State of the Market: Alarm Systems 2014
Experts predict more money will be spent in the alarm market this year — the question is how to get it. Start by blend- ing the right technology choices, service, and sales approaches.
When Google purchased Nest Labs Inc. for $3.2 billion late last year, some security dealers groaned while others, such as John Loud, president, LOUD Security, Atlanta, positively accepted the news. It sounds strange to embrace it at first. After all, it is one more mega company pushing towards the alarm industry. “We’re turning our attention to something that’s also important: keeping families safe in their homes,” Tony Fadell, Nest founder and chief executive officer, has been quoted as saying. The increased focus on the security industry by non-traditional companies with unique, forward-looking products and services, and the amount of capital feeding both new and existing players reflects the strong predictions for more money and fast growth for the alarm market as a whole. Research (including SDM’s exclusive 2014 Subscriber Market Forecast Study) reveals dealers’ plans to compete — and win business — based on providing the right technologies, the best service, and a fresh sales and marketing approach in the 2014 market.
Loud, a Honeywell First Alert dealer since 2005, is reacting positively to the new competition because he is ready and waiting to capitalize on the awareness Google, and companies like it, would push into the space.
“I’ve always been one when I think about the AT&Ts and the Comcasts and the ADTs that says, ‘If they’re coming in, let’s welcome them.’ When the big boys are out there hitting the airwaves all the time, they are driving so much awareness as to what consumers should be thinking they want for their homes that smaller companies such as mine can’t afford. I can capitalize on it,” Loud, featured on this month’s cover, shared with SDM.
Mid-sized dealers will benefit from the strong marketing programs of telcos and cable companies like riding a wave of information and awareness, describes Mike Bradley, president and general manager of Safeguard Security and Communications headquartered in Scottsdale, Arizona. “Smaller dealers can benefit to the extent that many customers still prefer local service and support, but they will need to step up marketing and sales efforts to take advantage of it,” he expects.
LOUD Security has a multi-pronged marketing strategy in place to take its fair share of the money in the hotly contested Atlanta-metro market with big companies and strong regional players (do EMC and Ackerman Security sound familiar?). Loud, a “marketing guy at heart,” has developed a successful postcard program, which is mailed to any customer who has been with the company for greater than three years. The mailing, which is systematically mailed in groups to handle the logistics of calls and installations, educates customers on upgrade scenarios that they can consider.
If you go back to your customers, there is a whole new, “old” market to tap into, Loud shares. “If we don’t pay attention to them, somebody else is going to get a hold of their ear and take that opportunity and the only thing we’ll know is we just received a cancellation from a long-time customer who didn’t know that we had that offering they wanted,” he cautions.
Another addition is a high-quality door-knocking program. “We certainly have seen a lot of calls and a lot of interaction in the community and by being the feet on the street instead of just on the airwaves and TV, we sometimes get that one-on-one opportunity to be able to show them what those services are about,” Loud explains.
The focus on that personal conversation, as well as the new marketing initiatives is resulting in money. The company’s total revenue was up 54.2 percent in 2013 over 2012. And Loud expects equally strong growth this year.
Research firm Parks Associates is predicting revenue from connected home and security monitoring services to grow to $13.8 billion by 2016.
It is an optimistic outlook similar to the one from IHS Technology (IHS), which predicts the penetration rate of home security systems to increase 5 to 8 percent over the next few years due to the emergence of telcos into the industry and the growing popularity of home management systems, which is increasing end user awareness. The commercial market is driven more by construction, which is projected to do well in 2014. Overall, IHS projects the U.S. intruder alarm market to grow 5.8 percent in 2014.
“The U.S. market for intruder alarm systems in 2014 is going through an exciting transition more heavily focusing on the rising popularity of smart devices,” remarks Adi Pavlovic, market research analyst, Access Control, Fire, and Security Group, IHS. Integrating security products with home automation is driving the penetration growth of home security, he explains.
