How Dealers Are Protecting Their Home Turf

Defined battle lines are being drawn in a reshaped residential market as traditional security dealers maneuver to stake their claim vs. new entrants with deep pockets. The latest research reveals key market disruptions, revenue projections, preferred connected services and much more.

SECURITY SALES & INTEGRATION and Parks Associates now survey installing security dealers on a regular basis to uncover emerging trends in residential security systems and services. Our mission is to provide the actual perspective from those on the frontlines looking to market, sell, install and service new offerings like interactive lifestyle-based conveniences, energy management, keyless entry and much more.

In May and June, SSI and Parks Associates surveyed 162 security dealers about their business conditions, the importance (or lack thereof) of IP-based add-ons, their take on where the market is headed and how they expect to adapt to increasingly competitive conditions.

Results and conclusions from this latest survey will help all dealers understand how their firm is addressing changes and the impact of connected peripherals to the basic security system, as well as bring the tremendous opportunities into clearer focus.

New Players Keep Rolling In

This year the industry’s residential marketplace stakeholders have witnessed the continued expansion into professionally monitored security by telcos and cablecos, along with more announcements of self-installed smarthome systems. 

As of the end of June, AT&T Digital Life systems became available in 27 AT&T markets; the systems are on display in more than 700 company-owned retail stores. By year end, AT&T expects to have its Digital Life system and services available in up to 50 markets. Professionally monitored security is the anchor service at this time; add-ons follow a pattern now established for nearly all IP home management upselling. AT&T can provide lighting control, cameras and energy control. Each AT&T Digital Life market is served by at least two installation companies. 

Comcast, the largest cable provider in the United States, reports that its Xfinity Home portfolio is available in all of its markets. Add-ons to its professionally monitored security offerings are device access, status and control for network security cameras and lighting. In addition, Comcast announced in June the availability of its smart thermostat, EcoSaver.

AT&T and Comcast, although noted as the biggest player entrants, are joined by Time Warner, Cox Communications and others that have introduced similar portfolios and are currently marketing to new and existing clients. And now arrives satellite TV provider DirecTV, which in June acquired LifeShield, a self-installed, professionally monitored, wireless digital security system. Meanwhile ADT, the indisputable market leader in monitored security, has amped up its advertising on radio and TV for its Pulse offering. Protection 1 is marketing its Life digital home security system packages, and many other smaller providers are jumping onboard as well.

Using “traditional” professionally monitored security as an anchor is not the only new play. Verizon’s Home Monitoring & Control (HMC) service arrives without professional monitoring and without accompanied higher fees. The offering includes cameras, thermostat and lighting control, along with a $10 per month hosting fee. Iris, Lowe’s recent entry is rolling out to nearly all of the company’s more than 1,500 big box stores and it too charges a $10 monthly fee. In June, Comcast announced its own DIY home automation system, also at $10 per month, with no option for professional monitoring. Thus, those three players are in direct competition at least on function and price.Roughly 20% of all homes in the United States have some functioning electronic security system. That percentage rises to 25% for broadband households. However, only 16% are professionally monitored. In sum, 15 million to 16 million broadband households have monitored security.

For now, and even with all the changing market landscape, the two most highly regarded hardware systems are from Honeywell and GE Interlogix. Honeywell takes first or second choice as hardware provider among more than 25% of all surveyed dealers. Joining these long-established manufacturing stalwarts comes 2GIG with 12% of all dealers reporting it as their No. 1 or No. 2 preferred hardware.

Market Drivers Propelling Service Providers, Vendors  

Why are telco, cableco and other providers entering the security and home automation market? For certain it is not a short-term business play. Simply cannibalizing today’s served market may be a nice start to revenues, but that alone does not merit all the attention and investment now being received by smarthome systems and services.

About 20% of all homes in the United States have some functioning electronic security system, and that percentage rises to 25% for broadband households. However, only 16% are professionally monitored. In sum, 15 million to 16 million broadband households have monitored security (see pie chart at left). The percentage increases, unsurprisingly, when only considering single-family detached homes, and increases even further when considering the top third of the single-family housing market. Because housing prices vary dramatically across the nation, thinking of the top third in terms of value instead of an absolute dollar value makes more sense.

To start, established players such as ADT and Protection 1 seek to reduce attrition. ADT’s most recent annual report places its attrition rate at ~14%. Other providers report anywhere from 10% to 15% attrition, and some leeway exists due to slightly different definitions for “attrition.” However defined, attrition makes growth an uphill battle. Consider: If a security provider has one million customers, then 14% attrition equals the loss of 140,000 in customers within a year. To achieve even 3% growth, that company needs to sell and install 170,000 systems (140,000 to make up for attrition and 30,000 in new growth) in the same year!

If smarthome system and device benefits can reduce attrition by even just half, the benefit to provider profitability and growth is enormous. In that scenario, the provider only lost 70,000 customers; the company only has to sell 70,000 to make up for attrition and then 30,000 for growth. If the company sold the same 140,000 systems as imagined above, its rate of growth doubles from 3% to more than 6%.

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