Special Report: Hosted Services- 10 Steps to Hosted Profits

The world of hosted video has changed. A company using a hosted service can pocket an extra $15 in recurring monthly revenue (RMR) by offering a service that requires little change to the hardware sold but a lot of change in the software in the sales team’s heads.

“You have to change your thinking from a product sale to a service with an RMR stream,” said Bob Ryan, senior vice president Sales and Marketing for systems integrator ASG Security based in Beltsville, Md. He added that the biggest mistake dealers make is trying to make big bucks on the equipment. ASG subsidizes the equipment installation and profits on the RMR. For commercial accounts, they strive for a five-year contract. Others see a three-year minimum.

“Deciding to enter the hosted video space is more involved than simply taking on a new product — it is really an entrepreneurial activity within an established business,” said Brian Lohse, vice president of Secure-i, Des Plaines, Ill., which offers customers an on-demand video surveillance service.

“It’s a different world than it was one or two years ago,” said Larry Folsom, president of American Video and Security Ltd. and co-founder of I-View Now, a cloud-based central station video verification company in Las Vegas. “It is a cultural change for your company and my sales people are on a journey.”

That journey includes building RMR by changing the dealership’s mindset from selling a $40 a month burglar alarm to offering clients a full suite of rich services. Here is the roadmap:

 

1. Hosted Service or Solo? Decide if you have the cash and the personnel to offer video on your own — which is unlikely — or whether you want to go out on the cloud. Economies of scale will typically make it vastly more cost-effective for a security firm to use a hosted service. “The scales have tipped on cost,” Folsom said, noting that, given the existing infrastructure, nobody today would try to provide their own cell service and towers.

“Currently there are no ‘off-the-shelf’ solutions that an integrator/alarm company can easily implement on their own servers,” Lohse said. Building and maintaining a commercial grade platform for hosted video requires a full-time staff of software engineers, database administrators, virtualization and infrastructure specialists. “That is prohibitive from a cost/time standpoint for a traditional security company,” he added.

 

2. Reach Out to Peers. Talk to other dealers, confer with manufacturers, read SD&I and other trade journals. A couple of years ago, hosted video was just short of science fiction — today, it is relatively commonplace. “Don’t fall into the trap of thinking you can just simply add this to the product lineup and have it magically grow into a business,” Lohse said. “It takes hard work and energy to build a program from scratch.”

 

3. Look at Equipment Needs. A dealer will need to use compatible video equipment at the customer’s premises; however, once video is pulled to the cloud, it is stored there until it needs to be played back at a central station or customer facility. “The beautiful part with the cloud is that you simply provision cameras and connect them through the customer’s Internet connection,” Ryan said. However, he added, it is key to go with an experienced partner that offers a proven, reliable platform.

 

4. Build a Compelling Pitch. Showing clients what hosted video will do is the first step. An iPad and a hotspot will give the buyer a sense of how security video works. Most customers will end up telling your salesperson how they want to manage the network with their mobile device. Ryan said the interfaces they use are no more complex than an app you would download from the Internet. Most interfaces have only a couple of tabs: settings, notifications and views. Let the system sell itself.

 

5. Decide on Service. Will you offer hosting for all streamed video or are you streaming only event-based video? Both options are getting cheaper, although the former is obviously more costly than the latter. Typically, there is no question involved with the client having the bandwidth or connectivity — it’s all there. In most cases, event-based video will suffice. Buying “by the glass” is easier for the client’s budget and simple to sell; however, don’t run away from a client that requires continuous video.

 

6. Choose Vendor Partners. You will need a relationship with a third-party hosting provider. When choosing a vendor, ask all the typical questions one would ask any provider who is selling hosted accounting or billing services — check security, backup, SLAs. ASG, which has partnered with Axis and Secure-i, benefitted from their partners’ good advice: “There were no surprises,” Ryan said. “They held our hands really well and we didn’t have to re-invent the wheel.”

 

7. Educate your Team. As a leader, you must do the work of educating your team. “The worst thing your people can do is make it look like a traditional alarm sale,” Folsom said. One of the most critical steps is getting buy-in across all business segments, Lohse added, including from ownership/finance, sales/marketing and operations. “All three groups have a lot of work to do in order to write and execute a successful business plan for hosted video. If only one or two are on board it will be difficult to get moving,” Lohse said.

 

8. Set the Price. A security provider can easily charge $75 to $95 a month for an indoor-hosted, event-based offering and a system for an outdoor fence line might run $125 to $175 per month. An $88 RMR bill from the client may be typical for an indoor system. The figures break out like this: $48 for traditional security monitoring with radio backup; $40 for video verification. Of that $40, $10 to $15 goes to the central station as revenue.

Keep your offering simple. “Pick a single market segment to target, a single price point/service level to offer and only a few camera models to make up the initial offering,” Lohse advised. “You can always add to the model later.”

Ryan warned against under-commissioning hosted video services. “Don’t make hosted video second fiddle to your intrusion business,” he said. “Put it front and center.”

 

9. Shoot for the Clouds. No longer should your sales horizon be limited to a retailer with seven cameras and two shops. It is just as easy and quick to add a 1,000-camera client to your hosted video offering as it is to add a seven-camera client. Since service is in the network cloud, a dealer can turn up bandwidth and storage almost instantly.

Lohse said he finds customers make use of the hosted video system for operational purposes on a daily or even hourly basis and become addicted to having eyes and ears on all parts of their business no matter where they may be. “Business owners often find that employees act differently when the boss is standing over their shoulder than when he/she is nowhere to be found,” he said. This technology enables owners to be ‘over the shoulder’ from their phone/tablet all the time. Daily management purposes far outweigh the rare major forensic loss-prevention incidents they used their old DVR for; thus, the overall value of the system is higher.

 

10. Cash Those Monthly Checks! Typically, margins range from 60 to 70 percent and an average RMR of $20/month/channel with a 12 to 15 month creation multiple.

A typical four-camera install with equipment, labor and commission included may cost the service provider $2,000 out of pocket. If they charge $20/channel/month for the hosted service ($80 for four cameras) using a 12-month creation multiple, they invest $960. Charge the customer about $1,000 for the system up front and $80 monthly for the service on a minimum three-year agreement. Cha-ching!

Ryan compared his similar marketing model to the model that brought intrusion detection to the masses: semi-sponsored equipment, multi-year contracts and solid RMR. “Understand, that if you don’t get involved right now, you will be left behind,” Ryan said.

 

 

Curt Harler is a technology writer and regular contributor to SD&I magazine. Reach him at curt@curtharler.com.

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