State of the Market: Alarm Systems
The industry finds itself at a tipping point in 2011, with major shifts in technology, end-user demands, competition, and maybe, just maybe, its long-standing 20 percent penetration rate.
In its own study on smartphones, The Neilson Company’s Roger Entner, senior vice president, Research and Insights, Telecom Practice, echoes this, noting, “We are just at the beginning of a new wireless era where smartphones will become the standard device consumers will use to connect to friends, the Internet and the world at large.”
The point? That new smartphone/mobile “connection” seems to also be stretching to include consumers’ homes and, more importantly, their alarm systems in 2011.
“The biggest trend I see in 2011 is the move toward integration and portability. Basic alarm system technology has plateaued so the move to integration and user interaction is where technology and consumers are taking us,” says Michael Joseph, vice president, operations, SentryNet, Greenville, Miss. Joseph sees this trend driven by end users’ dependence on smartphone technology. “Smartphones have become the link between subscribers and their worlds of communication, entertainment, information and education. Our industry needs to be a part of that link to build subscriber loyalty and broaden the horizons of manufacturers and consumers,” he says.
If the industry isn’t already part of the link, in 2011 many in the alarm industry will be stressing that it must be, including industry insiders such as Honeywell Security & Communications, Melville, N.Y., and ADT Security Services, Boca Rotan, Fla., a Tyco International company (and the world’s largest electronic security company), and newcomers such as Comcast, Verizon and other telecommunications companies. These mega-companies will be emphasizing the connection, filling the upcoming year with media and advertisements aimed to educate consumers. Of course, that is in addition to all of the advertisements flowing from mobile providers themselves. That blanket message can’t help but have an impact on the 2011 market.
Mark Ingram, president, Visonic Inc., Bloomfield, Conn., positively ties this media blitz to industry growth, stating, “We see dramatic growth for the monitored burglar alarm industry in the upcoming year. As many corporate giants such as the cable companies continue to spend millions of dollars in marketing, it will charge the atmosphere with a consumer desire for sophisticated solutions.”
That sophisticated solution encompasses integration and central management, says Shawn Benevides, senior product marketing manager for Intrusion at ADI, Melville, N.Y.
“Users want a completely integrated system they can access and control remotely from their smartphone or hand-held device. They want the capability to centrally manage their security system, home automation, temperature, and lighting and home entertainment systems.”
JoAnna Sohovich, president of Honeywell Security & Communications, has repeatedly emphasized that the alarm industry has much to gain from the rise of the smartphone and information-driven, integration-seeking end users, including a whole new segment of customers looking for more than security.
Sohovich advocates leaving “traditional” solo security systems behind and pushing forward with on-demand information and lifestyle functions. This will in turn push the industry past the long-standing 20 percent penetration level it has never substantially moved beyond.
At the 21st annual 2010 First Alert Professional authorized dealer convention in Boca Raton, Fla., held last November, Sohovich urged dealers to expand their view of potential customers beyond the traditional, and seek out that elusive 80 percent of customers who have never sought out security, but could be turned into customers through lifestyle conveniences and connectivity that could be offered with or without a security system.
Those are fighting words to many, and in 2011 the struggle will continue between the two camps — those focused on holding onto solo security systems and those focused on integrating security systems with information and lifestyle functions.
Dan Lehman, general manager, Comporium Security, Rock Hill, S.C. predicts that accepting the changes and expanding technology will be critical to success in 2011.
“2011 will be the year we have to change the way we do business and expand the technology we use to stay alive with the rapid changes taking place in the technology world. In 2011 we will see more consumers desire to be in control of their home and the information they can receive from it. As we all go through our day-to-day lives, real-time information has become a way of life for us. With the spread of smartphones and the ability for us to always be connected, our industry needs to converge and interact with that technology,” Lehman maintains.
It is what the untapped 80 percent is looking for, he believes.
“The industry has been swapping the 20 percent of consumers who want an alarm system for the last 20 years,” Lehman says. “Clearly, the other 80 percent wants something different. Technology is giving us the chance to offer unified systems that give them complete control, constant information access and total lifestyle management. No one waits for information anymore.”
Comporium Security’s parent company, Comporium, is one of the “outsiders”— a telecommunications company doing security a whole new way — bundling it together with local- and long-distance telephone, digital television, video, Internet and wireless options, yet also selling it all on its own to those looking for just security.
In 2011, Comporium Security is focused on launching security platforms that can support lifestyle services. It also will transition the classic security message to lifestyle management, introducing applications that can interact with the security system but also provide useful information (weather or a family calendar, for example).
