pro and wrote for sports department of the Boston Herald.