Weighing Apple's impact on the home security and automation market

As expected, Apple on Monday announced at its Worldwide Developers Conference in San Francisco that it is launching HomeKit as part of its iOS 8 software development kit (SDK); officially marking the tech giant’s entry into the smart home market. HomeKit will provide users with ability to control connected devices in their home using their iPhone or iPad.

“HomeKit delivers a common protocol, secure pairing and the ability to easily control individual or groups of devices throughout the house including integration with Siri. For example, you can tell Siri you are “going to bed” and it could dim the lights, lock your doors, close the garage door and set the thermostat,” Apple said in a statement.

Unlike Google, which has now staked a claim in the hardware side of the connected home market with its recent acquisition of smart thermostat and smoke/CO detector maker Nest Labs, Apple did not announce any new smart home products of its own. Of course, the question for home security companies is what impact will the entry of these high-tech firms ultimately have on the alarm industry – both in terms of technology providers and installers?

Adi Pavlovic, market research analyst for industrial, security and medical technology at IHS, believes there will be a race between alarm hardware suppliers to see who can be among the first to partner with Apple in the industry.

“Obviously, the people that partner with Apple, whether they go that route, are going to have the biggest advantage and the people that don’t are going to be left out to dry,” said Pavlovic. “Earlier, when there were more players coming in, the traditional (alarm) suppliers didn’t see it as competition at the time but as help in penetrating the market further for home security systems and now smart home appliances. But really it’s coming to that point where that penetration isn’t going to grow as fast as all these players are involved in the market, so I think traditional suppliers, right now, are kind of starting to feel the pressure of what we thought would happen two or three years down the road. They obviously have a huge install base and huge brand loyalty in the market which is big with the installers and integrators, but I just think it’s going to be a mad dash to see who can partner with these guys and work with them.”  

Pavlovic said that there’s also a chance that Samsung, which has sold alarm panels in South Korea for years, could potentially enter the fray in the U.S. market with the entrance of Google and Apple.  

Blake Kozak, senior analyst for security and building technologies at IHS, believes that Apple’s expansion into smart homes is a logical extension of their existing product line.   

“You look at the infrastructure they already have in place with Apple TV, Macs, iPhones, tablets, and in some cases iBeacon, they have this infrastructure in place, so why not just try to work with their partners and partner with other people that are manufacturing the product in order to provide an overall, kind of integrated solution that can work more seamlessly than what’s available today,” said Kozak.

“You look at the saturation of iPhones out there within homes and you just add on an app for them to control (home devices) on the phone itself, it makes a lot of sense,” added Pavlovic. “It’s going to take a while for people to get used to doing that though.”

According to Jay Kenny, vice president of marketing for Alarm.com, this week’s announcement by Apple, as well as Google’s acquisition of Nest, clearly shows that there is a growing focus on the connected home space and that it is becoming a mass market product.

 “A lot of these news stories just validate that the connected home is really a key consumer product that, we think, a lot people continue to have interest in and there’s a great opportunity in that space,” Kenny said.

Although they assumed there would be more entrants coming into the home security and smart home market, Pavlovic said they didn’t necessarily think it would be Google and Apple.

“I think what’s going to be interesting is how (Apple) decides to penetrate the industry as far as offering this software with what type of hardware,” said Pavlovic. “For the market, I mean they were anticipating new players, but the fact that it’s Apple, I don’t think it changes much. If anything, it brings more attention to the market, but at some point you’ve got to start thinking that it’s going to get a little congested.”    

Pavlovic said that traditional suppliers of home security systems have had trouble in the past designing a platform that was both easy-to-use, but also complex in the feature set that it provided end users with.

“They have really invested a lot in figuring out how to get in front of the end user and get them comfortable using their iPads and smartphones to control their home security systems,” explained Pavlovic. “Now, when you have Apple and Google coming in… once they launch their own products then people are going to be a lot more comfortable using (their software) – whether it’s a Google/Nest app or an Apple app. I think they’re going to start being the face of the software side of all those apps and how people interact with their systems. It’s going to be really tough to compete with those guys.”  

Though energy management and savings on monthly utility bills may be one of the big ROI factors driving increased interest in the smart home market, Kenny said that security remains front and center for many consumers.

 “We’re now in over two million homes and businesses and by far have the biggest connected home platform. We think there have been a few things that have been critical to adoption that will continue at least for the next few years to be relevant and that’s making connected home technology available at an accessible price point so it’s something that people can actually afford,” said Kenny. “Having that single, integrated system we’ve seen through research and evidence through what people are buying that monitored security continues to be one of the leading purchase drivers.”

While it is still unknown exactly how Apple and Google will eventually integrate with security in the home, most experts agree that there will always be a demand for professionally installed and monitored alarm systems.

“I think there are two distinct markets where some people are always going to want the services, they’re going to want installation, they’re going to want to know that somebody’s always going to be called and that type of thing while others may prefer DIY where they pay (an amount of money) and they’re done; they just install it and monitor it themselves,” said Kozak. “So, I don’t necessarily think that ADT and these established monitoring companies will really (feel this right away). I think it’s probably several years down the line before you see a big impact on that.”  

Kenny believes the alarm dealers that will be the most impacted by the entry of Apple, Google, as well as well the big telco and cable firms will be those that have failed to embrace home automation technology.

“If somebody is just still selling intrusion, essentially security with a traditional system, I think there is a lot of reason to be concerned because I think consumers are clearly interested in more capability,” explained Kenny. “Without that offer from a security dealer, they might fulfill that need somewhere else. The monitoring aspect of home security is what makes it a meaningful service and so if something goes wrong and you get an alert and you happen to be in the pool or on an airplane, you still need a professional response.”

In terms of what Apple’s entry into the smart home market could potentially mean for increasing the penetration rate of alarm systems, Pavlovic thinks it will definitely move the needle forward.

“We’re expecting it to grow five percent over the next five years. We thought that growth was going to be distributed within the next five years, kind of a gradual incline,” said Pavlovic. “I think now with the Apple and Google announcement, once they start really marketing their products… we’re going to see that penetration increase a lot more rapidly. I still don’t think it’s going to increase more than that four or five percent we estimated because this is kind of what we expected, just not from these companies.”

Kozak believes that Apple’s biggest impact on the market could be brand recognition.

“There’s dozens and dozens and dozens really of smaller companies offering remote video and kind of DIY home automation systems. People don’t know these brands, but people know Google and people know Apple, so I think it could potentially jump start the market. I think it’s just going to help the industry overall,” added Kozak. “With Google and Apple getting into (the market), the ability to help market and get the name out there of some of these manufacturers as well as what security products can do for you and what home automation – my lighting, thermostat and energy management – can do, I think having these big names in there will help expand the market and grow the penetration rates.”

“I do think that there will be a rising tide and that will help people, but I think there will be winners and losers,” added Kenny. “The security dealers that have connected home technology that know how to sell it, that know how to install it and who have been driving that adoption are going to benefit from this. I think that security dealers that lag in technology or haven’t fully adopted more of the additional connected home features… could have a hard time as those services are becoming what consumers expect from a security system.” 

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