“This will begin to create the portal to the home or the family information center where multiple systems including security are controlled in one place and provide other needed information,” Lehman says.
It is a trend toward “lifestyle” that manufacturers have recognized.
“Technology is driving consumer demand for the latest products. Many more manufacturers now have products available with lifestyle enhancement features that consumers are looking for,” says Pat Comunale, president and chief operating officer, Tri-Ed / Northern Video Distribution, Woodbury, N.Y.
Comporium isn’t just focused on lifestyle, it is targeting end-user control in 2011, with goals to empower the end user to be in control of his or her home systems remotely via Web services and smartphones; to deliver real-time data to the end user (information such as when doors are opened/closed via e-mail or text message); and, more notably, to provide this information with or without central station intervention, thus making it the end user’s choice.
End users are responding to the idea of controlling the level of security in their homes — right down to whether there is police response or not. As Lehman describes it, they are beginning to look for systems that notify end users of activity while they are in town without police response, but then also enable them to heighten that level of security and activate police response when they are away from home.
“More end users are asking to have control of their systems, asserting, ‘When I’m here I just want to be notified first and I decide what step comes next,’ rather than having automatic response,” Lehman describes.
This is a trend others, such as Blake Kozak, an analyst for IMS Research, Austin, Texas, see growing in 2011.
“The move toward smartphones and iPads will play a role in the growth of self monitoring in 2011,” Kozak maintains. “As an alternative to paying a monthly fee for a central monitoring station — some are opting to have video in the home such as a camera integrated with a PIR. In most cases, a central station would be needed for police response; however, self-monitoring can provide convenience, security and peace-of-mind,” Kozak says.
There is a lot of talk about myriad new features and functionality. Much is being written about the integration of alarm systems with other systems such as HVAC, access and video, but a majority of dealers aren’t adopting all of them in 2011; instead, they’re focusing on one or two potential new services.
“In the immediate term, the dealers are looking to identify the one or two big things they can focus on and not over-extend themselves. They can potentially expand the offering over time,” says Jonathan Klinger, vice president, marketing, Honeywell Security & Communications.
In the near term, Honeywell lists remote video as the “one thing” that should top every dealer’s list.
“Two major trends and two big opportunities in 2011 are remote services and mobile applications, and remote video,” Klinger says. “We’ve seen three main factors driving that growth.
• “An increasing level of interest in so-called ‘awareness apps’ driven by the growth of devices such as iPhone®, iPad®, BlackBerry® and Android™ — and overall consumer awareness of mobile apps and video. That is shaping their expectations.
• “Product offerings are rapidly getting stronger on a quarter-by-quarter basis. As the product offerings are becoming more feature-rich, we’re seeing interest broaden from early adopters to the mass market.
• “Increasing enthusiasm for the solution among the dealer community. In 2009 this was very much an early-adopter market, but we now see a growing awareness of these offerings from across the dealer community. The conversations that we were having a year or two ago, were focused on ‘What is the technology?’ and now the emphasis is ‘How do we bring this to market?’”
BE DIVERSITY DRIVEN
Dale Eller, director of Education and Standards at the Electronic Security Association’s (ESA) National Training School, Erie, Pa., advocates diversity in dealers’ offerings in the upcoming year.
“The economy is improving, but business is still restricted. One key trend for success from where I sit in my unique vantage point of being involved on a national level through the ESA but also managing several state associations is that in the smaller markets the dealers who historically offer a more diverse product offering seem to be having less of an impact from the recession. The larger markets focused on specific niches have struggled as the odds are good that some of those certain niches have been beat to death the last few years. In the small market, success continues to lie to doing a little bit of everything everyday.”
ALARM TRANSMISSION TURMOIL
There’s a massive shift going on in new alarm communication technologies to replace those vanishing POTS lines, but no one is declaring a clear winner in 2011.
“I think the communication aspect of alarm panels is probably the feature that is the most diverse and unstable. Many technologies and manufacturers are competing for dominance. As POTS goes away at the rate of 700,000 households per month, GSM, private mesh radio and IP technologies are all looking for a piece of the revenue stream,” Joseph says.
With the future of alarm communication technologies unclear, alarm companies are preparing equipment for future requirements.
“We have made a substantial investment in the core processing technology of our control panels to help them be better prepared for future requirements, such as IPv6 and alternate communications technologies,” comments Tom Mechler, product marketing manager for Bosch Security Systems Inc., Fairport, N.Y.
Distributors also are focused on the transition — especially on any training necessary.
“To prepare for the transition of plain old telephone service (POTS), there will be an increase in products and training available for GSM and cellular products across the commercial market. We will train our dealers on solutions to help future-proof their customers, and increase their RMR opportunities,” Benevides says.
