State of the Market: Alarm Systems 2012
This year the alarm industry is increasingly unshackled from landlines and high costs, buoyed by end user demand for remote/interactive services, and up against more competition.
Every new year always starts off with speculation. The interpretation of several noticeable changes impacting the alarm industry in 2012 depends on whether one subscribes to the philosophy of “glass half empty” or “glass half full.” What do you think as you read through the following list?
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Every year SDM gets to talk to dealers, installers, distributors, manufacturers and analysts regarding the state of the alarm market. The conversation in 2012 reveals an industry that continues to adjust to these noticeable changes and many others, as well. While all of the changes have several sides to them, for the most part, predictors see the glass as “half full.”
Mobile Connectivity
Mobile connectivity and remote access remain huge drivers for 2012 growth. Parks Associates recently previewed yet-to-be released research from “The Next Service Provider Race: IP Monitoring, Access, and Controls” for SDM of what U.S. broadband consumers want in remote access. Home security and monitoring service ranked on top as “most appealing,” beating out energy management and control.
According to Parks Associates’ previous research on the appeal of remote home monitoring: 32 percent expressed interest in home automation and control and 28 percent of consumers expressed an interest in home security.
“The alarm industry is poised to capitalize as new technology becomes available and users seek more sophisticated solutions. End users are seeking more from their security system, and integrated solutions are providing positive results for dealers. Consumers have become more tech savvy and are interested in add-on solutions like wireless capability, remote access and video verification that integrate with smartphones and handheld devices,” says Andy Morra, vice president, marketing at ADI, Melville, N.Y.
Home services, including home automation, and remote access are perpetually spurred on by the non-stop growth of smartphones and apps.
Industry research firm Berg Insight predicts global revenues from shipments of home automation systems will grow from $2.3 billion in 2010 to $9.5 billion in 2015. More importantly, Berg Insight forecasts the number of cellular connections used for home automation also will surge, increasing from 0.25 million in 2010 to 5.5 million in 2015.
The latest research from Alarm.com also shows the growing power of apps, reporting that today more than 75 percent of remote access events for Alarm.com interactive service accounts are through a mobile app. See “The Fastest Trend in Residential Security” on page 51 for more results of the Alarm.com research.
This shift is supported by the continued growth of smartphones. A key stat from Morgan Stanley Research estimates sales of smartphones will exceed those of PCs in 2012.
“End users want to be able to control their burglar alarm systems using the latest technology. They want to be able to operate the system from an iPhone, iPad or iPod Touch using an app for these devices,” says Tom Mechler, product marketing manager for Bosch Security Systems Inc., Fairport, N.Y.
National players are driving interest with their connected home products, which will benefit local players, says Vince Raia, president, EMC Security, Suwanee, Ga. “Smartphones and their apps are everywhere. Customers love the mobile monitoring solutions, and this will continue to expand. Everyone wants control and connectivity. We will continue to develop and offer solutions that link people with their home or business,” he promises.
The products are there to offer home automation — in addition to security — and pick up additional recurring monthly revenue (RMR). Craig Foster, senior analyst, Home Automation Systems, ABI Research, Irthlingborough, England, says, “Providers such as Alarm.com, iControl and Honeywell have developed fully extensible software platforms that not only offer traditional home security, but also, affordable home automation, giving security companies the opportunity to benefit from increased recurring monthly revenue (RMR) in the upcoming year. For example, a company offering home automation on top of home security might benefit from a $10 to 15 increase in RMR per subscriber.”
In addition to adding RMR, the services are also proven to generate “stickier” customers, and more research is proving this and dealers are experiencing it.
“The connected service has been the best thing for creating stickier customers. It is a real tangible product that the customers can see and use daily, reminding them of the value of the service they are paying for each month,” says Mike Morton, sales manager at EMC Security.
It is important to note the demand for interactivity and remote access isn’t just a residential trend. Companies see it growing commercially in 2012, as well.
One reason is that it carries over from the home.
“We are starting to see some pick up on the commercial side in the intrusion and interactive service. That is because knowledge of the service carries over from the chief security officer or chief information officer saying, ‘We use it at home, why can’t we have it here,’” says Kevin Corl, director of sales and marketing, EC&M Integrated Solutions, Mechanicsville, Va. While Corl expects mostly flat growth overall in the alarm side of the business, he does anticipate new growth through the company’s new UL 2050 certification.
