Further discussion on what the future holds for smaller central stations

 - 
03/17/2010
One of the really good things about SSN's new Top5 email blasts is that they give our readers a chance to review important news stories and discussions on timely and topical issues and get up to date on what they may have missed. It also allows them to add their voice by adding comments, or, if they have a lot to say (a posted comment on a story can only be 500 characters, after all), sending an email. I got a comment yesterday on a story I wrote recently on the future of the small, mom-and-pop-type central station. It's turned into a real discussion, now with contributions from Severin Sorensen, president and CEO of Rockville, Md.-based security adviser company Sikyur, Michael Barnes, a partner in investment banking firm Barnes Associates, which specializes in the security alarm industry, and co-sponsors the Barnes Buchanan Conference, Ed Bonifas, who is vice president of Alarm Detection Systems (and president of CSAA, by the way) and now Rob Livingston who is owner/president of Alaska Automation Center, an Anchorage-based monitoring center. Originally, my boss Sam tweeted a comment about central stations becoming redundant from the the floor of the TechSec Solutions show. I picked right up on that and blogged about it. As soon as I got more info, I followed up with interviews and reporting and the 'Death of the mom-and-pop central imminent' story was born. Rob's comments fall in line with those of Michael and Ed, agreeing with some of what Sorensen said, but also voicing gentle dissent. Rob addressed changing technology, as did all the other contributors to this discussion.
I agree with some of this, but DEATH is a little harsh. Sure there is new technology to make central stations more advanced and automated, but finding people to run these is getting shallower. I find that the alarm industry may still be lagging behind technology about ten years. Our company has already put traditional alarm systems as a third option and video and automation up front. With these two technologies (video & automation) the IT world is far more advanced than the traditional alarm industry. Our IT, costs less to run and costs less to maintain. With this said, the Mom & Pops can afford to maintain and their costs are minimal compared to the giants with their proprietary systems and slow growing technologies of traditional security systems.
Michael said that the economies of scale available to larger players really didn't translate into huge savings and that the technology boom making consolidation possible was available to smaller, mom-and-pop outfits, meaning everyone could possibly win.
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. I don't think, however, it is transformative in terms of its effect on the construct of the industry. First, an improvement in monitoring costs of something like 20 percent, while significant, doesn't translate into that big of a difference in the overall costs of handling the ongoing customer relationship. The majority of costs are, and probably always will be associated with field service, customer service, billing and collecting, and overheads. On a typical account, broadly speaking, a 20 percent improvement translates into something like $1 per month in lower costs...often times less. Larger players in the industry have had this type of cost advantage in their monitoring operations for many years. The offset, in many instances, is that smaller players can have a comparable cost advantage in their field service operations, and/or other aspects of their operations. Second, it seems clear that 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 that the smaller dealers will similarly be able to realize the benefits these improvements offer. Overall, I think the effect is evolutionary, rather than revolutionary when contemplating the impact on the overall competitiveness of the industry and its various players.
Ed said there was probably no need to start a fire sale on your accounts and cash out before technology led to mega-consolidation.
There’s a huge ramp up time involved in any type of new technology, especially as it relates to the most regulated portion of our business and that’s fire alarms. Fire alarms--the 2010 code was just printed, the ink isn't even dry on the book and someone's already predicting the demise of the central station? Central stations are important facets in fire protection ... and they're on a three-year code revision and so I don‘t see any major changes coming any time soon. And once you have to have a central station for fire, security’s something very efficient to add, and video and access control are enhancing what the central station does, not replacing it.
Ed also talked in my original story about the importance of customer care from a smaller operation, a point Rob made in his email as well.
You still can’t beat the customer care from Mom & Pops. I see it all the time. Peace of mind isn’t a number in a world wide database; its familiarization with personnel of a company and the service provided. Mom & Pops provide this very well. I’m sure that most people would rather reach the same person every time they called a service they use. I know I do. When I reach someone new I think I’m starting all over again. With Mom & Pops even if you reach someone new you still can get to Mom or Pop for the peace of mind you need.
Thanks to all who chipped in on this discussion.

Comments

The Mom and Pop Centrals will be fine and have no need to be concerned. Cloud computing takes away the IP learning curve and the requirement for additional I.T staff within their facility. An alarm signal from an IP device or panel can appear on their operator screens just as though it had travelled over a POTS line. Granted, the tech's have to adopt and learn about new iIP based site equipment, but that should become easier with time.