SDM 2015 Industry Forecast
The electronic security installation and service channel is back to double-digit growth rates. SDM’s 2015 Industry Forecast Study reveals that the total size of the security channel in 2014 was just under $75 billion, an increase of 10.3 percent from 2013. Keeping the momentum going, the security dealers and systems integrators who participated in the study say they expect 2015 to offer a very healthy growth rate of 13.9 percent, on average.
“We were up 16 percent from 2013,” says John Lindberg, president of Dial One Security Inc., Cincinnati, Ohio, a company he founded in 1979. Lindberg attributes much of the increase in total annual revenue to the more expensive recurring monthly revenue (RMR) his company generated by selling connected services, which adds to the average revenue per subscriber. “It helped to boost our overall revenue because a lot of systems are being upgraded to allow for the remote services on existing systems,” he says.
Dial One Security, a Honeywell authorized dealer, also experienced an 18 percent increase in total sales, and an 8 percent increase in RMR. Lindberg, who is featured on the cover of this issue, is one of SDM’s 2015 Forecast panelists who weighed in anecdotally on the survey.
All five panelists — executives from Convergint Technologies, Protection 1, American Security Systems, Global Security & Communications, and Dial One Security — recorded increases in total revenue, RMR, and sales revenue in 2014. (See related sidebars, “The Panel Weighs in on…” within this article and online at www.SDMmag.com/AnnualIndustryForecast.)
At Vancouver, Wash.-based Global Security, which has about 30 employees, sales were up 10 percent and RMR up about 5 percent after several years of what Gomez describes as stagnant performance. “We have been ambitious. I don’t know if we can say it’s the market that’s better, or maybe we’re getting a bit better piece of it. There seems to be a lot of opportunity out there,” says the company’s founder, AJ Gomez.
A theme among the panelists is driving revenue through services. Convergint Technologies, a systems integrator servicing multi-national companies around the globe, is growing through its offering of professional, embedded services, as well as managed services of video and access control systems, says Dan Moceri, president of the Schaumburg, Ill.-based company. “While we still install a lot of product, we’ve been really focusing on services where we embed people into customer sites and we basically help them manage their security technologies and some of the business technologies, as well,” he says.
Lindberg says Dial One Security is capitalizing on the demand among customers for remote, interactive services. “It seems like everyone really wants to be able to control their security systems remotely. So within our existing customer base and new clients, we see that as an area that will continue to grow. It’s a real popular thing that they do,” he says.
“It also affects how much equipment is sold. Whereas 20 years ago we would sell a system with four keypads, now it’s much more likely that we sell a system with one keypad and the remote services. The remote services are taking place of that second, third or fourth keypad in a business or in a house because people can control it from their phone. We like that model. We think it’s much better than having equipment that people don’t use hanging on a wall somewhere. On the RMR side it’s definitely more profitable. We are selling less equipment…but overall it’s better for us,” Lindberg describes.
For American Security Systems, Long Island City, N.Y., the opportunities are in fire alarms, “parts and smarts” for the electrical market, and Video Doorman, which is a video surveillance/access control service for the multi-family market that monitors package delivery, and provides remotely monitored escort and overall security for tenants. “We found a niche in multi-family in the New York/New Jersey area. I think that we’re a little ahead in our technology and the way we integrated the products. I think that’s going to give us pretty much what we need to drive forward,” describes Kenneth Gould, consultant of the company.
Protection 1, which operates 71 branches, hasn’t stood still all year with announcements that have raised the company well into the world of cloud-based services. “I would say it was a very busy year,” notes Protection 1’s president, Tim Whall.
With total annual revenue up 9 percent from 2013 to 2014, Whall says what contributed to the company’s growth were a couple of new commercial offerings, including 1View, which gives customers the ability to access video directly from the cloud. On the residential side, Protection 1’s HALO platform is a fully integrated suite of connected home solutions available through a single app. It also has central station operator video alarm verification, and energy-efficiency features such as solar power and energy monitoring. (Protection 1 recently introduced its sister company called Brite Energy, which delivers renewable solar energy solutions to residential customers.)
With growth being stimulated by the increased sales of remote/interactive services, as well as numerous connected-home products and services, it’s little surprise that Industry Forecast Study respondents indicated that a greater share of revenue in 2014 came from residential security sales/installation(21 percent in 2014 compared with 16 percent in 2013), and home systems installation(12 percent in 2014 compared with 7 percent in 2013).
In addition, 26 percent of Industry Forecast respondents expect existing high-end homes to be the greatest source of their revenue growth in the residential market in 2015, compared with 20 percent in last year’s study — percentage points that shifted away from existing middle-market homes.
Respondents to the Industry Forecast show commercial office space followed closely by retail, and then education, should produce the highest rate of revenue growth on the non-residential side. Fifty-nine percent of dealers and integrators who participated in the study rate the potential for sales of video surveillance to be “excellent” in 2015.
