How did we arrive here?

I entered the alarm industry in 1968. I was a freshman in college and worked for my brother in law in a new central station he had started in his basement. It was a good job for a student. Monitoring alarms was a 24/7 endeavor which coordinated well with a full-time student load.

The alarm industry, at the time I entered it until 1980, was primarily a mom and pop type affair with the addition of a handful of national companies (ADT, Burns, Honeywell etc) and scattered regional companies. All the larger companies were primarily in the commercial sphere, which was the only area where monitored accounts existed.

As we entered the 80’s, alarm equipment became available to connect the alarms to customer phone lines for monitoring. Alarm companies were then able to sell alarm monitoring to the residential home owners and charge a monthly fee for the monitoring. We spent several years fighting with the phone companies who wanted us to pay for a special equipment on a monthly basis to protect their network from our equipment. That situation quickly resolved itself after the breakup of AT&T in the 1983 consent decree. Monitoring was like dessert, a nice addition to the meal, but not considered a mainstay of the core business. Growth in residential alarms in the early 80’s was very small, accounting for under 1% of the market. Brinks entered the alarm market a few years later with a subsidized installation program for alarm systems.  Initially all the small alarm companies were in a panic, because they could not afford to put in alarm systems below cost with the idea that after 18-20 months they would become profitable accounts. They needed the accounts to be profitable by Friday! What actually occurred was that the Brinks’ program caused an explosive growth in alarm system sales industry wide and small companies participated and profited by the growth. As a result of that market penetration monitoring became an important component of the revenue stream for all alarm companies.

By the mid 90’s the residential market penetration was at 20%, and many small alarm companies began to grow and accumulate a growing number of monitored accounts. The larger companies like ADT, Protection One, Monotronics and Security Link began to buy smaller companies’ monitored accounts. During this period my own company, Security Holdings Inc, bought 42 alarm companies. At the time we sold our alarm company to Protection One in 1996, we were the 13th largest company in the US. The exit strategy for most small companies was to build up their RMR and sell the accounts for a big payday.

By the time we entered the 2000’s, many of the medium and smaller sized alarm companies had disappeared, taking advantage of the “crazy“ money being spent to buy their accounts by the large national alarm companies. Some of the companies who sold their accounts continued to work as “dealers” for the companies that had purchased them, but many others left the industry altogether. The technical resources of the industry had effectively been hollowed out. The structure of the small and medium sized alarm companies had also changed. Many became more or less “marketing” companies. They sold alarm systems at or below cost and sold the monitoring contracts to the larger national companies. Such companies tended to be more sales heavy and light on installation and service personnel and expertise. Most did not accumulate monitored accounts and their revenue was almost exclusively from the installation of systems and selling the monitoring contracts.

By 2010 the landscape changed in a dramatic manner. Comcast, AT&T and Time Warner entered the monitored security arena. Even though they initially struggled with the technical side, there was no doubt that their name recognition and national customer base would create a formidable competitor in the security space. Today they have overcome their initial technical issues and now have a firm presence and platforms that are quite robust. They have been joined by Amazon and Google that have now augmented their home automation platforms to include security, which further puts pressure on all alarm companies for industry market share as well as putting serious downward pricing pressure for traditional alarm monitoring services. Next time I will talk about what the playing field looks like today and how we can prepare to compete (or survive) in the future.