Voice/data/video customers need hands-on help with their installed networks-tender loving care provided by skilled technicians. Don't equate "moves, adds, and changes" with electrical service work, because there's so much more here!
Start with the customer. When a standard electrical system is 100 percent installed, it's good to go, and he/she generally knows how to use it. The installing contractor usually is not asked to hang around.
Generally, there's not a pressing call to move wall plates and outlets from one location to another on a regular basis, for months and months; and, other than possible power quality problems, there shouldn't be a great need to come back.
Contrast this with the voice/data/video (VDV) business (and other integrated systems work). Contractors involved in the VDV game say their customers have a regular and sometimes urgent need for system updates and alterations. This type of work is so prevalent-so routine-that this side business has a name of its own: Moves, Adds and Changes, or MACs.
Most stunning, some contractors said (after a request for anonymity) that the MACs business is more profitable than initial installations. Some contractors have made nonpublic statements to the effect that, "the MACs work is steady and profitable-you can just about 'give away' the initial installation to capture it."
That's not the case for every contractor and for every customer. However, it would seem that a rule-of-thumb could be generated here: The more intense the customer's use of networking technology, the more MACs work that customer will generate. A large, growing customer that wants to stay on the "bleeding edge" of technology is going to need constant MACs attention.
"There's a guy who works for our company that I've never seen," said John Moore of Sasco, in Santa Clara, Calif. "He's been on the site of a huge company out here for two years. He's never left the place!"
Such arrangements have made some contractors with some VDV experience near-religious devotees of MACs work. However, it's not simple, and it's not necessarily a "windfall profits" business.
Premium tech time
Another perspective: VDV and other systems installations tend to be equipment-heavy. A given VDV installation contract might well comprise 65 to 75 percent of material and 25 percent-plus for labor (contrast that with electrical jobs, where material generally is in the 30 percent range). It's almost impossible-should one's customer have any self-regard-to mark up the labor component of an initial VDV installation enough to create a stupendous profit.
But MACs work involves little or no equipment cost. This work includes such challenges as fitting 32 workers in a space originally built for 27; moving an entire department or worker cluster from the 22nd floor to the 24th; and the like. Such activities generally consist almost exclusively of skilled technicians spending hours and days solving a customer problem. There isn't a huge need for materials. That labor time is billed out with a built-in profit.
As there are hours and hours-and more hours-of MACs work for technologically savvy customers, there's a heck of a lot of profit. These work opportunities arise without requiring the contractor to generate an estimate and submit a bid first. The contractor also needs little or no overhead support. (Consider that two-years-on-site technician referenced above!) We're talking here about a guaranteed profit.
"We charge our heavy user customers less for MACs work than our standard rates," said Shawn Smith of D.L. Smith Communications (Topeka, Kan.). The company just completed Year 2 of its existence, grossing $1.3 million. Smith sees 50 percent growth likely this year, which would put DLSC near the $2 million mark-pretty good in a market with a population of only 200,000.
According to Smith, DLSC's hourly MACs rate is higher than the electrical service rate charged by its sister electrical contracting company. The VDV technician's rate is more than 20 percent higher than the electrical service rate. Even after a significant discount given to prime customers, the technician's rate is still marginally higher than the electrical service rate.
An obvious question occurs: If VDV is the "promised land" for electrical contractors, why is DLSC giving customers a discounted technician rate?
"This kind of customer gives us quite a bit of work, and we appreciate that-so we treat them differently," Smith explained. "It helps us build that relationship. When they see that the rate we are giving them is a big discount from our standard technician rate, it helps reassure them that we're being fair."
Left unsaid here by Smith, but understood in the context of his approach, is that even at the discounted rate, DLSC makes a profit on the MACs work. So the bottom line appears to be DLSC communicating with its customer: "Thank you for the guaranteed profit, and to show you our appreciation for all of the hours, we'll take less."
Price not the key
"We have a number of cutting-edge customers here," said Steve Chilton of Cache Valley Electric in Salt Lake City, Utah. "For us, voice/data is a quality-driven business, just like electrical. We pay attention to how things look. We sell our company on quality, not on price."
Of 140 VDV technicians his company sends to customers every day, roughly 40 are working on MACs work, Chilton estimated. With companies like Novell in his service area, the focus on quality is important in all aspects of VDV work. In fact, the bulk of those 40 MACs specialist technicians are permanently assigned to customer facilities.
"It takes a full-fledged technician to do MACs work-an experienced person," said Chilton. Such a person is needed, because "we try to focus on technology-driven clients that depend on the technology itself."
