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Changes to the residential security ecosystem seem swift, at least in retrospect. From a mature, steady business environment with business pro forma ‘as usual,’ the recent past for the security industry includes a host of meaningful activities (see sidebar). These changes will push more change; more change will result in new opportunities and risks for dealers. Besides new players, the business structures of some major players have changed.
In terms of evolving offerings, major players in residential monitored security are adding or have added a menu of connected home services that enhance security, new categories using IP that offer new benefits, or both. Questions abound for the security ecosystem and for connected home services — and so do corresponding viewpoints …
At the consumer level:
- Do consumers value the connected home features now being offered as adjacencies to professionally monitored security?
- Will those consumers pay monthly fees over and above current monthly fees already paid for monitored security?
- Will the monthly fees now paid for monthly security remain at their current average rate of near $40? Or will competitive pressure cause a decline in monthly fees?
- Is there a market for connected home bundles without monitored security? How big is it? Will some percentage of current subscribers cancel monitoring contracts (when they can) to obtain lower rates for connected home services?
- Will consumers switch to a communications provider that can offer a fully integrated home entertainment, security monitoring and control solution? Can entertainment options be used to ‘push’ home management, energy and security?
At the manufacturer level:
Why is today’s penetration of monitored home security so low? Most consumers have not valued the benefits of traditional monitored security enough to adopt it at the going rates. Connected home features increase the number of benefits to be assessed by the consumer. Not only do IP-based features enhance the capabilities of the security system itself, new categories of benefits including energy and home management are available that add cost savings (energy), convenience (access and status through smartphones, tablets and computers) and control.
- How big a threat are giants such as AT&T, Comcast and others to the traditional providers?
- What effect will the rapid rise of Vivint and the Blackstone acquisition have on competitors?
- What, if any, impact does Tyco’s spinoff of ADT Security promise?
At the dealer level:
- With nearly all large providers adding connected home features, must independents do the same?
- Should today’s independent dealer offer connected home features without professional monitoring?
While history is easier to recount than the future is to forecast, security dealers have decisions about their futures to make now or during the next 18 months. And, as ever, decisions for new directions are risky, even while they offer significant opportunity. But so are no decisions.
Connected Services Offer Hope
At the consumer level, connected home features present new reasons to consider monitored security by those previously disinterested. Most consumers understand what a monitored security system offers.
Through the years, providers have presented all sorts of deals to spur acquisition. These include loss leader pitches on equipment, deals on installation, inclusion at small cost in new starts and, in some cases, even no-money-down systems — all on the premise of eventual profit for providers based on monthly revenues.
Today monitoring fees average nearly $40 per month. However, some monitoring providers outside of the major players have reduced monthly fee offers to as low as ~$15 per month. Manufacturers have greatly improved system reliability so false alarms, while still an issue, are infrequently the fault of system errors.
Nevertheless, despite all the system technology advances, reliability improvement, affordability by most measures, and consumers’ genuine concern for the security of their homes, monitored security is present in fewer than 20% of U.S. households.
In short, market growth stalled. The recession and the slow economic recovery exacerbates a problem already apparent but somewhat camouflaged by earlier high volumes of new starts. The problem: only a low percentage of householders without monitored security seriously consider its adoption. Providers believe IP features and benefits will reinvigorate the market.
In addition to offsetting or reversing traditional market growth slowdown, IP services are expansive. Once in the home, providers can change, adapt and increase offerings over time. For the security ecosystem, IP services offer a platform for continuing expansion that will be vibrant for a few decades. Figure 1 provides a forecast of IP service bundles, with or without monitored security.*
What the People Seem to Want
In a 2011 survey, after having multiple IP concepts explained, 16% of respondents having monitored security reported they would certainly switch to a provider offering IP services if their current provider did not offer those services. Thirty-six percent of current security customers reported they were likely to switch providers to obtain one or more of those services (see Figure 3). In subsequent surveys testing those same concepts, no less than 15% of broadband households reported they would switch, if necessary, to obtain these services while around one-third reported again that they were likely to switch.
According to Parks Associates, dealers should add connected home features to their portfolios, albeit carefully. Exactly which features will resonate first is not guaranteed, but the following rank high in appeal:
- IP cameras allowing status and alerts
- Smartphones and computers as user interfaces
- Capability to control/access the security system
Other IP services receive lower appeal rankings overall, but still have a good sized set of consumers providing high rankings (see Figures 2 and 3). These new services present more challenges to dealers than traditional security because they are new to consumers. New concepts often equal misunderstood concepts, and even to some consumers, scary concepts. They ask themselves, “Will I know how to use it? Who will I call for help?” In this economy, many consumers will also ask, “Can I afford it? Is the benefit worth another bill?” But first, consumers must be familiar enough with the services to engage in assessment.