Security industry share of smart home market to be cut in half by 2019, report says

Early mover advantage that security companies now have will give way as telecoms, cablecos gain more market share, ABI Research says
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Wednesday, March 19, 2014

NEW YORK—Monitored security companies will stay at the top of the U.S. managed smart home market for the next five years, but their market share will drop more than 50 percent by 2019 as competitors such as telecoms and cablecos leverage their own strengths in the space, predicts a new report from ABI Research.

Smart home adoption in the U.S. is poised to grow 37 percent between 2013 and 2019, according to ABI, a technology market intelligence company based here.

Jonathan Collins, ABI principal analyst, told Security Systems News that all players are expected to see growth in that rapidly expanding market over the next five years. However, he said, “what we see is a far more evenly distributed share of that much larger market towards the end of that forecast period.”

The report, titled “Home Automation Subscription Pricing Models,” examined the offers, assets and competitive positioning of the cablecos and telecoms, retailers and monitored security players in the nation’s managed smart home market.

Collins declined to share specific numbers in the report, which is available from ABI.

However, he said professional security companies’ current share of the market is “north of 50 percent.” That market share is expected to be halved in five years, he said.

“There are certain aspects around bundling of smart home services with monitored security that limits the growth rate of security players … a bit more over the next few years than it will other players,” Collins told SSN.

He explained in a March 18 ABI news release: “The potential for each vendor in the managed smart home market stems not just from their current offerings but also from their ability to introduce smart home services to new and existing customers. Monitored security has long seen its market penetration stymied and the ability of smart home applications to widen its appeal is uncertain at best.”

Professional security companies have had an “early mover advantage” in the smart home market, according to the news release, but that advantage “cannot match some competitor’s core competencies which are better suited to selling smart home products and services.”

Why are telecoms and cablecos “better suited” for that task?

“A number of reasons are detailed in the report,” Collins told SSN. “One key area would be the ability to package smart home services along with existing services” to the very large number of customers such communications companies have.

He continued, “While security players can absolutely leverage their customer relationships, they’re not addressing that installed base that some of these rivals have. They don’t have an installed base like a telecom.”

The report concludes that security companies “will increasingly face the choice between continuing to bundle smart home service with monitored security or creating separate, entry-level smart home offerings.”

It notes that various service models are being tested by the vendors within the market, in addition to the bundled service model.

For example, as SSN reported last summer, Comcast Cable has a new offering called Xfinity Home Control, for customers who don’t want a security system but do want home management features.

And, Collins said, “If you look at companies like Vivint, for example, they’re very keen to not just be seen as monitored security player. They see the importance of this smart home monitoring and the potential to drive a range of services.”

Collins noted that Vivint, which bills itself as one of the largest home automation companies in North America, still requires “that monitored security piece alongside their smart home offerings.” But he said that in coming years there will be “this pressure [on security companies] to separate the two.”

Other features that players in the smart home market are trying and testing are varying service cost, functionality, support and contract length, according to ABI.

Such offerings will challenge security companies’ traditional offerings, the report noted.

John Loud, owner and president of Kennesaw, Ga.-based Loud Security, after reading the news release on the ABI report, told SSN: “It’s interesting, but it leaves me with many questions.”

Loud, who is the immediate past president of the Georgia Electronic Life Safety & Systems Association, said his company has felt little impact thus far from telecoms and cablecos as competitors, even with AT&T in his backyard in Atlanta. AT&T launched Digital Life, its professionally installed and monitored home security home automation offering, in Atlanta in 2012 and has located one of its two central stations there.

Loud calculates he’s lost minimal customers to such companies. In fact, he believes the big players, with their home automation ads, have helped him.

“I can guarantee you we are doing a whole lot more interactive services and offerings at a higher RMR rate than I was doing two years ago, and I clearly have to thank the Comcasts and the AT&Ts and ADT with Pulse” for that, he said.

Still, Loud says he has some concerns about the competition the telecoms and cablecos may pose in the future. “I think when you really come down to them being in this space, it’s got to come down to them reducing attrition in their subscriber base,” he said. With millions of subscribers, he said, even a 1 percent reduction “becomes a massive number.”

And if those companies offer security and home automation—which has proved to enhance customer stickiness—to bundled customers for a very low price to reduce attrition by keeping them sticky, that “certainly becomes more concerning … for the traditional alarm dealer to face,” Loud said.

However, he said, smaller security companies still retain the advantage of being the local provider of choice. “My thought is it’s local, local, local,” Loud said.

—Leif Kothe contributed to this report