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by: Leif Kothe - Wednesday, June 18, 2014

One of the most visible illustrations of the Internet of Things movement, the connected home continues to open up an expanding world of RMR possibilities for the security industry. But according to a recent CNN Money report, it’s also opening up some new and murky legal terrain that, like many Internet-related matters, raises fundamental questions about privacy and information rights.

The headline is as blunt as it is Orwellian: “Cops can access your connected home.” While the article references smart home technology writ large, the piece mostly focuses on the video aspect of the connected home and the potential for cameras to generate footage that could someday be used in legal proceedings.

In the article, Jay Stanley, a senior policy analyst from the American Civil Liberties Union, is quoted as saying, “We’re seeing law enforcement across a variety of areas arguing that they should be able to access information with lower standards than before the electronic age.”

The source also notes that information from the home can provide a “window into the things you’re doing in your private space.”

Still, authorities cannot get their hands on such footage without a warrant or subpoena, as the article notes. A judge authorizes a warrant when the prosecutors show “probable cause” that evidence exists that could be linked to criminal activity. Subpoenas, however, have a somewhat looser standard, requiring only that the data being sought is relevant to a given investigation.

Security companies offering interactive services are typically very sensitive to the notion that customers have lingering concerns about privacy. Andy Stadler, division manager, advanced services, at Security Partners, illustrated that awareness in our conversation a few weeks ago about the company’s recent adoption of Alarm.com’s new video verified alarm service. During the development phase, he said, Security Partners and Alarm.com took pains to erect privacy measures that would perform the dual task of giving central stations the information they need without infringing on the customer's privacy.

This left me wondering: With home automation offerings so widespread, could the implementation of more robust and consumer-friendly privacy measures emerge as a real differentiator? Are the more tech-savvy, privacy-conscious consumers going to start asking companies how long they store footage on their servers? Are they going to ask how and why authorities might access data generated in their homes? Are they going to ask about what cyber security measures are being put in place to thwart hacks?

This will be a fascinating industry topic to watch on several levels. At the business level, it could just be that the companies most attentive to privacy protections will view public skepticism as an opportunity rather than a hindrance.

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by: Leif Kothe - Wednesday, June 11, 2014

It’s that time of year: ESX is closing in on us, and my schedule for the show is beginning to take form. I’m envisioning a high-energy, well-paced show, with an array of educational sessions geared to new and important topics, and a show floor conducive to getting the skinny on the trends shaping the industry.

I wanted to use this space to draw attention to a seminar I’ll be moderating Tuesday, June 24 at 3:15 titled “Monitoring: A Quality Customer Touch Point.”

I’ll be talking to Mike Bodnar, president of Security Partners, Tom Szell, SVP at ADS, and Brandon Savage, SVP of customer experience and operations at Alarm Capital Alliance / My Alarm Center about the new means of customer engagement brought on by the rise of mobile apps and interactive services, and how those in the industry can leverage these advances to minimize attrition.  

With Nashville roughly ten days away, I encourage folks (particularly those on the monitoring side) to contact me in the days ahead to arrange a meeting on the show floor. Given the structure of the show, and its emphasis on education, I don’t anticipate fodder for conversation being in any short supply. Industry shows like ESX offer a valuable stage not only for discussing initiatives specific to a single business, but also broader trends affecting the industry writ large. I look forward to chatting.

by: Leif Kothe - Wednesday, June 4, 2014

Toronto, the largest city in Canada, is mulling the possibility of not responding to private alarms, citing a false alarm rate that looks bad even within that context.

According to a report from the Toronto Star, just 300 of the 20,000 private alarm calls Toronto police responded to in 2012 turned out to be legitimate. As a result, an internal police steering committee is reviewing the cost-savings that could be reaped by scaling back on alarm response (among other services), the report said.  

By doing so, the committee estimates the police force could realize $613,222 in savings, according to the report. That amounts to 10,960 officer hours.

Additionally, the committee recommended police stop taking reports on lost or stolen property whose value does not exceed $500.

From a law enforcement perspective, it’s sensible to do away with writing redundant reports for lost property, particularly when other institutions are better suited to deal with such events. But what could a non-response policy portend for alarm companies who would then have to provide private response services themselves? Not only do companies stand to incur the costs associated with this; they also stand to lose what many in the industry view as the most vital element of the value proposition of an alarm system—the guarantee of police response in the event of a legitimate alarm.  

