ADT CEO: It's not a 'moonshot' to double residential penetration to 40 percent

NEW YORK—The ADT Corp. CEO Naren Gursahaney has set a bold goal. He wants the newly independent ADT—which began trading on the New York Stock Exchange on Oct. 1—to increase its residential penetration from 20 percent to as much as 40 percent.

But selling security to more than one in five households in the nation is a glass ceiling that companies in the security industry haven't been able to break through for years. How can ADT accomplish that goal?

“I think there's an opportunity for it when you look at it,” Gursahaney told Security Systems News during an interview on the NYSE trading floor this week. “Compared to any other in-home services, we're so far behind [in percentage of penetration]. Broadband penetration is in the 70s, and you've got your cable TV in the 80s, and wireless in the 90s. Twenty [percent] to 40 [percent] doesn't seem like a moonshot, but it's going to take a lot of work, not just for ADT but for the whole industry.”

Gursahaney and other members of the ADT leadership teams told SSN that the company's strategy includes expanding its interactive home service offerings with ADT Pulse, and also better educating the public and investors about home security and home automation.

“We're on the inflection point of huge growth,” said Don Boerema, senior VP and chief corporate development officer for Boca Raton, Fla.-based ADT, which officially became independent Sept. 28 after splitting off from Tyco International.

Boerema and Tony Wells, ADT senior VP and chief marketing and customer officer—speaking after a ceremony Oct. 8 in which Gursahaney rang the opening bell at the stock exchange—told SSN that one key way to achieve the growth is to offer customers broad options beyond traditional security.

Wells said the name of ADT, a company whose security roots date back nearly 140 years, “is an unbelievable brand.” However, he said, “one of the things I'm trying to do is make the brand more contemporary and expand it.

“I think there are lot of ways we can connect with the consumer in a new and different way,” he said. “The interactive nature of Pulse is going to give us some new ways to make sure we have that broad engagement.”

ADT, which serves small businesses as well as residential clients, has nearly 6.4 million customers in the United States and Canada. Wells told SSN that the “vast majority” of residential customers don't yet have Pulse. ADT says that when it launched Pulse in 2010 it was the first security company to offer a mass-market home automation system nationwide.

ADT now hopes to convince more of its existing customers and also new customers that home automation is right for them.

One way is by educating them about home energy management services, Boerema said. “We have four energy trials going on in the marketplace with utilities that can reduce [a homeowner's] energy consumption,” he said. In the trials, in California, Illinois, New York and Florida, consumers are reporting savings of 10 percent to 30 percent, he said.

Wells said, “There's a lot of consumers who never considered automation because they believed that it's something for a custom home or for the rich, but it is so affordable now when you look at it from the standpoint of energy savings and insurance savings [that insurance companies can give homeowners who have security systems]. You put those together and a system looks very, very attractive.”

Boerema said that home health—ADT offers personal emergency response system (PERS) solutions—is another area where the company is broadening its reach.

For example, he said, ADT is doing some tests with insurance companies to see how interactive home health-care services can enable doctors and nurses to do such things as remotely monitor basic vital signs and collect other health data for patients such as diabetics at home, reducing medical costs and improving patient health.

ADT eventually hopes to get insurance companies and Medicare and Medicaid to provide reimbursement for interactive home health-care services, Boerema and Gursahaney said.

“What we want to do is take the product well beyond the traditional panic button, and integrating with the Pulse platform for us just gives you so much more functionality,” Gursahaney said. “But ultimately when you're in the health care space, if you don't get the insurance or Medicare or Medicaid reimbursement, it's tough to get people to pay for it.”

ADT also wants to educate the public more about home security and the interactive home. And that includes investors, Boerema and Gursahaney said.

“I think the challenge a little bit is having people understand about our business because we don't really have something we can compare against,” Boerema told SSN. “There's really not anybody who's in our category that's really public.”

In a live interview Gursahaney did on the trading floor Oct. 8 with CNBC, he said ADT's subscriber-based business that relies on RMR can be “difficult for the investor to understand.”

But the company did an investor road show the week before it began trading, and the buzz created about ADT becoming an independent company also has led to a lot of media publicity. Gursahaney said he welcomes the opportunity to explain about electronic security and the interactive home.

“I think it's about awareness, awareness of ADT but also about monitored security and the value proposition,” he told SSN. “I think as a market leader we've got the responsibility to create greater awareness.”