Residential intrusion market poised for strong growth amid increased competition, IHS says

According to industry research firm IHS, the residential intrusion alarm market in the Americas is expected to see substantial growth over the next couple of years, growing by 7.1 percent and 9.4 percent in 2014 and 2015 respectively. The commercial market is also expected to see modest gains, growing by 4.4 percent and 5.9 percent during this same time period.

Additionally, IHS said that the entry of various large telecommunications and cable providers to the market in recent years is helping to drive increased penetration of home security systems. As a result, IHS is predicting that the U.S. residential penetration rate for intrusion alarm products will increase by five percent to eight percent over the next few years.

Adi Pavlovic, market research analyst for IHS, said that cables and telcos are attempting to turn their triple play offerings (TV, phone and Internet) into “quadruple plays” by making home security services part of those packages, which is subsequently helping to increase the penetration rate.

“The home automation trend where you can simply access everything from your smartphone and see when someone entered your home and get access to video in your house, these are all security products but (the cable and telcos) are kind of pushing them toward home automation with smart thermostats and having the whole house connected,” said Pavlovic. “They’re offering these services and it all starts with the base that they’re your Internet provider and these systems are going to be working with GPRS or IP modules and they’re going use some kind of Internet or cellphone service to communicate.”    

Depending on who you ask, the penetration rate for residential alarm systems in the U.S. has hovered anywhere from about 18 percent to 22 percent for a number of years. According to Pavlovic, the reason for this stagnation has been due to a lack of overall innovation in the industry, but he said this is beginning to change.

“When you get guys like ADT and these large telecoms investing in the market, spending money on producing new products, marketing them, making partnerships, and then trying to sell them to an install base they already have, it’s a plethora of new customers that didn’t consider security before because they thought it was too expensive but now the person that provides their cable and Internet is telling them ‘hey, for $30 bucks extra a month you can secure your home,’” he said. “All of these guys are making these offerings and the customer base has grown. It would be really, really difficult for the penetration rate not to grow considering how much money these new entrants are investing and then also with the traditional security suppliers trying to match that and come out with their own offerings.”

Google’s Impact on the Market

Since its acquisition of intelligent thermostat and smoke/CO detector maker Nest Labs in January, Google has been the proverbial 800-pound gorilla in the room when it comes to how they could potentially shake up the alarm industry. Some have speculated that Google sees Nest’s devices as another way of gaining information about consumers and parlaying that data into more advertising revenue. However, Pavlovic says that when you also take into account the launch of Google Fiber, a new broadband Internet service that the tech giant has rolled out in a handful of cities; it becomes apparent that Google will more than likely be making a substantial push into the alarm market.

“With what they’re doing with Google Fiber, they’re entering a new market where they’re going to be competing with the Comcasts and the AT&Ts,” explained Pavlovic. “So, in my opinion in just looking at what everyone is doing… they’re trying to enter this smart home market that’s in its infancy and the route they’re taking is a little bit different, but from our perspective it’s looks like they’re going for the same end goal. They want to get within the home and they’re finding different ways to do that; the Chromecast, Google Fiber and now with the nest acquisition they’re going to have some hardware products within your home.

“There’s this huge opportunity in intruder alarms and we’ve seen the penetration rate increase. Residential security is growing much faster than commercial at the moment and my question is they’re making the building blocks to penetrate this market, why would they not? It wouldn’t make a lot of sense if they decided not to get into the market, like if they decided to get into the home but draw the line before they get into a huge growth opportunity.”    

Pavlovic said that although the products currently offered by Nest are very “niche,” other industries, including the fire market, are paying close attention to their level of success because they’ve never offered a device like the intelligent smoke/CO detector that Nest provides because they never envisioned someone paying that amount of money for one.   

“Smoke detectors are not necessarily a luxury, they’re a necessity,” said Pavlovic. “I’m really more curious about what the reaction is going to be from the end user. I’m sure the distributors are eager to partner with (Nest) because that kind of puts them on the map and opens them up to a higher-end customer base that’s willing to spend on these products.”

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