When SDM polled dealers around the country about their expectations for the upcoming year in the SDM 2014 Subscriber Market Forecast Study (read the full report here), the results were stronger than in previous studies. At the end of 2013, more than 6 in 10 dealers considered the state of the alarm market in 2013 to be good, very good, or excellent (see “The Winds of Change are Blowing” on page 78), and considered the potential for sales in 2014 to be good, very good, or excellent (see “Improved Predictions for 2014 from Dealers” to the left).
Businesses reported growth — but for different reasons.
“We saw an increase in sales and revenue of about 11 percent in 2013 over the previous year. We expect more demand for video sales this year as the economy improves and as mass advertising for interactive services increases,” says Jonathan Frase, president and owner of Memphis-based Frase Protection, a DMP dealer.
David Jones, president, Sonitrol Security Systems of Western New York, located in Buffalo, N.Y., shares that new business was up by 22 percent. “We’ve continued to add a number of new sales representatives that have been successful within the space,” he details.
Sales increased 14 percent in 2013 over 2012 for Bruce Scott, president and chief executive officer (CEO) of Scott Alarm Inc., Jacksonville, Fla. “We are anticipating a 30 to 40 percent increase in 2014,” Scott discloses. The company is adding sales training for its entire staff in 2014 to be “helpfully knowledgeable in all our products that we offer,” Scott says.
Intertech Security is projected to achieve steady growth of at least 7 to 9 percent in 2014, according to Christopher Wetzel, executive vice president and founder of Intertech Security, Pittsburgh. The company is focused on paying laser-like attention to its service. “Alarm integrators are more like service organizations today — or they at least should be thinking along those lines, in my opinion,” Wetzel advises.
Almost universally, the industry members SDM spoke with agreed that for dealers to win their fair share of the money in alarm systems this year they must have impeccable service.
Loud had this in mind when he chose his company’s tagline years ago, “Today's Technology — Old Fashioned Service.” Since 1995 he has consciously positioned his company to compete on service and engagement.
“Great service is the ‘big idea’ for 2014,” Scott says. “We make servicing our customers our top priority and we are not ashamed to ask for referrals,” he explains.
End user expectations are absolutely crossing over between residential and commercial systems. Everyone is now expecting total connectivity of their systems, and remote access through smartphones,” says Michael Flink, president of ADI Americas, Melville, N.Y. One additional source of growth for the commercial market is integrating access control and IP video surveillance,” he adds.
Just as on the residential side, where end users expect to be able to control their alarm systems — such as arming or disarming, checking system status and controlling outputs or doors — from mobile devices, we are seeing greater use of these devices to control systems remotely in the commercial space as well, especially for chain stores with multiple locations, observes Tom Mechler, product marketing manager, Bosch Security Systems, Fairport, N.Y.
Those upgraded features save commercial intrusion buyers money by automatically controlling lights and HVAC systems, describes Mark Hillenburg, executive director of marketing for DMP, based in Springfield, Mo. “They see what is happening in the residential market and the growth in energy management and they, too, want to be able to realize less energy usage, except they can multiply the savings times the 30 or 50 or 1,000 locations of their commercial locations,” he summarizes.
The potential for integrated systems and automation means an alarm system today can be scaled up to a lighting control, energy management, smoke/CO2 alarm, and access control system tomorrow.
Z-Wave is one avenue to do that. “We really want security dealers to see how easy it is to work with Z-Wave. The new Z-Wave 500 Series chipset is definitely something to watch,” says Duane Paulson, senior vice president of product and market development, Linear, Carlsbad, Calif. For more on the features and benefits of the Z-Wave 500 Series chipset, read “Z-Wave 500 Series Chip Update” on page 86.
“Systems integration and control is really growing. In the annual CEDIA market research report, “Size and Scope of the Residential Electronic Systems Market in the US in 2013©,” systems integration is listed as one of the biggest percentages of revenue with the largest margin,” says Olivia Sellke, communications manager at CEDIA, Indianapolis. In the SDM 2014 Subscriber Market Forecast Study, 15 percent of dealers expect their spending on home networks/structured wiring to increase in 2014.