The uncertainty of alarm communications will cause more unwelcome dealer headaches in 2011.
“The thing that is frustrating from a dealer’s perspective is that we already went through this alarm communication change with the analog sunset. Everything had to move over and now even that communication “fix” will eventually sunset. The consensus is ‘Don’t keep telling me change, change, change. Let me fix the problem once, and not continue to fix the problem,” Eller says.
Eller also points out that the speed at which the changes are coming this year and beyond is the hardest to swallow.
“My father started in the business in the ‘70s when direct wires were dominant. When I joined in early ‘80s he still didn’t have digital communicators because that was the kind of change you could ease into; we went on for years migrating over. That is not the case today. There is no long life on anything anymore, and that’s something dealers have to adapt to.”
MAKE LEMONADE OUT OF LEMONS
In 2011, dealers need to take that consumer mentality and help end users see the investment needed in new alarm transmission technology as being worth it.
POTS is forcing changes and new installations that need to be done. Sales calls need to be made to tell end users that their systems need to be upgraded. The new technologies and service offerings make it easier to have that conversation and give people the incentive to switch. They offer a golden opportunity to present putting in a new system as a positive, not a negative, says Gordon Hope, general manager of Honeywell Security & Communication’s AlarmNet business.
“Instead of it being a sales call that negatively says, ‘Your system is old and won’t work soon,’ instead it can be a sales call to talk to them about new communications opportunities and the new services they enable. Go in with a marketing plan and make it a positive upgrade. Don’t wait for them to take the phone line out, which they will. Instead get out in front of them before it happens and tell them ‘Here is what we can do for you; take advantage of this state-of-the-art equipment,’ and show them its value,” Hope emphasizes.
Dealers will have to work to prove value as consumers continue to grow more researched, says Mark NeSmith, vice president of sales, Digital Monitoring Products, Springfield, Mo.
“The buyers today have fewer expendable dollars and are making better-informed decisions. The Internet and the ability to research purchases have changed all industries. Clients are by far buying value over price and seeking quality, reliable products as their disposable income has reduced,” NeSmith says.
Last year’s average price of residential systems reported by dealers in SDM’s State of the Industry report reflects this reduced income, with the average price decreasing to $1,625 from a 2009 average of $1,738 (see chart “Home Security: Average Sale Prices Up and Down” on page 58).
“We have continued emphasis on smaller systems with higher monthly cost,” says Matt Hoffman, chief executive officer, Hoffman Electronic Systems, Atwater, Calif. “We have been forced into this market not only by the influx of competition (large national companies, dealer programs, other large independent dealers) but also because most people in today’s economy cannot afford a $1,500 alarm system anymore.”
In addition to lowering prices, Mechler also points out that upgrades are a potential revenue source that will continue to be available in 2011.
“Due to budget constraints, today’s end users are less likely to install a completely new system and will, instead, opt to upgrade their existing system. Dealers can capitalize on these opportunities by recommending enhancements to their customers’ intrusion alarm systems,” Mechler says.
There’s moderate hope for more money in the residential new construction market in 2011 as well.
When SDM asked dealers and integrators, “In which one residential market segment do you expect to see the highest rate of revenue growth for your company in 2011?” new construction was one area that saw slightly greater potential in the upcoming year (See “Slight Gain Predicted in New Construction” on page 54).
Two major construction reports agree, although they show different numbers — one more positive than the other.
The McGraw-Hill Construction 2011 Construction Outlook estimates new construction starts for 2011 to be $446 billion, an 8 percent gain, while The Reed Construction Data forecast for 2011 projects total construction spending to expand 5.3 percent and then 11.4 percent in 2012, raising spending by the end of 2012 up to 87 percent of the spring 2007 peak level. That same report is not as optimistic for new housing construction, predicting it will not see growth.
Whether the predictions will be right is a big unknown — much like the new shape the alarm industry will take after it is forged by competition, end-user demands and new technologies. As 2011 opens, the one thing that is clear is there is a shift occurring away from the traditional security system. It is equally clear that there won’t be a mass departure just yet. 2011 is just the tipping point.
“The traditional security system is not going away, but customers are increasingly wanting more than what traditionally has been done. That transition is starting now and will continue for several years,” says Mark Jarman, president, Inovonics, Louisville, Colo.
A successful transition starts with adding new services and maintaining customer service because in addition to value, consumers still appreciate service as well. A study in Britain found that 88 percent of adults are likely or very likely to take their business elsewhere on the basis of a poor customer experience
Personal customer service is a feature characteristic many traditional alarm companies will continue to value in 2011 and use as a differentiator from the mega companies.