False alarms (and what to do about them) remain among the most polarizing issues in the alarm industry today. It continues to define, and sometimes roil, the relationship between private alarm companies and law enforcement.

So what’s can be done? The theories about how to mitigate false alarms tend to diverge and dovetail, making the issue especially complex and difficult to navigate, much less reach a conclusion on. Some believe a clear and properly enforced ordinance, bolstered by measures such as cross-zoning and enhanced call verification, will do the trick, with fines for offending alarms helping to offset the losses. Others say private response is the inevitable long-term solution.

Others still, such as PPVAR, believe the relationship between law enforcement and the industry can and should remain intact so long as the alarm installed base evolves technologically and municipalities move toward a verified response approach (that's not to say the industry is in full agreement over what constitutes a verified alarm). The organization also espouses new video verification standards.

The issue continues to be a fraught one, with no definite solution in sight. To be sure, many cities have made great strides with false alarm reduction. But cases such as Toronto are a resounding reminder that there’s room for improvement.

by: Leif Kothe - Wednesday, May 28, 2014

In the modern security environment, there’s no shortage of relatively new, tech-savvy companies intent on revising the traditional alarm monitoring business model. That some of these upstart companies, such as Cambridge, Mass.-based SimpliSafe, are now attracting serious outside investment interest is a development that bears watching.

SimpliSafe, which provides wireless security systems and professional monitoring services without long-term contracts, recently partnered with Sequoia, a prominent venture capital firm in Silicon Valley, to raise $57 million. On its website, the company claims to have 100,000 customers.

SimpliSafe describes itself as a “disruptive tech company working to help people live safely,” while touting its in-house maxim that “being safe should be simple.”

Interestingly enough, SimpliSafe doesn’t fit perfectly into the DIY/MIY mold; it’s really more of a hybrid between those types of systems and more traditional security units. A Wall Street Journal blog noted that a SimpliSafe system with sensors and other burglary protection components, along with a hardware package, typically costs about $260. The company also offers monitoring services for $14.99 per month, but doesn’t require customers to purchase them.

In a company blog, Chad Laurans, CEO of SimpliSafe, said the following: “We’ve eliminated unnecessary middlemen, so we can pass the savings onto our customers and pour our resources into product innovation and customer service.”

Down the road, one of the biggest threats to central station RMR could be the proliferation of increasingly sophisticated DIY/MIY systems that unite ease of use and installation with competitive pricing models. As of yet, there’s no clear writing on the wall that says central station RMR will suffer the effects of “disintermediation” at the hands of innovative MIY products. But a $57 million infusion is no small sum for the security industry. It goes without saying that an investment of this scale can be transformative from a product development standpoint.

It will be interesting to see if this pared down version of security and alarm monitoring indeed proves to be disruptive, and if so, how the monitoring industry responds to the challenge. 

by: Leif Kothe - Wednesday, May 21, 2014

The PERS market has become somewhat notorious for its lack of acquisition activity, a surprising reality given the demographic trends in America that appear to favor such a market.

Many industry watchers on the private equity side attribute the lack of acquisitions to valuations that have yet to ripen. Some hold that as churn decreases, generating longer average account lives, outside investment is bound to pick up. With greater scale and higher multiples, the acquisitions will follow.

Enter Stonehenge Growth Equity Partners, a Tampa-based private equity firm that recently invested an undisclosed amount in MobileHelp, a mobile PERS provider based in Boca Raton, Fla.,—this according to multiple reports, including an article form the Tampa Business Journal.

Stonehenge summarizes its investment strategy on its website, noting that it typically invests in growth stage businesses and “aims to catalyze rapid growth of companies in up-and-coming markets.” The firm also says its typical investment size is between $1 and $5 million, and that it typically targets companies that have at least $3 million in revenue and are profitable.

Like many investment firms, Stonehenge likes the recurring revenue business model.

No question, then, that MobileHelp fits many of the firm’s ideal investment characteristics. Henry Edmonds, president of The Edmonds Group, an investment bank in St. Louis, said it’s very good news that private equity investors are supporting PERS businesses. He added that it’s unsurprising Stonehenge chose to invest in MobileHelp, which Edmonds characterized as a “leading provider of mobile PERS solutions,” that has distinguished itself in an increasingly competitive market.

