contractors aren’t expanding their repertoire during the low-voltage boom
In the electrical contracting industry — where a 2% to 3% profit margin is a sign of a successful business — it's not surprising that home networking has created a buzz. Since the late 1990s, electrical trade magazines, armed with projections from the National Association of Home Builders and new residential construction figures from the U.S. Census Bureau, encouraged electrical contractors to educate themselves on technology and products in the low-voltage market. They offered more than one Top 10 list of the best ways to break into the business. NECA, IBEW, and the National Joint Apprenticeship and Training Committee began offering classes, scheduling conferences, and holding seminars to help electrical contractors take advantage of the structured cabling, consumer electronics, and high-end home automation systems revolution that was sweeping the market. It was proposed many times over that this was the industry's way out of the sluggish economy. The home-networking bandwagon had arrived. So why weren't electrical contractors getting onboard?
It's not that industry experts were wrong about the revenue potential. As homeowners have become more knowledgeable about networking services and products, demand for wired and wireless home offices and theaters has skyrocketed. Scottsdale, Ariz.-based market research firm In-Stat recently reported that revenue associated with home networking may jump to more than $20 billion by 2009, up from just less than $9 billion in 2004. Despite the threat of higher interest rates, new residential construction continues to grow. In fact, conservative estimates for the home networking market project it will be standard in at least half the homes built in the next 10 years. Yet, the move from electrical work to full-service networking infrastructure and products isn't one that most electrical contracting firms have been willing to take.
In the house. “It's mind boggling why electricians aren't more into it,” says Dennis Mazaris, president, Dulles, Va.-based Concert Technologies, a firm that specializes in voice, data, and video for government, military, and commercial networks. “They're in the house already, they're doing electrical wiring, so why can't they just put the communication wiring in? I've talked to a lot of people, and it's just their mentality. I don't know how you get around that.”
To further explain the obstinacy of some electrical contracting companies to move into home networking, Mazaris tells the story of a contractor who used to work at a medium-sized firm owned by his father-in-law. The contractor quit electrical work after he learned his father-in-law was resistant to bidding on networking jobs. For Mazaris, the contractor's story is a metaphor for the reluctance of an industry set in its ways. “It's like having an older relative who just doesn't want to change,” he says.
Another reason some electrical contracting firms may not be delving wholeheartedly into home networking is that residential work is largely the domain of smaller firms. In the paper “Residential Construction Diffusion Research for the NSF-PATH Program,” presented at The NSF-PATH Housing Research Agenda Workshop in February 2004, C. Theodore Koebel cites a dominance of smaller firms in residential construction as one possible reason for a lack of innovation in the industry. Other experts agree that smaller electrical contracting companies are often ill-prepared to take on a networking infrastructure. “A lot of these smaller contractors feel that they don't carry the weight to get in with the production builder and do that upselling,” says Doug Fikse, president, On-Q/Legrand, Inc., Harrisburg, Pa. “The electrical contractor's just not normally geared toward thinking, ‘Hey, I should be able to get in here and sell more upgrades, and I could double or triple my business.’”
The more custom the network infrastructure, the more skilled at sales the contractor must be. Most of the products in the network are optional, so it's up to the contractor to educate the homeowner. “If it's relegated to an optional sell, it's a matter of who is in front of the home-owner and can convince the homeowner they should part with their money to put in background music as opposed to better countertops, for example,” says Fikse.
The way electrical contractors have traditionally worked hasn't been a perfect match for installing a network infrastructure, either. “The typical electrician wants to get in and out,” says Larry Dashiell, treasurer of the Custom Electronic Design & Installation Association (CEDIA), an Indianapolis-based international trade association of companies that specialize in designing and installing electronic systems for the home. Dashiell is in a unique position to know the mind of both the electrical contractor and home network installer. He is the president of an electrical contracting firm, Summit Electric, and an audio-video contracting firm, HomeTech Systems, Inc., both based in Santa Rosa, Calif. “They want to get in, do the job as fast as possible, and get out,” says Dashiell, citing the tight timeline and budget for electricians as the reason for such an intense work schedule. “Their focus is to get the job done and get to the next job.”
