What About the Residential Market in Canada?
By Victor Harding
I promised myself that in my SPT articles I would try to stick to what I know best which is advising on mergers and acquisitions; so as someone who is not an alarm dealer and at the same time still commenting on the residential alarm market today in Canada I am breaking my promise.
What prompted me to write about the residential alarm market are several articles I have read recently in US security magazines talking about how great the residential side of the alarm industry is these days. This position contrasts sharply with what I hear when I talk to independent alarm dealers in Canada, most of whom are now spending increasing amount of time on commercial projects and ignoring the residential market. I have to believe it is because the residential market in Canada these days is a difficult place to gain traction and make money.
Let’s go back to what the articles say.
- Firstly supposedly the number of residential accounts in the US increased in 2018 by 7%. Here is what I say to that:
- A 7% increase in one year is huge, almost unbelievable.
- I would like to know who benefited from this increase. Was it the big national companies, the mid-size regional dealers, the smaller dealers or the telcos? My bet is that the smaller alarm dealers did not experience a 7% increase in residential monitored accounts.
- Finally what is happening in the US industry might not also be happening in Canada. The US economy is on a roll.
- The articles all talk about the enormously high % of customers going with the connected home concept and that this is a major reason for the increase in residential monitored systems.
- There is no doubt that interactive panels have jazzed the residential alarm market up. However, how many more people are buying a fully- monitored alarm system simply because of interactive panels is another question.
- Secondly I tend to think that the US market has moved faster than Canada on the whole subject of the “connected home”. The technology was released there before in Canada.
- Relatively speaking the connected home is less expensive in the US. Having your alarm dealer install cameras and door locks and tie them both into monthly monitoring at $45-$50/mth makes for an expensive alarm system.
- Finally, and this is a point that I think applies to many of the new trends that get “ink” in security magazines, I am not sure reality matches what these magazines say is going on in the market. If you were to read the average security magazine you would think nobody anywhere installs analogue cameras, all systems are controlled in the cloud and video monitoring is everywhere.
- But the statement that really got my attention is one I have read and heard about at conferences recently which is that the potential threats to the residential monitoring market from the cable/telcos, DIY and the Amazons and Google’s of this world are not really threats and that in fact all of these “outside “players have actually helped the residential alarm dealer. Yet we know that:
- Comcast in the US by itself has in the last 5 years accumulated more than 1 million monitored accounts all presumably taken from regular small, medium and large main-stream alarm players. ADT has been in business for 100 years and only 6.8 million accounts. I consider Comcast’s performance a threat. And in Canada anybody that thinks that the telcos like Telus, Rogers and Bell are not taking their “pound of flesh” is simply out of touch with the residential market. Most smaller and mid-sized dealers tell me they simply cannot compete with the deals that these Canadian telcos can offer and have switched their focus to commercial.
- Regarding the idea that DIY is no threat, recently two of the larger DIY companies in the US– Simplisafe and Lifeshield – have been gobbled up quickly by bigger players for good prices. If DIY is not a threat why would private equity and ADT move so quickly to buy them up. Granted I don’t think the Canadian market is as well developed with DIY as the US but we do have Think Protection which has gained traction in Canada. The truth is independent dealers in Canada could offer DIY systems but I have not seen many do that. What worries me most about DIY is my theory that there is a % of customers that will be totally happy with a DIY system from Best Buy which they may well get someone to help them install but which will go unmonitored. DIY in my mind is a threat. All those suppliers that show their DIY products in places like Best Buy cannot all be wrong.
- Finally the same people think that Amazon and Google will not be threat to residential monitored systems. I think they will. I think a portion of the population will be happy with just buying Ring’s video door bell and motion activated outside lights and not see the need for a professionally monitored system. To add insult to injury Amazon and Google have just recently added to their initial products, Ring and Nest and now offering the products for a full security systems. I believe that a portion of the market place- lower and middle class- will install these systems but not take monitoring. They are less expensive than professionally installed systems and if the customer decides to take monitoring it is at $10/mth.
On top of all these outside threats, there are other issues facing mainstream alarm dealers in tackling the residential market today:
- More and more, they are being forced to underwrite the installation of cell units in a high % of homes as home-owners drop their land lines. This is not always a financial win for the dealer.
- Dealers of all sizes tell me about the hassle of dealing with the phase out of the 2G network. Replacing 2G with the next generation wireless is not always a profit generating exercise. Then, in the not too distant future 3G will then have to be phased out -and on and on it will go.
- In addition residential customers are questioning the value of an alarm system if neither the police nor guards can or will respond in a timely manner. The police forces across the country are gradually insisting on “verified alarms” before responding. While this is a positive for the industry, this development costs the dealer and their customer’s money.
- Also inherently dealers know that know that overall the “Cost to Create” a new residential account today is much higher than for a commercial account.
- Finally I hear from dealers how more difficult it is to actually service and get paid for residential service today.
My point is this. In Canada I think the reality for small, medium sized and even the large alarm players is that the residential market for them these days is “tough sledding” ,contrary to what is being described in some security magazines. This does not mean that dealers should do no residential business but only that they should not try to compete with all the new outside forces.
Victor Harding
Harding Security Services Inc