Articles by Paul Metzheiser
The security industry knows the value of recurring revenue, as it’s the foundation of the residential security monitoring market. Commercial systems integrators have traditionally taken a different approach, focused on one-time commodity-based sales that lack the financial benefits provided through long-term serviced-based agreements. Cash flow is one of the biggest challenges faced by security systems integrators. And the truth is, during economic uncertainty, businesses will find that companies that have adopted and implemented a sales model that incorporates a monthly-based service program will be more financially secure. Technology solutions TAMCO was founded in 1994 by Jack Thompson who had a unique background that included technology integration, finance, and sales. With this knowledge, he set out to build a company that would introduce a finance offering and business model that addressed the pitfalls within cash and traditional lease procurement methods. The design of this finance offering was under the premise that most technology solutions are non-revenue generating assets. Most technology solutions are non-revenue generating assets The goal was to give the end-user customer a better way to pay with more control and flexibility as they entered in and out of technology lifecycles. At the same time, this new offering would give integrators easier ways to sell services with those technologies while shortening the selling cycle. With changes in telecommunication solutions several years ago, we noticed typical voice integrator partners attempting to diversify their technology solution offerings. We explored providing payment options for these additional technologies and found several areas with significant interest in our approach. About two years ago we saw increasing interest from within the security industry and this is now one of our top growth sectors today. Being in control Historically integrators have done a great job of getting customers accustomed to cash purchase transactions. While owning technology solutions may have felt like a way to be in control, customers have begun to realize that ownership is really not a necessity. It is the use of the technology and what they can do with the use of the technology that is truly meaningful. Now add to that the fact that technology continues to change more quickly than ever and I think it makes sense that customers are looking for better ways to pay for and manage their technology needs. Integrators have begun to express an overwhelming interest in creating recurring revenue At the same time, integrators have begun to express an overwhelming interest in creating recurring revenue. They are looking for ways to complement their one-time project-based revenue business or shift to a model that is focused on a regular stream of revenue. However, many integrators are not sure how to implement this new approach. As-a-service is just another way of saying a subscription service. At the consumer level, we are all very familiar with subscription services, such as Netflix or Birchbox. Small to medium-size businesses and enterprise-level commercial customers are also familiar with equivalent type technology services from their hosted phone service subscriptions or software-as-a-service (SaaS) solutions. As-a-service security If an integrator can package their technology solution in the form of an as-a-service solution, they will have a much better chance of developing recurring revenue. A majority of as-a-service models involve the customer paying for hardware equipment upfront and then having a monthly payment only for monitoring or support services. Or, to avoid a large upfront capital outlay, the integrator may arrange for a traditional lease payment that gives the illusion of as-a-service but still results in the customer owning dated equipment at the end of the term. TAMCO takes a different approach because we help integrators create a very comprehensive and logical solution under a single, use-based monthly payment. The integrator still designs, configures, and recommends the technology solution appropriate for the customer. But TAMCO will take the cash sale price of hardware, software, installation, manufacturer warranty, multi-year maintenance and support, and convert all of that to a single all-inclusive monthly payment which the integrator can present to their customer. In addition, this as-a-service monthly payment also provides the customer with exclusive protection against technology obsolescence. Integrators have really been excited to learn of this approach and to convert to selling this way. Integrators can remove themselves from being a commodity sale and thereby maintain margins Integrators can remove themselves from being a commodity sale and thereby maintain margins. They become much more successful at selling multi-year maintenance and support agreements, thereby building recurring revenue which is valuable to help weather slow periods of sales activities and economic downturns. And following the market currents of subscription-based solutions helps create long term customer relationships. Whether an organization works with TAMCO or not, there are certain foundational elements they need to embrace in order to build and adopt a successful as-a-service sales model. Some form of payment alternative like we discussed is certainly one of those elements, but it is not necessarily the most important. The technical expertise to deliver on support has to be there for the customer. While sales training, mindset shift, and supporting marketing materials are all critical as well.
Should security spending be a one-time capital expense or as an ongoing operating expense? At first glance, the question appears to be an accounting issue with little impact on the actual equipment or systems involved. However, as security professionals seek to cost-justify new systems, the question may be central to providing the “best security for the money” and a system that fits the company’s continuing needs. We asked this week’s Expert Panel Roundtable: Should security be a capital expense (CAPEX) or an operating expense (OPEX)? Is the trend shifting and what is the impact?