By Barbara Stahura If you offer security systems as an option in your homes, your options are about to change. The reason: The nation's largest home security firms are in the process of partnering with other low-voltage providers to offer integrated suites of electronic services. With demand for monitored security on the rise, security companies think the time is ripe to add services such as entertainment, high-speed Internet access, environmental control, and the like. One result, of course, will be fewer providers to choose from. And while it's too early in the partnering trend to tell just how this will affect home builders, it's sure to have some impact.
Among the alliances that have appeared over the last few years:
Illustration: Stuart Bradford
Riding a Trend
What makes these alliances possible is the growth of structured wiring, without which many integrated electronic services could not exist. A 2000 survey of home builders conducted by Parks Associates in Dallas found that 56 percent of builders now offer structured wiring as either standard or optional. "We've been talking about converging security with add-ons for 10 or 15 years," explains Kurt Scherf, Parks' vice president of research. "But that convergence couldn't really happen until structured wiring." The ubiquity of the Internet, particularly with always-on connections such as DSL and cable, has also helped expand home security offerings, he adds. "Consumers are eager to have this. They like having the ability to look into their homes to check on the kids, and so on."
Another force behind the consolidation wave is that the security industry is maturing, forcing companies to offer a diversity of value-added services. "Security dealers have to provide these other services to remain competitive," says Jess Hoover, chairman of the Custom Electronic Design and Installation Association's (CEDIA) Expo 2001 trade show. "It's diversify or die, through acquisition or consolidation." In fact, "companies are anticipating that the next utility bill--like phone, water, and electricity--will be a data bill."
The home security industry isn't alone in consolidating and creating new supplier partnerships, says Joe Freeman, CEO and founder of J.P. Freeman Laboratories, a Newtown, Conn., testing and design organization specializing in the security and home automation industries. "Consolidation is going on all over," he explains. "It's a trend throughout the United States, not just in the security industry."
William Glasgow, CEO of @Security Broadband, compares the bundling of home electronic services to what has already happened with phone service, where one telecommunications company can now handle local, long distance, and cellular service. For instance, @Security wants to integrate its home security via monitored cameras with high-speed Internet cable access. As of August 2000, several major cable companies, including Adelphia Communications, Cox Communications, and Cablevision Systems, were contributing to @Security's $45 million second round of investment. "They're interested in our product because it leverages the two-way plant they've invested billions in," says Glasgow. The two-way cable technology is now in the testing phase, but if all goes well, it should be available in about two years.
Other security providers are partnering with legacy phone companies. Vector Security's alliance with Verizon Connected Solutions, a subsidiary of Verizon Communications, offers a package called "Verizon Ready," a hard-wired system that supports DSL service for Internet access, satellite TV, in-home computer networks, home theater, closed-circuit TV, and intercom systems. Vector's security systems can be included in the package. Verizon and Vector are jointly marketing the system to builders.
In another kind of partnership, the Middletown, Pa., OnQ Technologies has created strategic alliances with Brinks Home Security in Irving, Texas, and Ademco Security in Syosset, N.Y. OnQ manufactures structured wiring systems. Dave Hanchette, vice president of business development for OnQ, says that consolidations or partnerships like these are simply "intelligent uses of resources." However, he warns, "Some make more sense than others. Some companies are touting the ability to do it all in the residential environment. Many would like to bundle as much as possible. But they have to be sure they don't bite off more than they can chew."
One obvious danger for builders is that consolidation will limit their options--and their markups--when deciding which systems to offer. But Freeman believes the industry will retain enough diversity to provide plenty of choices. "It's like the software industry," he explains. "There's always Microsoft, but there are lots of little companies, too."
Some observers believe that competition between the new entities will lead them to share at least some of their profits with builders who promote their services. "Many [of the consolidated] companies are developing models to offer a single bundled package of products and services," says CEDIA's Hoover. "And they'll build a revenue stream builders can participate in."
@Security's Glasgow says customers will only be predisposed to buy if the product or service offers a price advantage. "Buying three products from a single provider is less expensive than getting it a la carte from three separate providers."