Home Automation Deep Dive: More Residential Dealers Deploy DIY During Pandemic
Self-installed security systems, with and without professional monitoring attached, spikes due to COVID-19 challenges on the home front. SSI’s 2020 Home Automation Deep Dive reveals what else is helping offset a slowdown in installed system sales.
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This has been a year when terms like “unprecedented” and “never before” have been frequently referenced by the press, consumers and industry alike. Yet by and large, residential security systems dealers are among the entrepreneurial businesses that have been the most unscathed by the economic fallout as a consequence of the COVID-19 pandemic.
However, these companies are far from immune to the lost or postponed revenues due to fewer installed system sales and slower paying or defaulting customers. Yet there are bright spots to be seen, including rises in interactive and health-related products and services, increases in do-it-yourself (DIY) and do-it-with-me (DIWM) systems, and efficiency gains courtesy of remote system diagnostics, remediation and upgrades.
Those are among the key findings in the 2020 Home Automation Deep Dive survey. This marks the sixth year that Security Sales & Integration and Parks Associates have collaborated on this nationwide (and Canadian) study of residential security dealers, conducted from August through October.
Given how atypical this year has turned out to be, this year’s study reflects that with less emphasis on specific product categories. Thus, in addition to standard residential security dealer data, the 2020 Home Automation Deep Dive covers the impact of the coronavirus as well as continuing trends for DIY security systems, smart home opportunities and adjacencies.
DIY Offsets Full Service
Looking at the composition of this year’s Deep Dive dealer respondents, nearly one-third report revenues of less than $1 million; 38% report revenues of $5 million or greater (Figure 1).
Diversity and fragmentation continue in the security industry even as consolidation among giants has occurred and deals between giants (e.g. ADT/Google) continue. This is not new, but instead a continuation of large differences between national, regional, and small dealer businesses.
Looking at types of residential security systems sold by year (Figure 2), trends and changes are apparent. One quite steady statistic is the percentage of respondent dealers installing professionally monitored home security systems. Only a few percent of security dealers sell only DIY systems. But there stability ends.
In 2020, 36% of dealers report selling DIY security with professional monitoring, a 57% increase from 2019, while 25% sell DIY security systems without professional monitoring required. That is a higher rate than in all other years.
Some increase is expected for DIY systems even without the appearance of COVID-19 as growth has been occurring year over year since 2017 for these innovative systems. However, the jump of self-installed systems with professional monitoring is partially the result of concern over having installers in the home.
Parks Associates’ July survey data for 10,000 consumers found 22% of households sought to avoid installers within their homes due to fear of COVID-19 contagion. Types of interactivity in security sales also show percentage change in 2020 (Figure 3).
Dealers report selling 25% fewer systems having smart home devices with accompanying interactive services. Because monitoring fees for systems with smart home device service have the highest charges per month, revenues for future years may rise more slowly than in the past several years.
More systems with basic interactivity are being sold in 2020; often basic interactivity costs little more than just having straight professional monitoring or is standard within a provider’s basic offering.
By contrast, significant changes appear from prior years when reviewing expected revenue for 2020 versus 2019 and earlier years. From 2013 to this year, dealers report higher revenue expectations in the current year versus the past year at 46%-81%. This year, only 15% of dealers expect their revenues to be higher in 2020 than in 2019.
Monthly fees differ for different services (Figure 4). The most basic service, straight-up professional monitoring, has the lowest monthly fee. Note that in 2020, that fee has dropped from $39 to $29 per month. This drop is outside margin of error and reflects security companies discounting fees for new customers.
Impacts of COVID-19 on Security
Much of the decline in expected revenues is the result of lower new unit sales resulting from economic uncertainty or distress due to COVID-19 (Figure 5). Even with COVID-19 economic stress, the majority of dealers (69%) expect little overall revenue change from 2019 (Figure 6). Only 17% expect lower revenues.
Reasons for that relative steadiness include stable revenues from professional monitoring and other services. While holding steady or close to steady is not what dealers sought going into 2020, many industries have been devastated by COVID-19. It appears that security will hold its own for the time being and the overall industry can appreciate that.
Beyond an overall decline in new unit sales, COVID-19 affects the average number of installed security systems being sold (Figure 7). More than six in 10 (63%) of dealers expect some decline in their sales of installed security systems. Only 35% expect an increase.