In general, the U.S. economy is growing and normalizing; this includes gross domestic product, capital spending by businesses, employment, income, and housing (with the exception of the construction and sale of new single-family homes), among other factors. Still, 2015 Industry Forecast respondents are cautious about the economy. The top three, among factors they think will have the greatest effect on their company’s sales this year, are: economic conditions, disposable consumer income, andcapital spending by business.
“I would list economic conditions as being the biggest factor that will affect our sales,” Lindberg notes. “When the economy had its downturn our sales went flat during that time period. We did not have the increases that we had seen previously.” Still, he thinks the economy now seems positive. “There is certainly a looming concern over heath care costs…but in general I think the economy is doing really well. The downturn in fuel pricing obviously makes everybody feel so good.”
The top three factors presenting the greatest challenges to dealers and integrators are increasing sales, finding/retaining employees, and generating recurring revenue. Lindberg says it is a challenge to bring new hires up to speed, saying it could take six months to a year for a new technician to become productive, because “There’s a lot of stuff to understand. You toss in the IP part of it and it’s just a complicated job. To have a really versatile technician is a complicated position to train somebody for,” Lindberg observes.
Despite the challenges, SDM’s Industry Forecast Study shows that while 59 percent of respondents expected to see increased revenues in 2014 (at the time the survey was conducted in August-September 2013), this year’s Forecast reveals that 82 percent expect increases in 2015 — a significant improvement in the channel’s business outlook.
“Back in 2008–2009, when we were in the heart of the recession and the industry contracted somewhat, we were able to grow 21 percent through that contraction,” says Moceri. “Part of the reason is we’ve shifted our model. We install a lot of technology, but we do it from the services perspective. We’re not putting technology in for the sake of technology, but we’re really helping out customers on the regulatory side, their efficiency side, their cost reduction side. By doing that, I like to say that we are a services provider, but we just happen to install a lot of technology.”
As many in the security industry adopt a services approach — whether for the residential segment by connecting consumers personally with their homes, or for the commercial/industrial/institutional segments by easing costs and providing detailed business intelligence — the double-digit growth that occurred in 2014 should continue in 2015 and for the foreseeable future.
How do your company’s results compare with those of the dealers and integrators interviewed for this article? Take SDM’s online poll.
JOHN LINDBERG founded Dial One Security in 1979. He acquired partial ownership of Alarm Monitoring of Cincinnati Inc. in 1990 and complete ownership in 2005. Lindberg currently serves as president of both companies. He also is president of the Austin Knowlton Foundation, which supports higher education in the Ohio area. Lindberg is a graduate of The Ohio State University.
DAN MOCERI has more than 35 years’ experience in the electronic security, fire alarm and life safety industry. He is co-founder and chief executive officer for Convergint Technologies. Convergint is a global systems integrator, employing more than 1,800 colleagues in 50 locations throughout the world. It currently ranks No. 6 on SDM’s Top Systems Integrators Report.
TIMOTHY J. WHALLstarted in the security industry in high school while working for the family business, Whall Security, in Detroit, Mich. Since then, he has held nearly every position from installer to call center operator, general manager, chief operating officer and CEO. He has lead some of the largest security companies in the world. Whall is currently CEO of Protection 1, ranked No. 6 on the SDM 100.
KENNETH GOULD has a security industry career spanning 40 years and has used his experiences to benefit his consulting clients through mergers, acquisitions, business development, product launches and team building. One such consulting opportunity at American Security Systems, ranked No. 63 on the SDM 100, turned into a multi-year position where he led company expansion efforts including development of a fire alarm division and Video Doorman.
AJ GOMEZ, together with Annette Gomez, founded Global Security as a residential electronic security company in 1988 and it has grown into a leading, locally owned, full-service residential and commercial security and home technology integrator in Washington and Oregon. Gomez has served three terms as president of the Oregon Burglar and Fire Alarm Association. He is a founding member and current board member of the AIN Group.
DAN MOCERI: For 2014 we will be up 24 percentover 2013. Right now our budgets for 2015 are looking to be up about 19 percent. What’s driving that is we continue to expand geographically, particularly from a global basis. The other thing is Quad Four, [our strategy that leverages] the convergence of IT and the physical [security] side.
JOHN LINDBERG: We were up 16 percentfrom 2013. A lot of that has to do with the more expensive RMR with connected services…adding to what the average RMR is per person. It helped to boost our overall revenue because a lot of systems are being upgraded to allow for the remote services on existing systems.
TIM WHALL: Revenue from 2013 to 2014 is up 9 percent. The expectation, 2014 to 2015, is 12 percent. What contributed to the year were a couple of new commercial offerings: the 1View offering, which is essentially the ability to access video directly from the cloud, versus retrieving it remotely from the DVR to premise. We also expanded on the resi side into DIY to take advantage of some lead flow we were getting in towns we weren’t servicing. If we get a lead in an area that’s outside of our branch footprint we’ll talk about a DIY solution, and if they have an interest we will happily provide them with that system.
