*Originally published on CEPro.com
Integrators may have expected serious downward pricing pressures now that smart homes are more mainstream, but so far the industry has defied all logic.
Mr. Spock would not have understood the custom electronics market of the past half-decade. The famed character from the planet Vulcan in Star Trek based everything on logic. So, the confounded illogic of the smart home market since 2014 would likely have put him into a pon farr frenzy.
As the smart home has become more mainstream over the past five years, logic would dictate that there should have been tremendous downward pricing pressure on custom integrators. But that did not happen. Indeed, just the opposite happened. Median prices rose.
Think about some of the factors affecting the market right now that should have resulted in price pressure:
- Millennials are taking hold as the primary clientele. This “demand-response generation” hit their formative years just as the Great Recession was occurring. Also, because many are saddled with student debt, they are more conservative in their spending habits than previous generations. They get married, have kids and buy houses later in life. They also desire instant gratification and prefer digital interaction to face-to-face conversation.
- Technology advancements now enable smart home functionality to be achieved with less-expensive and less-complex programming needs. Consumers can control their audio, video, climate and lighting via individual apps, so why would they need a connected home? Indeed, younger consumers are often more impressed with those who have more apps on their mobile device.
- The desire among many consumers for high-quality audio and video has diminished. Who would have ever thought that consumers would accept watching Lawrence of Arabia and other cinematic classics on a 4-inch mobile phone, or listening to Mozart using crummy earbuds? There are fewer audiophiles every day. The downgrade to “good enough” in audio and video experience should be pushing prices downward.
‘IoT Effect’ Starts Creeping In
So with those and other factors at play, why from 2014 through 2018, did the median price, according to CE Pro research, for a fully integrated smart home jump? One primary reason might be the lack of manpower in the industry, which forces integrators to be more selective and only take on larger, more profitable projects. Another reason might simply be the roaring economy. With so much expendable income available, clients can afford to spend on larger, more lavish smart home systems.
But, finally, Spock can stop having a meltdown as the market in 2019 saw the first signs of the “IoT Effect.” According to the 2020 CE Pro State of the Industry Study, median installation prices for a residential custom installation fell and number of installations rose. In 2019, the median installation price was $21,266, down 18% from 2018. Meanwhile, the median number of new projects rose from 48 jobs to 50, a slight 4% increase.
I believe these signals are significant and signal a trend for the market that is likely to continue, especially given that the average integration company’s revenues grew just 4% in 2019. That is the lowest growth rate the industry has experienced since 2011.
I am not the only one who sees it. Just this past month, a new potentially powerful player entered the market — Goodman Networks — led by longtime integrator Daniel Pidgeon. The company is hitting the ground running with 2,000+ certified technicians in 130 markets targeting $200 home technology installations on behalf of a major retailer. (That is not a misprint — $200.) Pidgeon sees a major void in the market between the DIY space and custom integration that is currently not being filled.
Now, before you clap back with “That is not my market.” I know it isn’t, but the peripheral effect in the mind of consumers when they see those price points will eventually affect what you can charge to your clients. You will need to be more prepared than ever to discuss the value you bring to the table for your clients.
As Mr. Spock might say, the next few years are going to be “fascinating.”