Such clients, and the "uptime" function of MACs work, put a focus on the relationship between the contractor's technician and the customer, according to Moore of Sasco. Moore is the group chief for Sasco's voice/data effort, which is staffed by 265 technicians in the Santa Clara office.
"Our guys are so much in the face of the customer, that we need to emphasize that they have to be respectful," Moore warns. "We really watch how they dress. We remind them, they're in an office workplace, working among women, and young executives-and clients of the company for which we are working, too."
Arrangements on MACs work can vary with the customer's needs and demands. Moore said his company has contracts with some customers for MACs work, as well as time-and-material deals, and some other categories of negotiated work. Smith of DLSC says his company has some contracts with customers, including warranty work on telephone systems installations. If these instances (one large company, one smaller enterprise) are samples of what's out there, it's safe to say that MACs customers and contractors are working out a number of service deals, some standard and some maybe not-so-standard, at a variety of rates.
Growing with customers
Sasco's location, serving Silicon Valley, might seem to be a unique opportunity. However, there are fast-growing DotCom companies headquartered in places as diverse as Lansing, Mich., and Richmond, Va. For example, a recent feature on Richmond technology companies for Technology Virginia magazine, noted growth for some local companies on the order of 300 percent in 18 months-from 15 people to 200, from six to 45, and so on.
Serving such growing companies can take a contracting company's VDV effort along for quite a ride, on a time-schedule and scale not usually experienced in the electrical business. That's the key here: The voice/data MACs work relationship-providing the contractor can deliver reliable, consistently high service levels and quality-leads to even more work.
This does not apply only to big names like Microsoft and Cisco. Consider one small DotCom company Moore did not wish to name. There haven't been too many instances where electrical contractors have taken a ride like this one:
"This company is about two years old. We put their first building in, and they had about 15 employees," he relates. "Now, we're working on the new building, which will accommodate 200 employees. This growth is just monstrous. It's incredible, and it seems that there's no one in the company over the age of 28!
"Halfway through getting the work done on the new building, they told us they were going to add another 100 people, in yet a third building. We have been growing right along with them." In this case, the initial installation and continuing MACs relationship has resulted in additional installation work-and a greatly expanded opportunity for more MACs work!
The key to success with this category of customer, Moore said, is responsiveness. "It's the ability to drop what you're doing and be responsive, no matter how demanding the customer is. Initially, our relationship with (such a customer) began with discussions about price, and dickering around about details.
"But then, when it gets right down to it, that's out the window. The customer will come to you and say, 'We've got people moving into a new lab, and we want to get them to work there on Tuesday. Some of it is network, and some of it is dial tone. Can you get it done on the weekend?' Our answer is always 'Yes.'"
In Topeka, Shawn Smith has a similar story, concerning three floors of a six-story office building. His company's VDV technicians have been in that building on a regular basis, on and off, since 1996, as the financial tenant has continually upgraded its system.
A complex MACs future?
What's becoming obvious to Smith from his recent pursuit of MACs work is that the customer wants more sophisticated service. "We're struggling with MACs work right at this minute. Cabling is our bread and butter, but when you do these moves and changes, there are quite often electronics adjustments to be made as well.
"We've noticed that the people dedicated to just the electronics portion (i.e., systems integrators or value-added resellers), instead of just serving as network engineers, are starting to also take in the cabling work. They are bringing in subcontractors of their own to do the cabling.
"What we're doing in response is to bring on our own network personnel, and telephony people. If the owners seem to want to consolidate the networking, the cabling, and the phone work under a single point of contact-which is what seems to be happening-we have got to be able to provide this service."
DLSC is growing into being that single point-of-contact, Smith says. The company's plan as of early spring was to have the key technical skills in place within the company by early summer.
Marrying the client
The key to success in MACs work, the contractors contacted for this story say, is that you are, in essence, wedded to the client. If you provide the desired level of MACs service, you get to keep working for such a client-growing with the customer as it grows, implementing new technologies as they develop, and doing the mundane things like troubleshooting a slow network.
Do these contractors woo MACs clients away from other VDV service providers?
"We get calls from people who are not satisfied with whoever is doing it for them, that's how we get new MACs business, other than following up on new installations," said Chilton of Cache Valley. "But there's not as much of that, really."
In other words, the VDV contractors who have secured MACs work with clients don't normally lose it. This is one more way that this work is different from electrical work, and yet another major advantage for ECs who get into this specialty.
How Big Is the MACs Market?