KENNETH GOULD: 15 percent is where we’ll be. Then I would expect another 15 percent the following year. We’re really focused in the New York City area. New York City fire is a niche for us — the code-driven piece of it. We have Video Doorman in multi-family buildings. We still have the traditional burglar alarm, CCTV, and card access, but I really believe the two driving forces were the Video Doorman product in multi-family housing, and fire.
AJ GOMEZ: We will grow about 10 percentin total revenue after being stagnant for years. A lot of that was our conscious decision to do so. We’re reaching out to commercial businesses and pulling them through. I would say they don’t know where to get their CCTV systems and even their security upgrades and things. They are just kind of static, I suppose. We educate them on what’s available today and they seem to be anxious to get something done and make a small investment in their business to make it a little better. CCTV — we have certainly grown in throughout the year. Home technologies — we’re doing more custom jobs consistently.
DAN MOCERI: We hire almost a person a business day somewhere around Convergent. Obviously we’re always trying to look for the best people, and that’s one of the biggest challenges: find people who can be productive very quickly. Once we get them onboard, to retain them, we invest in our col-leagues; we invest in a lot of training; and we support them as much as we can. But that’s an ongoing challenge for us every day.
JOHN LINDBERG: Our greatest challenge going forward in 2015 is increasing sales. That’s not only to support our growth, but also to replace accounts that get lost because of attrition. Our sales just need to continue. That’s the biggest challenge for us in 2015.
TIM WHALL: It’s making sure that the leaders demonstrate the care for the employees doing the actual task. This is a very high-transaction business and it’s easy for the employees to take rote responses, as opposed to really caring about the outcome with the client. I think a big part of that is the leader’s ability to connect with the person on an individual basis, such that that person does understand the goal to say, You’ve got to really give best effort for all of these clients all of the time. So we spend a lot of our time focusing on leaderships teaching different tactics and traits that are successful and copying some successes where we have some of our best performers. A good leader makes a great difference in a local market.
KENNETH GOULD: Cash flow. We are privately owned. A lot of our projects go on, even though we try to get the positives. Lately it has been a little tough. We do have a very aggressive cash flow management team. But I would say, in the next year, that’s going to be probably one of our challenges. One of the biggest challenges, too, is that we have to wait for inspection and sometimes we don’t get our inspection for a while. Even though we try to get the money, people just don’t want to pay until their inspection is done. That’s pretty tough in our local area.
AJ GOMEZ: What has certainly been in our way is being able to find techs. I think about the training of employees — bringing that guy on and having him be productive. That seems to take a while. Our businesses are more complicated; there are more moving parts. If we all knew that we would get productivity from that person in 30 days or 90 days…Well, I just can’t wait that long personally. I need to have them get things started faster. We have a quick training program, but being able to help the customer and educate them on the technologies. But, certainly, how can we make it more duplicable? How can we take those best practices and continue?
DAN MOCERI: As a systems integrator, we don’t normally use the term RMR. In the same context we look at our service base, and the base was up 23 percentfrom ‘13 to ‘14. We expect it to be up another 20 percent, ‘14 to ‘15. While we still install a lot of product, we’ve been really focusing on services where we embed people into customer sites and help them manage their security technologies and some of the business technologies as well. That’s what’s driving the growth of our service business.
JOHN LINDBERG: Our recurring monthly revenue is up 8 percent. Our overall sales were up 16 percent, but the RMR was up 8 percent. We’re forecasting another 8 percent for 2015. A lot of that came from increasing the average RMR per account, as we add more cellular communication and remote services.
TIM WHALL: Recurring revenues up 7 percent, ‘14 over ‘13. We expect it to be up 11.5 percent‘15 over ‘14. It’s an extension of the services that we started offering in ‘14, as well as a couple new contracts we got that we’ve already been issued for ‘15.
KENNETH GOULD: We’re [up] 11 percent, and there’s a very good reason for that. We opened up a “parts-and-smarts” business where the building was under construction, the electricians would put it in, and we would see the RMR maybe a year or two years later. So the investment of what we did with the parts and smarts is now starting to pay off. Also, the Video Doorman Safe Lobby — same situation in which the building was under construction. We get about $750 a month average on those accounts. In fire we’re about $85 with the terminal assignment and all that. So I think the driving force is we were able to take advantage of the construction that was going on in our area. I expect us to go up to about 12 percent to 13 percent.
AJ GOMEZ: Our RMR is up probably 5 percent. It’s a combination of new accounts and upgrading the existing base, as well, with remote services. We have been successful at that. We’re at $45 and $50 a month for customers, as opposed to the old days of $25 and $30 a month. They do add up a little quicker that way. We’ve got a 2G Sunset coming along. We’ll have to contact those people again and help them out with things and maintain them. So it’s a good excuse to get in touch with the existing base as well.