“I think we’ll see a lot more of this as people get beyond the early stage and nascent products and once they’ve established a niche in the industry as MobileHelp has done,” Edmonds said. “I think it will be likely that these kinds of companies will attract new capital, because it’s an exciting space.”

He described the PERS and mobile PERS market as “the wild wild west,” in a certain sense, because there are a lot of products currently vying for attention.

“But if you can rise above the fray as MobileHelp has done, it’s a great opportunity because of all the current and expected growth in mobile PERS and mobile security,” Edmonds said.

I’ll be following up on this story in the coming days. I plan to piece together an article about the implications of this investment, bringing together the perspectives of MobileHelp, Stonehenge, and others on the private equity side who’ve been monitoring the PERS valuation market for some time now.

by: Leif Kothe - Wednesday, May 14, 2014

Good news for Ascent Capital, the parent holding company of Monitronics, according to a recent research report conducted by Imperial Capital’s Jeff Kessler. The takeaway is that the monitoring company’s Q1 2014 earnings—$484 million in revenue, EBITDA of $321 million—were consistent with estimates and the company is “not experiencing impact from the entrance of cable/telcos."

As a result, Imperial Capital is maintaining the outperform rating and one-year price target of $94, about 43 percent above the company’s recent share prices, recorded in the report at $65.80.

The share price is being impacted currently by skittishness surrounding the big new market entrants, referred to as a “false negative perception about the competition from cable/telcos.”

“We believe that Ascent remains fundamentally strong and is not seeing any slowdown as a result of cable/telcos entering the security space,"  the report says.

As far as the new competitive landscape, Kessler believes traditional security companies remain Monitronics’ primary competitors. He also envisions something of a schism taking place between traditional large security companies and the newcomers who established themselves first in other industries.

The former, according to the report, will continue to command their share of business in the market for critical life safety systems, while the latter will bring to market more of a “home services,” lifestyle-focused package. The report said that existing skepticism about the “commitment to service” of the cable/telcos could hinder their ability to gain share from the largest security providers.

Kessler’s report was extremely thorough, full of many fascinating prognostications about not just Monitronics but the industry at large. Needless to say, a lone blog post can hardly do it justice. Here’s a sample sentence from the report that certainly piqued my interest:

“We believe smaller, undercapitalized security companies who do not have the capital to install Alarm.com or iControl wireless interactive systems may face real competitive threats.”

The report also touched on the implications of the enormous advertising budgets of the new market entrants, as well as the positive effects of Monitronics’ acquisition last August of Security Networks.

by: Leif Kothe - Wednesday, May 7, 2014

Video verification in the residential market—it was a topic that surfaced in some of the PPVAR panels I attended at TechSec, though the discussion had been picking up momentum well before that.

It really seemed to pick up last August, when Honeywell Security announced it was joining the membership ranks of PPVAR, a move that some saw as a sign of the “mainstreaming” of video verification.

That seemed to be the gist of Scott Harkins (president of Honeywell Security Products Americas) words in the prepared statement released at the time, in which he said Honeywell recognized that “video verification is an important product category as we look to the future of security.”

Harkins, who was a panelist at one of the PPVAR sessions at ISC West, for the most part reiterated that sense of optimism, saying there was indeed potential for video verification in the residential space. He did however add the caveat that, from Honeywell’s perspective, bringing the technology into the mainstream had to be done in a way that keeps such systems affordable to a mass residential market.

Keith Jentoft, president at Videofied - RSI Video Technologies and an industry liaison for PPVAR, has given me some leads in recent weeks about a few monitoring companies that are striving to fulfill the vision put forth by Harkins (EMERgency24, based in Des Plaines, Ill., is one of a few he’s mentioned).

In the days and weeks ahead, I plan to explore how some of these companies are taking video verification to a broader residential market, zeroing in on the strategies that have worked as well as the challenges. 

by: Leif Kothe - Wednesday, April 30, 2014

ESA just wrapped up its annual Day on Capitol Hill, bringing to the attention of lawmakers several topics of consequence for the security industry, including school security.

The ESA has positioned itself as a partner with Security Industry Association in developing a comprehensive guide to help end users and legislators better understand what electronic security technologies they have at their disposal to bolster school security.

“Most school districts don’t know what type of security to install, and many legislators don’t understand all the technology that’s out there and what exists,” said Daniel Gelinas, who attended the event in his capacity as government liaison for Rapid Response Monitoring. ESA’s Electronic Security Guidelines for Schools, he said, were designed as an authoritative resource to address that knowledge gap.  