Dashiell says this approach doesn't work for home networking jobs — where the focus is on programming products and customer service. “When you get into this trade, you have to do a fundamental mind shift,” he says. “You have to become more of a customer service company. You have to spend a lot of time with the client at the end, training them how to use the technology, and servicing the project.”
One-stop shopping. This shift from extreme focus on getting the job done on time and on budget to the customer service approach is one of the reasons Dashiell started HomeTech as a separate company. He wanted to foster a different culture on the home networking side. However, over the years, the approach has rubbed off on his electrical contracting firm. “My contractors really like me because we do go the extra mile and take a little extra time with the client making sure they understand the projects,” he says. “We provide more documentation, drawings, things you'd typically see in a commercial world. I think this has helped our company differentiate itself from other electrical contracting firms.”
According to Dashiell, this is also an advantage with builders. “I was in a meeting with one of my clients and he said I wasn't the low bidder on the job, but he liked the idea of having one choking point,” he says. “I didn't know if I liked that term or not, but it was the truth. He had one point of contact. He didn't have to deal with multiple subs.”
An electrical contracting background in the networking industry can be an added advantage in more subtle ways, too. According to Dashiell, electrical contractors understand the construction process better than installers. And again, they're already in the home, installing the hard wiring and forging relationships with the building contractor.
A versatile skill set. Most manufacturers and distributors of home-networking products have every confidence that electrical contractors have the proper technical skill set to take on low-voltage wiring. They also seem to be in agreement that it's easier for electricians to learn how to install the network infrastructure and products than it is for a low-voltage installer to become an electrician. “A telecom guy can't get into electrical work,” says Mazaris. “That's out of the question. That's too much education.”
It's much easier for electrical contractors to learn electronic system installation. “Certainly, electrical contractors are able to be in the business,” says Fikse. “It's not beyond their skills. Obviously, there's always product training, but a lot of it is fundamentally along the lines of what they can understand and support.”
Dashiell is even more adamant about the ability of electrical contracting firms to dominate the industry. “The market is out there, and if electricians really wanted this market, they could take it,” he says.
However, electrical contractors breaking into the industry may have to debunk the myth that they don't know what they're doing when it comes to home networking. In their “Home Networking Tips” article published for the Verizon Learning Center, “Smart Homes for Dummies” authors Danny Briere and Pat Hurley specifically advise homeowners against relying on their contractor to “soft wire” their homes. They explain that many electrical contractors may not be familiar with the differences required by low-voltage wiring runs and recommend hiring a low-voltage subcontractor to handle the networking portion of construction or remodeling projects.
Dashiell agrees that there is some concern in the networking industry about the electrical contractor's abilities, especially when it comes to sales and customer service. But he is also convinced the electrical contractors have a technical advantage over the low-voltage installers. For both types of companies, it would be mutually beneficial to work together. “The electrical industry thinks that the AV companies don't know what they're doing, and the AV companies think that the electrical companies don't know what they're doing,” he says. “I sit on both sides and think there is some truth to both sides. The electricians have a lot of experience in a lot of areas that AV people can really learn from, and electricians can learn a lot from AV companies about customer service issues.”
Strange bedfellows. The low-voltage installers seem to have cornered the market in the networking sales department. “It's a skill that the builder sales force is not that great at, so it's often the installer that has to take up that ball,” says Fikse. “Some of the best low-voltage installation organizations are very good at that upsell and have very tight relationships with the builders. The builder makes a lot more money on the upgrades, and then of course, it makes a lot more money for the installer.”
