How a Hybrid DIY Model Puts Security Dealers on Firm Footing
Brian McLaughlin, CEO of Alula, a provider of end-to-end professional security systems, discusses the DIY trend and other dealer-channel topics.
When security industry newbie Brian McLaughlin was hired to be CEO of Alula in February, the company lauded his deep understanding of technology and market strategy, plus a track record for delivering sustained growth is his previous role as president of the transportation mobility division of Trimble. He joins the conversation to discuss the channel and Alula, formed following the merger of Resolution Products and ipDatatel.
Coming from outside the industry, what is your perspective on the security industry in terms of technology and innovation?
It is an incredibly exciting time to be in the industry. The reason is we are seeing a kicking into high gear of the innovation cycle. The industry has been somewhat stagnated over the past five years. People got comfortable. There were a couple of very large players, I won’t use the word monopolist, but when you get a couple of very large players and the industry gets comfortable things don’t move very fast.
What is happening, though, drivers and challenges — the DIY movement; new, disruptive entrants; the connected home push, which is coming from the end user — all of these things are kicking the innovation cycle into high gear. And that has been over just the last year from all that I have been able to gather. We have gone from somewhat slow, maybe plodding along, to innovation to high-gear innovation.
That is going to continue for years to come because the industry is going to double. The industry has been stuck, depending on the study you read, at 23% to 25% adoption rate. Well it is expected to increase to almost 60% adoption and some of that will be DIY, some of that will be connected home-driven. A lot of it will be professional installation. Some of it will be a hybrid model. But those all require new technologies and models.
The dealers are demanding more. The users are demanding more. It is an exciting time to be a service provider, especially if you are an alternative. We are not the biggest, but we feel like we are going to be the most freshest technology and the best alternative to some of the large incumbents that are out there.
Can dealers continue to thrive without a DIY offering?
If you want to grow you are going to have to come up with a viable offering in the DIY space. What we have seen, which is becoming more popular, is a hybrid model from the end-user perspective. We call it Dealer DIY. That is where a professional dealer provides the installation, has the local presence and other customer-centric offerings, and they couple these with a DIY solution.
What the model is, is a customer can go to the dealer’s website and order a security system online and sign up for the dealer’s services. The system gets shipped; it’s all preconfigured, all packaged up. I install it. If I do it right, great. If I screw it up the dealer is going to be onsite within an hour to help me out and figure out what I did wrong. By the way, if a motion or door or camera goes down the dealer is going to be there to help me out.
This hybrid model addresses a concern of a lot of DIY users. And that is I feel like I can install it, but I certainly don’t want to support it. The hybrid model gives the dealer the ability to very efficiently put stuff in at a lower cost basis, but then provide that world-class support. That becomes even more important as these systems evolve to becoming more and more mission-critical.
If it is a just a security system, it is very important. But let’s say this same system now controls your locks and your doors and lights. If you can’t get into your house because your app doesn’t work that is a problem. You need somebody to help support that right away.
The gigantic DIY shops are not real customer-centric. We all love Amazon, but their model is to get you to use their world class e-commerce capabilities and to sell you lots of stuff. It’s not to hold your hand and support you. That is what a local dealer can do. If you can bring those together that is a viable model that can help a professional dealer work their way into it.
What are dealers most challenged by in the residential space?
It is really four areas. The first is everybody is trying to compete with DIY. You look at DIY and whatever expert you want to believe it is going to take 30% to 50% of the new market adoption going forward. I think that is about right. There is still going to be half of the market at a minimum that is going to want professional installation. But 30% to 50% of the market is still a pretty significant concern if a dealer is trying to grow rapidly.
The good news is the market is projected to double in size here over the next three or four years. There is a lot of room to play on the dealer side as well as the DIY guy. But how to compete with DIY is really the first big challenge they are trying to figure out. For us the answer is to create a dealer DIY program.
The second challenge is how do they handle convergence? End users are asking them to offer home automation technology, and there are now home automation dealers that are offering home security. The market is kind of shifting.
If I were running a dealer business I would be very much into the diversification. I would become a security/connected home dealer. Because it is going to be an equal value proposition in the next two to three years as more and more people want to be able to automate elements of their home.
The third challenge is lower cost, the acquisition for a new account. We try to provide a lower cost basis with our efficient architecture. There is a lot of pressure put on dealers today. Their customers are seeing commercials and getting calls from the SimpliSafes of the world, the Rings and others. They are offering no contracts and low monthly fees. Dealers are faced with having to pull down their RMR and in turn having to figure out how to lower their costs.
