The uncertain future of residential monitoring
By Victor Harding
I have read several articles in the U.S. security media recently that talk about how great the residential side of the alarm industry is these days.
This position contrasts sharply with what I hear when I talk to independent alarm dealers in Canada, most of whom are now spending an increasing amount of time on commercial projects and ignoring the residential market. I have to believe it is because the residential market in Canada these days is a difficult place to gain traction and make money.
Supposedly, the number of residential accounts in the U.S. increased by 7% in 2018. A 7% increase in one year is huge, almost unbelievable. I would like to know who benefited from this increase.
Was it the big national companies, the mid-size regional dealers, the smaller dealers or the telcos? My bet is that the smaller alarm dealers did not experience a 7% increase in residential monitored accounts. Also, what is happening in the U.S. industry might not also be happening in Canada. The U.S. economy is on a roll.
The articles I read talk about the enormously high percentage of customers going with the connected home concept and that this is a major reason for an increase in residential monitored systems. There is no doubt that interactive panels have jazzed the residential alarm market up. However, how many more people are buying a fully-monitored alarm system simply because of interactive panels is another question.
I also tend to think that the U.S. market has moved faster than Canada on the whole subject of the “connected home.” Relatively speaking, the connected home is less expensive in the U.S. Having your alarm dealer install cameras and door locks and tie them both into monthly monitoring at $45-$50/month makes for an expensive alarm system.
But the statement that really got my attention is one I have read and also heard at conferences recently — that the potential threats to the residential monitoring market from the cable/telcos, DIY and the Amazons and Googles of this world are not really threats and that in fact all of these “outside” players have actually helped the residential alarm dealer.
And anybody in Canada who thinks that the telcos here are not taking their “pound of flesh” is simply out of touch with the residential market. Most smaller and mid-sized dealers tell me they simply cannot compete with the deals that these Canadian telcos can offer and have switched their focus to commercial.
Regarding the idea that DIY is no threat, recently two of the larger DIY companies in the U.S., SimpliSafe and LifeShield, have been acquired for good prices. If DIY is not a threat, why would private equity and ADT move so quickly to buy them up?
Granted I don’t think the Canadian market is as well developed with DIY as the U.S. Independent dealers in Canada could offer DIY systems, but I have not seen many do that. What worries me most about DIY is my theory that there is a percentage of customers who will be totally happy with a DIY system. They may well get someone to help them install it, but it will go unmonitored. DIY, in my mind, is a threat.
Also, Amazon and Google have just recently added to their initial products, Ring and Nest, and are now offering the products for a full security systems. I believe that a portion of the marketplace will install these systems but will not opt for monitoring. They are less expensive than professionally installed systems and if the customer decides to take monitoring, it is only $10 a month.
On top of all these outside threats, there are other issues facing mainstream alarm dealers in tackling the residential market today:
• More and more, they are being forced to underwrite the installation of cell units in a high percentage of homes as home-owners drop their land lines. This is not always a financial win for the dealer.
• Dealers of all sizes tell me about the hassle of dealing with the phase out of the 2G network. Replacing 2G with the next generation wireless is not always a profit generating exercise. Then, in the not too distant future, 3G will have to be phased out.
• Residential customers are questioning the value of an alarm system if neither the police nor guards can or will respond in a timely manner. Police across the country are gradually insisting on “verified alarms” before responding. While this is a positive for the industry, this development costs the dealer and their customers money.
• Inherently dealers know that know that overall the “Cost to Create” a new residential account today is much higher than for a commercial account.
• I hear from dealers how more difficult it is to actually service and get paid for residential service today.
In Canada, I think the reality for small, medium-sized and even the large alarm players is that the residential market is tough sledding.
Victor Harding is the principal of Harding Security Services (email@example.com)
This story appeared in the May 2019 edition of SP&T News Magazine.