That integration and automation was on full display at this year’s Consumer Electronics Show (CES). There, ADT announced several new product features, partnerships, and more that spotlighted a push within the industry beyond the bounds of traditional alarm systems. ADT also unveiled a wireless platform for the ADT Pulse.
“We see this allowing us to serve markets that we haven’t been able to traditionally, such as apartment renters that want a security system but can’t put wires in their walls. There are a lot of opportunities for this,” shared Ryan Petty, vice president of product development and innovation, ADT.
“Wireless is the No. 1 catalyst for new installation opportunities in 2014, bluntly states Helen Heneveld, owner of Bedrock Learning.com (and recent winner of the Women In CE Legacy Award), who speaks and consults worldwide on the converging home systems industry. “The potential of wireless is only limited by a dealer’s imagination. It’s easy to install, delights customers, offers good margins and can be a real money-maker,” she emphasizes.
Kirk MacDowell, vice president sales, intrusion, Interlogix, part of UTC Climate Controls & Security, Bradenton, Fla., shares that Interlogix will have a major focus on wireless in 2014. Read what is behind it and how dealers will benefit in “Interlogix Builds Its Wireless Presence,” on www.SDMmag.com.
Wireless is an opportunity for dealers to reconnect with current customers and also renew relationships with builders. While many builder relationships were ended during the recession, it is a growing opportunity this year. Read more on the success of rethinking builder programs from Loud in “Dealer Programs Regain Potential in 2014” on www.SDMmag.com.
Wireless makes new features and options — such as smart thermostats, connected locks and integrated garage doors — easy to install, creates a lot of customer interest, and helps dealers reengage existing customers. “Increasing the services a customer uses raises RMR and creates a stickier customer,” reminds Jay Kenny, vice president of marketing at Alarm.com, Vienna, Va.
Douglas Curtiss, CEO, Sonitrol of Hartford, Hartford, Conn., shares that engaging current customers is a key focus for his company in 2014. Through its Reconnect Campaign, the company will use direct mail and telemarketing to educate existing customers about the new technologies and associated services it now offers. This campaign is designed to build on a very positive year in 2013, when the company logged a volume increase of 22 percent, while its associated recurring revenue was up by almost 70 percent.
The addition of lifestyle-focused services must be done mindfully, say most dealers SDM spoke with. There’s still tremendous value in the security and safety provided by the industry — and many dealers continue to consciously lead with it in 2014.
“In our market, we feel that a focus on security is key. We find that on the residential side, it is the need for peace of mind that still causes the phone to ring. Other services are like icing on the cake, Frase says. His company is, however, finding success with the interactive services it has chosen to offer. “We were reluctant to add interactive services, but now one out of every three sales includes interactive services since we began offering it one year ago,” he reports.
“With everybody in the market today, and more coming, I believe the most successful alarm dealer will be the one that really does focus on security. That and a focus on an outstanding customer user experience,” MacDowell describes.
Dealers today know an alarm system should be attractive looking, multi-functional, smart, connected, and reliable, summarizes Mike Hackett, vice president of sales and marketing, Qolsys, Cupertino, Calif. “In 2014, dealers will be armed with solutions that deliver these attributes, enabling dealers to compete in the fast-growing and broader home control marketplace,” he says. That means winning sales, growing revenue, and thriving in 2014.
It’s no longer about focusing on any singular technology, but rather looking at the whole landscape of integrated solutions and determining what fits your business and market.
“What ties it all together is security. The ability to sell an alarm system that also controls lighting to one customer, and a PERS module with monitoring services connected to smoke alarms and speaker phones to another customer. This approach gives dealers more opportunities than they’ve ever had before,” Paulson says. More opportunities that can lead to more money in 2014.
