Future of alarm industry intertwined with the smart home

Jan. 9, 2015
Battle between traditional dealers, new entrants could be determined by how they leverage connected devices

If you still believe the proliferation of connected home devices is only going to have a minor impact on the adoption of residential alarm systems, it is probably time to reevaluate your stance. As evidenced by this week’s International Consumer Electronics Show in Las Vegas, the concept of the “smart home” is going to be a part of every household appliance, both large and small, developed in the future — and security figures to play a prominent role in that. Nearly every major supplier of home security equipment was on hand at this year’s show with new products or lines of products designed to support the connected home.

Obviously, security manufacturers are onboard with where the market is headed, but the bigger question is will alarm dealers across the spectrum be able to keep pace with the changing technology landscape while also trying to outduel some of the larger recent market entrants for new customers at the same time? According to a report published last fall by IHS, the trend of integrating security equipment and home automation technology has been spearheaded by multiple service operators (MSOs), such as Comcast and AT&T, which through their large existing customers bases and marketing budgets are already in a prime position to upgrade customers’ accounts.

Blake Kozak, senior analyst for security and building technologies at IHS, says that the key difference between MSOs and traditional alarm monitoring companies is that people don’t necessarily have to have an intrusion system, but they do have Internet and usually a television subscription service of some kind, which gives large cable and telecommunications companies an advantage in being to provide security as an add-on service.

“They don’t have to go find these customers door-to-door and convince them that they need these systems,” said Kozak. “Some people suggest that traditional monitoring companies offer this extreme amount of value above and beyond (what an MSO would), but… it is really just a matter of preference at this point as to who you want to go with.”

IHS predicts that service providers will hold a dominant position in the market for smart home security solutions by 2018 over traditional high-end firms and device vendors.

In its most recent report on residential security, IHS outlined three main system types: traditional high-end, service providers and device vendors. 

  • Traditional high-end are specialist whole home automation systems which are supplied by companies, such as AMX, Crestron and Control4, that provide an integrated suite of smart home products, controllers and professional installation and management services.
  • Service providers are packaged solutions at relatively lower cost sold mostly through security service providers, communication service providers and utilities which provide full backend support. Most are professionally installed, by companies like Comcast, AT&T and ADT.
  • Device vendors are individual modular smart home devices sold directly or through online/box retailers which includes MyQ, Piper and Lowes Iris.

According to the research firm, traditional high-end solutions represented about 32 percent of the U.S. market for smart security in home automation applications in 2014. By 2018, the market share of traditional high-end is forecast to decline to about 22 percent. Service providers, on the other hand, which were estimated to represent about 38 percent of the market in 2014, are forecast to represent about 58 percent of the market by 2018. Device vendors are projected to expand penetration through 2016 before losing share.

Despite the recent growth in the housing market, Kozak says that penetration rates for residential alarm systems remain between 15 to 18 percent in the U.S. and that not everyone is not willing to shell out $70 or more per month for a whole home system.

“Some people only want video and some people only want monitoring,” adds Kozak. “You can have an all-in-one device and go to Best Buy and spend $400 and install the system (yourself), plug it into the router or connect it wirelessly and you have motion detection, video, temperature, humidity, and all of those systems in place. You buy three of those and that’s still, over the course of a five-year contract, probably saving you $1,000.”

Despite these built-in advantages, however, the larger conglomerates have yet to wrestle away significant market share from rest of the alarm industry. Kozak believes that where traditional alarm dealers can gain an upper hand is on the services side and not being afraid to go to existing customers and upgrade their current systems.

“Getting a new customer onboard is obviously more rewarding than upgrading a panel or adding maybe a sensor to an existing customer, but finding ways to work with that existing customer base and continuing to offer a wide range of products a la carte is important,” says Kozak. I think they are looking to go that way and that has always been everyone’s beef with MSOs and cable companies is that they don’t want to continue to pay $150 a month for cable when they only watch five channels.”

Kozak says that the security industry is becoming increasingly commoditized and companies that can differentiate themselves by bundling home security and automation services together will have a leg up on the competition.

“It’s not just about how much hardware you have or what it does, but it is how do you as an integrator, installer or monitoring company take that and provide a service for your end-user to be able to solve a problem for them,” Kozak says. “The hardware itself is a solution for some folks, but it is more of a gateway to bigger and better things.”

About the Author

Joel Griffin | Editor-in-Chief, SecurityInfoWatch.com

Joel Griffin is the Editor-in-Chief of SecurityInfoWatch.com, a business-to-business news website published by Endeavor Business Media that covers all aspects of the physical security industry. Joel has covered the security industry since May 2008 when he first joined the site as assistant editor. Prior to SecurityInfoWatch, Joel worked as a staff reporter for two years at the Newton Citizen, a daily newspaper located in the suburban Atlanta city of Covington, Ga.