Last month, I provided a look back on my unsuccessful experience as a dealer for AMXs PHAST control technology in the early 90s. I explained the deja vu that I experienced at CEDIA EXPO in September, upon witnessing Control4s major product launch, which I thought mimicked AMX/PHASTs 1997 introduction. Despite its initial fanfare in the early 90s something went wrong with AMX/PHAST, and the reasons were never fully explained to any dealers that I know. Therefore, I decided that it was time to explore the story behind this technology further, to insure that the proper lessons had been learned and so that history would not repeat itself.
Control4, which was founded by the same team that created the original PHAST technology, is promising a lot. If they prove themselves and their products, they will be a welcome addition to our work. Right now 40 dealers have agreed to participate in the Control4 startup tests, and the company will be spending spend millions of dollars to enlist you to be a dealer.
In this article, I speak separately with Control4s president Will West and AMXs executive vice president Rashid Skaf, to learn their perspectives on PHAST technology. If your installation company went through the PHAST days, I hope this gives you insight into what happened behind the scenes. If you are too new to have lived through these days, I hope this look back makes you wiser.
Will, please recall the first year of the AMX/PHAST relationship back in 1997, and then explain where you and Eric Smith went after that.
Will West: Within the first 12 months of introducing the PHAST product, we were very fortunate to have a dominant market share position. Unfortunately, we became victims of our own success. You understand that at that time AMX owned 51 percent of the company. Understandably, as our market share grew and enthusiasm in the market for PHAST grew, they chose to fold the entire PHAST operation under the AMX umbrella. So, we had to sell the company to AMX, and because of the non-competes associated with the sale we werent able to be in this market space for a number of years. We started another company servicing the hotel industry, but kept our eye on the home automation market. We wanted to come back, but non-compete agreements and the success of STSN (our broadband company) made that difficult until the beginning of 2003. That desire was accentuated by the fact that we kept watching and not seeing the next generation product that we knew was possible with todays technology. Once we were able to jump back into the home automation industry, we were able to do it with far more resources and manpower than the industry has probably ever seen in any kind of introduction.
I was a PHAST dealer right from the beginning and met you at dealer training in Salt Lake. Some important features that you promised were never delivered. How would you respond to this?
We hoped to deliver certain feature sets that we simply did not have time to deliver on prior to the acquisition by AMX. I am sure that was a frustration for dealers and was for us. Relative to the market at the time, even without some of those features, PHAST clearly brought the market to a whole new level.
My first two PHAST installations included 200 dimmers. Every one of these failed and had to be replaced twice. There also were problems with DMS keypad connectors and LCD screens. During the first year, how high was your defective rate?
I dont know the specific answer to that, but your personal experience was obviously negative and any defective rate that is above average consumer electronics standards is unacceptable. I dont think AMX ever actually released the final version of the dimmer product, because the decision had been made at the most senior levels to shut it down, in spite of the fact that the issues had been identified and the solutions created.
The DMS keypads had connector issues, which required development and improvement, for which there were little or no resources. Although there were quality issues that needed to be addressed, overall dealer experience was positive as demand for PHAST product continued to grow while we were there and even for some time after we left. Demand really started to fall apart when the Panja experiment began.
Quality control is, without question, one of the most important things a manufacturer needs to focus on. This is why we invested an enormous amount of money in facilities, equipment, and engineers to ensure that Control4 is a tier-one supplier for home automation dealers. For example, we have put tremendous resources into quality control and testing. We have already invested more in this area than AMX provided for the entire first year at PHAST to develop the complete product line of hardware and software.
You and Eric gave birth to PHAST. Why did you leave so early after AMX acquired you?
After AMX took over, we did not have positions of responsibility. While our titles didnt change, the operational responsibility for PHAST was moved to managers who were beginning to create some of the Panja concepts. As you might imagine, it was difficult for us to watch the ramp down in support for the PHAST product line in favor of protecting the existing commercial product line.
The development that we had hoped to continue wasnt supported. The lack of support and development was certainly a frustration. PHAST was a next-generation product, but it absolutely put strains and stresses on our dealers, very unfortunately, because we did not have the resources necessary to do it right. That is one of the many things that makes Control4 different than PHAST or other new industry initiatives. We have the experience, the management team, and the financial resources to do it right.
You said AMX decided to ramp down the development of your product line. How did you feel about where the PHAST system went after that?
Rather than moving forward, it seemed to move backward. It was moving back into more of a commercial product rather than being developed to really serve consumers. AMX has done a good job in turning the company around and building its business around commercial jobs and ultra high-end consumer installations. Although it was disappointing to see support go away for PHAST, Im impressed with the work AMXs current management has done to recover from the Panja years.
You recently brought a group of prominent A/V dealers to your facility to show them the Control4 concept. Did any of these dealers have a history of bad experiences with PHAST?
Yes some very bad experiences. We specifically picked people that we thought fell into a category of being the abandoned through the whole process. Regardless of whether or not the issues were a result of inexperience, limited resources or the changes associated with the acquisition, we wanted to understand those issues. We are committed to providing quality products and excellent support at Control4, and we know that the best way to provide that support is to understand past problems.