The timing of the school security guide is especially good, in light of the latest appropriations act cleared by Congress in January, which contains $75 million in funding for assessing methods to improve school security.

But ESA’s activities on the Hill weren’t limited just to school security matters. The association and industry members are also pushing for expanding the industry’s access to the FBI’s background check database, allowing security companies to better vet their employees for prior criminal activity.

Gelinas said the pair of bills addressing this (one in the House, another in the Senate) would not be a mandate. Rather, if enacted, they would allow security companies in the 26 states without the licensing requirement for the database to access it.

The organization was also in the Capitol promoting funding measures that would protect against elderly abuse through expanded use of video surveillance in nursing homes. Gelinas noted that this would not be a mandate for health care facilities, but would instead give concerned families the option to use electronic security systems to ensure that elderly relatives are getting proper medication and care.

The final area of focus for ESA was getting Congress to back a balanced approach for smoke alarms and other early fire detection systems, putting them on “the same footing as sprinklers” when it comes to receiving tax incentives and government grants, Gelinas said. That would involve amending the Fire Sprinkler Incentive Act to include life safety, fire and smoke alarms.

I plan to give more space to this final issue, and some of the aforementioned ones, in an upcoming legislative roundup.

by: Leif Kothe - Wednesday, April 23, 2014

Greater visibility, broader market acceptance and (for some central stations) more wholesale monitoring accounts are just some of the benefits often mentioned in connection with the entrance of cablecos and telecoms into security.

A recent Wholesale Monitoring study by the Barnes Associates (co-sponsored by the CSAA and SSN) largely attributed the 19 percent growth the segment enjoyed in 2013 to the influence of the new entrants. To be sure, there seems to be a prevailing belief that the rangy, big-money advertising campaigns of such companies can be the proverbial “rising tide that lifts all boats.”

That’s not to say there’s no ambivalence. That was apparent enough in a recent SSN News Poll that dealt with the topic. A number of readers expressed concern about the long-term viability of smaller players in the home security space, given the influx of these major corporations who have already made inroads into the home through Internet and cable, and thus have that previously established “stickiness.”

That ambivalence was also reflected in a recent analysis by Rajiv Bhatia on Seeking Alpha, a crowdsourced platform for investment-based ideas, who discussed what the new market players could mean for Ascent Capital, the holding company of Monitronics. Bhatia acknowledged that the company faces “increased competition” from the large new cableco/telecom entrants, which he says are gaining traction despite unsuccessful forays into the market in the past.

Regarding Monitronics’ business model, Bhatia offered a mixture of encouraging and somewhat cautionary words:

“While management and sell-side analysts believe that Ascent is better insulated from competition via its dealer-only business model, Ascent faces upward pressure on the multiple it pays for its dealer contracts from competitors. Additionally, its growth through its internal channels is weakening.”

Those multiples, he noted earlier, are based on an RMR multiple of 50. Ascent faces “upward pressure on the multiple it pays to acquire contracts,” he said.

With more than 1 million subscribers, Monitronics trails only ADT in terms of marketshare in the alarm monitoring space. It will be interesting to watch what happens to the market presence of both companies as the cableco/telecom ads continue to appear on our television screens.

by: Leif Kothe - Wednesday, April 16, 2014

Alarm Relay, a UL-listed alarm monitoring company based in San Diego, became the latest central station to earn Five Diamond Certification from the Central Station Alarm Association, the company recently announced. Fewer than 200 central stations in the country have the certification.

Among the most rigorous requirements for completing the Five Diamond program include the commitment to random inspections by a nationally recognized laboratory, such as FM Global, Underwriters’ Laboratories or InterTek/ETL, and central stations must also comply with quality criteria standards developed by those same organizations.

Five Diamond Certification also testifies that 100 percent of central station operators at a given company have been certified through the CSAA online training course, which covers all phases of central station communications with law enforcement, customers, and fire and emergency centers.

For an operator to achieve certification, they must demonstrate (among other things) proficiency in alarm verification, which helps reduce false dispatches, and in communications with Public Safety Answering Points.

That latter requirement is bound to be vitally important as central stations around the country forge more partnerships with PSAPs, allowing the ASAP to PSAP program to expand. 

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