While the introduction of smart devices as value additions to traditional security systems are transforming the industry, some classic security industry characteristics continue and beg for change. Traditionally, security has been adopted by households at the time of a move. There are efforts to change this, but to date, old patterns continue. Figure 2 provides responses by homeowners with professionally monitored security systems to Parks Associates’ Q1 2014 study about when the household acquired a security system.

• 75% report acquiring their current system at the time of a move
• 25% report that the system was already in the home when they moved in and they have not upgraded or replaced it yet
• 50% report that they acquired a security system or upgraded or replaced their security system within six months of their move
• Only 27% of households report acquiring a system that wasn’t there at the time of the move after living in the home for more than six months

As long as these patterns hold, the security industry is limiting its own market potential. Several providers, including AT&T Digital Life, ADT and Comcast, aim at changing this pattern and expanding their sales campaigns to home dwellers who haven’t recently moved and do not yet have a security system, but significant results are not yet visible. This timing pattern of security system adoption varies only a few points from Parks Associates’ surveys completed five or more years ago.

The challenge to lower attrition also remains. In its most recent report, ADT finds that attrition remains at 14%. That is one piece of unwelcome news among some of the company’s good news: sales are up and so is the attachment rate for Pulse additions, which raise both the average upfront price of a system and its recurring monthly revenue (RMR).

Parks Associates believes that attrition will decline; however, that attrition will decline as people adopt, become accustomed to, and learn to value the extra functions available with smart home devices and “connectedness” to their security systems. A year or so more is probably necessary to begin seeing measurably lower attrition rates. Lower attrition rates – that is, rates of 8% or better – are critical to the entire industry. The task of meeting and beating sales results of past years is hard, but having to replace canceled contracts at near or above 10% as well as gain enough new subscribers is daunting.

Changes Play to Security’s Strengths

While some patterns for the industry have not changed and require the industry’s constant attention for advances, there are real and meaningful changes that bode well. Emerging smart home and Internet of Things (IoT) trends represent powerful changes in benefits for all product types in the home, regardless of specific category. Current products are first or second generation; they will become smarter, more open, and more beneficial over time. Just remember: 10 years ago, there were no iPhone or Android smartphones. Laptops were well above $2,000 and five years ago, tablets didn’t exist. Technology advances reduce cost and improve products and systems. Moreover, the “cloud,” which allows some software functions to remain out of the home, creates easier upgrade potential to products and systems than has been previously available.

The security industry is at the heart of this transformation; its actions and activities over the next few years can cement its position for the smart home. And that is what the traditional players along with new participants (broadband providers) intend to accomplish.

Perhaps most importantly, dealers are selling to a changed consumer public. Figure 3 provides the percentage of households with at least one of the specified consumer electronics products as of Q1 2014. Highlighted are products particularly important to smart security and the smart home. Seve
nty-six percent of broadband households report having at least one smartphone (the average is 1.57). With ownership of a smartphone comes familiarity with apps and the expectation of access to just about everything when desired. Security dealers are adding the capability to access, control and receive alerts from their security systems at a quick pace (see next section); anytime access is valuable, even when it isn’t used on a daily basis. And while not all households yet stream video, more than 60% do from one or more devices. Connected gaming consoles are lead devices at this time, but smart TVs and streaming media players are joining them. All of these products create familiarity with the concept of connectedness, making the educational and marketing tasks for security and smart home device providers many fold easier than would have been true even five years ago. And IP cameras are diffusing into households: 17% of U.S. broadband households report the presence of network security cameras in 2014.

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