CEDIA Veteran Joins New Company Offering Recurring Revenue Retail Model

Start-up turnkey systems provider G2i is heading to the CEDIA Expo this week with an ambitious plan to take on high-profile interactive service providers ADT and Comcast, overhaul the business model of CEDIA dealers, build value into their companies and largely replace the “custom” portion of the genre with pre-packaged systems, a key executive told us.

CEDIA members have been “doing things the same way since 1989,” Jeff Zemanek, an ex-CEDIA president and former executive with Lutron Electronics, told Consumer Electronics Daily in advance of the organization’s 23rd Expo being held in Indianapolis this week. Zemanek, now sales and marketing vice president of start-up G2i (Generation 2 Interactive), has joined with CEO Reed Stevens, son of CEDIA founding chair Chris Stevens, to form what G2i hopes will usher in the next era of the CEDIA market.

Looking at the history of the custom electronics business, “nothing has really changed” in electronics integrators’ business models and go-to-market strategies, Zemanek said. CEDIA has given lip service to sorely needed recurring revenue models, but little has developed in a sustainable way. Dealers at the top of the custom integration pyramid can continue to rotate through “billionaire clients,” Zemanek said, but most CEDIA members need a realistic business approach to more restrained customer base. CEDIA dealers are faced with declining prices, lower profit margins from hardware, and the disappearance of exclusive lines --"everybody and their brother has everything now,” he said.

Since inception, CEDIA members have touted the custom portion of their businesses, but writing custom code for sophisticated control systems is like “a science project that costs money and time and is not reliable when you have to build things over and over again,” Zemanek said. The idea behind G2i is to “keep it very simple,” Zemanek said, with turnkey systems, ancillary products to help tailor a system to a particular project and exclusive territories where dealers aren’t competing against each other for business. Large markets such as Chicago will have multiple dealers, but “we'll carve out a niche” for dealers in those markets, he said.

G2i is pushing the idea of building value into dealers’ businesses through long-term customer service contracts that can be sold as assets down the road. Dealers’ businesses today have few assets, he said, citing inventory which they've already purchased and need to sell to make money and in some cases buildings they own, “which puts them in the real estate business.” Long-term service contracts, like those that security dealers own, give their businesses recurring monthly revenue and calculable assets if they ever want to sell the operation, he said.

The G2i product is cloud-based and “down-market” allowing “everyone to enjoy what used to cost six or seven figures,” Zemanek said. The system has a strong mobile component, Stevens added. While the value of most home automation systems today “ends when you leave the home,” G2i’s cloud-based server is “constantly in touch with the home.” Users checking in on their homes have “as rich a control experience away from home as when they're there,” Stevens said.

G2i is the first serious defense for the CEDIA channel against interactive services from Comcast’s Xfinity, ADT’s Pulse and soon, AT&T’s Digital Life. G2i bills itself as a service provider that allows users to control wireless cameras, thermostats, lighting, door locks and security in the home, Stevens said. Interactive services are “selling like crazy,” he said, adding that ADT’s Pulse home automation service now makes up 40 percent of that company’s total sales.

G2i’s vendor partners, to be unveiled at CEDIA, are “definitely not bottom-rung manufacturers,” Stevens said, noting that the strategy is for CEDIA members to sell dealers products with “the level of quality they're used to selling.” The G2i base station uses Wi-Fi to communicate with wireless cameras and touchscreens, and the light switches, thermostats and door locks talk to the base station via Z-Wave. G2i chose Z-Wave over ZigBee because “it’s been out longer” and because it operates at 900 MHz, a less crowded radio frequency band than the 2.4GHz band that ZigBee and Wi-Fi operate in, he said. 900-MHz devices penetrate walls better than 2.4-GHz signals, he said, and Z-Wave boasts a larger hardware selection, he said.

G2i has targeted 1,500 dealers as “the right balance” for the interactive services market, which grew 60 percent in 2011 and has continued at that rate this year, Stevens said. He cited analyst projections of 50 million installed systems over the next 10 years. Mobile devices are at the core of G2i’s plan, he said. Controlling TV and music -- what brought most CEDIA members into the business -- “isn’t all that important when you're not home,” he said, but control of lighting and climate is, “especially when it comes to energy management."

Pricing for the G2i packages will be in the “thousand dollar range” depending on whether homeowners choose cameras, touchscreens, door locks and other functions, and monthly service fees will be in the $50 range, Stevens said. The all-inclusive fee includes management of cameras, thermostats, lighting control, door locks and security, and differs from other providers’ services which offer tiered packages, Stevens said. Audio and video are “on the radar,” he said, but dealers told G2i they weren’t concerned about managing media inside the home because “it’s so competitive.” There’s not a mobile solution for the home in the CEDIA channel, he said, “and we want to ensure we're part of that,” he said.” G2i’s offering includes mobile apps that allow homeowners to view functions of the home in real time and a security system with cellular backup for the home’s IP or landline-based security system that’s directly tied to a monitoring station. G2i’s system integrates with systems from GE Security, DSC and Honeywell, he said. Security monitoring is included in the G2i service fee.

Internet service is not part of the G2i portfolio, perhaps opening the door to customer confusion regarding who provides what service to homeowners. CEDIA integrators have long lamented that they get the calls when the cable service goes down because they have a more personal relationship with clients. When we asked Stevens what happens when the Internet service goes down and the G2i dealer gets the call, he said the G2i network goes down “only if the Internet goes down, and it’s not a function of our failure” but instead the responsibility of the ISP. Whether homeowners are willing to delineate responsibilities between providers so clearly remains to be seen. “The system continues to function locally if you lose your broadband connection,” he said. “The only thing that fails is your mobile experience.” Stevens said the issue of network reliability offers dealers an additional sales opportunity to tack a network onto a sale. Regarding Internet service, he said, “Hopefully they've selected a service provider who’s got a reasonable amount of uptime and minimal downtime.”

The backbone of the interactive service is software from Silicon Valley-based iControl, co-founded by Chris Stevens, former CEDIA president. IControl also powers ADT Pulse, Comcast Infinity and similar services, Stevens said. He called iControl the “800-pound gorilla” of interactive service platforms.

The industry is transitioning to a different use and fee model where “you just pay for the use of something rather than purchasing it outright,” Stevens said. “The consumer doesn’t want to own Internet; they just want to have an Internet connection when they need it,” he said. This type of “technology leasing model” will proliferate, he said. “You don’t need to pay for very expensive controllers and hardware for a lighting control system because we've driven cost out of the hardware by shifting the processing power from the light switches to the cloud. There’s a lot less processing power in each device,” he said.

Regarding an advertising campaign to build brand awareness for the nascent service, Stevens said, “We don’t have to do that,” because the company instead will piggyback off the “incredible marketing push” of ADT and Comcast. “We'll be able to gain value from that, and that’s huge support for the dealers,” he said. G2i will provide dealers direct mailers, search engine keywords and provide a forum for them to share information weekly including marketing tricks dealers discover as they begin selling the product. The company’s exclusive-territory strategy will encourage dealers to partner with each other and share best practices, he said.

Looking ahead, G2i plans to expand beyond traditional home automation features by leveraging the cloud-based platform to add home healthcare and energy management services. Music and movie services could be added as “CDs and DVDs are replaced by cloud-housed content.,” Stevens said. “We're laying the groundwork for the future,” he said.