Does anyone have a disruptive design?

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10/19/2009
Google led me to stumble across this provocative post by John Sviokla on the Harvard Business site. In it, he focuses on the idea of disruptive business design, and that "the minimum efficient scale of doing fantastic things is getting orders of magnitude lower in some industries." Basically, how do you create a company that, like Craig's List, say, so turns an industry on its head that you can do things like clear $1,000,000 per employee in profit? In some ways, the security industry has done this once not that long ago, when the mass marketing alarm companies started giving away alarm systems so that they could reap the recurring revenue - just like Craig's list gave away advertising for everything but jobs so it could steal all the classifieds away from the major newspapers. Of course, the hey day of the mass marketers may have come to an end as the general public seems to have basically decided it's okay to pay a little more up front if it means better service and support on the back end. The industry has not drastically coalesced, as many predicted, and while ADT remains a giant gorilla of a company, there remain thousands of mom-and-pop alarm companies who do alright for themselves. But Sviokla raises the question, "Imagine a security company that was truly designed around the inexpensive, internet connected, monitoring equipment available today." What would that company look like, and does it already exist? To what "monitoring equipment" is he referring? Is there something that would allow alarm companies to go forward at "a fraction of the cost to deliver the same services"? Well, what do security companies have for costs? The overhead of the central station and the operators (or the margin that must be shared with a third party); the installing technicians, their salaries, and the trucks that ferry them around; and maybe marketing? And, if they're essentially giving away the system (or leasing it, whatever), there is the cost of the equipment, itself, which is most often referred to as financing growth. However, many of the most profitable installation companies say they at least break even on every installation. I don't know if that's true or not. Say it is. Then what's left to cut? Basically, it's the installers and their trucks. With the advent of reliable wireless connectivity, both for monitoring and for in-the-house sensors, isn't it true that self installation is pretty possible? The thing is, uControl is already trying that. And before they got very far down the road, they instituted a dealer program and created a channel that's not direct-to-end user. Plus, the New York Times has already declared that DIY residential alarm systems are easy-peasy, yet I've hardly seen a rush of homeowners bypassing the traditional alarm industry. I haven't heard a single alarm company owner complain of the competition that DIY systems present. So, is there a disruptive design out there? Have you done one of these cool fiercest competitor workshops that Sviokla references and foreseen a future where the current business model is stood on its head? Does the "free" video verification proposed by Videofied represent a significantly different paradigm? Is there an equivalent in the commercial installation marketplace? Even better, who are the talented individuals who might come up with this disruptive business model? Are they inside the industry now, or will they come from the outside, IT or elsewhere? Are they working at your company right now, but you don't listen to them because their ideas are crazy?

Comments

Talk about disruptive. Real-Time Surveillance Monitoring based on a open-platform giving security users the freedom of choice of having to pick one hardware manufacturer over another is the future. www.ivedasolutions.com

Yeah, but you still have the operator cost in the central station, along with the installation cost. I've been told the very high end is that a single operator can handle 1,000 cameras (which I don't think is really practical in a lot of situations). Standard alarm monitoring is something like 10,000 accounts per operator. So, your labor cost is up by a factor of 10, even talking conservatively, especially considering you need a higher caliber of operator.

Where is the costs savings that's going to make this disruptive? I think it's evolutionary, but I don't think it's revolutionary.

I agree with Sam. I believe “disruptive” in the security market is a price-for-service issue. The "self-monitored" and "self-installed" systems did not actually disrupt anything. They miss the sales channel with degraded service and have been ignored. The successful explosion of “free systems” proved that service/price will win. This is where Videofied may be disruptive because the new Videofied XL includes video and 2-way voice (over the cell network) for the same price as a standard alarm system.

It goes beyond “equipment price” and adds a new level of service for the same price. It is not just cheaper, it is measurably better. Now monitoring personnel can see what tripped the alarm and challenge the intruder for their code – an intruder on premise that refuses to provide their code demonstrates “criminal intent.” There is no police unit in the country that would not give higher priority to this kind of dispatch. What is disruptive is that police will give higher priority response for a verified crime-in-progress than a standard alarm. In other words, for the same price consumers receive a measurable increase in security – priority response for actual incidents. Why would somebody refuse greater security at the same price? In addition, the business model of sales/service that drives the security industry is strengthened instead of weakened. Sales people still sell. Central Stations still monitor. The disruption is not elimination of either the sales or monitoring (like self-monitored or self-install) but greater security at the same price through the existing channel.

You asked: who are the talented individuals who might come up with this disruptive business model? Are they inside the industry now, or will they come from the outside, IT or elsewhere?

Outsiders are beginning to realise that the electronic security industry in North America has stagnated for the past 3 years and they see an opportunity. The problem is, they don't know enough about our industry to take full advantage, so I would say that the person with the disruptive business model will come from within.
Those of us who work with Alarm Monitoring Centers on a daily basis know that, even though everyone talks about migration to IP, the truth is that there has been less than 1% penetration to date.
We need to learn to walk before we can run. Everyone is getting excited and expecting big things from video verification, yet the most important part of the majority of security systems, the alarm panel, is still taking 10-15 seconds to send an alarm signal over an analogue phone line.
If you think Alarm Monitoring Centers will donate valuable operator time to checking on events triggered by motion detection in a camera - think again. Seriously - think again.
An alarm panel is the only reliable, trusted means of sending an alarm event to a Monitoring Center, but unfortunately right now that takes too long. A business model that allows subscribers or Dealers to take a sub $50 network device off a shelf in a local consumer electronics store, plug an alarm panel into it and have it send an alarm signal and images from any make and model of IP Camera to a Central Station instantly an event is triggered, would in my view be considered "disruptive".

You get it Sam! Yes, Videofied is a disruptive technology and it hit the market at just at the right time. They were not from the industry but entered it in France where false alarm fines were $500 per occurrence; talk about a motivation. While we don’t have penalties like that, non-response is worse at every level. While we as an industry have worked on reducing false alarms and using verification as a means for that, video makes the sale of verification a up-sell feature for the customer (vs. a negative connotation).

From what I understand, they (RSI) have just released a system which sells for the same price as a traditional system and includes 2 way voice and video. The up-sell features should help close more sales and make customers stickier. Additionally, with municipal budgets being slashed because of the housing market the technology comes just in time for the industry to help eliminate waste from false dispatches while protecting the industry’s recurring revenue model (talk about disruptive). The other key to this technology is that it allows dealers to charge a premium for monitoring. Imagine what $10 or $20 of profit per account would mean to the average dealer? Not only does it make them more profitable now, it makes them more valuable in the future.

You asked about other disruptive technology and paradigm shifts. Keep your eye on “SaaS” Software as a Service or Cloud Computing as it is called by some. SaaS is giving customers new tools and services. Whatever you call it is the delivery of a variety of IT-enabled services or capabilities to the customer. In some recent research we conducted dealers and integrators of every sort are providing this and giving customers a way to do more even when they don’t have capital budges. We believe even if the economy was perfect again this will become the new normal as it allows the customer to focus on their core business and outsource to dealer and integrator central stations. Yes, I said integrator central station because RMR is no longer just the preview of alarm dealers.

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