In a recent issue, we focused on the HomeConnecTeam (HCT), a consortium of about 80 independent dealers organized by former CEDIA President Rob Gerhardt in response to the entry of ADT, Verizon, Comcast, and others into our world of home integration.

Gerhardt has also been instrumental in explaining and promoting the recurrent monthly revenue (RMR) business model to our industry—a revenue approach employed so successfully by alarm, cell phone and cable /satellite companies. Whether RMR becomes the salvation of the home integration business as we now know it, or simply an invaluable and lucrative stream of supplemental cash flow to our margin-starved sector, remains to be seen. In either case, RMR is a game-changer. We all need to understand it, embrace it, and look for opportunities to apply it to our businesses.

Another Perspective

This time, we’ll explore the Connected SOURCE® (CS), a retail-based model for selling home connectivity which was created by Home Entertainment Source (HES) to respond to the new age of wireless home integration. Connected SOURCE® plans to license interested HES members to operate small (as little as 300 sq. ft.) turnkey “store-in-store” or free-standing retail operations. License restrictions include pre-defined market locations approved by HES, selling specific product models from designated manufacturers, and using standardized fixtures and decor. The dealer provides the retail location and staff, while Connected SOURCE® provides very attractive inventory purchase programs, which HES has negotiated with respected industry manufacturers, to include the following:

• Pioneer Elite, Sonos, and Peachtree Audio—electronics

• Panasonic and the new Elite (Sharp/Pioneer)—TV panels

• Klipsch and Pioneer—speakers and headphones

• URC and other vendors (TBD)—control systems

• Sanus Systems—furniture and brackets

•Alarm/Surveillance systems and monitoring— TBD

Comprehensive dealer network support is also provided (including a dedicated Internet site with online marketing features and direct-mail campaign), as well as other vendor-supported development incentives.

Chad Evans of HES adds: “Connected SOURCE® really helps integrators focus on solution selling. It allows for quick and easy set-up, along with vendor support that is so needed today.” In sum, HES members who opt into the Connected SOURCE® get a carefully designed turnkey specialty showroom dedicated to the connected home, with low build-out costs, great demo deals and strong manufacturer-supported marketing.

The actual store demonstration layouts will vary from store to store. To simplify the product and concept presentations to customers, each showroom will be organized around the following themes, with story-board signage prominently displayed to educate the customer. Demo models are chosen and combined to provide a great user experience in these areas:

• Home Theater, including large 3D display panel, 5.1 Surround Sound and Blu-ray with streaming

• Home Control, including intrusion control and surveillance cameras

• Headphones—one of the hottest retail A/V categories, from several vendors

• Home Networking, wireless distributed audio, shade control and IP-based products.

• iPod Solutions, for personal audio from almost any digital source.

• Wireless intrusion control and surveillance, still in the planning stages, will be a prominent part of the concept.

According to Andy Orozco, HES director of communications, about 120 dealers expressed interest in the concept at the Orlando HES Summit in February. As we go to press, a beta-test site is about to launch at Talk of the Town in Allendale, N.J. An additional site is slated to open in late May at a location to be announced. According to Orozco, “The Connected SOURCE® is just another HES initiative that allows us to leverage the buying power of our national network to assure the success of our members and our supplier partners.”

Analysis

Connected SOURCE® provides a clear alternative to the HomeConnecTeam. While both will benefit greatly from the expertise of experienced dealers in established markets (when competing with the majors), they differ markedly in concept. Connected SOURCE® relies on existing HES vendor support to promote brand-centric presentations of products in a carefully crafted retail environment. HomeConnecTeam, in contrast, embraces an in-home feature-oriented selling approach, relying on sophisticated point of sale software products developed by Group Gerhardt to support easy, on-site data gathering, budget building, financing and closing the sale —right in the customer’s living room.

In addition, the HCT model is highly focused on selling home integration features that generate RMR, whereas the CS model is more broadly focused, and provides greater opportunity to sell conventional A/V products and systems in addition to features that will generate recurring revenue. While Connected SOURCE® appears to provide greater opportunities for dealers to make larger sales (albeit with the higher overhead costs of a showroom-based business), the HomeConnecTeam model will likely generate less revenue, but at equal or higher margins, and with greater RMR. It will be interesting to see how these two models fare in the marketplace.

Both of these approaches allow established home integration specialists to offer clients a simplified subset of home integration solutions (compared to their traditional offerings), and to embrace a simplified business approach that is potentially more cost-effective, while providing recurring revenue to shore flagging profits due to margin erosion during these tough times. Most importantly, each approach can offer the customer products, engineering and installation services that go far beyond what the major electronic service providers can provide. CR

George E. McKechnie, Ph.D. is President of Axiom Home Theater in Monterey, Calif. His company is a member of HES (ProSource), and has contributed to the Group Gerhardt initiative. Thanks to Chad Evans and Andy Orozco of HES for help in preparing this report.