Nortek Security & Control Executives Share Secrets for Connected Home Control Success

Could you summarize some of the specific products and services you’re now offering, and the value they offer dealers?

Paulson: We do a lot of OEM [original equipment manufacturer] and ODM [original design manufacturer] work. A decent percentage of our product goes out the door with somebody else’s name on it, including sensors and devices we make for companies that would be considered our competitors. That is part of the business model that distinguishes us.

In the residential product category, in the security control space, our flagship brand is the 2GIG product line. A lot of it goes out the door with the 2GIG brand on it, but also is private labeled for a number of regional and super-regional security dealers. In addition, our Z-Wave product is very highly sold into the residential channel through multiple channels. It gets sold through the professional security installing dealer, as part of a 2GIG system, and includes our lighting control product with in-wall switches, in-wall dimmer, in-wall outlets, as well as our plug-in dimmers and switches.

Nortek Security & Control’s GoControl garage door controller.

Our Z-Wave-based garage door controller has been a hugely successful product that we released not quite a year ago. Essentially you can retrofit that to almost any existing garage door opener. Based on that garage door opening, any Z-Wave-based hub, whether it’s 2GIG or someone else’s, can activate all sorts of different scenes. By opening my garage door I could light a path completely into my house; I could unlock my Z-Wave door lock; I could choose to disarm my system, and adjust the thermostat.

We sell those under our own brand and also through some of the retail channels under the GoControl brand. You can find some Z-Wave devices in Home Depot, soon in Lowe’s, on Amazon. Those are aimed at the hobbyist; it’s not a cannibalization of our security market. These are folks who are home control hobbyists and like to do their own thing. We are the world’s largest manufacturer of
Z-Wave devices. Every 2GIG panel has Z-Wave built into it and then we sell a significant amount of lighting control, garage door controllers and Z-Wave-based thermostats as well.

Smokoff: With regard to health and wellness and its brands, the primary product is branded as Libris. It’s also sold white label, so in many cases the resellers or the dealers are free to put their own brand on it, and so you’d find it under various trademarked names in the market. The device comes along with a service that’s branded as EverThere. The baseline service allows you to interact with the device, track its location, control the settings of it.

We’ve created a structure within EverThere of value-added services that manifest themselves in terms of dealer RMR [recurring monthly revenue]. There’s a baseline cost for that, for the device service for fall detection. There’s incremental feature sets for the notion of family-related tools, there’s a whole other health gateway offering associated with it. Generally, we sell that as a bundled service inclusive of the voice and data services, and the dealers take each of those to resell with their own markup. In the health and wellness side, there’s both device and RMR components.

You touched on the growing residential DIY market, which has a lot of security dealers concerned. Why should they embrace rather than fear that trend?

Paulson: Dealers should unequivocally embrace self-installed systems. In fact, many are already starting to do so, with probably the most publicized example being ADT’s announcement a few months back about LG Electronics making DIY systems for them. A few years ago when I would bring up self-installed systems to dealers, they’d immediately look at it as the natural enemy of their business model. But most of them are coming back and asking how they can get into that business.

The penetration of residential alarm systems has been about 20% for 20 years. That means there’s a whole bunch of other people that have not been won over by the value proposition. Those may be people who want more home control functionality or who live in multi-family housing or rental units. The rental market has been overlooked by the security industry. And even if it’s a single-family owned home, there are a bunch of people out there who don’t want other people in their house.

I have had end users look at me in different focus groups and go, “I don’t get it. I’m concerned about security. I’m concerned about keeping the wrong people out of the door, so I’m going to open the door and let a stranger in for a day or a day-and-a-half to wander around my house while he’s installing a system? It’s my problem. I’ll deal with it. I want to deal with it myself.”

I’ll give you another example. My 24-year-old daughter is not going to pay a security company $30 a month to monitor her apartment. Would she pay a couple of hundred bucks to buy the product outright and do some basic self-monitoring, and maybe buy on-demand monitoring when she goes on vacation? Yeah, she would. That’s more money than an alarm company would have made off her in the first place.

