Is it Time for More RMR?
|Home system professionals can use video verification around a home, at a vacation house or during home construction as one type of recurring monthly revenue. Photo Courtesy of Videofied/RSI Technologies|
Behind the gates and doors of those multi-million dollar houses, it’s a safe, secure and connected environment.
That’s for the homeowner. But, how long will it remain a stable business for electronic system contractors (ESCs) and their revenue and margins? The competition and technology sharks are circling. Some ESCs have already been bitten one way or another.
So it may be time to rewire the contractor/project business model with services that include recurring monthly revenue (RMR) beyond monitored security and equipment maintenance and service. It may prove worthwhile to move “down one tier” to target more of the upper middle of the homeowner market. Then there is “ownership” of the home network. Who better than the ESC?
No doubt, new subscription-based home automation offerings are rapidly transforming the way homeowners will monitor, secure and control their homes, according to a report earlier this year from ABI Research, Oyster Bay, N.Y.
“The North American market has long been the dominant region for home automation systems and now it is leading the way with managed home automation subscription services. In the past two years, service providers, including telecoms, cable, security, and energy, have all launched additional home automation services for managing energy use or security monitoring to their suites of monthly billed services,” says Jonathan Collins, principal analyst, wireless healthcare and M2M.
ABI’s Research predicts that over the next five years the managed home automation market will grow installments at a CAGR of 60 percent between 2012 and 2017, outstripping the 31 percent growth across the total market comprising luxury, mainstream, and DIY home automation deployments. Will it?
“I agree,” says John Stiernberg of Stiernberg Consulting, Sherman Oaks, Calif., and a member of the board of directors for the Custom Electronic Design & Installation Association (CEDIA), Indianapolis. “Transformation of how homeowners interact with their home and electronics is going from where it was to where it will be at an accelerated rate. There was the Smart House in 1984, I think. Until 2004, there was a low degree of change.” Then high speed Internet buzzed in.
Last month, for instance, AT&T rolled out its Digital Life IP-based platform for security and home automation aimed at the mass market. Already there: Verizon with energy management and automation, minus security; Comcast Xfinity with energy management and home automation including security; Time Warner, a long time security player; and Canada’s Rogers Communications. ADT, the home security juggernaut, now has more services, revenue and margins beyond vanilla security with its ADT Pulse.
These firms working the urban neighborhoods and suburban subdivisions are spreading the word about energy management and control as well as home automation. Cheap advertising for ESCs sitting in their upper tier ‘hood, right? Well, ADT for one already has a luxury home effort.
Some of what is happening now has happened in the past. “Independent ESCs have faced this situation before — mainstream service providers such as broadband and telcos consolidating services to consumers on a contract business model and each time, there have continued to be opportunities for the ESC to be the expert inside the consumer's home,” says Buzz Delano of Delano Associates, San Clemente, Calif.
Overall, “ours is a robust market. There’s room for all. The future is really bright,” says Dave Pedigo, senior director of emerging trends at CEDIA. “Remember that home automation is available at different levels and not just one.”
Michael Creeden of M+R Digital Innovations, Spring Grove, Ill., agrees that cable and phone companies offering some level of home automation can prove helpful. “They spread awareness. We are piggybacking with hot demand right now.” Still, when considering shifting markets, Creeden suggests that there is no “just black or white but a lot of grey” which can help generate greenbacks for ESCs.
That goes for RMR, too.
- Security monitoring
- Video verification (of home alarms or on a home perimeter or vacation homes)
- Video surveillance
- Video surveillance through mobile devices
- Energy management and control
- In-the-cloud storage and retrieval
- Aging in place services
- “Own the network” services
“There is hesitancy by some to get into RMR,” points out Pedigo. “It can be a matter of sustainability.” An ESC is different than a security dealer, who has many jobs. Low volume, high margin work typifies ESCs while high volume, low margin typifies a security dealer, who makes his or her money from recurring monthly revenue, thanks to alarm monitoring.
But should ESCs consider moving down a tier to grab more volume at a lower margin? “Not necessarily. There will always be tiers of products, services and design required, of course; but, if an ESC wants a larger market, then yes, they will have to expand into different services which bring them more accessible costs. The challenge for the ESC is here is to be very careful to ensure profitability through their labor and services,” suggests Delano.
Different applications also can make a difference.
“ESCs with a background in security and now with IT services often have a greater propensity to evolve to sustainable recurring revenue business models through service agreements,” contends Delano. He adds that too many of the ESCs who are rooted in AV and home automation are not as confident to create such business models. They need to. It's often said that most ESCs derive most of their business from referrals; well then, if that's the case, ESCs by nature have a strong connection with their customers so they should be presenting service agreement plans to them from the beginning of every relationship. It's a weak model to ‘sell service’ at the end of the process so it should be just as important as the hardware they are selling. Talk about it from step one with the customer.”
Still, it can make sense for ESCs to augment the contractor/project model. “Always look at yourself as a business owner,” who wants to grow the business, revenue and hold and grow margins, adds Creeden.
