Earlier this year, ABI Research released a report predicting that nearly 15 million additional U.S. homes will invest in new connected home security services over the next five years. The research firm noted that one of the biggest drivers fueling this uptake in services is the proliferation of self-installed and self-monitored solutions which one analyst characterized as “real threats” to the standard business models of traditional alarms dealers.
The growing prominence of do-it-yourself (DIY) security systems shouldn’t come as a surprise to most dealers given the ever-increasing connectedness of the world in which we live. Leveraging the prevalence of wireless internet connectivity, tech savvy entrepreneurs have developed solutions that can be installed and setup by homeowners with relative ease. The question remains, however, just how much of a dent can these types of systems make on the market for traditional alarm systems?
Michael Barnes, founding partner of advisory and consulting firm Barnes Associates, Inc., said he sees DIY home security systems becoming a legitimate competitor to the traditional alarm industry based on the results of industry research.
“Our surveys suggest that upwards of 15,000 or more new customers are originated each month in the U.S., with professional monitoring and associated RMR, where the customer is doing the installation,” said Barnes. “There is clearly a segment of the unpenetrated market that prefers this offering, and this volume suggests that something like five percent or six percent of all new residential customers are choosing this offering.”
Electronic Security Association President Marshall Marinace, who also serves as president of New York-based Marshall Alarm Systems, Inc., said that there remain a lot of unknowns about just how much of an impact DIY will make on the market.
“When we first started to hear about DIY sometime back… I always discounted that and said that’s just the homeowner going out and buying his own thing,” Marinace said. “But today you have some of the larger national companies dabbling in this market and, from what I understand, are doing pretty well. It is going to be very interesting to see what happens to the traditional dealer and when you’re talking about the traditional dealer, if you go by statistics and what we have at ESA here, many of these dealers are smaller companies with fewer than 15 employees. For them to get into this DIY market I think, personally, takes a lot expertise and marketing and it’s a different business plan.”
While most dealers have certainly been aware of this increased push by DIY, Barnes said that many of them have remained skeptical about the market opportunities for such systems in the space. One of the problems that a traditional alarm company has in trying to compete with DIY vendors, according to Barnes, is that their visibility to people in the market for a self-installed alarm system may be limited or even non-existent.
“It appears that much, if not most, of the new subscribers that choose this approach currently do not have a system. They are finding players like Protect America online or through a referral, which means other alarm companies are unlikely to know either that the customer is in the market for a system or that the sale went to a DIY install player,” explained Barnes. “I don’t think customers are getting bids from both DIY companies and traditional professional installation companies, which decreases dramatically the visibility of this approach to the average alarm company.”
With that being said, Marinace believes there are opportunities for dealers to tap into and take advantage of DIY. For example, in rural areas where a company may not have a physical presence, Marinace said that a dealer could opt to ship a system and its’ components to a homeowner to install and then pick up the monitoring contract.
“Companies are going to have to do their market research and they are going to have to include this in their business model,” said Marinace. “There’s going to have to be some changes made at the corporate level in a lot of companies to accommodate this. One of things that DIY companies, the successful ones, do that I’ve noticed is they have installation and technical support which I think is key. This system, when it comes in the box to the homeowner, has to be easy for the consumer to install and if it’s not, then it’s going to set this whole (market) back.”
However, just simply based on some of the key business model differences between DIY companies and traditional dealers, Barnes believes any synergies between the two are relatively small at best.
“Broadly speaking, most DIY-based business models have critical path skill set requirements that are different from traditional alarm companies. Mass marketing capability and fulfillment-related expertise around pre-packaging systems, shipping, and call center installation assistance are extremely important,” added Barnes. “The learning curve and economies associated with achieving scale can be a bit punishing, but a couple of traditional companies have ventured into the space, including most recently Protection One. It is not clear if there are any synergies with traditional sales models, for instance, where the DIY install offering might be the last fallback if the potential customer will not pay the price associated with a professional installation.”
On the other hand, DIY solutions present monitoring providers will the ability to rake in even more RMR dollars be it through traditional monitoring contracts or through hybrid or on-demand monitoring options in which a customer decides to pay for professional monitoring for a designated period of time.
“If you have a central station or are a wholesale monitoring company, there are potentially some good opportunities for partnering with companies pursuing this space as most of them, including the largest players, have shown a propensity for outsourcing this function,” said Barnes.
Despite arguments put forth by some dealers about the potential drawbacks of DIY, including the fear that systems and their components may not be properly installed by consumers or that DIY equipment may not be as robust in some cases as that which is professionally installed, Barnes said many DIY companies are “amazingly adept” at advising homeowners and making sure everything works as intended.
“Most of the DIY players are using derivatives of the same equipment used by traditional players, but generally with a higher degree of standardization and a more limited product offering, as well as a highly systematized approach, which can go a long way towards mitigating quality issues,” said Barnes. “There is also a flip side to the concern about getting the design and installation done correctly. Customers who are willing to take the time to determine the components they need, install them and personally confirm the accuracy of the central station connection are potentially more familiar with their system and how it works. Some data we have seen suggests they use the system as much as those professionally installed, but with lower overall signal activity, including false alarms. A broader data set is needed to more definitively confirm this, but the initial view is positive.”