The big benefit a lot of alarm companies are starting to see, is DIY can give consumers a taste, exposure to their brand and service. I refer to it as the “starter drug.” So when my daughter is 34 years old and decides to move into her own home or start having a family, and she’s ready for a “real” security system, she’s had a positive experience with somebody on the self-install side. She’s going to have an affinity for that and be more likely to look to them to move into a more traditional RMR-type of model.

There’s a lot of reasons why DIY should be embraced and seen as an opportunity to grow the business, not as an enemy. I don’t believe it’s going to cannibalize that 20% that’s consistently proven they want what’s being offered today. It’s going to help grow that other 80%.

How are Nortek’s security brands reaching out to the security dealer community? What are the support mechanisms being implemented to help them succeed?

Paulson: We have a substantially sized technical services group. We’ve got 40-something people in that group who man the phones five days a week, 12 hours a day. We’ve got a very sophisticated set of metrics we do in terms of service level agreements with our dealers, and we’re doing quite well on those. We make sure that when a dealer faces a problem in the field and calls in for support, that they get it quickly.

Nortek’s leading security brand is Linear, with headquarters in Carlsbad, Calif.

Our service level agreement is centered around quickly getting to the phone and quickly answering an inquiry within three minutes. We achieve that more than 90% of the time, and our average wait hold is about 40 seconds before we get on the phone. We track that very carefully. We do the same thing in our customer service area. When customers are calling to place orders, and distributors calling to place orders, making sure we get on the phone in that short period of time.

We also have a substantial training department, with about six people involved that group. That focuses on on-site, hands-on training of equipment we do all over the country at our dealer locations. A lot of it is for CEUs [continuing education units]; I believe we’re one of the leaders in offering those credits. We also have CEU courses available online so a dealer can do them at their own pace and on their own time.

Just as importantly, we spend a lot of time training internally. We use a learning management system called Brainshark to train our own employees on different topics, everything from business systems to how to answer a phone call. They can go online and take a short training program, complete with quizzes and tests, and we can track that to make sure employees have completed required.

If I came up to you at a tradeshow, how would you pitch me to standardize on Nortek Security & Control products as opposed to the competition? What are the differentiators?

Paulson: From the security side, the pitch I would make is twofold. It’s cool stuff. We have features and a design that’s very attractive to the end user and homeowner. It’s something that helps move security from a need to a want, which makes it easier for you to sell. The ability to control your home remotely using a smart device or on a touchscreen in your home is pretty cool.

That was driven home to me shortly after we made the 2GIG acquisition. My neighbor came out and saw me pull in my driveway and said, “I got to show you my cool new security system.” That was a phrase I’d never heard before: “cool security system.” He was talking about one of our 2GIG systems. That’s part of the pitch I’d make.

The other part I’d make is we can actually help you with a lower lifecycle cost, meaning our stuff is easy to install. We do a lot of time studies. “How much is it worth to you, Mr. Dealer, if I can take an hour off your installation time compared to the panel you’re using? How much more recurring revenue can you generate
? How much more can your labor cost be?” When you do the math it’s probably cheaper for you, the dealer.

Smokoff: From a health and wellness perspective, if a PERS reseller approached me today I’d encourage them to look at mPERS and a solution that works beyond the walls of the house, and really as a means to attract a younger demographic. 

Even in that context, there’s a number of mPERS products where the focus is around two-way voice and location tracking. With us, you’re buying into a platform of offerings. While the initial sale may only be two-way voice with location tracking, the additional value-added services and proactive nature of those services allow you to incrementally sell value-adds that can be monetized in the RMR. 

Some of the strongest proof points we have are if you look at the average age of a PERS customer today it is 82. The average age of a Numera mPERS customer is 72. We’re attracting people at a much younger age. We’re maintaining that relationship longer. Our churn is far below the industry average.

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