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Market Insight

Security Vendors and the Opportunities of IoT

May 23, 2016

Blake Kozak Blake Kozak Principal Analyst, Smart Home and Security Technology
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The Internet of Things (IoT) has forever changed how people interact with each other and their surroundings. The residential security industry has also been forever changed, as end-users eschew traditional security companies and instead embrace technology-company offerings based on wireless technology and open protocols. As a result of these paradigm shifts, the security industry must maintain momentum by innovating and integrating with the latest trends, including voice recognition, connected cars, builder associations, cloud integration, larger screens, digital signage and alternative low-power wireless.

The following three factors will need to be addressed by residential security companies over the next five years, to reduce competitive headwinds:

Adaptation. Security equipment vendors are now being pushed to adapt their products more quickly. In the past, security equipment vendors had the luxury of not having to change too quickly, either through innovation or end-user and dealer education. Security companies are now forced to evolve and act like consumer electronics companies with continuously changing user interfaces and software applications.

History. Startups are challenging the history and eating into the market share of the residential security juggernauts, because Millennials want something that not only solves a problem and functions flawlessly, but is also streamlined and cool. Despite having 50 or more years of experience, some security vendors are struggling to match innovation with their dedicated channels. So although these vendors have the means to get product to market, implementation is lacking.

Expectations. The overarching consumer expectation nowadays is that equipment will work together. Today the market is flooded with point devices (devices which have an independent mobile application and are not connected to other devices in the home), and each one has its own mobile application. The expectation is that there will be open ecosystems, not closed off solutions limited by brand. To remain relevant residential security vendors are now required to be agile, innovative and in touch with end-users. Equipment suppliers that continuously bring products to market after dealers express a requirement will lose revenue. Dealers require a supplier that can provide product more quickly and on pace with current demand.

The consumer IoT home-security ecosystem includes, fire alarms, intruder alarms, garage and gate operators, electronic locks and home closed-circuit television (CCTV) security.  The U.S. market for these devices was worth about $260 million in 2014 and is forecast to grow to $645 million by 2019 when 17 million smart and connected devices will be shipped for professional installation alone. Unit shipments of connected and smart DIY devices are expected to reach nearly 45 million devices in 2019, comprising $2.1 billion in revenue. In comparison, the EMEA market for professional smart and connected devices was worth about $25 million in 2014 with 700 thousand shipments. Unit shipments for DIY connected and smart devices is forecast to expand from 960 thousand units in 2014 to more than 4.6 million in 2019. Globally there will be 44 million smart home service households (up from just over nine million at the end of 2014), which will be worth almost $5 billion a year in service revenue.

Energy management is another popular category for smart-home technology, and it is often viewed as a way to up-sell new services to residential security subscribers. There is also the potential for business partnerships, in which residential load is controlled by service providers in partnership with utility companies. Overall, alarm system functionality has evolved at a pace that rivals that of smartphones themselves, and users can now control multiple elements of their homes -- from activating alarms to opening garage doors or monitoring security cameras – anywhere in the world, as long as a secure Internet connection is available.

All of this extra functionality requires additional equipment. For example energy management requires a connected thermostat, video requires cameras and hazard detection requires various sensors. The bottom line is all of this extra equipment costs money, which many homeowners cannot afford.

Another industry challenge is educating customers about the latest technologies, as a first stop in increasing sales. End-user education must focus on why the technology is needed, how to use the technology and cost savings that come from using the technology.

Privacy, security and interoperability and other concerns are also being raised. When it comes to privacy, the willingness of end-users to share information varies greatly. Many customers are more than willing to share data about climate control and energy consumption, but sharing data about location and personal habits is more contentious. Although security concerns might not deter an end-user from making an IoT purchase, it largely depends on the device being purchased. Door locks and cameras are of highest concern, while convenience and life style devices such as window dressings and appliances are of less concern.

The IoT will benefit the residential security industry in several ways. First IoT brings new routes to market such as MSOs, DIY and utilities. Second, although the value added by connected-home systems varies dramatically, they undoubtedly make a dwelling more attractive to buyers and can increase the marketability of a home significantly, which is why more security-system providers are working with builders to incorporate connected systems into new homes. Finally, while smart home systems were once complex networks that often needed hard wiring into the home, more advanced low-power wireless technology can now deliver systems that can operate for years, without even requiring that homeowners change a battery. 

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