The broadbands in security and home automation are also seeking help from established installers – mostly security but some home automation — for feet on the ground. It could be that some security dealers and installers, squeezed by the broadbands in the mass sector, will rewire their own business model to move up a tier or two into home automation, bringing with them their already established expertise in RMR.
Fairly untouched: home theater as well as whole home audio and video. That’s entertainment and “no one else is involved in this area” more than the ESCs, contends Creeden. He observes, however, that “the AV guys don’t want to know IP and the IP guys don’t want to know AV.”
But why go after more RMR opportunities generally?
Home system professionals need to augment their contractor/project business model with services that can include recurring monthly revenue to provide more services and for a longer relationship with clients. It’s a way to more structurally grow the business, thanks in part so that bankers can clearly see and understand such stable, ongoing income.
When it comes to home networking, and the ability to serve homeowners through RMR or by call, only Comcast Xfinity now plays this area with its Signature Service. With Best Buy’s Geek Squad quaking in its smaller boots these days, the Comcast plan still is mostly limited.
So the field is wide open for ESCs to “own the network. There can be proactive servicing. We can make the best sense of all these things,” observes Creeden. Adds Pedigo, “View it as IP-based distribution. Be able to handle that, manage the network. Streaming services. Not just the computer network but everything on it to ensure reliability” and solve problems.
"’Own the network’ is more than a slogan for CEDIA Expo, it is indeed a requirement for the future of the ESC trade. The network is where everything will reside and travel for the consumer's entertainment, communications and security. Someone will ‘own the network’ so it will be one ESC or another,” says Delano, who is CEDIA’s secretary: “What is different though now is that the ESC must be more capable to design, install and support the consumer's home network. It's not just about AV; now the ESC must be in a position to provide a good infrastructure for content reception, media storage and seamless control. As the consumer has more control in their phone or tablet, they are being conditioned to expect things in their home to work as easily and consistently as they experience on their phone. This may not be a realistic expectation but it is what they want,” he says.
“The independent ESC must become the consumer's home technician, if you will. The ESC needs to be in the business of managing their customer's home and portable connectivity. They can help their customer with at home wireless network for printing, file sharing, photo editing, music and video storage and teach them how to confidently use cloud-based services. There will still be hardware in the home that needs to reliably integrate together and to one or more portable devices. It's like a multi-source, multi-room home entertainment system. Multiple users with portable devices asking for one or more remote functions and access to their home systems,” Delano observes.
Whatever the route to more RMR, the most traveled today still is monitoring security, fire and carbon monoxide.
Greg Farrell, vice president, business development, ADT, Boca Raton, Fla., feels that, with the higher level and higher priced ADT Pulse, “security is at its foundation, the hub. Energy is a very important application for the consumer.” Utilities, with their own monthly recurring revenue, come up to the home’s wall, energy management and controls offered to the mass market as well as through a variety of home automation applications that work inside those walls..
Delano sees home energy management today “as a fragmented market. The major control and integration companies are seeking a piece of this and energy management product manufacturers are partnering with the control companies. What is interesting is the presentation of a consumer-oriented product such as Nest. Consumers now can purchase a nice-looking device that personalizes their climate and energy experience. For some ESCs, Nest is an opportunity for simple installations but I see climate and energy management as something that more ESC should figure out.”
Video is another home systems growth area that can include RMR. “A great number of our customer have video. They want to look into their home through mobile devices or receive video clips of incidents for review. There is adoption and satisfaction” with such optional offerings, comments ADT’s Farrell.
In another step along the home automation pathway, Farrell says his firm is in talks with appliance manufacturers to bring these energy guzzlers into the overall service.
The ABI Research mirrors Farrell’s plans, among others; involvement of broadband and cellular services; and growth of RMR or, what ABI calls subscription fees.
Connectivity is one key factor. Not only are there currently high home broadband penetration rates, as well as the potential for embedded cellular connections to connect systems, but also smartphone applications allow consumers to control and check their homes from wherever they are. As connectivity options make the home automation systems more useful, market changes are also making home automation more affordable as an initial buy-in. A traditional large up-front installation and equipment purchase is increasingly being replaced by monthly subscription offerings — often bundled alongside already existing services.
Says Jonathan Collins, principal analyst, wireless healthcare and M2M at the research firm, “These companies are already starting to play a significant role and this will only grow over the next five years. They won’t be the only players expanding the managed home automation but that customer relationship and existing broadband connection are good foundations to start offering and supporting home automation services.”
When asked if home automation professionals will be marginalized as mass market providers take over many of the home systems such as security, lighting and home energy management, Collins comments, “Not necessarily; there will certainly be a blurring of distinction at the edges of the traditional home automation markets (luxury, DIY, mainstream and managed) and so there will be traditional installers working with mass market providers but there will be healthy growth in the mainstream market as well. We see the entrance of mass market providers helping to grow the total market rather than cannibalizing existing customers and channels.”