Cost-effective surveillance gear unlocks new realm of high-margin integration

The increased sophistication and decreasing prices of IP-based camera technology, coupled with the proliferation of high-speed Internet connections

The increased sophistication and decreasing prices of IP-based camera technology, coupled with the proliferation of high-speed Internet connections, has evolved home surveillance from a cumbersome, expensive solution to an integral component of intelligent home networks.

Despite hardware margins that have plummeted by more than half over the last few years alone, home surveillance integrators can still realize profits by wrapping services around jobs, which usually average in the $30,000 range for upscale residential contracts.

For example, Rob Kowalski, owner of Automated Lifestyles, a Chicago-based integrator, has seen growing demand for advanced security systems in the luxury homes he supports, but sagging hardware margins have forced him to adjust his business model to make money.

"Surveillance systems used to go into one out of five jobs; now, they are in four out of five," Kowalski says. "But the hardware margins don't get you by anymore. Five years ago, we were talking 40 to 50 percent margins on hardware, across the board. But today it's more like 10 to 20 percent. We are now practically giving away equipment at a lower price point. So we don't try to compete anymore at the hardware level. We make it all up in services."

Installation is a good example of service-level upsell. What Kowalski does is center the sale around the primary hardware a customer is looking for-surveillance cameras, plasma screen systems, recorders, storage, etc.-and then makes sure he meets or beats the price the customer has in mind. He then makes his money on what the customer hasn't researched: the install components and labor cost.

"We will sell the plasma or camera at dealer cost because that's the big-ticket item they will check out online. So they'll realize they are getting a great deal there, but they don't check the other things, like the wall speakers, cabling, mounts-those things we charge a premium for," says Kowalski. "Anything harder to find has a better markup."

On the integration side, one of the key opportunities lies in the interoperability of IP technology, which can be leveraged to produce some impressive home solutions. Ken Fairbanks, sales director at Smart Homes, a home networking company in Irvine, Calif., says his company routinely deploys these types of home surveillance networks-systems that utilize all the creative functionality made available by the simplicity and pervasiveness of IP technology. Pricing on these types of expansive jobs can reach six figures and beyond.

"In a really complete home package, you can add just about anything on," Fairbanks says. "And once you're there you can, for example, adjust the sensors on the home alarm network so that if the front door is triggered, the owner can be remotely notified instead of an alarm company that automatically calls the police."

Other upsells surround the extension of a system's functionality, including IP-integrated alarm systems, motion and temperature sensors, remote controls, Internet-based monitoring services, and off-site video data storage. The operational status and performance of many of these IP-based add-ons can be monitored by using the surveillance system itself. Such interconnection leads to reccurring revenue opportunities-vital in a world of low product margin.

"In a lot of cases what's happening with the low hardware margins is integrators are subsidizing their installation costs for the reoccurring revenue opportunities," says Tom Carson, tech systems engineer at Port Richmond, Calif.-based Integration Team. "For us, margins used to be as high as 40 percent, but they've fallen as far as 10 percent, and they'll likely fall even further. Everybody is giving (hardware) stuff away, so it's the reoccurring revenue, the FTP server install, the remote storage services, that's where you tack on profit."

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