Yesterday, Google announced that it will invest $450 million in ADT and work with the Florida-headquartered firm’s 20,000 technicians to sell and install the search giant’s Nest family of smart home products. Parks Associates Research Director, Brad Russell, gives us insight on what this means for the industry.
What does Google’s investment mean for the home security market?
Google’s investment demonstrates clear bullishness for both sides of the home security market, the traditional pro-installed/pro-monitored side as well as DIY systems with monitoring options. A strong 2019 resulted in 31-32% of US broadband households owning a working security system, up a substantial 5% points over 2018. Eight-eight percent of security system owners have professional monitoring today, a slight increase over 2018. While DIY systems contribute to expansion of the sector, this expansion is not at the expense of pro-monitoring. In fact, the attachment of pro-monitoring to self-installed systems contributes to overall pro-monitoring growth.
Google seeks to leverage the channel strength (sales, installers, support, and add-on services) of the home security market to strengthen its long term aspiration to sit center stage for comprehensive smart home services. ADT seeks to leverage: the brand strength of Google; proven product development capabilities; and software strength in artificial intelligence and machine learning. The future of value creation in the home security market will be driven by technological improvements that reduce false alerts, learn the habits of the home, provide predictive recommendations, and take preemptive actions on behalf of the household. This high-level software development has traditionally been provided by the interactive services platform providers (Alarm.com, Resideo).
What does it mean for ADT’s competitors?
ADT will be better able to stave off competition from competitors like Vivint and Comcast Xfinity who have intensive AI development efforts in progress. The partnership will exponentially increase the capabilities of ADT solutions compared to smaller, regional players, or those whose bread and butter has been low cost monitoring services with no advanced technology. Another substantial question centers on the future impact to ADT’s vendors. While Alarm.com (platform services provider) and Resideo (hardware provider) are integral to ADT’s most sophisticated Command and Control solution, their future place in ADT’s strategy is now called into question, depending on the depth and speed of which the Google Nest integration will happen. These software and hardware providers represent the gold standard in home security today, so they are not easily replaced, but all are aware of Google’s capabilities if it has an appetite and incentives to invest.
Will we see more investments like this in the home security space in the future?
Yes, more investments will follow from large publicly owned players, just as private equity money has been flowing into the segment for a while. The recurring revenue business model is proven and reliable. Security provides a backbone for a unified smart home experience. There are other players who have some scale but lack the technological chops and go-to-market strategy acumen to become more serious challengers today. These are ripe for investment.
