About three years ago, security service providers started offering smart security solutions complete with professionally monitored home security services that were enhanced with home automation and energy management capabilities. Consumers were beginning to be able to remotely arm or disarm their security systems and receive event notification through their smartphones or tablets.
At the same time, leading communication service providers, such as AT&T, Comcast and Verizon, were facing mounting margin pressures and looking to find new revenue opportunities, according to a blog from Amdocs Inc., a St. Louis-based provider of software and services for the communications, media and entertainment industries.
Today, these communications companies have gone beyond phone and cable services and are selling integrated home services, which add home security and monitoring to their traditional market offering. And since approximately 20 percent of households in the United States have professionally monitored home security, this should not be surprising as it’s a largely untapped market. It also should not be surprising that communications companies are looking for ways to regain recurring revenue and to reinforce customer loyalty as people increasingly cut their ties to cables and landlines.
“The home security and energy management markets are a great growth opportunity for the communication companies. It allows them to leverage the strength of their technician and data bases and to utilize their significant networks, huge brand recognition and marketing muscle,” said Tom Kerber, director, research, home controls and energy for Parks Associates, Dallas.
It’s so much of an opportunity that NewMarket Insights estimates that smart home services offerings from big telecommunication and cable providers will help drive the market from less than $2 billion worldwide in 2012 to $10.9 billion by 2017.
AT&T, Comcast and Verizon aren’t the only competition electrical contractors face in this sophisticated home security, automation and energy management market. Technology is enabling more companies to offer connected home and home automation value propositions on top of the security platform, according to Yann Kulp, vice president strategy and business development, EcoBusiness North America, Schneider Electric, Palatine, Ill.
“As the technology becomes increasingly affordable, more and more nontraditional security system providers are entering the market because they can sell services with recurring revenue,” Kulp said.
Driving the market
Connectivity, and its ability to allow homeowners to remotely control systems and devices, is dramatically affecting the home security and energy management market, regardless of who is installing and monitoring the system.
“Roughly 60 percent of security panels installed today include interactive services that allow homeowners to control the system from a smart device,” Kerber said.
In addition, the growing ecosystem of wireless products supported by Z-Wave and Zigbee communication protocols is enabling a rich environment of products that also deliver connectivity and the ability to create interactive services.
“Broadband, which is present in 75 percent of U.S. homes, smartphones, Zigbee and Z-Wave, which enable the systems within the home to work together, are the foundational infrastructure technologies upon which the smart home is built,” Kerber said.
Wireless technology is now leading the way with wireless door contacts, motion detectors, cameras and light switches.
“Some security and energy management devices still require low-voltage power and still need power wires to be run to control panels, but overall, the amount of wire is decreasing rapidly,” said Dan Bollin, president, Transtar Electric Security & Technologies, Toledo, Ohio.
Even in new house construction, where it is easy to run wires, installers are using wireless technology because it is actually less expensive in terms of both product and labor costs.
With standardized communication protocols helping drive down the cost of technology, providers are better able to offer homeowners cost-effective solutions and move the market from one with high upfront costs to one with a wide mass-market reach.
“Standardized protocols have been critical to enabling home services, such as security and energy management, to reach a wider number of users,” Kulp said.
Challenges in this market also abound, regardless of whether you are an electrical contractor, a traditional security provider such as ADT, or a communication service provider.
“The largest obstacle is a lack of consumer awareness and familiarity,” Kerber said.
Another obstacle is that many of the high-tech residential systems lack a concise value proposition but are rather a collection of unique capabilities and features, with no single “killer app” to compel homeowners to spend the money and adopt the technology.
“The channels that have face-to-face selling approaches, such as security dealers and integrators, have had early success, but as consumer awareness increases, that marketing advantage will not be as significant,” Kerber said.
Obviously, if homeowners understand how these systems work and integrate, they will be able to make their own decisions without as much help from experts, whether a traditional security provider or an electrical contractor.
Consumer resistance to monthly service fees is another key obstacle to adoption of service bundles in the home. According to Kerber, roughly 15 to 40 percent of households are interested in new home management capabilities and systems but are unwilling to pay monthly service fees to obtain them.
“Even among those willing to pay, price points vary widely,” he said.
To target this market and overcome resistance, companies will have to diversify their offerings and automate and integrate security and energy management solutions to provide consumers with multiple service options.
Schneider Electric’s Kulp perceives the need to install a wider variety of devices that have to interface with an expanded number of systems—such as heating, ventilating, air conditioning, door locks and electrical systems—as a hurdle in today’s security and home automation system market.
“In the security market in particular, trust is another issue,” he said.
In addition to large providers, such as ADT, there are thousands of smaller, mid-sized security dealers that are established and well known in their area.
“As the security market continues to expand, this is an interesting opportunity for electrical contractors to partner with these companies, which already have homeowners’ trust,” Kulp said.
According to Bollin, some nontraditional security companies are already advertising and looking for electrical contractors to install the electrical part of the system.
“Others, however, are handling installations internally,” he said, adding that, overall, he believes that even the phone and cable companies that are entering the security and home automation markets will eventually turn to installers, such as contractors, to use their expertise.
One way for electrical contractors to differentiate themselves from the giant telecommunication and cable companies is through personalized services.
“Contractors will have to leverage the personalized approach that homeowners might prefer over nontraditional installers,” Kerber said.
Another path is to partner with large retailers that don’t have the installation capabilities and offer support to homeowners through that channel.
Kulp believes that electrical contractors certainly have a unique skill set, but that alone does not enable them to compete directly against telecommunication and cable companies in this space.
“Contractors don’t have the bundled services to offer like phone or cable companies, most don’t have the national scope, and most have higher labor costs,” he said.
If direct competition is impossible, however, Kulp agrees that contractors can partner with local or regional security dealers and transform from a pure electrical project company to a company that provides varied services, including electrical, HVAC, home automation and energy management.
“Contractors have the local footprint, and consumers prefer a company in the community that they know and can trust,” Kulp said.
Bollin, whose company, Transtar, offers a full line of electrical services, including residential security, entertainment and communications and safety systems, believes that competitiveness in this market is all about wage rates.
“To position itself in this market, the contractor has to be able to create different rate structures for projects that will compete with the rates charged by the independent contractors that the telecommunication and cable companies hire for their installations,” he said.
Even though this market allows contractors to leverage their core skill set, expertise and credibility with local inspectors and the community, there are still product areas in which they need to improve and make headway.
“In talking about the mass market energy management, security and home automation markets, contractors need to make sure they fully understand metering products, electrical vehicles and charging stations, photovoltaic [PV] systems and generators with Internet communication capabilities,” Kulp said.
It is, actually, this convergence of home automation and electrical systems that is creating a space that contractors can fill with their knowledge and with their partnerships with security or home automation dealers.
According to Bollin, contractors need to learn more about low-voltage security system devices, such as CCTV, alarms, sensors and access controls, as well as home energy management products, including remote, programmable thermostats and lighting controls, and the smart device technology that operates it all easily and remotely.
“Contractors may need to create a new low-voltage residential division with a workforce trained in home security and energy management products and systems, controls, integration and the software that controls it all,” he said.
Finally, contractors need to understand wireless networking and Internet communication protocols in order to help homeowners who don’t currently have many resources for support or for troubleshooting these systems. Because most contractors are not marketing themselves as a resource, they are not the homeowner’s natural choice, according to Kerber.
“There a lot of ways for the contractor to position itself as the go-to resource, such as joint marketing efforts with system retailers in a geographical region or working with larger players in the market,” Kerber said.