“There are no shortcuts in evolution.” —Justice Louis D. Brandeis
Evolution is not a foreign concept to the videoconferencing industry. Since the technology’s introduction at the 1964 World’s Fair in New York it has seen many changes. We have seen products and manufacturers come and go, the migration from H.320 to H.323 to SIP, and the move from SD to HD. Even the name of the industry seems to be in a constant state of flux, from video-teleconferencing to videoconferencing to visual communications to telepresence to collaboration.
The industry continues to evolve with the current period migrating away from hardware-based infrastructure to software-based infrastructure components. Software does bring some key advantages and there are hundreds of articles about the shift, but a topic that I believe goes untouched is how we got here and what impact this will have on the AV integration reseller channel.
From a “how did we get here” perspective, it is clear that the reality of Moore’s Law regarding processing power has enabled us to move from dedicated hardware to software—but it goes much further than the technological advancements. If you step back and look at the videoconferencing and AV industry in general, manufacturer and reseller business models have been primarily structured around the sale of hardware. Yes, almost all have some type of firmware or software included, but the primary focus has been on the hardware sale.
In today’s global and connected market there are some inherent problems with a hardware model, both for a manufacturer and reseller. Development time for a new hardware product is typically slow and can create a delay between new technology creation and bringing new value to the market. Hardware can create large inventories for the manufacturer, distributor, and reseller, and become a cash drain on the organization. Another challenge with hardware is that it traditionally will follow a life cycle that results in declining sales and/or commoditization equating to lower and lower margins.
On the flipside, software negates many of the hardware challenges mentioned and can bring additional value. Time to market is typically reduced providing technological advancements in a compressed cycle. The flexibility in delivery of software eliminates the cash drain associated with inventory. The overall sales cycle with software traditionally brings much higher margins than the life cycle results of hardware. Additionally, most software models lend themselves to some type of cloud mode—either private cloud or SaaS.
So what is the potential impact of hardware to software migration on the AV integrator that sells videoconferencing? In short, there is a lot to consider.
First step is to understand the business model. That might seem a little obvious but there are many nuances and things to consider. The overarching difference between the hardware / software model is when and where the revenue comes from. Hardware sales are about getting the PO, which may include a minor percentage of service or recurring revenue. Software can be totally opposite with the majority of revenue on the recurring side through renewal of licenses and maintenance contracts that include feature upgrades. It is critical to understand the software licensing procedures and how to deal with everything from upgrades to license transfers.
Another area of major importance is your compensation model. Since the revenue model is so different you will also need to look closely at your compensation plan for sales. The incentive will shift from a hardware PO to building software licenses and associated renewals with high margins and little or low cost of sales.
Also, don’t forget about new engineering, installation, configuration, and technical support skillsets that will be required. It brings a whole new level of certification requirements. Engineering skills will require planning and designing of virtualization solutions, installation, and configuration will need training in implementing and managing both server and desktop virtualization. And yes, there are training and certifications for virtualization technical support.
A move from hardware sales to software sales can be very challenging, have a major impact on your business, and become quite expensive, but the flip side is that the reward potential is extremely high. The good news is that the shift will not occur overnight, which should allow for solid strategy development and implementation.
R. Randal Riebe (firstname.lastname@example.org) is the director of AV integrator business development at Polycom.
The Great Debate
Software-based videoconferencing infrastructure brings a variety of positives for the AV integrator. Software is relatively quick and easy to deploy, opening new doors for trials or proof-of- concept for your customers. It provides scale flexibility not available in hardware. Need to add additional video capacity today but will need to potentially scale down in six months? Not a problem. Being software, the end-user is potentially able to show some reduced total cost of ownership by utilizing existing IT resources.
With all of the advantages of software, the demise of the hardware platform is being predicted by many. But at the same time we are seeing many customers continuing to purchase hardware infrastructure. So what’s up with that? Actually there are a variety of reasons.
One element is timing. There are many enterprise customers that currently have and use hardware infrastructure and any potential for shifting from hardware to software won’t happen overnight. As time passes and the quantity of multiple small conferences increase due to mobile and desktop applications, expect to see software take a larger role.
The other item that is often glossed over is today’s hardware platforms have been designed and optimized for a particular function. They are extremely stable, highly secure, and in environments that require larger configurations with higher call speed requirements, hardware is currently the best choice. Best guess is that we will see a variety of hybrid deployments including hardware, software, and cloud services for the next few years.
Because of this it is critical to understand the technology that is available (hardware and software), understand what the customer is trying to achieve and how they will be using the technology so that you can make the best recommendation for them.