As the alarm industry undergoes a rapidly shifting landscape, its stakeholders contend with altering business models, new technologies and services, and other changes to their traditional ways of doing business. Industry veteran Stanley Oppenheim, president of New York City-based Affiliated Central and DGA Security Systems, joins the conversation to discuss the current state of the industry.
What is the biggest technical issue facing alarm dealers today?
We are in a time of change, a time of evolution. We’re transitioning from POTS-line transmission technology over the PSTN [Public Switched Telephone Network] to where alarms will be transmitted via the Internet and/or GSM radio. Where it is going to be a problem for the alarm dealer is the transition period to make the switch so that all customers are being monitored via the Internet and/or with GSM. It is going to be a somewhat painful transition that is going to get us to a good place.
Alarm dealers should not be afraid or concerned about where the alarm industry is headed; it is going to be great for the industry. We are going from a narrow pipe — a 3,000Hz phone line — to the broadband pipe of the Internet and GSM, which will provide the ability for multitudes of sophisticated services being offered. It opens the door for the alarm company to play a much more expanded role for the customer.
What are some key driving forces behind home automation and other recurring revenue services?
Some of it is from traditional sources and a lot of it is from others that are entering the industry right now. We’re seeing nontraditional security systems companies that see the advantage in providing security system services, such as the cable companies and other utilities. They view the additional security systems and other services as a method first and foremost to create stickiness with the customer.
It is not just about a revenue play, but first and foremost a play to add stickiness to the customer. Anything they can do to prevent churn is very lucrative to them. They feel by adding services to their core offerings it becomes much more lucrative than they might make on the actual transaction of adding the security systems to their customer offering. They already have the customer, and if they can hold that customer longer, that is very, very important to them. They don’t even necessarily have to make money on the alarm offering to make the whole thing worthwhile … if they create stickiness.
Do you have an overriding concern about the alarm industry in general?
It troubles me when I see alarm dealers who don’t recognize the value and the miracle of recurring revenue. They sell the systems they install, and perhaps get revenue for monitoring, but don’t understand service revenue. They don’t get revenue from managed services nor understand the recurring revenue business, which builds equity in their business, builds security in their business. They don’t lease their systems, they don’t have service contracts with their systems, and perhaps are only satisfied with monitoring.
It could be so much more and they don’t truly maximize the power of recurring revenue in a properly run company. When I see lots of dealers in that mode it does trouble me. They are devaluing their business. Their business could be so much more valuable. They need to make certain they have good contracts and they could be building their business at a much more rapid rate. It is what makes the alarm industry great.
Do you view self-monitored systems being marketed by new entrants as a threat?
I do not see them as a big threat for the most important signals. We are not going to be self-monitoring fire alarms. I do not see self-monitoring in commercial applications; I see it only in limited residential applications. I do think it will have a percentage of the market, but I do not see it playing a significant role. People are not always available. People go on vacation, people leave the country. They will want their systems professionally monitored. The central station plays an important role and always will, most certainly when it comes to fire alarm and commercial security and fire. I do not believe it will have significant effect whatsoever.
To what extent will the do-it-yourself market pose a threat to professionally installed and monitored alarm systems?
The DIY market has role and will play a role, but the professional alarm dealer should not be concerned about it. It is not going to ultimately have that much impact on them.
What lessons are to be learned from the Vivint acquisition from a technology standpoint?
Vivint learned the same lesson we spoke about earlier. The more services that you offer beyond security — such as temperature control, lighting control, two-way video — the more stickiness you can create with the customer. You have a fixed-acquisition cost for that customer and anything you can do to extend that customer’s time with you is highly profitable. Vivint learned a lesson that by providing all these additional services, you can play a much more important role in the subscriber’s life.
While a customer may question whether or not they need security, they have all these other services and they add them altogether and it adds for great customer retention. That has played out well for them. Never underestimate the value of customer retention with the additional services. Your cost of acquisition of that account has now changed. And that is a lesson well served by dealers that these additional services not only provide additional revenue, but they add customer retention value, stickiness. That is critically important. Vivint most certainly knows that story and helped write the book.
In your years in the industry, have you ever experienced the degree of change that is taking place in and around the industry?
Without question it is a time of rapid change, more than we have ever seen in any period of time since the development of the industry. We believe that many of these changes are highly beneficial to the industry. The more services you can provide a customer, you make the system more valuable. That creates stickiness for the alarm dealer and helps them retain their customers. It’s about providing the customer the ability to remotely arm their system, remotely turn lights off, remotely view children, etc.