There is usually at least one exception to any rule. When it comes to the technology sector, the audiovisual (AV) segment is the exception to the recessionary conditions that have decimated sales for most IT products.
As such, the AV sector is increasingly being viewed as a lifeline by many VARs and broadline IT resellers looking to plug the hole in their profits caused by slow sales of PCs, printers, peripherals and other commodity items.
Last year was a disaster for such products, and businesses are only now starting to spend on them again, albeit slowly. In contrast, the same period saw AV products, such as projectors, plasma screens, and interactive whiteboards, flying off the shelves.
"The AV market in the past year has really grown, especially in the three main areas of projectors, plasma screens and whiteboards," claimed Daryl Brennan, sales and marketing director at AV distributor Steljes.
"The market has grown by 30 per cent in volume terms. In the whiteboard arena, growth is somewhere in the region of 50 per cent in both volume and value because prices have remained quite static.
"In the projector arena, volumes have been up 30 per cent but market value has remained static. Price competition makes this the most dynamic sector."
Various market research figures put the value of the UK AV market in 2002 at about £2.5bn, a total that has remained largely unchanged from 2001.
This was not because products were slow to sell but because price competition in the AV sector has been red hot.
As a result, the value of sales has fallen but the unit volumes have rocketed. So why is AV the place to be when other market sectors are struggling?
"Some of it has to do with certain products maturing and very aggressive pricing from manufacturers," said Brennan.
"There is also an increased awareness to share information with colleagues and use AV as a training tool. Interactivity and collaboration is prevalent in a lot of walks of life now."
Ian Vickerage, managing director of Imago Micro, said: "Many AV products, such as videoconferencing, are now seen as strategic by the buyer because they help make money.
"In contrast, certain IT products are just seen as a cost. It's hard to see PCs as competitive weapons in the way they used to be seen, but you still can with AV products."
Dan Moore, Hewlett Packard's projector category manager for the UK and Ireland, explained: "The AV market is a great opportunity for resellers to regain some of the margin they have lost in the IT sector."
So, like any good schoolyard bully, the IT channel has seen the AV lunch money and wants its cut. Not unlike the California gold rush there have been a lot of spurious claims about how profitable moving into the glittering AV sector can be.
While margins of 40 per cent can be made, it is only at the very high end of the sector for videoconferencing and video streaming products where a lot of value-add goes into each sale.
Realistically, dealers can make 10 to 20 per cent in the projector, plasma and interactive whiteboard arenas - the largest segments.
But this is all changing as margins on projectors and plasma products are falling fast. And while margins are not at commodity levels, the smart AV dealers know that value-added services are the only way to prop them up.
For many IT resellers their first foray into AV has meant little more than adding a projector to their product list.
The box-shifting mentality has worked for those competing on price, but the low-end products no longer yield the margins they did a year ago, and 2004 will see those margins fall significantly.
Those serious about generating AV revenue have been investing in numerous products and working to create dedicated AV divisions that also offer profitable services.
"The situation with traditional IT products is that there is too much margin squeeze and not enough volume sales," explained Jon Sidwick, managing director at AV distributor Maverick.
"Both of those factors are healthier in the AV sector. Resellers should expect at least double-digit margins on AV products, despite the fact that it's just a hardware sale.
"In addition, the clever IT resellers are looking at value-add services such as installation and selling lamps and other accessories. Installation is the key business since more and more projectors are being installed."
Brennan added: "Margins are still higher in AV. There is potential for very high margins with high-end AV systems, but at the lower end we are talking about a 30 per cent maximum, and that's with services added in. Typically, margins are in the 15 to 20 per cent range.
"But while a lot of the IT resellers have identified that there is a better margin level in AV, they are still operating in box-shifting mode, which leaves them in the 10-15 per cent bracket.
"Where you really make money is in adding some value, be it in design, installation, training or support."
Vickerage is less optimistic. "AV margins are not too good at the low end; single figures at the most," he said.
"The amount of competition there has affected the margins and, if dealers want to make good money, they need to add value. It might sound cynical but the perception that AV is an easy arena to get into and then make loads of money is untrue."
A couple of years ago there was a lot of talk about just how much of an impact broadline distributors and IT dealers would have on the AV market.
Predictions that the traditional AV distributor would be over-run by the IT horde have, so far, failed to materialise. Broadline distributors have not taken the lion's share of the business away from the AV camp.
Much of that failure is due to the lack of proper investment in AV divisions, with broadliners preferring to compete mainly in the low end of the market on price-sensitive offerings.
"I thought we would be losing market share as the specialist AV market came under pressure from the broadliners, but it has not happened," said Sidwick.
"The market split between AV distributors and IT distributors is 78 per cent and 22 per cent, respectively.
"By now, the prediction was that the broadliners would have taken 40 per cent. But broadliners are logistics and credit houses that don't offer decent support or a wide range of value-added services."
Vickerage sees no reason why broadliners should take a huge chunk of the market. "They leapt into the AV sector without too much forethought, reacting to the fall-off in the IT sector," he explained.
"People want to see these products in action. A lot of PCs and printers can be bought on spec, unseen, but many people will not buy an AV product without a demonstration.
"Dealers that can't do their own demonstrations rely on the distributor to do it, but many broadliners will not do this.