Judith Jones, vice president of Marketing, NAPCO Security Technologies Inc., Amityville, N.Y., says the company is seeing commercial growth thanks to a new product line, a new niche and interactive services available for business.
“An indisputable fact in defining security market revenue in general is that it captures the numbers of monitored alarm accounts. Residentially, that number isn’t growing much, given the lack of new construction starts and the large inventory of houses and foreclosures on the market today. However, affordable, apartment-based solutions may be a future remedy to that, and one that we are working on. Commercial sector security sales, which are generally more extensive, more product-intensive, and more profitable to security dealers and integrators, are improving and doing so at a faster, solid pace today,” Jones says.
Oh, The Telcos
2012 will be the first year the industry will feel (or not feel) the impact of all the telcos, wireless companies, and cable companies entering the industry in customer takeover or loss.
Raia’s EMC Security is located near one of the hot beds of cable activity —Atlanta — and he’s expecting to feel the impact in 2012.
“2012 may very well see the most competitive year since our company opened in 1998. Every major cable company is entering the fray with huge advertising budgets and millions of embedded customers that they already have a relationship with. (Comcast has 1.3 million customers in the greater Atlanta market alone.) I hope companies don’t underestimate the customers they can take. They can bundle voice, entertainment and broadband products at will, making it difficult for a customer to determine how much a new security offering really costs in comparison to other companies,” Raia says.
ABI Research’s Foster has the same reservation.
“Home automation is also a natural extension to the core offerings of telco and cable operators who can leverage existing infrastructure to transition easily from quadruple play to quintuple play (voice, data, video, wireless and now, home automation). Because of this, home security/automation can be offered at a discount when taken as part of a bundled service offering,” Foster explains.
Still, many companies still feel safe in the negative reputation held by cable companies. The The American Customer Satisfaction Index (ACSI) rates companies based on thousands of consumer satisfaction surveys. In addition to Cox Communications (17) on the list, Charter Communications (5), Comcast (4), and Time Warner Cable (3) all made the top five in “The 19 Most Hated Companies In America” published June 29, 2012 by Business Insider, based on the results of the ACSI.
The additional “glass-half-full” viewpoint, according to some dealers, is the marketing dollars spent by the cable/telco companies’ “deep-pocket” marketing departments, resulting in more educated end users and free marketing that dealers and integrators can use to their own advantage.
EMC isn’t resting on that marketing alone. “We are dramatically increasing our marketing and advertising to keep our share of voice in an increasingly crowded field,” Raia shares.
Mark Ingram, president of Visonic Inc., Bloomfield, Conn. (now a part of Tyco), also advises focusing on the customer experience. “Cable companies and telcos are locked on enhancing the customer experience with their new services. Dealers have had an issue with attrition in the past when end users simply stop using their systems. If alarm dealers put more emphasis on the end users’ experience they will experience less attrition and gain a better and happier customer,” he says.
The security industry is also counting on its expertise and position as a trusted source as an advantage in the competition with cable/telco/wireless companies.
“What mass market companies like Verizon and Comcast offer is a start — a taste of home control — but it doesn’t compare to an integrated home, an entire smart home that can be controlled from a smart device. As more people start to have the technology in their home from mass market, it increases the demand for the electronic lifestyle. Traditional companies need to use the mass marketing to up-sell themselves as the channel for additional integration,” advises Erica Shonkwiler, market research manager, Custom Electronic Design & Installation Association (CEDIA), Indianapolis.
Mastering the argument for additional services or integration will help dealers find business in 2012 in existing homes. That’s business they are hard pressed to find in new construction. New construction remains flat in most areas around the country.
“New construction is almost non-existent in greater Atlanta market at present. Once one of the hottest building markets in the country, we no longer enjoy the benefits of installing systems for the builders at time of construction, and then signing on customers for monitoring when the home was sold,” Raia says. “We have compensated by expanding our residential and commercial programs, and continued focus on recurring revenue products and services.”
That’s the good news: today’s new technologies and service offerings offer a golden opportunity to connect with current customers and sell upgraded systems to existing homes.
