Inside the Numbers: How Security Dealers Can Thrive in the Growing Smart Home Market
SSI and Parks Associates’ security dealer survey paints a picture on the current and future landscape of the smart home industry.
How Busy Are Dealers?
The fragmentation and great differences in security dealer firm sizes are evident by looking at the installs per month. Fifty per-cent of responding dealers install fewer than 20 systems per month and only 8% install more than 50. Twenty-five percent of respondents, typically integrators themselves, don’t know the answer to the question. The average number of installs per month is 17. Keeping in mind that this survey reaches tradi-tional security dealers and not broadband providers that have entered the security market, this translates to approximately 2.5 million systems. The number does not include replace-ments/upgrades, which would increase the total to 4.5-5 mil-lion systems. Parks Associates believes the broadband provid-ers account for 750,000 to 1 million additional system installs for 2015.
Smart Home Is Here to Stay
Smart home benefits are no longer brand new. While consumer awareness and understanding of features and benefits remains lower than desired, the consumers most likely to report good awareness and understanding are those with security systems at home. About one-third of dealers report that they install some type of smart home feature in 50% or more of their installs. This percentage is the same as was reported in the 2014 survey.
Further, the percentage that report they never install smart home features is down. Seventy percent of dealers report that at least 40% of their installs include basic interactivity; that is, the ability for a householder to access and control just the security system by smartphone, tablet or computer. Dealers report that 60% of their 2015 sales include enabling this basic interactivity.
In replacement installs, about one-quarter of dealers report that they install smart home equipment while nearly 50% report installing a new control panel. Fourteen percent of dealers report their monthly RMR at greater than $40; most certainly the bulk of households with fees over $40 have some smart home equipment.
ADT reports that 21% of its customer base now has some Pulse feature. Vivint declares that well in excess of 60% of its installs include some smart home equipment. Comcast and AT&T Digital Life consider smart home more than an adjacency even though they will sell just the professionally monitored security system. They consider smart home equipment and its benefits as the path to the future. Security dealers report that nearly one-third of their smart home equipment installs include network cameras. That is double the percentage for any other feature such as connected lighting or smart thermostats.
The closer a benefit is to the traditional meaning of security (alerts or protection from unwanted intrusion), the higher the percentage of dealers installing the equipment.
Contending for the Connected Home
While smart home equipment and functions are here to stay, with basic security system interactivity quickly becoming table stakes, the smart home competit
ive environment is not as settled as it is for core security systems. When asked to select the vendor type to which they are most loyal, 55% of dealers report their highest loyalty is to their security system panel provider, with the next highest loyalty rating for central station provider. Only 14% reported their highest loyalty is to their interactive service provider. This means there is switching opportunity that interactive service providers may seize.
On the other hand, when asked how much savings per subscriber would be necessary to cause a switch, half of the responding dealers report that they would not switch for money. Eighteen percent report that they will switch for a savings of more than $5 per subscriber. The opportunity for interactive service providers is not a money-only proposition. While savings is always important to dealers, more important for the selection of interactivity provider are key features and functions, ease-of-installation and provider support for their needs.
Some shifting has occurred for dealers’ perceptions of consumer desires since SSI and Parks Associates first asked this question in 2013. Consumers, according to dealers, value basic interactivity with their security system most highly. Every other option receives a much lower value ranking. Only 15%-20% of dealers place environmental alerts, remote access to thermostats or the ability to control or access lights in the top three capabilities desired by consumers. These rankings will change again as basic security system interactivity becomes part of every sale and new generations of smart home devices with ever-increasing benefits emerge.
When dealers consider which interactive security dealer with which to align, top on their list is that provider’s ability to work with network security cameras and door locks. The closer the equipment and feature is to security for intrusion, the higher the dealer’s professed value for that equipment. Today, Honeywell Total Connect receives the highest percentage for most used interactive service provider among dealers; Alarm.com ranks second. These percentages do not directly translate to volume as different size dealers sell different volumes of security systems. Honeywell/Ademco and DSC retain their top rankings for security panels over the years. Interlogix lost a few points in 2015 for most preferred panels while Nortek Security & Control (2GIG) gained a few points.
Through the three years of surveys, dealers have reported consumer costs for smart home equipment at $670-$710. They also report that equipment costs represent about 50% of a consumer’s overall installation costs. This has not changed between 2013 and 2015.
When dealers were asked their top two business challenges, providing a list from which to select (note: this adds to 200% as the figure combines the first and second challenge), only 2% of dealers reported that none of the provided options aligned with their challenges. Of interest is the high rating for deceptive sales practices of competitors. This is one sure sign competition is accelerating. General consumer hesitancy to spend money remains an inhibitor but with lower ranking scores than in past years. Another clear sign of expanding sales is the second-highest business challenge: finding qualified personnel. Poaching will occur. The need for qualified personnel will cause dealers to invest more heavily in training for neophytes.
5 Factors Fuel Current Boom
At the beginning of this article is Parks Associates’ system sales forecast through 2019. Of note is 2015 is the highest year with expectations that there will be a subtle decline in sales next year and further out. Last year and 2015 are high for multiple reasons, not all of them relating to the promotions and marketing by providers of professionally monitored security. While marketing has been strong and consumers can witness smart home features and functions at AT&T Wireless stores, helping spread awareness, other reasons for these high years include:
- Pent-up demand from recession years.
- A recovery (albeit still weak) of the single-family new start market.
- An economic recovery that has first helped the upscale, the security providers’ steady and traditional target.
- The advent of smart home, tipping some replacements to include smart home and some set of prospects to now find adequate price/value performance for monitored security when they did not previously believe that.
- For providers, an increase in ‘stickiness,’ thus causing a lowering of attrition rates over time. This is of critical importance to the entire industry ecosystem as keeping customers is always less expensive then selling to new customers.
Finding Place as Future Fleshes Out
Security dealers need to decide where they stand in terms of market position. Will they or won’t they be strong advocates of the smart home? Will they or won’t they advance from that to even integrating display and sound options from the classic entertainment systems? Is a dealer prepared to forego the basic security adopter to obtain higher average revenue per user (ARPU) from an upper set, even if that means somewhat fewer sales?
No business law says that profit is always best by targeting the rich or upscale; nor is it always best by targeting the mass middle. Optimum profit derives from having a singular focus, with the competencies to meet that market’s requirements, whatever they may be. It may be that during the next several years, the dealer segments stratify further than today with basic interactivity a must for all, but expanded functions falling to a set of high capability, high customer service dealers. That appears a realistic outcome, but it is too early to state it as more than an option.
Innovators will go for more features, perhaps entering the independent health arena, seeking different channels and sources of referrals. Some energy utilities may enter the provider market after hurtling over regulatory guidelines. They will require qualified dealers to execute their installations. For some dealers, selling only smart home equipment and features may be a path to differentiation. Honest Abe’s quote, “The best way to predict the future is to create it,” is as valid today as it was when he said it. Today’s dealers must create their future strategies.
Bio: Tricia Parks is CEO of Dallas-based research firm Parks Associates. She can be contacted at email@example.com or (972) 490-1113.
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