The easiest way for an electrical contracting company to get in on the action can be summed up in one word: subcontracting. Through a subcontractor arrangement, an electrical firm can learn the soft skills along with the soft wiring aspects of the job. If an electrical contractor bids on the electrical cabling portion of the job, along with telecommunication cabling, the firm could sub the latter part out to a low-voltage installer. “They can transition slowly into it,” says Mazaris. “If their big fear is they don't want to get into it, then they don't really have to get into it. They can get into it from a management perspective.”
If the electrical contractor has a positive experience and is comfortable with the work, then it might consider hiring one person on staff to manage the low-voltage subcontractors. However, Mazaris warns that in order to make the subcontracting arrangement profitable for both parties, the project must be bigger than just one or two houses.
Under the subcontracting agreement, the electrical contractor can also learn how to upsell products. The low-voltage subcontractor performs the sales pitch, and the sales go on the ticket for the electrical contractor firm. “They've got nothing to lose,” says Mazaris. “They're going to make a percentage off this guy. They can see it happen for someone working under them, subject to the terms that they agreed to. That would be the easiest way to learn everything you need.”
Of course, there has been some recent competition between electrical contractors and low-voltage installers, especially in the area of lighting control. “A lot of electricians are starting to get into lighting control,” says Dashiell. “The electricians come in and take that away from the electronic systems contractor because they can. They have the relationship with the owner and most of the time with the general contractor.”
In his work, Dashiell has started to see more competition but hopes that electricians and low-voltage installers can maintain an air of cooperation, much like the open communication between his own electrical contracting firm and low-voltage company. “If I'm on a job and the electrician wants to do the structured cabling, I'm perfectly fine with that as long as he puts it in per the specs,” he says.
This is true even when Summit is not the electrical contractor on the job. In fact, another reason Dashiell created HomeTech as a separate company is so it could bid on jobs on which his other company was not the electrical contractor. “You work with them,” he says. “Everybody needs to make money, and everybody needs to stay alive. It's a win/win if everybody makes money.”
The main squeeze. Contrary to the notion that all new home construction comes completely networked, only the most basic wiring systems are installed in many large homes. Many times the homeowner isn't aware of or sold on other options. It's up to the installer, whether a low-voltage contractor or an electrical contractor, to offer these alternatives. When that happens, the industry grows. “We find we get more educated consumers, and then the business grows a little bit,” says Fikse. “Then we get more educated installers and contractors, and it grows a little bit more. It just keeps getting larger. But if [electrical contractors] don't participate, then they might find themselves looking through the window and not being a major part of that business.”
So the question might not be whether or not electrical contractors should become active in this market, but how soon they should enter it. Some industry experts believe electrical contractors won't soon have a choice. “It's not even a matter of whether they should enter into it or not or even want to enter into it,” Fikse says. “I think they have to enter into it if they want to continue growing their business and not end up getting squeezed out.”
He maintains that low-voltage installers could soon become the main wiring contractor for the homes and begin to sub out the hard wiring. “Somebody is doing that infrastructure,” he says. “Often, it's the low-voltage contractor, the security guy, or the AV guy. And what's happening is that the content of that side of the system is getting larger.”
Add to that the home systems applications such as intercom, telephone systems, or active networking — not to mention the entertainment portion of the job with audio, background audio, theater sound, gaming, and control — and you've got a soft wiring job that is worth thousands of dollars with a much smaller electrical content.
However, electrical contractors might be right in their reluctance to add home networking projects to their bag of tricks. “It's a good business, but I don't know if it's a good business for electrical contractors,” says Dashiell. “It depends on the company and what their focus is.”
From acoustic or lighting design to full-blown Crestron or AMX touch screen home-automation control systems, home networking projects comprise a full spectrum of construction and remodeling projects. What all the industry experts seem to agree on is that the electrical contractor should first seek out classes, conferences, and seminars about the products and the skills it takes to install them. “I think that companies need to be careful getting into it unless they really understand what they're doing and where they're trying to go,” Dashiell warns. “They need to plan and do some research and understand what the pitfalls are, and then decide if that fits their company model or culture.”