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Dealers should consider automating for the future

While some say home automation is the next big thing, it hasn’t seen tremendous growth, thanks to its cost and complexity – not to mention a downturn in the U.S. housing market. Despite this, some security dealers are finding ways to bring on additional revenue by adopting home automation product lines, though understanding the market and new technologies are critical to success.



May 21, 2008
By Vawn Himmelsbach

Clients looking for high-end systems are often best served by dealing
with an expert in each field, from AV to automation to security, says
Mike Jagger, founder and president of Provident Security.
“We’re right up front with the fact that our expertise is on the
security side, so we’ll suggest that [customers] deal with four or five
or six different companies that can offer specific narrow expertise.”

On the low end, more products are available to users directly,
such as the Sonos digital home audio system. “I see that as the future
of the middle market of automation where you don’t need an installer to
set that up,” he says.

On the high end, dealers act as a
resource for clients instead of straying too far from their core
expertise. “There are products coming out that proclaim to do
everything, and we’ve traditionally stayed away from those products,”
says Jagger. “We want to make sure if we use a particular camera or
motion detector or glass break sensor that it’s the best individual
device for that application.”

Having six light switches and a
thermostat and a security keypad is contagious. “In my
experience, for most people it’s an aesthetics decision, and that’s
where some of the systems fall down because they’re not simple enough
to use,” he says. “We end up talking people out of a lot of things.”
It’s not about dumbing it down, he added, it’s just that people don’t
care enough to want to learn about a million features, so many are left
unused. If clients are only looking for music in every room, for
example, there are much simpler options out there.

Other dealers
are finding an opportunity in the mid-market. In the past, any time you
talked about home automation, you were talking about a quarter of a
million dollars plus. Orca Security, which provides a low-voltage
turnkey system for homes, is targeting the lower end of the custom
market, offering solutions from $40,000 to $250,000. What’s changing is
that a lot of the manufacturers are starting to play nice together –
building standards-based products rather than proprietary ones.

While
the housing market in the U.S. is flailing, business is still booming
in the Vancouver area. “The problem is there’s still a shortage of
labour, so we have more work than we can do,” says Brian Pozzolo,
general manager of Orca Security. “I don’t know if that will ever slow
down.” While the dealer has had opportunities to take on work outside
the Vancouver area, it’s had to turn those opportunities away from a
service and support standpoint.

Some structured wiring companies are
entering the market, as are alarm companies, but electricians, in
general, are lacking the necessary integration skills, and there are no
mandatory requirements to get into the business. Inevitably
construction will slow down in Canada, but the bigger problem, he said,
is the lack of trained technicians – even proper pre-wire techs.

But
online access and integration of online user interfaces is what’s now
driving the market. Snap-Link, for example, can pull up home controls
from a mobile phone or PDA. “Innovations like this are making the
integration side take off,” says Pozzolo.

With wireless mesh
network protocols, such as Zig-Bee, dealers can go back to existing
customers and retrofit lighting controls. Somewhere around 70 per cent
of new homes are offering structured wiring, which is a significant
change over the past two years, and this makes it a lot easier to bring
in basic Internet, voice over IP and programmable thermostats, says
Dave Pedigo, senior director of technology with CEDIA.

While it’s
always a good idea for dealers to diversify, they really have to do
their homework, he added. Before taking on an integrated project, it’s
important to understand the product completely and, if possible, the
theory behind it. “There are certainly tons of opportunities to up-sell
products,” he says. “If you’re going to start with intercoms, a lot are
CAT5-based just like security cameras, so no matter what you do, if
you’re a security company, if you think you’re going to start
diversifying, you need to start getting better educated, especially on
IP.”

The problem is you could have a couple of systems that share
the same protocol and are able to communicate back and forth, but then
you have a lighting control system that uses a different protocol. “You
really have to understand the global picture of everything that you’re
integrating,” he said. “It takes a while to get ramped up to do that
job properly.”

With the downturn in the U.S. housing market – and
cracks in the Canadian market – the more diversified you are, the
better. Eventually the market is going to come back, he said, but we’re
never going to get away from technology. We’re also seeing a
convergence of technology into single-source solutions. “We have
reached the tipping point and we’re not moving back at this point.”

The
home automation market is a strange space, dominated by high-end
solutions where a client is spending tens of thousands of dollars to
put in very sophisticated automation capabilities, right down to the
low-end “hobbyist” market.

“My take is that the home automation
market is not a real market,” says Paul Dawes, CEO of iControl.
“There’s not a clear value proposition to the consumer in that space.”
They’re either disappointed because it costs too much or because it
doesn’t work that well. The technology is getting better, he said, but
the go-to-market strategy hasn’t changed. So the opportunity for
dealers is to sell a better home security solution, which incorporates
more compelling functionality.