For us, we want to create a lower cost way of doing business for our dealers. Whether that is just lower monthly rates from us or that is helping them more efficiently market to their customer and giving the dealers tools to do that. These are all things we want to be able to do.
And the fourth reason, the only other thing I would say is there are new forms of competition. I put new in air quotes because they have been around a while but they are starting to see some successes. Energy companies that offer that home energy; certainly the MSOs or the cable guys and others. All of these players are starting to offer security solutions that integrate with the rest of their stuff.
That certainly presents a challenge to the traditional security dealer. They have to figure out how to better compete with a broadband carrier that already has a call into your house and already has a subscription.
Is the company actively recruiting new dealers?
Absolutely. Currently we are signing up in the neighborhood of 50 to 60 new dealers every month. We feel like we are riding a pretty healthy wave here. Dealers are looking for alternatives to some of the more traditional technology out there.
In all candor, some of those 50 to 60 may be existing customers of one of the prior companies, but what they are exploring is really the end-to-end solution. We have over 3,500 dealers we already work with between ipDatatel and Resolution Products.
That may be just a translator or a sensor or communicator with a network. What we are getting now is people are coming to us and saying, “I want the end-to-end value proposition. I want this vertically integrated end-to-end value proposition that you are offering.”
And so a lot of those dealers signing up are saying, “I want the full value. I want one neck to grab. I want the capability.” We are seeing a lot of activity. There is some frustration with the marketplace right now. I don’t know if it is just the structure of the market or what, but the prices in general in the dealer market are too high. The innovation pace has been somewhat stagnant. I think people are looking for that viable alternative, and that is what we are trying to provide them — a better way of doing business in terms of our solutions.
We do sell directly. We have a direct field sales team. We also have a number of partners that offer our services, but most of our sales come directly with our field sales team. They call on dealers each and every day and try to get them to convert over to the Alula way of doing business.
Is Alula challenged by identifying dealers that make good partners to fit your business model? Or are you finding there is a rich pool of dealers out there?
We have some qualification questions and a lot of those get into to what is the willingness to diversify and expand. I have personally visited with close to 100 dealers in the marketplace in my six months here and half to almost two-thirds of those have a willingness or are pushing hard to diversify into dealer DIY or some form of it. Those are the dealers that we feel are our target audience.
If you just want to keep doing things the same way and just hold onto your customers, you are probably not going to risk making a change from Alarm.com or Honeywell. But if I want to diversify and grow, then that is the customer we work really well with. One-third of the customers I talk to push us and say, “We need more, more, more.” A third of them are accepting and intrigued and want to try, and one-third of them are like, “Nope. I’m happy. I’m good. Just leave me where I’m at because it’s too risky to change.”
That last bucket I do fear for their future. I do not believe there is a growth model without some form of diversification. The “resting on your laurels” that has happened in some case over the last 10 years is not going to be available as much anymore. There are too many other sharks out there. The cable guys are calling your customers. Ring is enticing your customers with a sexy doorbell. SimpliSafe is on the radio or TV every 15 minutes. If you go to Costo or Sams Club or Best Buy you can see systems. There are too many competitors out there.
One other element on the DIY strategy that is so important, the technology has allowed for these [competitors/new entrants] to evolve with an emphasis on simplicity. Our system takes about 15 to 20 minutes to install. It is very simple. That simplicity — and there are others out there that are doing a good job on the simplicity as well — also allows dealers to evolve.
If you can install this yourself and you can add Z-Wave locks in a matter of minutes, and add cameras in a matter of minutes, you now are creating very much a DIY type of model. Then as a dealer you can spend your time selling more advanced services.
The connected home users will pay for these services. DIY should lower your cost basis. If not you are not doing either of those right. If I were a dealer I would grow through diversified services, getting additional revenue but also lowering my cost basis because it is so simple and so easy to put into place.
In regards to the rebranding, what is the main challenge on your front burner at the moment?
In general the rebrand has been very well received. Any time you are building a new brand it takes time for people to understand what is behind it. We are in that “let’s make sure that we are defining what Alula means and not our competitors.” That is one challenge we have; it just takes time and obviously money and the effort to build that brand equity and brand awareness.
Some people still view us as Resolution Products or ipDatatel. They view us as a hardware company or they view us as a network company, depending on what you worked with in the past. And what we try to do with Alula is change everything. We could have branded with “Secure” this or “Simple” that or whatever it might be, but they all start to mesh together.
We picked Alula because it was different and unique and modern. A lot of it was intending to allow us to jump from Resolution Products and ipDatatel into this is a whole new way of doing business. This is a better way of doing business going forward.
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