In SDM’s 2012 Industry Forecast Study when SDM asked dealers and integrators, “In which one residential market segment do you expect to see the highest rate of revenue growth for your company in 2012?” the answers, while spread between high-end, middle market, and low-end homes, attributed a resounding 76 percent of revenue growth to existing homes.
This same trend is reflected in a study conducted by CEDIA, which SDM supported through collaboration on the survey base. The study, “Size and Scope of the U.S. Residential Electronic Systems Installation Market 2011,” showed security dealers participating in CEDIA’s study reported 72 percent of installs would be retrofit this year.
Wireless
Retrofits benefit from ever-growing wireless technologies that are making it easier to upgrade or install new systems in existing homes.
Wireless is another area predicted to grow in 2012.
“To put a wired alarm system in a house is expensive and in older homes it can also be complicated. Wireless is what we’re finding to be the up-and-coming player. We carry 2GIG, and you have ease of installation, and, more importantly than that, the complexity of what it is able to do. People are really responding and loving the features,” says Dennis Holzer, executive director, Powerhouse Alliance. The PowerHouse Alliance is a national consortium of 11 regional distributors providing technology products, including alarm products, to dealers nationwide. Powerhouse Alliance expects its intrusion/wireless offerings to grow substantially in 2012.
“We’ve seen significant increases every month, and we think we will continue to see that in 2012,” Holzer says.
“We believe the intrusion market in 2012 will be different than 2011 due to clients more rapidly adapting Web-based interfaces for their systems, both PC and mobile,” says Steven Paley, president, Rapid Security Solutions, LLC, Sarasota, Fla. “We see 2012 as an expansion year for these technologies and we are proactively reaching out to our clients to show them what additional features they can add to their platforms, including video surveillance and home and lighting control.
Paley shares that his company has a strong backlog and is in a growth and hiring mode.
“In our markets, we see more and more of our commercial clients having larger security budgets. On the residential side, we see home sales and new and remodel construction increasing and existing homeowners getting more serious about security as the economy has put serious pressure on everyone. These factors give us confidence that we will have 2012 growth of 20 to 25 percent over 2011,” Paley says.
Declining prices and increased reliability are helping wireless growth in 2012, as well.
“Prices for wireless system components are on the decline as the market matures further, making them more attractive to dealers. The added value of improved reliability and reduced labor expense for the dealer continues to drive growth in this category,” says ADI’s Morra.
Mechler predicts the same trend, saying, “Panels that make IP communication easy for dealers and integrators have the greatest potential for sales. Security dealers are looking for products that help to streamline their installations at customer sites,” he says.
A Head’s up on 2G
Communication technologies will continue to influence the alarm market in 2012. Everyone is aware of POTS, but the newest “dying” communication technology, 2G, is starting to get attention. 2012 will see a push from manufacturers and distributors attempting to educate the market on the extinction of POTS. Unlike the sunset of analog, 2G seems poised for a gradual fade out, but manufacturers are emphasizing the switch now will avoid replacing thousands of accounts when the service fades out. (For a more detailed look at the extinction of 2G, read “The Importance of Switching from 2G” on page 49.)
“It’s not clear as to when 2G will no longer be supported by the major carriers, but we know it will happen at some point so we are ready to help our dealers embrace the new technology. At ADI, we are positioning our assortment with products that offer communications over 3G/4G for new installs and offer the hottest features that end users want,” Morra relates.
Dealers recognizing the shift can be ready and unaffected to a large degree when the technology does go dark. The key this year is that they understand the trend. With 2G and other changes in mind, Mechler says the market needs more education on the use and idiosyncrasies of alternative communications technologies in the upcoming year.
EMC’s Secure Path™ is its branded answer to the multiple communications paths it uses to create a strong system. Secure Path™ technology provides protection via any of three different paths of communication: phone, wireless and Internet connection. EMC Security explains to customers how Secure Path™ connects their home to its central monitoring station in Suwanee, Ga., and its redundant central monitoring center in Gainesville, Fla. In the process, EMC Security increases the perceived value of the systems it installs.
Elevated Education
In addition to educating end users, there still is a lot of work to be done educating the alarm market, and manufacturers and associations are making a huge education push in 2012, putting together kits and training for dealers.