"Commoditisation of AV is not necessarily a good thing and, while broadliners have managed to do it at the very low end with projectors, they have failed to do it with the higher-end stuff."
While a lot can be blamed on the failure of broadliners to invest seriously in AV divisions so far, AV distributors have played a key role in their own survival.
Rather than digging trenches to fight for each foot of ground, they have done the opposite by welcoming IT dealers with open arms and giving them the kind of help, training and support they needed to start selling AV solutions. For many, sales to IT resellers now make up the bulk of their revenues.
"A lot of AV distributors are now focusing on attracting IT resellers, because they value our services. Now, 60 per cent of our business is from IT resellers," said Sidwick.
But the broadliners will not be put off for long, with many already beefing up their dedicated AV divisions, complete with support services.
It also helps that major manufacturers are keen to get their AV offerings into the IT channel and its massive customer base.
Projectors are the shining star of the AV market at the moment. The price competition in this sector has opened the floodgates in terms of sales.
The technical advances have also been dramatic, with certain models now weighing little more than 1kg and being slim enough to fit into a briefcase.
In the space of just one year, even low-end models are easier to use, sport brighter bulbs and offer better colour and contrast.
The next generation - now just arriving - boasts wireless technology, allowing notebooks to hook up to projectors without cabling. This is expected to create even more sales in the business sector.
"Unit sales have grown quite a lot, particularly for projectors, but revenues in that arena have not grown that much. Projector prices have fallen dramatically especially at the low end," explained Vickerage.
"This summer alone dealer prices have really fallen; entry-level projectors were £1,000 six months ago and now they're about £650."
Moore added: "The UK projector market, according to Decision Tree Consulting, is worth $400m alone. It has grown 22 per cent in the past year and will grow by 24 per cent next year.
"In terms of value, the market is declining a little but that's down to very strong price erosion. Current prices will fall by up to 29 per cent by next year."
Paul McKeever, channel marketing director at Sony, said: "The entry-level portable products arena is where most growth is happening, particularly with portable projectors, low-end displays and plasma screens.
"The market for big installation products has not grown as much, though. Price point is the main driver in the low end, but technology has improved a lot as well.
"For example, the low-end projector products today have the technology found in high-end products just a couple of years ago."
The projector market is certainly the most dynamic AV sector and its rapid rise mirrors the way that notebooks have risen. Like notebooks, projectors always commanded a price premium but, thanks to cut-throat pricing, improved technology and changing work patterns, that barrier has been overcome.
With entry-level products coming in at about £1,000, projectors are selling like hot cakes. All of the big manufacturers increasingly are targeting AV goods at the IT channel, because IT resellers are already established in key markets like education, SMEs and the public sector.
HP had nine distributors in July, which it has whittled down to three, as part of a massive drive to push its projectors through the channel.
"We had very little money and resources going into the projector side of the business, but that has all changed. HP now sees it as a very important market in its own right," said Moore.
"We are putting $40m into R&D this year alone. We now have an AV business manager and are funding the placement of a dedicated HP AV sales representative in both Computer 2000 and Ingram."
Sony is another player hoping to build a business presence by using the IT channel. It recently announced plans to recruit 100 IT resellers to help it push IT and AV products into the SME sector.
"The SME arena is a place that we have done well in by default, rather than by being proactive," admitted McKeever.
"We are looking for 100 resellers and they will get a dedicated account manager, help putting together marketing plans and material, access to our dealer extranet site and regular training opportunities."
Other technologies popular with resellers are plasma screens and interactive whiteboards, the latter being all the rage in the lucrative education sector. While plasma has experienced growth, it has not been as stellar as once predicted.
Plasma screens are also expected to come under fierce pressure from larger LCD displays. According to researcher Pacific Media Associates, the market for LCD flat panels over 30in will jump from fewer than 10,000 units in 2002 to 1.7 million in 2007.
The other growing marketplace is interactive whiteboards, especially in the thriving education sector. DTC estimates that 40,000 whiteboards will be sold in the UK this year, rising to 57,000 next year.
The UK is the strongest growth market and 100,000 whiteboards will have been installed in the UK by the second quarter off 2004.
The education sector accounts for around 90 per cent of all whiteboard sales, thanks to the government's deep pockets for IT, but the rest of the public sector and corporates are growing too.
For many IT resellers already in the education sector, opting for AV solutions makes a lot of sense.
Brennan at Steljes, distributor for Smart whiteboards, said: "The education sector is a massive growth area. There is also a 98 per cent connect rate these days between whiteboards and projectors."
Sidwick pointed out that the whole thrust in the UK education sector is to get IT into classrooms. "AV is really taking off in education, with whiteboards and projectors proving to be very popular," he said.
"There are half a million classrooms in the country, and in the future every one of them will have a projector at least. Resellers should keep in mind that they will all have to be installed, maintained and upgraded."
Vickerage added: "Education has grown massively in the areas of whiteboards and projectors because schools are being funded to do so.
"Without that, the projector business would not have grown. If you already have education customers then adding AV makes sense."
Decision Tree Consulting (01438) 316 240
Hewlett Packard (0845) 270 4222
Imago Micro (01635) 294 300
Maverick (0118) 988 6266
Sony (08705) 111 999
Steljes (08000) 151 603
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