Hardware Service Contracts: Should You Buy or Should You Go?

Originally published at Let’s Do Video

Most codec makers require an initial service contract with a hardware purchase. These contracts often provide for software upgrades, advanced hardware replacement, and help-desk support.

When purchasing a codec, the buyer has to decide if they want to get a multi-year service contract to save a little per year. And when the initial service contract period is about to expire, the buyer has to decide if they should renew the service contract.

Just like any insurance policy, it is easy to think of a service contract as a great investment if used, a waste if it isn’t. Any service contract is just a vehicle to mitigate or transfer the risk of technology problems in the future. So there are few guidelines that we can use to decide if a service contract makes financial sense. Of course, I am the guy who canceled his car’s collision insurance a month before totaling the vehicle in a deer accident, so you might want to stop reading now….

For some, a service contract with an advanced hardware replacement makes great sense. If an organization has a room-based system that is used heavily every day, getting a broken system back up and running quickly is imperative. Often the local tech support crew was trained when the system was installed, but they are not AV/VTC geeks and will need help when trying to solve problems under pressure.

Law firms often use their systems for deposing expert witnesses, consulting with other counselors, and mitigation between clients. When you get a large group of lawyers in the room, the cost of everyone waiting for the system to connect or get fixed can be thousands of dollars per minute. These are not low-pressure situations. In these cases, the cost of a service contract is well worth it just for peace of mind.

I also recommend service contracts for schools and colleges that use hardware-based codecs for distance education. When a distance learning classroom is down, a teacher can normally muddle through for a day or two. But not for several weeks. Since these instructors are not always the most technical — they specialize in their area of education, not the technology used to deliver it — it can be difficult for them to quickly adapt to a substitute technology or user interface in the middle of a course.

So in these situations, keeping all the critical equipment under a service contract is a no brainer. While some of the districts with which I have worked have never used their service contracts, they would have been in trouble if they had had problems. Other consortiums have used their service contracts extensively both for hardware replacement and help-desk support, and have received considerable value from their service contracts.

Ideally, a school or distance learning consortium will get prorated service contracts for all their systems that expire at the end of the academic year, or at the least at the same time. Any changes to equipment can happen simultaneously so that all systems are on the same software version, have the same user interface, etc. Ensuring a common user experience can be an important part of making sure that equipment usage stays high and the ROI for the school or consortium is also high.

Another factor to consider is access to local technical talent, either within the organization or from a nearby vendor. For some of the smaller organizations that I deal with, I highly recommend a service contract. These organizations might not have the expertise available to diagnose an issue or to get an alternative solution up and running. Access to a help-desk can help these organizations maximize their tech investment.

Larger organizations may have several systems and an experienced tech support team that can swap equipment around while a codec is sent back for repair or another unit is purchased. For organizations with a low volume of usage and a high amount of local technical expertise, the value of renewing a service contract can be low. Some makers offer “basic” plans that don’t include hardware replacement which can be a good compromise for these organizations.

For other organizations, the decision to not renew is straight forward. I recently had a customer with three room based systems that were purchased a year ago, so the initial contract was up. The purchase price of these low-end systems were $3,000 each. To renew the service on each one was $300 per year or $860 for three years. The cost of renewing the three units for a year was $900 and for three years was $2580.

The customer was technologically savvy and could quickly adapt to an alternative system if needed (they had been using webcams prior to system purchase). In addition, the manufacturer had released a newer generation of the system which listed for $2800; just a little more than the three-year service contract for the existing systems.

In this case, the customer was comfortable with not having a service contract on their systems, and incurring the expense of purchasing a unit if an existing one failed, or waiting until a broken system got fixed.

What is your experience? Are service contracts always worth the peace of mind? Or are they just a “gift that keeps on giving” for vendors and dealers? Any rules of thumb that your organization follows? Comments welcome below.

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