Hosted Video Can Deliver Most Value
VSaaS is growing in prominence as end users and installing security contractors alike increasingly realize the value proposition. As workable business models continue to be fine-tuned, recurring revenue is on the rise.
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Why would anyone pay monthly for video surveillance? This is the question asked verbatim by an alarm company salesman following a recent hosted video sales training. As a security industry professional who has sold alarm systems for years, he understands why recurring monthly revenue (RMR) is valuable to his company. Yet he clearly was not ready to go out and sell hosted video accounts, as he himself didn’t understand what makes video surveillance as a service (VSaaS) a service.
It begs the question: If the output of VSaaS is the same as purchasing a local DVR, then what is the justification for an end user to pay monthly fees? The key issue here is the difference between a product and a service.
Let’s delve deeper to uncover the contrasts between these two important assets.
Frivolous Idea to New Profits
Some historical perspective is useful to illustrate why hosted video surveillance services are primed to make a big move as the technology has come of age with workable business models.
Back in the 1970s before digital dialers, alarm systems were primarily sold as local alarms. The systems simply rang a bell when the alarm was tripped. Just like a car alarm the idea was perpetrators would be scared off and the neighbors would call the police. Because the alarm company made all of its profit on the margin from the one-time sale and installation, the systems cost about $3,000-$5,000.
When digital dialers arrived and monitored systems became a reality, monitoring was offered to customers initially as an add-on feature to the local alarm. However, for the next few years the subscription service was almost never sold, given the fact many salespeople considered central station monitoring a frivolous idea. It made no sense to them why homeowners would foot a monthly fee for what was, in their minds, ostensibly a product.
The superior value of a professionally monitored alarm system would ultimately prevail and financing became available to alarm companies based on the long-term value of the RMR generated by these monitored systems. The financing came in various types including low-interest debt, dealer program offerings, private equity, etc.
Eventually upfront costs for alarm systems dropped to only a few hundred dollars based on the investment alarm companies were willing to make in creating recurring revenue accounts. Today, central stations monitor more than 50 million systems and generate billions of dollars annually in recurring revenue.
The level of customer service, as well as the quality and maintenance of alarm systems, increased immensely because the value of the recurring revenue was based on its longevity. The customer had leverage to demand quality service in the form of their monthly payment.
Think about how much time the alarm industry spends analyzing attrition to the tenth of a percentage, calculating its cost and strategizing about how to minimize it. In other words, they’re actively thinking about how to keep customers happy. The result is much better and more valuable service.
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