Hot Seat: Linear Prez Dishes on Home Automation Prospects, Challenges

October 31, 2013 Rodney Bosch

Michael O’NealPresident Linear

Is the market becoming overly saturated with new offerings from the cablecoms, telecoms and DIY entrants?

What I see in this business first is the last 20-30 years all of these players have been fighting for the sa
me 20-25% of people who are willing to pay for these services. The promise that’s opened up, because the cost to providing these services has dropped so substantially, is that we’re now taking something that really truly is mass to market and is going to expand dramatically. That’s what the big guys see now. So they’re not trying to fight ADT or Monitronics, or one of those guys for a piece of the 20-25% of the market. They see if they can just create value out of the other 75-80% of the market, it’s a homerun. Those people want different things. Today those different [products and services] are very affordable.

Among the traditional security dealer community, do you see a lot companies still unwilling to expand their portfolios to include home automation products?

What I see is more fear at times. Mainly because they know they’ve got to play in that space. They want to play in that space. But they’re running businesses that are more challenging and competitive than ever and they’ve got to basically learn a whole new set of skills.

Let’s just take a simple one. I spoke with a bunch of dealers and installers a couple weeks ago and we had this very conversation. Everyone kind of knows what Z-Wave is and how to get it to work, but then the homeowner does something like moves a couple modules. The network breaks down and they call the owner. The owner sort of conceptually grasps it but doesn’t really know how to fix it. In the old days it would’ve been an easy fix because the equipment in the security business didn’t change for 20 years. Now in the last three years this thing has accelerated and it’s scary. What the trade was in the past is no longer the trade in the future because the product has changed.

What is more challenging for the dealers is the only way they can address that is they have to hire younger, smarter kids to come into their business and help them out. That’s just different. They have to manage these folks, whether it’s their own children or whether it’s somebody they’re hiring. And it’s different; it’s very different. It is such a huge contrast. You’ve a dealer a guy who’s been in the business for 30 years and in that time 25 of those years have been essentially the same. Now all of a sudden you have this onslaught. We need to figure out how to help these guys.

It’s going to have to be sort of a multi-pronged attack on what we can do to help these dealers basically manage a much more competitive environment and get themselves to a level where they can continue to grow and thrive.

What are the key pieces to that multipronged approach?

The first thing is we have to provide significantly more resources for the dealers to train themselves. And for the business owners we have to provide a different form. They’re never going to get to the point where they’ve been in the past, of being able to actually go out and fix this stuff. They need to know what it is and how to get somebody to do it for them.

You can just imagine if you’re the guy that’s been doing this for 20 years and you’re bringing people on, usually they’re coming to you and asking you how to fix things. If something breaks you can usually direct them. That whole circumstance is reversed now. In order for them to be effective, they need to at least understand the fundamentals of what this is. Fundamentals of say, Z-Wave. They may not be able to go out and figure out how to actually make the system work, but they have to generally know and be able to manage somebody who can.

We have to provide them with that fundamental capability. Then for the people who work for them, we have to provide them with an ability to basically start to use these new technologies and new capabilities to actually make the installations work. The other thing they’re asking for is that we educate the end consumer. Take, for example, Z-Wave., Homeowners need to know that if they start moving modules around in the house, it’s going to affect their network. So they’re saying help us make sure the end consumer knows. For us it might be that we provide the end consumer, directly or indirectly, with knowledge about how their system works, and what happens when you make changes to your network. Then, hopefully, the dealers can avoid receiving a ton of calls about, “How come my network doesn’t work?”

Are self-monitored systems a threat to recurring revenue business models?

Again, I think it depends on a niche application as opposed to a total-systems application. When you have to tie a bunch of Z-Wave modules together, there are [consumers] who can do that but most people — I just take my own life, for example — are spending eight hours a weekend tracking down kids going to soccer games. When am I going to find the time to do that? And make sure it works?

