Barnes Associates/SSN release results of 2012 Wholesale Monitoring Study

YARMOUTH, Maine—By most measures, the economy is slowly improving. But that doesn't mask the pain of the past four years, and for many sectors—the security industry included—the recovery has been a case of two steps forward, one step back. Caution still abounds and it continues to temper growth in jobs, investment and spending.

In the face of this sluggishness, how has the monitoring industry fared when it comes to keeping and adding customers? To find out, Barnes Associates, a consulting and advisory firm specializing in the security alarm industry, teamed up with Security Systems News for a second annual survey of wholesale monitoring companies.

The survey tracked account volume from 2007 to 2011, essentially following a time line of the economic downturn. After evaluating responses from 20 wholesale monitoring firms, including the biggest players in the industry, Barnes Associates delivered upbeat numbers for the segment: 5.7 percent growth in 2011, 6.4 percent growth in 2010, and 10.9 percent growth in 2008. The number of accounts handled collectively by the 20 respondents rose from 2.13 million in 2007 to 2.63 million in 2011.

The only bump in the road occurred in 2009, when the number of accounts declined by 26,651, or 1.1 percent. Michael Barnes, founding partner of Barnes Associates, said CMS' sale of a central station to Vivint and the movement of those accounts out of wholesale monitoring distorted the figures for that year.

Barnes said the vast majority of security alarm companies use a wholesale monitoring provider, making it an “extremely important” segment of the industry. He said the data from survey respondents served as a barometer for the health of companies large and small.

“While many large alarm companies outsource their monitoring, it is primarily the many thousands of smaller alarm companies that comprise the majority of wholesale monitoring company users,” he said. “Therefore, understanding the growth of the wholesale monitoring segment provides a detailed collective view into the overall growth of these smaller companies.”

Historically it has been very difficult to survey small security alarm companies about their growth simply because there are so many of them, Barnes said. The wholesale monitoring survey provided a way around that.

“There is a huge amount of data and clarity on the top players in the [security alarm] industry,” Barnes said. “The top 100 have an approximate 50 percent share of the industry RMR. But the other half of the market is controlled by the many thousands of smaller alarm companies. This survey, when coupled with the data on the top players, has given us an unprecedented view on a very large portion of the overall industry.”

Adjusting for the large players that use wholesale monitoring and for the effect of Vivint's change in monitoring in 2009, Barnes said his company was able to establish that the collective half of the industry in the hands of the smaller alarm companies has continued to sustain growth, even during the recession.

COPS Monitoring and Rapid Response, two of the largest wholesale monitoring companies that responded to the Barnes/SSN survey, confirmed that they were able to keep adding accounts throughout the economic downturn. But both also said the market was getting more competitive, and their dealers had to get more competitive as well to grow.

Russ MacDonnell, chairman and CEO of Syracuse, N.Y.-based Rapid Response, said the company was approaching 600,000 accounts and had posted double-digit growth for the past five years. He attributed the gains to improved efficiencies and the work of Rapid's 1,200 dealers to “up their game” to meet the needs of customers.

“We have not had a price increase since we founded the company in 1992, and that means that you have to be more efficient in managing and running your business,” MacDonnell said. “I don't think it's any different for the dealers out there, whether it's commercial or residential. Customers are more demanding and are more price-conscious, so you have to show them you're going to give them great value for whatever their investment is. I think our dealers, many, many of them, over the past four years have developed better, more comprehensive offerings in response to what customers want.”

Don Maden, executive vice president of Williamstown, N.J.-based COPS Monitoring, said the company's growth rate in 2011 was “pretty close” to the 5.7 percent baseline in the Barnes/SNN survey. While the company typically adds four out of five new accounts through organic growth, he said, it also realizes it has to win more accounts from existing business in the new economic climate.

“This isn't just 'We have 100 dealers and everybody adds 50 accounts for the year,'” Maden said. “A considerable chunk of our net growth comes from our ability to take market share. But your deletes are happening the same way.”

He cited a recent case in which a COPS dealer in Hawaii sold 2,500 accounts to a person who does their own monitoring. Maden said the parting wasn't acrimonious; the dealer just decided to sell his business and COPS wasn't needed in the equation anymore.

“People start doing their own monitoring or form an alliance with another central station,” he said. “Every central has the same battle. You've got to create a spread to overcome that.”

In this increasingly competitive marketplace, MacDonnell and Maden said the Barnes/SSN survey provided a beneficial tool for gauging the progress of their companies.

“It's always good to measure yourself against your peers,” MacDonnell said. “For these 20 companies, it gives us some perspective on our growth and our account base. … We continue to believe that we have to have more robust, feature-rich offerings for our customers to keep them as customers and to meet the demands of the marketplace. The survey shows me that the industry is growing, and we're one of the leaders in that growth.”

For COPS, Maden said part of what the survey does is to validate—or invalidate—what the company suspects is happening in the industry.

“It helps us prepare for the future,” he said. “We pay very close attention to the trends. Our basic philosophy is not to be the company that pioneers a new technology. We don't like introducing these intrepid leaders, only to have them not make it. A lot of dealers are relying on us to pick the right strategic partnerships with manufacturers.”

Barnes said that given the scale, technology and overall capabilities of wholesale monitoring companies, it is easy to see why they are collectively growing.

“They are among the industry's highest-quality service providers, and they do so at incredibly competitive prices,” he said. “This combination allows their alarm company customers to have confidence in the monitoring service being provided while they stay focused on the primary activities that create value: selling and installing new systems and growing the RMR base.”