Verizon's home security cards revealed--Commentary from a security industry luminary

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01/06/2011

I have been following Verizon's nudgings around the security industry since I met one of the company's marketing folks at ESX in June. And now that they've unveiled their new Verizon Home Monitoring and Control solution at CES in Vegas, I've got the story on that as well (just take a look at our top story on today's newswire).

In my research on the solution and in my interviews of the key players and industry commentators, I turned to security industry mainstay, George DeMarco who is the chairman of ESX.

George assured me he'd been talking about this kind of thing for quite a while and promised to get back to me as soon as he'd had a chance to do a little looking around of his own. As promised, George got back to me in an email at midnight of Jan. 6, the day CES dawned in Vegas. As luck would have it, I just happened to be going through my work email at the time (George and I are THAT devoted to security!) I've included select portions of George's remarks in my general Verizon story, but I felt that his response--more than just a simple few remarks--constituted a cogent and thought-provoking look at the way the winds are blowing. So compelling was George's response that I've decided to include it in its entirety below. Please enjoy George DeMarco's take on the changing state of the security industry, and what we should all be thinking about.

The electronic security industry has been going through a metamorphosis for some time. This is a result, in my opinion, of the advent of Fortune 500, multi-national and large, well-funded companies over the last ten years. Recently, we had Ascent Media, a content provider for media and entertainment services, entering the security monitoring business in a huge way. Now we have Verizon, with a market cap of $106 billion, announcing their official entrance into the "connected home" arena, offering cameras, motion sensors, smart door and window locks and energy efficient devices.

What we are witnessing is the evolution of the industry, being driven by new players focused on penetrating a very large market opportunity or increasing their customer share. Energy savings and remote access into the home will become a huge driver for homeowners in their buying decisions and Verizon recognizes this value proposition for their customer base. It is fast becoming a race to capture the attention of customers interested in convenience, savings and security, and consequently capturing the recurring revenues associated with these services.

ESX chariman George DeMarco

Technology is allowing suppliers and service providers the ability to deliver more desirable products and services that offer more powerful solutions for end-users. I believe these newest non-traditional players are "thinking on the fringes" of the box and are ready to storm the castle so to speak. The question is can companies, such as Verizon, deliver that personal touch expected by so many end-users. And, of course, from a regulatory aspect, is Verizon prepared to go it alone or will they be partnering with the industry. The industry says past history has proved that these companies have failed miserably; however, past history is no guarantee of future performance. From my viewpoint, I think competition is a good thing ... just don't underestimate your competition.

Think about this ... Verizon has 93 million customers nationwide. This number is extremely compelling as they develop their go-to-market strategy and uncover their execution results. How many of their customers own homes?  How much will it cost them for lead generation? How effective will they be penetrating their own customer base? What is their current bundling strategy? What is the percentage of customers that choose all their available services in a bundled offering?

This is where I offer words of caution ... be careful, be very careful. At some point, they will get it right and many alarm dealers and integrators will simply say what the heck happened. The current business environment offers a great opportunity for long-time industry professionals to reevaluate their game plans and consider writing new play books to effectively compete at a higher level, no matter who your competition is, today or tomorrow.

Comments

This may not be a"popular" answer but it seems to need a realistic answer re Telcos in the Security space.

I'll focus on 2 things

1. Technology and the Telco's advantages
2. So what do we do in the face of this challenge?

***Point 1-Technology:

Technology, simple linked connectivity via web, IP - its was inevitable that the already tech connected and savvy Verizon would do this.

Telco entry into the Security space is very different today than the past attempts from Utilites like telcos because, as Verizon's fios bundles show Telcos now have the easy and wide spread ownership over connectivity, necessary infrastructure, networking power, bandwidth management, wired, fios (fiber), international reach, wireless capability, understanding and managing types of services and signals like video, digital, analog and integrating them as "if then". For Verizon et al, its simply just another IP-network deployment to be added over their existing infrastructure.

We can relate to this as the task because of how we have shifted our systems deployment through the IT side of our customer's connectivity and networking so Verizon's comfort with know that's all they need to do should not surprise us.

With offerings like bundled fios connection, verizon simply means adding just another channel.

They already are expert in specifically identifying subscribers and managing their them. In this case, unlike the past, it really may be a simple matter of adding the option and then harvesting it through their existing capabilities in managing data via IT-networking.

I'm not sure that a fight against this trend can be mounted or succeed. Given the changes in connectivity, IP involvement, network structures, interoperability, enormity of managing so many varied bandwidth issues, CCTV, you name it that are now how security management systems get the job done, the Telcos now already own and have all that interconnected technology management in place. Video, ISP, web, wireless, land line, even wireless hot spots that replace the "cable-fios" set top boxes, phones in place, lines in place plus the server and cloud capacity to make it all work.

In fact, the wireless phone with the new G4 network has the infrastructure to easily join into the security management zone, carry and manage all of these signals accurately, tap into annunciate, notify, interface commands to systems, record, archive recall video or other activity on demand fast and allow for immediate annunciation/interactivity/integrated reaction.

***Point 2. So what do we do now?

What Verizon et al do not own is the knowledge and specific licensing for low voltage home or commercial security.

What they do not own is the sales analytical skills to design,tailor, create and then sell the need-solution services that Physical security management is all about.

They surely does not have the people side of a central station monitoring-response ability in place or infrastructure in place nor would they want to spend money to build it.

Can you see them trying to understand codes, AHJ's and UL listed central stations or other requirements?

We have and offer that expertise and infrastructure and can partner as the provider and even manager of that side of things so they don't have to expend a fortune trying to do so.