I think longer term there is that possibility of a threat. That is part of the 75% of the market that’s out there. One place where I see that working is with some of these portable systems where you have a very limited number of sensors in a place. They’re lick-and-stick, and you can pick it up and move it. That would be self-monitored and DIY. There is a niche for that product. But I don’t see that as a huge threat to what’s already out there in the marketplace. I see it as a new niche that companies like Tattletale [portable alarm systems] will exploit.
What does the future hold for home automation?

I see two things. The biggest challenge that we all have today is I believe that technologically we can do just about anything anybody would want in a home today. I can monitor my energy consumption, I can monitor water consumption, I can tie a whole bunch of health-related devices into a panel. All of that is possible today. It might not be perfect, but it’s all possible.

The question is who’s going to pay for it? I think what the future has for us is brand new business models — business models where the gateway in the home and the devices provide data and capability to a wider range of people who will buy and pay for it. An example is water. The largest risk for a homeowner insurance company is water damage. They would, particularly in high-risk areas, probably be willing to pay for a device in a home and basically find an incentive for that homeowner to watch water a lot more carefully. It’s in their better interest.

Today to basically pay for a panel, install it, and to get all that done is very costly. Let’s say [the insurance provider] goes to a Vivint and says, “I want you to attach this; I’ll pay for it. You provide the data to me, and I will give you a piece of revenue, and I’ll give the homeowner an incentive. Maybe I’ll pay for their system, who knows, depending on the level of risk.”

I think you’ll see the same thing in health care. You’ll see the same trend in a whole variety of [feature sets] in the home. It could be Sunbeam or Westinghouse or someone that wants access to the data out of the refrigerator. It could be CVS that wants to know what’s in the medicine cabinet. We can build all that today. It’s how people pay for it and who pays for it and what are the business models that facilitate it. That’s where we have to play. And ultimately that’s where Vivint has to play. That’s where AT&T has to play. That’s where Comcast is going to play.

At a very low cost now, a variety of companies that have a vested interest in what’s going on in a home now have access to that home, potentially, and the data out of it to help create either new services or manage risk in their business. We’re seeing it; it’s starting to come to life today. Health care is going to be a huge piece of this future for all of us. W
hen we talked earlier about the specific niches and the system, putting a system into somebody’s home that’s going to gather data, whether it’s through a Vivint panel or someone else’s panel, tying that stuff together is probably going to take somebody professionally to make sure it works because people are going to rely on that.

Are national marketing campaigns by large companies ultimately benefitting smaller security dealers as well in the home controls market?

The opportunity is huge. Whether it’s AT&T or Comcast or somebody else, they’re actually creating possibilities for everybody in the marketplace. They’re educating consumers that these other possibilities exist. Dealers need to equip themselves to think more broadly than just about security. They need to work with partners who see the market more broadly than narrowly. We talked about the water monitoring aspect or the health care or energy. That stuff is a bit “out there.” But just take Z-Wave or garage door openers that are connected, for example: Our dealers have so many more opportunities, even if they don’t expand their customer base, to go back to their existing customer bases and try to drive more revenue out of adding or modifying what is already in those homes.

These things are not necessarily strictly defined by security. They’re defined by things outside of that box. To be effective, we have to step out, and what that requires is getting educated. Companies like ours and our competitors need to provide that education.

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About the Author

Rodney Bosch, Senior Editor

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Although Bosch’s name is quite familiar to those in the security industry, his previous experience has been in daily newspaper journalism. Prior to joining SECURITY SALES & INTEGRATION in 2006, he spent 15 years with the Los Angeles Times, where he performed a wide assortment of editorial responsibilities, including feature and metro department assignments as well as content producing for latimes.com. Bosch is a graduate of California State University, Fresno with a degree in Mass Communication & Journalism. In 2007, he successfully completed the National Burglar and Fire Alarm Association’s National Training School coursework to become a Certified Level I Alarm Technician.