Snap One Working on Software Monetization Solution, Says CFO

Snap One is “one of the few software companies in the world that don’t charge an ongoing fee: We need to change that,” said Chief Financial Officer Mike Carlet at a Tuesday investor event. The company is working on monetizing its software offerings to reflect the maintenance required for a smart home, he said.

Carlet described a common situation where a custom integrator installs a $20,000 project, moves on to the next job and then may get a call back from a customer saying something isn’t working correctly: “Typically that’s not charged for,” he said. “Meanwhile, we’ve put a lot of our software in the home that we need to maintain." If a TV maker brings out a new model that works on Snap’s Control4 system, “we need to make sure our system’s working with that, but we’re not charging the person that’s already had the install.”

Snap One, and the custom installation channel as a whole, have done a “bad job of monetizing things we already do,” Carlet said. The company wants to overhaul the economic model for itself and its integrators, which he said will improve the experience for homeowners to get “ongoing support.” Once integrators get paid for support, they also will have more opportunity to upsell homeowners on additional products and services, he said.

Carlet gave examples of other high-investment business models where recurring maintenance fees are expected, including car or HVAC purchases. “Every six months your HVAC guy comes out to your house and you pay him a hundred bucks, and he comes and tells you what’s wrong, and they charge you $1,000 to fix what he told you was wrong," he said. "You need the same thing here."

Home networks, for example, need to be maintained and upgraded to deliver the experience consumers expect, Carlet said. That the industry hasn’t built a business model around support “prevents us from delivering the experience the customer wants,” he said. Carlet claimed customers are willing to pay for support, “as long as we can deliver that experience.”

A Snap One goal is to monetize what the company is already doing and to look to “new and interesting ways to provide more opportunities for us to get back into the home.” The company has access to a tremendous amount of data coming out of its homes, giving it insights into what devices are connected to its products, how they’re being integrated and operated, their aging status and any associated fault issues, Carlet said. The company wants to leverage that data to create more sales opportunities by telling a homeowner about a particular issue or how an upgrade will be beneficial. “That creates a huge runway for us,” he said.

Despite an overall softening of consumer spending on home-related products in the broader CE market, Carlet said the custom installation channel is still showing strength. There’s been “no lightening” of demand in the channel, and integrators remain booked out “months in advance,” he said. The industry continues to have an “undercapacity to fill demand” that predates the pandemic, he said.

Snap One integrators’ average project is in the $15,000-$20,000 range, and that affluent customer “hasn’t changed yet,” said Carlet. But the company talks a lot about “how do we change it in the future” and take smart home custom electronics experiences available to affluent customers today and “bring them down to the masses.”

Carlet cited security dealers on one end that put in a couple of smart home devices for their customers and Snap One dealers on the luxury end. “It’s really that massive market in the middle” that the company hopes to address next. “How do you take that person that’s got three or four devices and get them to 30 or 40 devices?” he said. “How do we make that more affordable, more effective, more efficient and be able to bring that experience down to more folks?”

On the supply chain bottlenecks and component shortages, Carlet said, “There’s not a week that goes by when we don’t get a call that someone’s decommitting on some product,” requiring the team to scramble for a solution. “Nine times out of 10 they’re successful, and every once in a while we have to figure out how are we going to handle this when we have a component we can’t get." That requires reengineering or finding the products elsewhere, he said. “That is more painful today even than it was late last year,” he said, though it affects just a “couple dozen” SKUs at a given time.

Snap One imposed several price increases to address “tremendous cost pressure” it faced over the past 12 months, with the latest 8% hike taking effect last weekend, after a 6% increase early in the year. “We’ll continue to pay close attention to see if people are making switching decisions after that, but we think the elasticity’s very low” and integrators can pass along the increases to consumers, he said.