The networked home

Not long ago, convergence meant little more than a home PC with a DVD drive, a fast network connection and a five-speaker surround-sound system.But if this year’s Consumer Electronics Show is an indication, the kind of fully integrated “smart” home once only dreamed of is ready for prime-time. Be it ever so humble, the new integrated home will boast structured wiring and pervasive networking that integrates high-end digital audio, video and home automation technologies. Resellers are eagerly looking toward the emerging market.

“It’s a whole new market,” says Cecilia Yuen, Future Shop’s marketing manager. “Home network was about sharing network connections between multiple computers. Now we’re talking about how to bring the computer to the living room – or to any other room, for that matter – without bringing the computer to the living room. You don’t want to crowd around a small laptop screen to watch downloaded video in the den. You want to see it on a big screen.”

How big is the market? Potentially pretty big. The iPod generation of technology consumers is ready to plunk down some serious coin to make everything work together. According to In-Stat, in fact, it’s the leading factor in the resuscitation of an otherwise moribund home networking market. The research firm estimates that annual shipments for home network-equipped devices will grow at a compound annual growth rate of more than 20 per cent between 2005 and 2010, largely driven by infrastructure improvements and media networked devices.

With telecommunications service providers rolling out triple-play offerings that combine the Internet, voice over IP (VoIP) and Internet television (Internet Protocol TV) services, buyers don’t have to go shopping for convergence anymore. It’s coming to them.

This time, however, convergence doesn’t just refer to new and repurposed technologies; it also refers to the market. Long the only source for networking and computing technologies, computer resellers are finding a new kid on the block – home entertainment dealers – principally because the block has expanded onto their turf.

Moreover, according to Gartner Group analyst Van Baker, home integration is likely to be – and remain – a boutique business best served by boutique companies. “It’s never going to be a huge market,” Baker says. “For the foreseeable future, it will still be catering to the top three to five per cent of the home entertainment market – the well-heeled consumer.” The immediate consequence is that a whole lot of erstwhile TV and stereo dealers that serve well-heeled consumers have begun to reinvent themselves as a kind of full-service, home-focused consumer VAR.

“These are essentially consumer VARs with a focus on home entertainment and media,” Baker says. “There used to be companies that did less sophisticated installations, but that has been absorbed by the Geek Squad guys at the big box stores. So the business has moved up-market.”

Regina’s Audio Warehouse, for example, began as a traditional audio dealer decades ago. It was one of the first companies to sell car stereos in Canada, back in the 1970s, when that meant 8-track tapes. Now they’re stepping into home integration, partly to set themselves apart from run-of-the-mill stereo shops, and partly to bring their specialist expertise to home network integration.

New facet
“It’s a totally new facet of our business because it’s not just selling DVD players, televisions and amplifiers,” says custom audio-video sales manager Kent Magnuson. “It sets us apart from big box stores as well as from the average audio-video store.”

That’s significant because, while Baker is certain that the home integration market will never reach 80 per cent market penetration – you probably don’t need a fully integrated one-bedroom apartment – at the local level, the top-end of the market can represent a substantial opportunity to boutique consumer-VARs. Moreover, while the business might start in million-dollar homes, who know, where it will ultimately end?

John Stumpf, sales manager for Fergus, Ont.-based Station Earth, wonders how far down market home integration and media convergence will penetrate. “On some level, it might happen – who knows?” he muses. “In our business, there’s so much technology coming down the pipe that you really can’t forecast exactly.”

Magnuson emphatically agrees. “We’re already seeing huge growth,” Magnuson says. “Anybody can sell TVs and stereos and, for that matter, computers. Not everyone can get the training, or has the expertise that we have. That puts us in a special position.”

Baker says the companies best able to take advantage of the surge in home integration are “small, focused resellers.” Consequently, the unique expertise of the audio-video resellers like Audio Warehouse also puts them in a unique position vis-a-vis potential home integrators from other market segments like IT. After all, “the big areas are content-sharing and media and audio distribution through the house,” Stumpf says. “With so many people having MP3 players today, they want their music to follow them throughout the house.”

This new sell is a major boon to the reinvented specialty retailer. “Technology is complex for most people,” Stumpf says. “The dictates of the market say that if we didn’t go in that direction, we wouldn’t survive. In our business, we can’t go head-to-head with Costco and Future Shop on products alone. We sell solutions, not just products. Yes, we sell media server systems, but who’s going to make it work? Who has the expertise on both the audio-video side and on the integration side?”

That is where the opportunity really is. Service providers have a lock on IPTV, and consumers will receive their residential gateways and set-top boxes as part of the subscription. But that only means a bigger opportunity for entertainment-focused resellers and integrators. “It’s an opportunity because service providers want their responsibility to end at the residential gateway or the set-top box,” Baker says. “Consumers have the responsibility in the home, but they don’t want to deal with all the jargon and technospeak.”

That means companies like Station Earth are not the providers’ rivals, but are instead perhaps their closest allies. “We’re not really competing with them ,except in infrastructure wiring,” Stumpf says. “What we’re doing is the audio-video, the lighting and file sharing – we have media servers. We do the hardware and the installation. Pretty much everything to make this stuff work.”

That’s important, Baker says, because this new work of home entertainment networking involves a whole lot more than either entertainment technologies or networking. “At the low end, there’s still the installation and maintenance of the data network in the home,” Baker says. “But multimedia networks require a whole different capability and infrastructure, with quality of service and multiple physical layers.”

Getting an edge
“When you layer on voice over IP, the home automation guy who can do it all will have the edge mostly at the high end of the market,” Baker says. “These are mostly the members of the Custom Electronic Design and Installation Association (CEDIA).” Audio Warehouse and Station Earth are a part of CEDIA.

Though the boutique VARs might not have the raw networking expertise of a IT integrator, that has begun to change. “We sometimes have to contract that part of it out to someone with specialized expertise.” Magnuson says. But he’s also hired a computer and networking specialist.

Audio Warehouse already has the home networking and structured wiring expertise – Magnuson says they’ve been on that bandwagon from the beginning. “But we have one guy between four stores who can do the really sophisticated programming,” he says. “As the market grows, we’ll certainly be looking for more people.”

Station Earth is staying the course and focusing on its core competency, Stumpf says. “We’ve talked about moving in the IT direction and whether we should employ an IT (person),” he says. “But the truth is that we have enough on our plate right now.”

As for major retailers, they still expect customers to buy off-the-shelf and integrate the technology themselves, but offering comprehensive installation services is coming, Yuen says, and that will add yet another player into what promises to become a highly competitive market. “For people like my mom and dad, if they like the concept, we have some installation and set-up services,” Yuen says. “They should only have to focus on getting the solution.”

According to Baker, it is perhaps inevitable. “The big box has to absorb the consumer VAR in the same way they absorbed the Geek Squad,” he says. “It’s definitely a profit enhancer.” Home entertainment may never be the same.

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