That's a giant joint venture ROI-Profit-Time to Market partnering chip in this whole equation re Verizon going into the security business and its our chip. In one sense, we own the key to Verizon's ability to gear up and make a profit without having to hire a gazillion people. Let go use it proactively via partnering and this chip being the reason for and how we make that partnership happen.

If I were seeing this trend, I would be going to my telco and proactively partnering, offering my security expertise as their key to what they are missing (above). That lets them do the tech innovations and remain in their comfort-expertise zone and YOU-We still do the expert provider side of the success equation, our comfort-expertise zone.

In fact, this may even be something that should be industry wide initiative that can assure continuing value and growth for us who are in the alarm, physical security industry instead of a giant head on clash.

I'm thinking that if you -we do not do this, Verizon will gear up and hire the expertise, sales, tech folks to support them as they did when they switched from DSL to the IP based fios. They will evolve to make this happen if we do not show them why they do not have to do so with us and our expertise as a joint partner.

We can easily pre-empt that need in the Verizon game plan if we become their "expert security process team" and they deliver their "expert" connectivity and message-signal management, their real area of expertise, not security.

Fast and exponential growth can be theirs and ours given the common sense of such a partnership.

Verizon is a profit oriented company and, in this instance, we all hold the real skills and understanding needed for them to be in the business of security. Partnering rather than investing in re inventing what we already have is clearly in their best economic and profitable growth interests.

***Conclusion - So, rather than fight the "giant" and their capabilities and cash availability, we instead pro actively go create this win-win partnership with the Telcos.

Technology is the key and Telcos have all of it under "one roof" working together, managed together, interoperable together and converged together. What they do not have is the true understanding of what security is all about, what consumers need and we do.

In essence then, we have and hold what they need for success.

Neil Licht, 25 year security industry veteran
CEO, Here We Are,
Proactively Managing Change to Thrive and Survive in our Web Based World

callhereweare@verizon.net
http://www.wix.com/ndlicht/hereweare

Mr. Licht's comments pertaining to Verizon's entry into the home security market are sobering if all security dealers and installers were alike. In that light, the comments of Mr. deMarco and Mr. Licht would indeed tend to prompt small security dealers to be very concerned with regards to Telco giants putting them out of business. And while it is well-worth being mindful of their advice, all is not lost for private security dealers. It all boils down to knowing your specific market and where its possible points of intrusion from outside sources are possible. As an afterthought, that is analogous to what private, non-affiliated security dealers and installers do...they get to know their customer's homes and businesses so that they know the potential weaknesses and take steps to eliminate unwanted intrusion. The "mega" security dealers and the telcos who employ a cookie-cutter sales and marketing approach to premise security will continue to garner large chunks of the market for themselves simply due to factors relating to customer ignorance of what "security" really means and, of course, those customers for whom the bottom line/lowest cost is the most important criterion. Security dealers would be wise to fight where they can fight, but be willing to cede certain inevitable losses in the residential security market to the major players in that space.
But there are significant market segments that the major players in the security business and the telcos will be harder-pressed to penetrate. Security integrators, and "integrators" is a key word here, can help themselves out tremendously by identifying their potential markets and fortifying their presence in those markets to prevent intrusion. A "one-size-fits-all" security solution as a mass-market approach has worked exceptionally well for the major players in the security business because most residential security system customers don't comprehend the many shades of home security and they don't understand, until too late, the value of partnering with a security provider who can offer what the telcos and large security companies can't-- prompt, professional onsite service that doesn't rely on a poorly-trained call-center operator to provide troubleshooting and technical assistance that is beyond the abilities and knowledge of most homeowners to implement. I have, on a number of occasions, gotten out of bed and driven a couple of hours in the middle of the night to help both residential and commercial/industrial customers in need. Responsiveness, more than any other thing a security provider can do, builds customer loyalty and it's not something the security Goliaths can or will do. Yet, security providers would do well to realize the market strengths of the majors and not try to compete head-to-head with them in an area that they dominate.
Instead, specialize. Identify your market. While the market that Verizon will likely reach with its connected-home services consists of younger, more tech-savvy customers, there are still millions of potential middle-aged (and older) customers who don't own Blackberries and are not interested in controlling their door locks from their iPhone. They don't want or need cameras in their homes. They just want to know that their home is secure in the basic areas of burglary and fire protection. They want to know that if their system starts beeping in the middle of the night they can call a technician who can tell them how to silence it and will be there the next morning to correct the problem.
With regard to commercial and industrial customers, we rarely deal with companies who purchase integrated security solutions based on an advertisement they saw on television for a $99 security system. We thrive in the commercial and industrial areas because we offer burglary protection, access control, surveillance, communications, and other technologies that are facility-specific. And we build loyalty because "responsiveness" is our mantra.
Mr. deMarco and Mr. Licht raise valid points and their comments should indeed cause concern for security providers who have all their eggs in one basket, but all is not gloom-and-doom for private security companies and I don't believe that Mr. deMarco or Mr. Licht were implying that the sky is falling. I believe both gentlemen would agree that there will remain significant opportunities for companies who know their market, diversify, and position their companies to take advantage of their intimate knowledge of their local market. The one area where I disagree with Mr. Licht is the implication that we need to parter with a telco before it is too late. That may turn out to be pragmatic advice in the long term, as Verizon is structured more appropriately to enter a market where other telcos have failed, but I don't feel that security dealers should take a fatalistic approach just yet and partner with a telco to ensure survival. As most security dealers who have been in the business for a while and have seen others come and go already know, it's exceptionally difficult for a newcomer (even Verizon with all the gee-whiz tech-stuff) to root out an entrenched security provider that offers exemplary service and has the respect of his customers.