“Manufacturers, we get it. A portion of the industry gets it. The other portion of the industry gets it but doesn’t know how to position their companies to get there,” says Kirk MacDowell, residential sales leader, Interlogix, Bradenton, Fla. “We’re already moving on as an industry from the “new normal” to the “next normal” so we’re focused on teaching all our dealers about what is new through online training, road shows, in-office training and more, and we’re helping them successfully position themselves in the market. The greatest thing is that the market is changing so fast, that we have to keep changing the presentation.
“Dealers can change. Of course, it is easy for us to stand up and say ‘You gotta do it,’” MacDowell points out. “Manufacturers have to follow through with how and support,” he says.
At ISC West, Interlogix will launch an up-sell kit designed for the salesperson or the installer, and the company is equipping its sales force with iPads (an almost universally recommended change by any company succeeding with the new technologies).
Honeywell also has worked through input from dealer meetings and its recent convention to touch base with the industry on what it needs.
“Some dealers are very much ahead of the curve. They understand the technology. They use iPads to sell from. They are focused on how they are selling. Other dealers are just starting out,” says Gordon Hope, general manager of Honeywell Security & Communication’s AlarmNet business, Melville, N.Y. “We’re focused on teaching them pricing, helping them develop a marketing message that works, providing demos to help sell, and more.
CEDIA is also focused on providing support.
“The learning curve does take time and this year we are continuing to try to shorten the learning curve, eliminate frustration and add money,” Shonkwiler explains.
Falling Prices
Falling prices are also helping dealers serve more end users. In 2007, the average respondents to SDM’s Industry Forecast Study revealed the average price of a “mass-market” system sold by dealers as $949. Today, five years later, the price has fallen while the “mass market” has grown.
“All the convergence of the technologies is already there. It just continues to come down in price and hit new markets,” Visonic’s Ingram says.
There is a lot of work to do and careful decisions to make in the coming year. Falling prices don’t make it any easier.
“Pricing of basic security installation and basic monitoring services will continue to fall. Even premium services will face economic pressure and price cutting will continue in 2012, squeezing companies,” Raia says. “Those companies with efficient operations, reasonable customer-acquisition cost, and low debt should be in a better position than highly leveraged companies,” he predicts.
Jason Quam, owner, Dakota Alert, Elk Point, S.D., believes companies can put themselves in a better position by focusing on niches.
“Although I am somewhat pessimistic about the health of the economy overall, I am optimistic about the potential for growth in the security market for the coming year. Our products are mainly used for local notification (driveways, back yards, etc.) in a residential setting, but we are seeing more interest from dealers and installers who are trying to offer their customers an additional layer of protection. In the current economy dealers are trying to fill more niches to keep their customers happy. For 2012 we are working on some new products. For the dealers that are willing to serve many niches the sales opportunities going forward should be pretty good. It is difficult to be all things to all people, but the more niches you are able to fill, the more people you will be able to serve,” Quam shares.
With careful positioning and the right focus, there is a lot for companies to capitalize on this year.
“I have been in the business 30 years and I’m more excited about where the security industry is headed than ever,” MacDowell admits. “I believe the security system will always be the heart of the home. But the things we are doing extend what the system can do, and it is allowing the industry to make the transition from a pure security play to a security and lifestyle message.”
Change continues to happen, Hope at Honeywell says. “I see 2012 as a good year because there is change. Change is an opportunity to take market share and grow it during this exciting time,” he describes.
That’s seeing the glass half full.
| The Importance of Switching from 2G |
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Cellular alarm communicators reward security dealers with increased productivity, reduced maintenance and access to many revenue-generating services for a relatively low cost. They are based on technology that continues to evolve to an even higher level. The 2G Sunset, predicted within the next five years, is the date when today’s 2G products will be forced to evolve.
