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.

What’s happening is as manufacturers build their products and brands around mobility, remote manageability and become more software-centric — features that appeal to the emerging group of IT professionals who have tremendous influence over purchasing decisions in end user organizations — they’re increasingly concerned that selling through their AV integration channel might not be putting their best foot forward.

“Manufacturers are looking to roll out these products in the next year and they’re saying, ‘Chuck, where are your guys at in terms of the level of sophistication they need to be the kind of technology solutions provider that we sell through?'” Wilson says. “In many cases when they do their evaluations of the skill set of our members they’re finding that maybe 10 or 20 percent of them are good to go. So they’re wondering how do we beef up that channel? That’s what I’m trying to do.”

InfoComm is also well aware that the increasing complexity of integrated solutions is creating challenges for its members. Labuskes adds this wrinkle: not only are the back ends of systems increasingly complex, but end users increasingly have an expectation of total simplicity in terms of interface and their interaction with technology.

“It’s more and more difficult for our integrators and our end users to understand all of the various components and the communication between those components,” Labuskes says. The flip side of that, he adds, are the “changing equation of expectations from the end user” and the “greater impact of the expectations of things to just work.”

Labuskes says InfoComm has programs committed to helping its membership overcome these challenges.

“Delivering that means that we’re going to continue to invest in certification for individuals and for companies. We’re going to continue to enhance the APEX [Audiovisual Providers of Excellence certification] program. We’re going to continue to look at how we help individuals to certify themselves as experts. We’re going to continue to push for standards. We’re going to continue to enhance our educational offering and our thought-leadership pieces and the work that we’re doing across the globe for the industry.”

Wilson emphasizes that the issue of getting up to speed and in sync with manufacturers is critical, but he’s careful not to lump all firms into that category. “There are the haves and the have nots,” he says. Firms that were quick to focus on network-centric solutions, remote diagnostics and the growing role of IT within their clients’ organizations are doing well, but he says “the vast majority of our members” need to evolve quickly.

An IT director or professional is the most common decision maker within clients’ organizations, according to one-third of survey respondents, far outpacing facilities managers, construction, general contractors and all traditional point persons. In fact, as the role of IT increases, those other parties’ purchasing influence is going down dramatically, Wilson says.

“In order for our dealers to be relevant and not entice the manufacturers to sell their solutions directly to the end users, we’ve got to make sure that our skillsets are on par with the innovation that is taking place out there right now,” Wilson says. “So we’re in a mad dash to align the technology roadmap of our leading manufacturers with that of the vast majority of our integrators.”

One way NSCA is doing that is through a program it hopes to announce and explain at its Business & Leadership Conference, February 25-27 in Dallas. The idea is for NSCA to take the pulse of individual integration firms’ overall readiness for the changing business climate by essentially auditing firms and letting them know how ready they are in several categories, including working with IT and network integration.

NSCA will go so far as to benchmark one company versus the field and grade them on their readiness. If they’re not, it will assess how to get ready, what kind of investment they’re willing to make and how long it will take.

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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.