INSIGHTS on the Home Security Sector
INSIGHTS: Home Automation and Internet Lead Gen is Transforming the Home Security Sector
The professionally-monitored home security services market is being rapidly disrupted by technology, not only in terms of basic products and services but also in terms of marketing, sales and distribution.
In 2017, approximately 19% of all U.S. households (~23 million) paid an average of $50 per month for home security services, translating to a circa $14 billion total market size. While two-thirds of those households still have traditional security-only solutions, today one-third – up from zero ten years ago – now have as part of their systems advanced home automation technologies such as mobile remote access to security controls, cameras, door locks, thermostats and lights. Market incumbents such as ADT have been upgrading their installed base to its ADT Pulse home automation solution, while other home automation-first companies such as Vivint or diversified Cable MSOs such as Comcast (with its Xfinity Home offering) have been rapidly expanding as well.
This central control technology is meanwhile bringing into reality the long-awaited Internet of Things (“IoT”) ecosystem within the home – with the home security system at its center. Large technology companies including Amazon, Apple and Google, have not only been taking advantage of consumer interest to introduce new “smart” household devices but also link them into new branded smart home security offerings. For example, Amazon, which introduced its voice-controlled smart speakers in 2015, has launched a home security offering as of April 2018. Google, which acquired the Nest smart thermostat brand in 2014, has also partnered with MONI Smart Security to offer a Nest-branded professionally monitored security solution.
As new technologies come to the forefront, the way security solutions are priced, marketed and sold is also changing. Similar to mobile phone contracts today, the cost of the in-home equipment (for which the consumer now has endless options) is being sold separately from the monthly recurring monitoring cost. Consumers, nevertheless, still have the ability to finance the equipment over the life of their contract, as new financing vehicles are being set up between major banks and the large security monitoring companies.
The Internet and digital media is also transforming the industry’s legacy sales and distribution channels. Historically, consumers purchased their security systems from a local dealer/installer who typically represented a regional, generic security brand or perhaps who sold on behalf of one of the very few national brands such as ADT. Today, just as in many major purchases, consumers are turning first to the Internet to research their options, and in that context, small local dealers are less and less able to compete within a competitive digital marketing environment with large national brands and large nationwide dealers. Internet lead generation, which is aimed at identifying in-market consumers, marketing to them through a broad array of digital marketing, and then driving them into a telesales environment, is rapidly taking over how home security services are sold.
In the view of Sonenshine Partners, this wholesale industry evolution – from product technology to sales & marketing – is going to result in significant consolidation of the marketplace over time. Local and regional players will be acquired by national consolidators, technology companies will acquire legacy monitored security businesses, and private equity funds moreover will hasten this entire consolidation. Legacy players, meanwhile, who cannot successfully participate in these market shifts – particular ones burdened by debt, as the security industry has always relied heavily on debt financing – will become restructuring candidates.
If you would like to discuss the home security sector or targeted M&A opportunities within the category, please feel free to contact Marshall Sonenshine (firstname.lastname@example.org) or Rob Cooper (email@example.com) to discuss.