Cellular carriers deploy their networks in two frequency bands: a preferred band with deep building penetration (850 MHz) and another band with shallow building penetration (1900 MHz). Prior to 2011, cellular carriers equally spread 2G and 3G across both bands like a highway that allows all cars to drive in all lanes. Starting in 2011, in an effort to increase service levels to their consumer cell phone customers, cellular carriers will start to make their preferred frequencies 3G only. The process is called spectrum harvesting. Similar to how semis must stay in the highway’s far right lanes because of their slower speeds, 2G devices will not be allowed on the best frequencies. For 2G devices this will be a noticeable shift. If they were installed based on the coverage provided by the preferred frequencies, their signal levels will drop as they are forced onto the inferior, shallow penetrating frequencies still supporting 2G. This restriction will not occur all at once. It will appear sporadically across the country and when it does, only 3G devices will be oblivious to the change. Finally, when the 2G Sunset is complete it will be just like the Analog Sunset. Anything using 2G will stop working overnight. Only 3G will work from that day forward. All 2G devices will need to be replaced eventually. For each month past Jan. 1, 2012 that a dealer fails to fully adopt 3G, the financial impact of the 2G Sunset grows substantially. The reason is simple: Dealers are installing equipment that will need to be replaced. The sooner a security dealer switches to 3G, the more he can smooth out the impact of the coming sunset, mute the effects of spectrum harvesting, and halt any growing base of 2G equipment needing inevitable replacement. — Contributed by Telular |
| Selling Simplicity |
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There is a continuous contention of simplicity expected by the homeowner with the complexity of the ever-evolving connected home and its converging systems and devices, according to Tricia Parks, CEO at Parks Associates.
Dwight Sears, president of Silent Guard, Somerset, Ky., agrees. “The biggest homeowner need going into 2012 is simplicity. With all of the advancing technology options, it has to be made easy to operate. Customers want to do more with less; a one button does all, so to speak.” It is a charge many manufacturers like Honeywell are taking seriously. “The ‘next normal’ is being able to make sure that whatever you are offering can be controlled with a world-class interface and that it does anything end users want seamlessly. More importantly, any upgrade is simple or even invisible to them. As we developed Total Connect 2.0, security, usability and simplicity were key focuses for us. To us, it is important that two things be understood about this security offering. We didn’t approach it from the sizzle side first and then figure out how to back into security. It is built on good data encryption and security. That’s what people don’t see. On the other hand, the simplicity we strive for is something they experience every day,” says Gordan Hope of Honeywell. That is why the downloading/upgrading concept of the app is a wonderful option for the industry. “I have about 70 apps on my desktop and they are fighting for their portion of dominance on my display. How well you can put functionality together inside an app matters. That is what we are trying to do with the Total Connect 2.0 system. People’s expectations are growing and changing over time and we always need to respond to that. However, when we add capability with the Total Connect 2.0 app, our end users still just have one app. They still click the one icon. Today you click it and it does security. Tomorrow you click the app and it allows a new service like GPS tracking, but, more importantly, it still is only one simple icon,” Hope describes. “The better job we do with these systems, the easier we make them, the more people will naturally gravitate to them,” Hope says. Honeywell’s Total Connect 2.0 upgrade was designed to simplify operation, but also simplify the installer’s operational burden and is pre-configured to work with Honeywell’s LYNX and VISTA alarm controls. Highlights include an interactive dashboard with Flash-based graphics, enhanced navigation, a simplified set-up process and new capabilities. |
| The Fastest Trend in Residential Security | |
Accessing security systems via smartphone is the fastest growing trend, and for dealers and integrators to succeed in the increasingly competitive environment, it’s important to capitalize on this trend. Alarm.com has been providing interactive services to security customers for more than seven years. When the very first Alarm.com app was released in the spring of 2009, the vast majority of logins to an Alarm.com interactive account were through the Alarm.com website. It was a year later that logins averaged 50 percent collectively through mobile apps and 50 percent through the dedicated website. In August 2011, Alarm.com noted the first time mobile app logins reached more than 75 percent, and this has continued to grow. Mobile access keeps customers “sticky.” In 2011, Alarm.com confirmed the correlation between a consumer’s consistent interaction with their interactive security system and reduced attrition. Through an independent third-party analysis, it was proven that customers with interactive accounts stay on longer than traditional security customers and those who are actively logging into their accounts via the Alarm.com website or mobile app attrite even less. Click here for more from Alarm.com on taking a mobile-first approach.. — Contributed by Alarm.com Photo Courtesy of Alarm.com |