Additionally, nearly 40% of dealers report providing relief or deferment of fees to help current customers suffering financial distress due to COVID-19 (Figure 8). While this costs security providers short term revenue, there are upsides.
Customers report higher satisfaction with security providers handling of COVID-19 than for other types of service providers (Figure 9). Moreover, these fee deferments and discounts may also forestall monitoring cancellations, a worthy goal in this time of uncertainty.
The Home Automation Deep Dive asked residential dealers about the effect of COVID-19 on their various revenue sources (Figure 10). The most dramatic decrease is for service revenue.
Again, however, this service hit is in part the result of deferments and discounts and may end up helping providers avoid some cancellations, and earn customer loyalty at the same time. That said, decreases are occurring across multiple revenue sources. These financial changes will be hardest for small dealers without ready sources for credit lines.
There may be a coming story of ‘cash is king’ if no further government relief occurs for small businesses. Banks are already tightening credit requirements.
Work From Home Adaptations
Adapt or die is an oft-heard maxim in business. Security providers have major challenges as well as some opportunities from the effects of COVID-19. Of course, economic uncertainty as well as unemployment causes hardship or consumers and, in turn, for their providers.
COVID-19 brings fear of infection and social distancing requirements that are hard on companies with installers who must go into the home. Providers must alleviate concern as they can by ‘best’ practices, including always wearing masks, social distancing and the like. But for some households, putting off the purchase of a security system requiring installation is occurring — and inevitable.
The countervailing opportunity is for increasing sales of DIY with smart home device adjacencies and required professional monitoring. Truck rolls are expensive for repairs, system problems, and helping consumers with DIY systems and device installation.
Combining that reality with consumers’ hesitancy to have strangers in their home has caused dealers to accelerate the development of tools for remote fixes. As shown in Figure 11, 62% of dealers report using remote diagnostics to solve smart home device issues and another 22% use phone calls.
Only 7% report that a truck roll is their primary method to address system issues. Offering DIY security systems and smart home devices having clear ‘how to install’ instructions along with remote technical help is essential and cost effective.
DEEP DIVE RESULTS: Click here for the full results of the 2020 SSI Home Automation Deep Dive
Households are spending more time at home, causing more attention to the home. The security industry can benefit from that attention. Parks Associates’ July consumer survey showed 20% of broadband households having completed a DIY home improvement project since COVID-19 started; that number jumps to more than 25% for security owners and intenders.
Future-forward, approximately 15% of broadband households report intending to complete a home improvement project in the next six months (Figure 12). That percentage jumps to 25% for security system owners.
While 40% of broadband households intend to purchase some smart home device in the next 12 months, 63% of security system owners report that intention. These intentions provide an opportunity to market smart home devices that can be integrated with existing security systems or be added as standalones to a home.
Security providers have the customers who are most likely to value technology, most likely to be actively engaged with their homes and most likely to have children. Their customer demographics are a true competitive advantage; providers need to assess how to seize their powerful advantage for more and different sales.
Other forces beyond the pandemic battering the American household include political polarization, particularly high rates (to date) of COVID-19 as well as political protests in large cities, and fears for elderly relatives in general and specifically in nursing homes. Consumer actions in reaction to these stresses are multiple.
While some households are moving away from city living, others that can afford it are purchasing second homes. Those homes are good targets for both security systems and smart home devices like video doorbells and IP cameras. Fear for elderly relatives always concerns families, but that concern is now intense.
Seniors want to stay in their homes and their families want to help them do that. Independent living services are served by 46% of dealers (Figure 13), but remain a red-haired stepchild in functional depth.
They will ratchet up in value and capabilities given the experiences elderly people have endured during COVID-19. Providers that invest the time and resources to develop independent living solutions, not just for the elderly, but for anyone older or alone or suffering from a mild disability, will serve a market worth billions of dollars.
PERS, served by 60% of dealers today, will be refashioned to be less a sign of frailty to become more like a smartwatch with service. Security providers are well positioned to seize this role. COVID-19 will eventually be conquered, but no one is sure when. However, its impact will be felt for at least a generation.
Security providers are among the providers best suited to serve all but intense medical needs. To serve these needs well and profitably will require a laser-like focus on consumer needs and wants by providers. Tech companies will compete with or partner with security providers to ramp up functional capabilities and innovations.
Tricia Parks is CEO for Parks Associates.
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