The entry of cable and telecommunications companies into the residential security market, beginning with Comcast in 2010 and followed by Time Warner Cable and AT&T in subsequent years, was met by traditional alarm companies with a bit of both of trepidation and optimism for the market as a whole. On one hand, these firms, commonly referred to as multi-system operators (MSOs), seemed to pose a significant threat to dealers given their huge existing customer bases and substantial advertising budgets. However, there was also a belief among many in the industry that their entrance would raise awareness among consumers about the benefits of home security and automation technology.
Despite their best efforts, it seems MSOs have had trouble gaining widespread adoption of their security offerings. In fact, according to a new report from industry research firm IHS, only 0.4 percent of fixed-broadband subscribers in the U.S. purchased a residential alarm system from an MSO in 2015. IHS intruder alarm equipment shipment forecasts indicate that this figure will not exceed 1 percent before 2020.
Additionally, just over 343,000 residential alarm control panels were sold to MSOs across the entirety of the Americas region in 2015; whereas shipments of residential panels to the professional security sector in the region exceeded 2 million units in the same time period.
However, some MSOs are continuing to make substantial investments in the market. Just last week, Comcast announced that it is buying the “Converge” software platform from Icontrol Networks, which it currently uses to power its Xfinity Home touchscreen panels. The cable giant said that it will also be opening a new engineering office in Austin, Texas, as part of an effort to develop new smart home products and services.
In an interview with SIW, Jim Dearing, a residential security analyst for IHS, said that because Comcast is the market leading MSO in the U.S. home security space, it’s not surprising that they would continue to try and increase their market share as much as possible; however, the future is much less certain for other MSOs.
“Huge budgets afforded to the new MSO divisions also come with strings attached by their parent companies. If they don’t acquire a certain number of subscribers or acceptable levels of profitability by a certain date, companies might close down the home security division, in order to free up budget to pursue other revenue-generating opportunities,” Dearing says.
While the report may have signaled bad news for MSOs in the home security space, there were positives to be found for the suppliers of do-it-yourself and professional security systems. According to Dearing, shipments of DIY security systems – defined by IHS as all systems installed by the end-user that also offer some elements of connectivity (i.e. SimpliSafe, Wink, etc.) - in the American intruder alarm equipment market are expected to grow at a compound annual growth rate (CAGR) of almost 23 percent from 2015 to 2020.
“There are a couple of important factors here. First, a number of larger companies have entered the space with hopes of working some of their traditional product offerings into the smart home. Examples include Samsung, Lowe’s and Schlage. Secondly, the “a la Carte” (pay as you go) monitoring services offered by the likes of SimpliSafe and Frontpoint Security are starting to gain a significant amount of traction,” Dearing explains. “The lack of professional monitoring has always been a stumbling block for the DIY market in the past. The ability to switch it on and off at the tap of a button on your smartphone is a huge boost for DIY suppliers. “
And while the CAGR of systems being shipped to professional security companies is expected to be much lower at just under 5 percent during the same time period, Dearing anticipates these firms will continue to pursue new avenues of business that have the potential to increase recurring monthly revenue as well as the adoption rate of intrusion systems.
“Marketing building automation technology to the SMB end user segment and affordable video in the home are good examples of this that are already being scoped out by the professional security industry,” Dearing adds.
Despite the growth that DIY systems are expected to enjoy over the next several years, Dearing said they still face a number of hurdles to overcome before they can pose a significant threat to professional security providers.
“Interoperability issues arise from so many players attempting to enter the space in a short amount of time and there are still challenges in keeping installation simple without sacrificing functionality that need to be addressed,” Dearing says. “Overall, especially with the growing presence of ‘a la carte’ monitoring, connected DIY solutions pose much more of a threat to the MSOs rather than the professional security industry.”
For more information, visit www.ihs.com.
