Icontrol & Alarm.com Respond to Honeywell’s Lawsuit
The defendants claim Honeywell defines the relevant security and home automation market too narrowly.
Last month, however, home automation systems for remote access and control.
One version of Icontrol’s SHaaS platform (Connect) powers systems from ADT and a handful of smaller providers. That is the business that would be sold to Alarm.com.
The other version (Converge) powers systems from cable companies and telcos, with Comcast/Xfinity being the biggest customer. That is the business that would be acquired by Comcast.
While Icontrol sells through enterprise customers like Comcast, both Alarm.com and Honeywell sell through thousands of independent security dealers.
None of the providers offers its products and services directly to consumers, with the exception of Icontrol’s newish Piper business (which also would be acquired by Alarm.com). They all sell services almost exclusively as part of professionally installed and professionally monitored security systems.
The Alleged Smart Home Market
In the scheme of things, that market – professionally installed and monitored security systems – is pretty small at about 20% of U.S. households. The extra “interactive” element provided by Alarm.com, Icontrol, Honeywell and others, is a fraction of that market – maybe as small as 25% of the 20% of households with monitored security systems.
So when Honeywell claims that a combined Alarm.com and Icontrol would command 70% of “the market,” they are referring to a market that is about 5% of U.S. households. A merged company, then would own about 3.5% of U.S. households, according to Honeywell’s math.
In essence, Icontrol argues: 1) That’s a very small and narrowly-defined market to begin with and 2) Even that small market size is overstated.
Honeywell forgets, for example, that Comcast would be getting a decent chunk of the Icontrol business.
Comcast, then, would emerge as a major competitor to Alarm.com, especially as Comcast seeks to recruit other cable companies, utilities and big players into the market using the Icontrol Converge platform.
The defendants reference a Comcast press release that states the acquisition will help Comcast “deliver new features, products and services to both individual Xfinity Home customers and enterprise-level Converge customers, faster than ever before.”
The defendants go on: “Because the proposed merger actually promotes competition rather than harming it, the public interest plainly lies in allowing the merger to close.”
The overarching argument against Honeywell’s antitrust claims is this: The “market” is so much bigger than 3.5% or even 20% of U.S. households.
It is true that Alarm.com (with Icontrol) would continue to dominate the smallish market in which it currently plays. But there is so much more, including (again!) offerings from cable companies and other “utilities.”
Most notably, the DIY market for remote home-control services is surging, thus threatening the likes of Icontrol, Alarm.com and Honeywell if they continue with business as usual.
Icontrol and Alarm.com have no intention of proceeding with business as usual. They’re both pursuing the DIY market, for example.
Meanwhile, if you believe Icontrol and Alarm.com, Honeywell is stuck in a business-as-usual mindset, judging by its very perception of the market size (professionally installed, professionally monitored security systems with interactive home services).
Honeywell, furthermore, has failed to follow industry trends by moving to a more open platform for its services. Currently, Total Connect only works with Honeywell’s own security panels.
Honeywell argues at length in its antitrust case that it has intended to go to a more open platform, and that a combined Alarm.com/Icontrol would make it harder for Honeywell to do so.
Too bad, so sad, argues Icontrol and Alarm.com … and the majority of those who commented on social media to our original story on the Honeywell suit.
On CEPro.com, one reader comments, “Alarm.com had the foresight to see that it was crucial to integrate with third party vendors, while Honeywell stubbornly adhered to proprietary equipment. Now that they see the error in their ways and that they made poor business decisions, they seek to punish the competitor who saw and capitalized on future trends.”
In any case, as Icontrol notes:
As for the alleged move to open architecture, Honeywell employs language so vague that it is far from clear that Honeywell has actually adopted such a plan. But even if and when it adopts such a plan, Honeywell acknowledges that it will take two years to come to market. A theoretical problem that Honeywell may face in two years’ time is not imminent harm.
Proof of imminent harm is required for a successful antitrust claim.
The Actual Market
We won’t go over all of the competitors and potential competitors facing Icontrol, Alarm.com, Honeywell, their competitors, their dealers, and the traditional security business in general.
“Honeywell’s market definition improperly focuses on a single distribution level, excludes downstream competition, and outright ignores fundamental market definition principles.”
– Icontrol, Alarm.com response to Honeywell antitrust suit
While the defendants claim ADT will make any hardware decisions on its own, the point is moot:
“Honeywell claims that the proposed merger will provide Alarm.com with ‘both ability and incentive to drive out Honeywell hardware by denying interoperability with the Alarm.com Remote Services platform. [redacted] this harm has nothing to do with Honeywell’s ability to compete in the relevant market that it defines – Remote Services.”
There’s another thing: Honeywell “dwarfs Alarm.com and iControl in size,” defendants points out. “Honeywell produces as much profit in a single day as Alarm.com produces in an entire year.”
Honeywell, “a household name,” had revenues of over $39.3 billion in 2016. Its Home and Building Technologies segment, which includes home security and automation, generated revenues of $10.6 billion in 2016.
Alarm.com was projected to generate about $255 million in revenue for 2016. Icontrol does not report its financials, but it has fewer SHaaS subscribers than Alarm.com, presumably earns a lot less money per subscriber, and definitely sells a lot less hardware.
Alarm.com is paying $140 million for Icontrol Connect and Piper. Comcast has not disclosed the acquisition price of Icontrol Converge.
Incidentally, “Both of the transactions are contingent on the closing of the other.”
If the Alarm.com deal collapses, so does the Comcast acquisition.
Editor’s Note: This story first ran in Security Sales & Integration’s sister publication CE Pro.
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