Revisioning Custom Retailing: Part 5: Disruptive Innovation Will Transform Home Integration
Last month we talked about Internet reselling, wiki-marketing and margin erosion. We continue now with more disruptive innovation that’s transforming our world. Next month, we’ll delve into the upside.
Fewer Manufacturers, More Distribution
In some product categories—video, for example—manufacturers are dropping like flies. In the last four years, Pioneer, Mitsubishi, Hitachi, Fujitsu and NEC have exited the flat-panel market—not to mention boutique brands like NuVision and Marantz.
Today, continuing operational losses in video by Sharp, Panasonic and Sony raise doubts about their future commitment to the sector. This would be a huge loss. Who’s doing well? Upstarts like Samsung, LG and Visio. Yes, Visio!
And while the number of manufacturers decreases, distribution channels continue to proliferate, making brand exclusivity a thing of the past. Both trends erode margins, and further blur the line between specialty dealers and mass market merchants in the consumer’s mind.
Today, poor products don’t survive long. We live in a highly commoditized market environment, due to broad improvements in product performance and features, coupled with (sometimes dramatically) lower prices. This is the cost of success through innovation. With little to differentiate brands on a performance basis, there is less need for buyers to compare products, much less visit a showroom. If even entry-level brands perform well, why not shop on the Internet?
With Prices So Low, How Can You Lose?
Will breakthrough innovations re-invigorate premium TV brands and restore product differentiation to our industry? 3D seemed promising at first, but has disappointed. Step-up features in smart TVs seem to be holding their own. And while 4K OLED video may provide temporary relief, it’s competing against products that are already very good and very inexpensive, at a time when everyone seems to be a value buyer.
When new developments do manage to penetrate the market, they too will rapidly drop in price, become commoditized, and enter the mass market. With today’s accelerated product cycles, this process will occur more rapidly than ever before, giving dealers less time to ride the brief (high margin) waves of innovation.
Multi-Purpose Platforms and Killer Apps
In the ancient history of AV (a little over a decade ago), if you had an electronic task you wanted performed, you left your home, traveled to a local AV store, and bought a product specific to your need: a TV to watch; a stereo to listen to. Sources? “Glad you asked, sir. We have AM-FM tuners, turntables, cassette decks,” and other analog product categories. A chassis for every task meant lots of attachment sales. Those were the glory days of retail.
The digital revolution has changed the formula by simplifying every waveform (at every frequency) into a string of 1s and 0s. In the process, it reduced the number of electronic tasks from many to just three: transforming analog signals to digital data, managing the data, and presenting it to humans—preferably on a single, hand-held wireless chassis. This process has reduced all those wonderful analog add-ons to inexpensive applications (or “apps” for short, which, you may have heard, are sold on the Web by an obscure, vertically integrated little company named Apple). Thus was born the smartphone—the universal specific that, with hundreds of thousands of apps, can do (almost) anything a human might need, electronically speaking.
This digital hub approach has revolutionized the world of consumer electronics, and has done much to damage traditional custom retailing. Apple stores today generate, on average, $6,050 of sales per square-foot per year (versus $823 for Best Buy.) In addition, the Apple stores serve as a catalyst for countless Internet purchases. What’s your yield?
Steve Jobs’ vision is a long way from the 19-inch racks populated with the premium gear we know and love. But how can we sell a proprietary $10K control panel system with another $5K of custom programming, for example, when a $500 tablet and a handful of free or inexpensive apps can get pretty close, functionally speaking? This is the sort of question for which we must find compelling answers.
Electronic Service Providers
Apple, with all its focus on closed architecture and high-control business practices, probably isn’t interested in custom home electronics. Too messy, too non-uniform. But electronic service providers like ADT, Verizon, AT&T, and Comcast are—provided the customer will accept cookie-cutter solutions. They’re now beating the drum for small sets of home integration features, which they package and sell using the same recurring revenue model that has been so successful in building the cellphone, cable TV, satellite and burglar alarm industries. They will be our new competitors, and in some locales, they probably already are.
Coming Soon: Great News
Well ... that’s all the bad news. Next time, we’ll deconstruct the traditional custom retailer business model, and look at new ways to tell our story to consumers, to engage and qualify them, to design and engineer projects, and to install them. The emphasis will be on virtualizing business practices to dramatically reduce costs. CR
George E. McKechnie, Ph.D., is president of Axiom Home Theater in Monterey, Ca., and founding editor of SyncMyHome.com.