“The problem with home automation is
a bunch of companies trying to do everything, and they can’t do
anything well, or it costs $50,000,” he says. “We want to focus on the
80 per cent of things that people care about and only costs them a
couple of hundred bucks.”

Home security is a $30-a-month service
that offers very little value, says Dawes. The next phase of security
is turning that into a value proposition, allowing users to stay
connected. So, for example, if your three-year-old daughter walks out
by the pool, the $300 touch screen in the kitchen starts beeping. “It’s
something that can be added in a low-cost way to a traditional security
system,” he says.

iControl is coming out with solutions primed for
the mass market, a movement it’s referring to as Home Security 2.0.
“It’s the next generation of security,” he said. “[Our system] works
with traditional Honeywell and GE systems, but it augments those with
all this new functionality – access from the Internet or a cell phone,
tying in inexpensive IP cameras, basic lighting controls, basic
thermostat controls.” He believes, for dealers, the learning curve will
be negative. “This is going to be easier to install than a traditional
security system.”

Today about 95 per cent of security systems are
connected to the phone line, though 70 to 80 per cent of security
households have broadband connectivity. “Five years from now,
particularly with the trend toward VoIP and cellphones, the security
market is going to look entirely different,” said Dawes, as we move
toward interactive home security. While the housing market is going to
affect those security dealers focused on new home construction, this
type of technology allows dealers to go back to existing customers,
whether their homes are new or old.

“The housing downturn has
actually turned out to be a plus for us,” he says. “Our focus groups
have shown there’s a large shoulder market of people who value security
but don’t see enough value to sign up for it today.” From a niche
market perspective, there are a bunch of dealers out there making money
installing high-end automation systems, but they’re only doing about 20
a year. “So for the normal dealer out there really trying to generate
more revenue, these new services will allow them to get new value,” he
says.

The business commitment to this space will depend on the
skills of the dealer’s current staff, but it’s a commitment they will
likely need to make in order to adapt to the demands of the digital
home, says Rob Guttentag, vice-president and general manager of DSC, which has partnered with Lifeware. "We’re already seeing a number of
custom electronics companies installing security systems, where in the
past they had that component outsourced."

There is an initial
investment required for new training, and the funds they may need to
commit could include inventory for show rooms. Typically tiered service
agreements (at different price points) can be set up with the homeowner
for warranty and support. Anything from program upgrades or updates to
extended hardware warranty, and even 24-by-seven technical support, are
available within the agreements.

Lifeware software is based on the
Microsoft Media Center platform and provides a gallery view into all of
a user’s connected devices. “We use the television, which is the
absolute comfort zone of entertainment,” said Bret Fitzgerald,
vice-president of marketing with Lifeware. Users can arm their security
system and check cameras while lying in bed watching television. If a
“zone” in the home is breached, it will send off an e-mail or text
message. Typically there’s been an extensive learning curve attached
with home automation, he says, but with this system there are only six
buttons to push.

“Ultimately we’d like to see middle America have
home automation available to them,” he says. “We all know we’re in an
economic downturn, but it’s a great differentiator, something they can
offer that makes people take the plunge.” The percentage of people who
are aware of home automation, let alone use it, is so small, the market
is poised for growth. And new technologies will be incorporated, such
as RFID. “I don’t know how long it will be, but that will significantly
impact security systems,” he says.

Security dealers are a great fit,
said Fitzgerald, since they’ve got a pulse on what homeowners actually
want. So far, the company has about 500 dealers, including a couple in
Canada.

One area of home automation that has really caught fire
in the U.S. and now in Canada is the whole concept of “going green,”
where dealers can sell builders on the theme of green (in California,
any new home that’s built must have some type of lighting control).

“That
is a very easy fix for a security guy – he can upgrade the sale of an
intrusion product by adding lighting and thermostat controls,” says Ed
Constantine, senior product manager for wire, structured cable and home
solutions with ADI. “Sensors are becoming a big thing with lighting,
and security guys are already putting in sensors.” New construction is
a big part of the market, but as that business dwindles, people will
retrofit – and going green is easy to do in older homes with
plug-and-play technology.

But the security guys are always going
to be security guys, for the most part, and they’ll simply pick up the
home automation side as an added venture, he added.

It would
make no sense for anyone who has a security company to ditch security
altogether, says Pedigo. “That is still always an avenue. Does it mean
some companies will move into integration first, security second?” he
says. “At some point that could be a natural migration for some
companies, but I wouldn’t see why they’d ditch it altogether because
it’s always a need.”