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Why HVAC Should Own the Connected Home

The connected home subset of the Internet of Things (IoT) is poised for explosive growth. This is a natural fit for HVAC contractors.

There is little question that the connected home subset of the Internet of Things (IoT) is poised for explosive growth. Yet for it to actually take off, someone needs to be the integrator to tie the various pieces all together for consumers. This is a natural fit for HVAC contractors.

What is the Connected Home?
The connected home is an eco-system of devices, services, and apps in a residential building that are networked together to enhance the homeowner experience.  This includes devices as simple as a sensor that notifies the homeowner when it’s opened.  For example, a homeowner might have one of these sensors attached to a gun safe or a liquor cabinet.

Devices can also be more sophisticated such as high definition cameras that respond to certain types of movement in certain zones, video doorbells, thermostats, flood alarms, and so on.  Devices can respond based on a variety of conditions, including the proximity of occupants based on their mobile phones (i.e., geofencing).

Why HVAC Trumps Everyone Else
Today, connected home products are either DIY or installed by cable and home security companies. DIY is not a popular option for the vast majority of consumers, who struggle to get their Outlook calendars to sync with their Android phones and who need different remotes for their TV, cable box, and Blue Ray players.  People do not want multiple hubs and apps for an array of products that do not work together.  They want someone to make everything work for them.

Cable and security companies can integrate parts of the connected home, but they cannot offer end-to end solutions. They are not qualified to touch the HVAC. In fact, they are afraid of it.

They also cannot touch the water. For that matter, neither can HVAC contractors unless they have a plumbing division, which many do. So while the cable guy can hook up a flood alarm, he can’t connect the valve that shuts off the water in response to the alarm.  They cannot stop a flood, just alert you about that one is happening.

For HVAC, it’s more than the ubiquity of the service and installation work contractors can offer, it’s the existing relationships.  The current connected home turnkey offerings sold by cable and security companies involve heavy marketing and door-to-door canvasing to people who lack a relationship with them.  Contractors can market and sell to people where there is an existing relationship and degree of trust.  If a security company can successfully offer connected home solutions by sending pure salespeople door-to-door, how much more successful can a contractor be, offering options through technicians, already at the home solving problems.

What’s In It For Contractors?

Connected home solutions offer significant revenue opportunities through cloud (WiFi) or cellular data services.  The connected home doesn’t work without the ability to store video and connect with mobile phones, tablets, and/or computers.  Without the cloud or cellular connectivity, a homeowner may be able to see who is at the door from a phone while at home, but not while away, which is uninteresting to most people.  The data service necessitates a monthly charge.

Because they bundle financing for installed equipment with the data services, cable and security companies charge as much as $70 per month. Contractors can give people the option to finance installed connected home equipment or pay for it outright, while separating the data service. The cost of the data service under this approach can range from $20 to $30 per month or be combined with an HVAC service agreement for more.

The data service should cost the contractor less than $10 per month.  If it can be sold with a $20 gross profit attached, the numbers can get very large, very fast.  Consider…

1000 connected home service agreements X  $20 gross profit per month per agreement X 12 months = $240,000 gross profit

That is $240,000 free and clear of the maintenance portion of a service agreement for every thousand agreements put in place.  While there is some additional overhead that will be needed, almost all of this will fall to the bottom line.  Moreover, this will add around $1 million to the value of the business!  Add a thousand connected home customers and add a million dollars to the exit strategy.

Selling a thousand connected home data plans is far easier than selling maintenance agreements.  Maintenance agreements are like trips to the dentist.  You go because you need to and you know it will eventually get painful if you skip it.  Yet, contractors successfully sell them. The connected home agreements are easier sales because people want them.

A home’s connected home network is not static.  It can grow every year, giving contractors an ability to go back to the well again and again, offering other devices and expanded data services.

When bundled with equipment as an option, the connected home offering can make a contractor stand out from the competition, giving his company an edge in desirability.  As a standalone offering, connected home products carry demand independent of the weather, giving contractors another off-season sales opportunity.

Hurdles Contractors Face
Before contractors can offer connected home solutions, they must overcome a number of hurdles.  First, they need to choose the products they will offer.  This is the very thing that’s stymied so many consumers.  It is the job of the contractor to select products that will make up the eco-system he will offer, to ensure everything communicates, to know what will not work with it, and to communicate this with consumers.  This will take research and experimentation.

Contractors need a partner who can provide cloud based data services and/or cellular services, which can then be resold.  This is another research effort and an important one because the recurring monthly revenue is the real prize.

Contractors should decide if they want to engage in home security, or not.  Offering security services requires licensing and other hurdles, which vary state-by-state.  The contractor can partner with a security company, but the security company with want the recurring monthly revenue.  Alternatively, the contractor can take a home awareness approach, where there is no third party monitoring.  Alerts are sent to the homeowner’s phone or other devices and the homeowner decides how to respond.  The latter approach can save consumers considerable money.  If sirens and cameras are in place, consumers may feel comfortable skipping third party monitoring (and fines from the police department for false alarms).

Finally, contractors must decide how to package and market their offering.  Do they want to charge normal margins for installed connected home products or cut the margins for greater adoption and more recurring monthly revenue streams?

If these and other hurdles can be cleared, a connected home offering can transform a contracting business into a highly profitable, highly saleable, money machine.

Would you like a connected home strategy?  A best practices group can help you get there.  Learn more at ServiceNationAlliance.com.

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