As Hoffman points out, it is an advantage.
“I still think being a local alarm company is a huge selling feature that is very important to a customer. They want to know that they will be more than just a number to their alarm company,” Hoffman says.
John Knox, president, Life & Property Security Systems Inc., operating as Knox Integrated Systems, Knoxville, Tenn. and vice president of the Electronic Security Association (ESA) says, “End users still want to be able to talk to somebody who knows them. That is what gives my company an advantage over the mega companies. We answer the phone and we usually know who is on the other end and have a relationship with them.
“The core thing is still providing both good, quality products and quality service. It is the key in keeping customers. The only true way to keep a customer is to keep them happy. Otherwise, even if you sign them to a long-term agreement, they will be watching the calendar and they will cancel. Take care of the little things, give them a system that makes their life better, and answer your phone when they call,” Knox emphasizes.
It seems that people still like to use those smartphones to simply make a phone call and get in touch with a person. So as the scales tip, that’s where success starts, by staying in touch with customers in 2011 — responding to every phone call and also responding to their changing needs and requests for new technologies and services.
Zooming In…On The Alarm Industry’s Relationship with Law Enforcement in 2011
Stan Martin, executive director, Security Industry Alarm Coalition (SIAC), Frisco, Texas is optimistic about the alarm industry’s relationship with law enforcement in 2011.
“With false alarm dispatches continuing a strong downward trend and positive law enforcement relations at an all-time high I believe we have removed a barrier to sales that should help improve market conditions and related sales for 2011,”Martin says.
He still cautions heightened attention to the relationship though.
“Law enforcement and municipal budget constraints will continue to cause more agencies to consider non-response, and will also certainly cause increases in fees and fines to customers, and, in the worse case scenario, may trigger more cities/counties to consider going into the monitoring business in an attempt to increase revenue. It’s going to be more important than ever for dealers to stay engaged with police and community leaders in 2011 and keep SIAC funded so we can respond when those onerous ordinances show up,” Martin says.
According to Keith Jentoft, president of Videofied, White Bear Lake, Minn., one way to proactively prevent ordinances from popping up is to use video verification and help law enforcement operate more efficiently.
“Community budgets will increase pressures on law enforcement to become more effective/efficient. This creates an opportunity for the security industry to build stronger partnerships with police/sheriffs; in essence our technology and central stations can become the ‘first responder to the first responder’ and help law enforcement outsource part of their work to the central stations — for free,” Jentoft says.
‘The easiest way to do this is to use technology to remotely identify actual ‘crimes in progress’ so that the reduced law enforcement resources make more arrests and maximize life/safety for the community.
“From my perspective, video intrusion alarms are among the easiest solutions available to strengthen security/law enforcement partnerships and provide more arrests through priority response to crimes-in-progress. It is easy because it doesn’t cost law enforcement anything and they become more effective and it increases officer safety,” Jentoft explains.
Law enforcement’s focus on greater officer safety is heightened in 2011 after the annual law enforcement fatality report for 2010 showed an increase of 38 percent in officer fatalities (162) compared to 2009 (117).
“This report is alarming to say the least, but I know it will inspire you to work even harder with us next year to promote law enforcement safety and bring these shocking numbers down,” says Craig Floyd, chairman and chief executive officer of the National Law Enforcement Memorial Fund.
Six-Month Snapshot of Crime
Crime, or the public’s perception of crime, always has an impact on the alarm market.
“Number one, customers still want to feel safe. All the other stuff is still secondary to that,” says John Knox, president, Life & Property Security Systems Inc., Knoxville, Tenn.
The FBI just released the first statistics regarding crime in 2010. According to the “Preliminary Semiannual Uniform Crime Report, January-June, 2010,” there was a 6.2 percent decrease in the number of reported violent crimes and a 2.8 percent decrease in the number of reported property crimes compared to data for the same time frame during 2009. The report specifically covers the property crimes of burglary, larceny-theft, and motor vehicle theft. It also includes arson, which is considered a property crime but is tracked separately for this report.
Preliminary findings include:
• Reported incidents of violent crime as a whole decreased in all four regions of the country — falling 0.2 percent in the Northeast, 7.2 percent in the Midwest, 7.8 percent in the South, and 7.2 percent in the West.
• Reported incidents of property crime as a whole declined in all four regions of the country — dropping 0.2 percent in the Northeast, 2.5 percent in the Midwest, 3.6 percent in the South, and 3.1 percent in the West.
• In the Northeast, however, reported incidents of burglary rose 3.9 percent.
• Population-wise, cities with 500,000 to 999,999 residents saw the greatest decline in reported property crimes (4.8 percent).