Self-installed security solutions have the potential to significantly lower the cost of security, create new monitoring use cases, and, in doing so, expand the market beyond the traditional 20-25% of US households that have professionally monitored security.
Parks Associates estimates, conservatively, that DIY security systems and no-contract, hybrid monitoring solutions enabled by DIY security will expand professional monitoring services to an additional 5% of US households.
DIY and smart home products are adding volatility to the market for professionally monitored security and driving changes in the home security business. These solutions do have advantages with lower-cost, contract-free monitoring options that will attract new consumers, but adopting these new offering without eroding the base of traditional customers requires careful navigation of the current business ecosystem.
Impact on Recurring Monthly Revenue
Security services are sold in tiers, with basic security monitoring as the baseline service at less than $40 per month. Basic monitoring connects the central monitoring center directly to the security control panel through either telephone, cellular, or broadband communication, and from that foundation, dealers can market and sell interactive services, home controls, and video monitoring services to increase monthly revenues.
DIY security systems do not command higher monthly fees; rather, since the customer pays upfront for the hardware, dealers do not need to amortize the hardware cost. Generally, dealers pass along the savings from lower acquisition costs in the form of lower monitoring fees. Monthly fees are $20 below those of the professional monitoring market, on average, while the upfront hardware fees are higher. Parks Associates research finds 61% of US broadband households intending to purchase security prefer to finance the hardware rather than to pay cash up front. While consumers are generally more price sensitive to upfront cost than recurring fees, each model can attract different segments of consumers.
Impact on the Value Chain Revenue Split
Traditionally, RMR is split among various players in the value chain. For professionally installed security systems with interactive services, the dealer amortizes the subscriber acquisition cost, less any upfront fees paid by the consumer. The dealer also has to pay the cellular communication vendor, the interactive service provider, and the wholesale monitoring station.
New DIY solutions have business models that monetize acquisition costs through upfront fees; therefore, these solutions do not need to charge higher monthly fees to amortize acquisition costs. These DIY systems also use broadband services rather than cellular services, or use broadband as the primary communications method, lowering communication fees. That method does make them vulnerable to loss of broadband connection, but they do not incur costs for cellular connectivity. They also eliminate communication and interactive service providers from the value chain, further solidifying their cost advantages.
DIY devices and systems will expand the security market among non-owners and are likely to cannibalize a portion of value-driven traditional subscribers. Staving off erosion will require aggressive differentiation strategies to prove the value of professional monitoring over self-monitoring, including aggressive marketing of more fully integrated interactive services, home controls and video monitoring services that deliver services enhanced by these new smart home solutions. Video analytics and context-based monitoring are the types of new services emerging in the monitoring business that can help maintain and even expand professional monitoring in the face of challenges from DIY and self-monitored offerings.
The vast majority of future security buyers want advanced access and safety monitoring services with the system they are planning to buy, but often these intentions to buy additional control devices go unfulfilled. Parks Associates research indicates price sensitivity to high upfront costs is an obstacle to these purchase intentions. Delivering desired products/services at the point of sale will also help dealers attract new customers.
This content was provided to the Monitoring Association in March 2019.
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