'The death of mom-and-pop central station' imminent?

Tuesday, February 23, 2010

YARMOUTH, Maine—Severin Sorensen, president and CEO of Rockville, Md.-based security advisor company Sikyur, voiced a powerful warning for the security industry from the floor of TechSec Solutions 2010: The small central station is on its way out.

During a discussion titled Innovation or Confusion—co-paneled by Axis GM for the Americas Fredrik Nilsson and IPC Technologies president Charlie Pierce—Sorensen discussed how managed services, cloud computing and improvements in technology were going to render the current central station business model obsolete.

“The death of the small, mom-and-pop central station business real estate model will be related to a couple of phenomena,” he said. “One, the increasing scalability of monitoring through cloud computing that is enabling mega-acquisitions, similar to what you’re seeing right now with Tyco, taking out huge players, and being able to leverage, through their technology, economies of scale that they haven’t been able to do before,” Sorensen said. “Secondly, cloud computing, hosted video, managed services, and so on are also starting to creep into traditional areas such that where before it was central to the operation to have your own central station to run the data, now you can move back one more layer into the cloud, where you can still handle and transfer all the exchange, but you no longer need all the real estate that was required before.”

Sorensen said the evolving business model afforded by managed services and cloud computing would remove somewhere between 16 and 22 percent of the operating cost of the former model and harkened “the age of consolidation.”

So does that mean it’s time to start selling your accounts? Not necessarily, according to some.

Central Station Alarm Association president Ed Bonifas, who is vice president of Alarm Detection Systems, said one would never be able to remove the human element found in the small central station. “There is a benefit to having an operator on duty 24/7. There is a needed piece in this whole thing that involves having a person involved who helps decide what to do,” Bonifas said. “In order to integrate dissimilar legacy systems into one seamless platform you’re going to need someone like the small central station operator to pull them together.”

Michael Barnes, a partner in investment banking firm Barnes Associates, which specializes in the security alarm industry, and co-sponsors the Barnes Buchanan Conference, feels the industry is entering into an era of opportunity. “There is no question that these changes will affect how monitoring is done. The ability to have alarm information become so portable that it can be routed, processed, and stored anywhere in the world, in whatever is the most efficient manner, is exciting,” Barnes said in an email interview. “I don’t think, however, it is transformative in terms of its effect on the construct of the industry … Any improvements of this nature will be equally available to wholesale monitoring companies, many of whom appear to be well above the minimum size required to realize the largest gains in economies of scale, and have access to these technologies. This likely means the smaller dealers will similarly be able to realize the benefits these improvements offer. Overall, I think the effect is evolutionary rather than revolutionary.”

Bonifas feels the traditional central station model will be around for a long while. “There’s no question that technology is going to help the central station—that it’s going to make the central station more efficient, that it’s going to make it more cost-effective, that it’s going to be able to do more with less and that that will be good for consumers and will continue to strengthen the asset, which is our monitored accounts,” Bonifas said. “A lot of the managed products out there on the web today are very, very proprietary, in that their server only works with their equipment or it only does access control or it only does video and then only in the parameters that they laid out. And I think that what you’re going to find is that the central station business is going to be one of the strongest consolidators of these technologies. We’re already taking multiple web-accessible services and making them seamless from our delivery from the central station. We’re the people who will be pulling a lot of this together.”