One cannot answer the question above without first assessing the overall size of the VDV market, then sharply defining where a MACs job starts and a new installation finishes. Any figures generated (including those that follow) are, in a word, blurry.
Contractors contacted for the accompanying article had no fixed estimate of what percentage of their work MACs represents. One contractor threw out a 30 percent figure, based on his allocation of manpower, and omitted the cost of equipment going into new installs.
Here are a few stabs in the dark at the size of the market for MACs and other service work in the VDV market:
Ballpark estimate: According to the most recent Census of Construction, electrical contractors billed out $9.7 billion worth of telecommunications work in 1997. Assume average annual growth since then-and on into the future-at low double-digit rates (12 percent per year). By 2003, then, the market might well be worth $20 billion or more overall.
At 30 percent, three years from now the MACs market could well be $6 billion. Considering most MACs work is light on equipment as a percentage of billings, that's a fairly significant number. It's also more of a "Grand Canyon" figure than a "ballpark" estimate.
Taking it further: For the sake of argument, grant an average billings-per-worker of $175,000 for VDV MACs technicians in 2003-a data point pulled out of the air, but based on some "Taco Bell Napkin" estimates. Six billion dollars in contractor VDV MACs billings would dictate the need for 34,000 MACs technicians in 2003.
Peripherally related factoids: In a Sept. 22, 1999 press release on its research study, "Enterprise Network Management and Downtime Costs 1999," Infonetics Research, Inc. (www.infonetics.com) forecasted that U.S. companies would spend $11.2 billion on "network and systems management products" in 2003.
"The problem right now isn't that network managers are getting daily phone calls from the users saying, 'I'm having trouble with my videoconferencing'," said an Infonetics expert. "The problem is that they're inundated with calls from users saying, 'I can't access my e-mail, the Internet, or the corporate database'."
Note that Anixter has provided the industry with information that attributed 50 percent of networking problems to the cabling installation. This estimate is believed to be based on Infonetics data.
Somewhat related specifics: A study by Phillips Group-InfoTech on the combined market for PBX and Key/Hybrid systems maintenance-i.e., on the telephone systems service market-put it at $2.9 billion in 1999, a 15.5 percent increase over 1998. These figures, released in August, were said to include maintenance contracts, time and materials, moves/adds/changes labor, and dedicated technician services.
"Despite eroding prices for CPE hardware, pricing for maintenance services has remained stable, reflecting the increasing underlying value of advanced maintenance services infrastructure," a company analyst said. The report noted that "average" prices for an "8-5/Monday-Friday maintenance contract" had increased only 1 percent in a year.
According to Phillips Group-InfoTech, more than 600 companies were identified in this market, with Lucent (37.8 percent share of the PBX contract maintenance base), Williams Communications (14.9 percent share), Siemens (10 percent), and Norstan Communications (4.1 percent) as prime competitors.
What's more, the company estimated the installed base at more than 107 million PBX and Key/Hybrid System communications ports nationwide.
MACs Leads to Stacks . . . of Cash!
Presence. That's a major advantage gained by electrical contractors with VDV operations who capture customer MACs work.
Presume for a second that there's an electrical problem on the customer's premises-a recurring power quality trouble, or even the need for a lighting upgrade. Contractors A, B, C, and D, who do not have a person in intimate daily contact with the customer facility, wait for a telephone call.
But Contractor E, who has won the MACs contract, has a person or persons on-site. Company E technicians might be approached by customer management to solve the problem; or an E Company technician might suggest bringing in others from his firm.
Additionally, the ability to do VDV work and provide MACs service can be potent in competing with lower-cost providers. Steve Chilton of Utah said his union contractor finds it difficult to compete with non-union contractors, but that his company's VDV reputation helps it win work that it might not otherwise get.
"We get electrical work sometimes because customers feel better that we also will do the teledata," Chilton said. He cited a recent contract with a very large company won by the company-both electrical and VDV-on which his company was not the low bidder. "They just felt better about our company, that we could do both." Another industry source, who asked not to be named, said MACs work leads to huge volumes of electrical and VDV work for existing customers, though such a customer might bid out some of its new VDV installation work-just to keep the contractor honest. Despite that, he added "if you're not working with them the way we do, you (another competing contractor on the outside) will never see 60 to 80 percent of the business."
SALIMANDO is the proprietor of EFJ Enterprises and a contributing editor to Electrical Contractor, specializing in electrical, voice/data/video construction and integrated technology issue. He can be reached by e-mail at JSALI@cris.com. Twice monthly he also writes the "Web Prowler" column on Electrical Contractor magazine's Web site: www.ecmag.com.