Control4 is launching a line thats brand new to the industry. What are you doing to assure dealers that the technology is viable?
Thats a great question. That is exactly what we wanted to find out from the dealers we invited to Salt Lake in July. We fundamentally believe that A/V dealers need to grow from the roughly $1 million per year business that they are today, to $10 million or more. One of the challenges the dealers gave us was to come up with tools for growing their businesses. The concern is that although they believe the growth is necessary, many dealers dont have to tools or experience for growing a $10 to $20 million business. This is why we have created a Business Change Initiative. With the help of some of the industrys premier dealers, we are creating models and tools to help dealers grow, and grow rapidly. We are already seeing it happening. Some dealers are finding ways to take advantage of the market by using Control4 solutions. As the individual dealer asks how they can know if the technology is viable, the answer may be that there is no way to prove it without trying it.
At PHAST we had very little resources. At Control4 we have senior management from 3Com, Compaq, Megahertz, Harmon and other quality companies. These people know how to build products on a volume basis. We have new product testing facilities that allow us to put years of life on our products in a fraction of the actual time. We didnt have those resources at PHAST.
Rashid, you joined AMX in 2001 when the entire management team was changed. Can you tell me what led to this complete overhaul?
Rashid Skaf: I was brought on board by the new CEO, Bob Carroll. At that time AMX had $800,000 in cash and $28 million in liabilities. We had 16 manufacturing partners. We had 3,000 products. We had 2,200 dealers. We had too much of everything and no real structure or organization around it.
We were brought in as a turnaround team. We have been profitable for 11 quarters since the first quarter that we came on board. Now, we have no debts. Last quarter we reported $12.1 million in cash. We have structured the manufacturing process, so that we now have four world class manufacturing partners, instead of 16, all of them with quality control to make sure that we have less than one percent defects on our products. We actually took the dealer base down to 500 dealers. We have taken our product line down to 600 and have added 90 new products. We have changed every aspect of how we do business. I can comfortably say we have made some radical changes in our structure.
I dont see the Landmark system in your price list. Is it still supported?
We had Axcess, NetLinx and Landmark all doing about the same thing. Landmark is still supported and still sold. But we have really tried to migrate everybody to one platform, which is the NetLinx system, which is 90 percent of our business. It makes support easier and manufacturing easier, and certainly NetLinx is a future proof system.
Currently, what percentage of your business is residential versus commercial?
As of the last quarter our residential business grew 65 percent over the previous year. Residential still accounts for about 17 percent of our overall business.
Years ago AMX acquired PHAST. At CEDIA EXPO this past September, the leaders of PHAST returned as Control4. How does it feel for you to compete against them?
Two issues there. The company bought them prior to this management team coming on board. Had we been here, certainly we would have looked at it a little bit differently than the former management team did. Second, making a big splash and delivering is two different things. So, we dont really consider them a big competitor. Will they gain some market share in the residential side? Certainly...along with others.
How do you feel that AMX delivered on the PHAST promise?
The big thing about acquiring technology is that it is never done. Now at AMX, we have taken a different direction. At AMX, we dont talk about any technology unless we can deliver it in 90 days. So, what is typically a startup mentality, which is to sell the dream, deliver what you can, is not resident within AMX, today. Rather, quite the opposite. We have purposely taken a tact of being conservative and gaining credibility in the market space by making sure that what we say we are going to do and what we do are the same thing. This is probably the number one lesson that we have learned in our history.
I realize that you came on board after most of PHAST had happened, but can you tell us what it was like when you first came on?
My first nine months was spent going out to the field and getting kicked on the shins for historical things that AMX had done.
How did those dealers feel?
They felt the vision and the delivery were two different things. Companies are a living organism and, as of the last three years, AMX is a different company.
Can you tell me any more about the problems you had to solve during those first nine months?
The majority of the problems we were having were with the residential dealers. The first thing was to try to find solutions for those dealers. Whether product issues, training issues or perception issues, all of those were real issues. You know, I thought it would do this. It may or may not have done that. On the support side there were installation issues that we had to deal with. There were several residences where we had to go and help the dealers solve issues that we had. It was a long process. I know a lot of people felt like you do, that they didnt get the support they needed. Probably the biggest problem that AMX had was that they didnt have the right people in place to deal with the business model.
Now that Control4 has arrived, it begs the question: What went wrong with PHAST? Was the technology not ready? Was it the internal problems at AMX at that time? Obviously the whole original management team felt strongly that PHAST technology would be a big part of the future of AMX. Looking back in your limited exposure to those early days, do you have any comments on how it all played out?
I believe... and this is a theory on my part, because I wasnt here, that AMX believed that they were buying a completed product and what they were buying was really a development environment. If the product had been finished, then there would have been no issues. If the product had already been sold into the market for a year or two, then there would have been no need to continue the development. There was a commitment to continue development on top of PHAST. That was never done in this case. If you assume that a product is done, then you dont necessarily need the brain trust behind it. There is no reason other than that why you would buy a company like that without retaining the individuals in that group. For example we just purchased a company last year and as part of that transition deal the engineers had a year contract to transition over to our engineering team. You retain the transition team to help with development and support and all the different issues that you go through when you transpose one company into another. That was never done in this case.