Verizon, Other Telcos: Time to Get Geeky?
Anyone who has taken a do-it-yourself approach to home networking gets exactly why we need Best Buy's Geek Squad. As digital media technology finds more locations within the home, and becomes increasingly complex, there's a growing need for technical experts to help make it all work together. Today's homes have begun to resemble small businesses, with multiple networked computers and increasingly networked devices like printers and entertainment systems. It's no surprise that Geek Squad, which pioneered the business of dispatching a national network of trained technicians, has built a highly visible service brand that positions Best Buy (BBY) for the future.
Now it's time for telecom service providers to get in on the Geek Squad game. Carriers such as AT&T (T) and Verizon Communications (VZ) are doing an impressive job of bundling services like video, telephone, and Internet to meet customer demand. We expect the number of customers buying three communications services from the same provider to increase 29% a year for the next two years. But the proliferation of services and digital options is causing problems on the home front. No fewer than 15% of the calls to the customer service center at cable provider Cox Communications involve home networking problems. Such frustrations have opened the door for an army of versatile technicians, who, unlike the traditional cable installer or telephone repairman, can integrate Internet, TV, phone, and digital entertainment.
To date, most telecom and cable providers have shied away from the opportunity, fearing the cost and potential drain on resources. But now they're facing slower growth rates not just for traditional wired communications, but wireless services, too. Mobile-phone subscriber growth is expected to slow, to 2.5%, by 2012, down from 7.5% today. As that growth slows, a new battleground will emerge, this one over servicing customers' digital media needs.
The Charge of the Geek Brigade
Market pioneer Best Buy has sized up the IT services and home installation market at $50 billion. While that figure includes a range of service offerings, the company is wagering that Geek Squad will be both a profit center and a driver of long-term growth, contributing double-digit sales increases. For its part, Cox has rolled out Cox Solutions, a Geek Squad-like service.
These companies have recognized a real opportunity: Every time customers call in the Geek Squad or Circuit City's (CC) Firedog service, the only other national home networking service, it's a chance not only to build customer loyalty by taking care of their home networking needs but also to sell related services and products. For cable providers and telcos struggling to preserve a customer base, digital home service teams are both a defensive requirement and an offensive opportunity. Defensively, the carriers cannot allow themselves to be preempted by a competitor or retailer that could play a role in recommending a broadband provider in the future. Offensively, these services are an opportunity to help drive sales of additional services.
As companies start developing a home services strategy, they need to tackle four critical issues.
• Building the business case. The question isn't whether a provider should jump into this arena, but how. Should a company build a digital home services team internally or acquire it? Each approach has pluses and minuses. When successfully integrated, acquisitions are the faster way to expand a national brand, since the hardest piece is in place; the target has already created a team of specially trained technicians.
When Best Buy bought Geek Squad in 2002, it transformed the Minneapolis repair service into a national brand, dispatching its technicians clad in geeky Men in Black-like attire, arriving in Volkswagen Beetles painted like police cars. But today there are few such acquisition opportunities. Circuit City took a different route, building Firedog from scratch, formally launching it nationwide in 2006. Whichever path they choose, carriers need to make sure they can generate enough revenue to offset the cost of longer service calls.
• Amassing the forces. Carriers have been slow to embrace the home networking opportunity partly because of the skills gap and the potential operational complexity it may create. Whether a company acquires or builds internally, there will be major operational issues to tackle. For example, telephone repair crews and installers are often unionized, while cable crews typically are contractors. Both will need retraining since they usually don't know much about networking within the home. More important, they haven't been trained to spot and capitalize on opportunities to sell additional services, known in industry circles as upselling.
Another issue with in-home services is local licensing requirements. If a home theater installation requires a new outlet to be installed, then the crew may also need a licensed electrician. Creating a national network of installers who comply with all local licensing and code requirements is complex and won't be easy to expand across a large territory.
• Creating the support systems. With a new sales force at its disposal in the form of networking technicians, a company must reinvent such fundamentals as scheduling and dispatching agents to maximize selling opportunities. Once inside the home, technicians would have to learn how to turn a service call into a sales call by discussing a customer's tech needs. For example, the network technician could offer and install a service that will automatically back up home computers nightly and give technicians the ability to remotely diagnose and repair the home network. Of course, many customers are resistant to getting a sales pitch in their own home—more so than in a store. It takes extra sales training to set customers at ease.
• Planning for growth. Getting home services right can provide the foundation for a host of growth opportunities. Among the possibilities: offering support services like monitoring home networks for problems or providing automatic backup for TV, photos, and home entertainment media. Carriers need to plan carefully how to capitalize on this new channel.
Carriers are at a crossroads. As the pace of convergence accelerates, they have the opportunity to rebrand themselves as service leaders that understand consumer needs in a new digital media world. It's a win-win: Satisfied consumers will buy more digital media products and services, fueling sales and growth for years to come.
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