BHSC Research Reveals Attitudes About Monitoring Prices
BestHomeSecurityCompanys.com (BHSC) frequently conducts wide-reaching market polls and reviews home security companies. Read more about the company and its review process at http://bit.ly/KLh8Gh.
This year SDM asked the company to conduct a national survey among thousands of people all over the nation regarding home security systems. See the full results in this video.
When BHSC asked what the maximum amount homeowners expected to spend on monthly monitoring was, 39 percent of people said between $1and $19; 23 percent answered between $20 and $29; and only 10 percent of people were willing to pay more than $50 each month.
According to BHSC’s quality index score of more than 120 home security companies, it found that the average company actually charges $34 each month. SDM’s 2014 Subscriber Market Forecast Study indicates that more than one-third of the responding dealers charge customers more than $30 for monitoring each month. The forecast also shows that only 19 percent of dealers plan to increase their monitoring charges this year, and 81 percent expect to keep monitoring prices the same.
Find out what BHSC’s research revealed about homeowners’ attitudes toward installed home security systems and do-it-yourself home security systems, plus more in this video. Visit besthomesecuritycompanys.com to view rankings of home security companies.
Z-Wave 500 Series Chip Adds New Dimensions to Automation Potential
Much of the action will happen behind-the-scenes on the manufacturing side, but the development of new Z-Wave 500 chips into connected home products will have significant ramifications for security dealers who are branching into the home automation space. From a performance standpoint, the new 500 Series integrated circuits double the range of Z-Wave products to more than 200 feet and increase data transmission from 40 Mbps to 100 Mbps, while cutting power consumption from 2.8 milliwatts to 1 milliwatt. The new chips also feature 128 MB of flash memory and include 128-bit AES security, eliminating the need for a separate processor.
What does this mean? For one, manufacturers can make smaller control devices and modules that rely on coin cell batteries, thus making connected home products less intrusive and giving them longer lifespans. More bandwidth means manufacturers can develop Z-Wave home control systems or devices that perform multiple functions simultaneously, and end users will have quicker response times and more options handling larger systems. Perhaps the best part, the new chipset is essentially the same cost as the 300 and 400 before it, so a major price increase is not expected for 500 Series products. — Contributed by Linear
SDM Asked: ‘What Technologies Are You Specifically Choosing to Focus on in 2014?’
“In 2014, we’ll add IP video integration to our B Series Control Panels. This will allow video motion detection to activate points on the panel, and panel events to trigger camera actions, including sending video clips via e-mail. The integration will give customers video look-in functionality and an easy path toward video alarm verification. It will provide end users with the enhanced security and convenience they’re looking for, while delivering new sales opportunities for our dealers.” — Tom Mechler, Bosch Security Systems
“We expect a continuing broad adoption of smart thermostats. Energy management services were the fastest-growing additional service and we expect that trend to continue. Additionally, we continue to see growth in the residential video monitoring market. Video as a service options let homeowners view live video anytime from their mobile device and get instant alerts with video clips when something happens at home.” — Jay Kenny, Alarm.com
“More end users have been requesting higher quality and live feed connectivity to video cameras, as opposed to low-resolution video clips being sent to connected devices. We’ve been able to meet these requests with Honeywell Total Connect, and by offering a wide variety of Web-enabled DVRs. We have also been seeing an increasing demand for larger, all-in-one touchscreen keypads.” — Michael Flink, ADI Americas
“Our 2014 roadmap includes partnering with Alarm.com to send Disarm Photos taken from the IQ Panel onboard camera. Dealers and end users really like the on board camera feature and look forward to receiving these photos on their smartphones and other remote devices.” — Mike Hackett, Qolsys
“Aside from the 2G to 4G cellular issue, there is a continued convergence of lifestyle-based home control services, apps and the life safety systems of an integrated alarm system. We have introduced a very affordable graphics touchscreen keypad and then we have a very affordable integrated intrusion and access (combined) system. We are working with dealers to always present both; some level of access control with each intrusion system.” — Mark Hillenburg, DMP