Opportunity Knocks

Security professionals see growing advantages in home automation market

• By Karina Sanchez
• Feb 05, 2007

THE future is creeping in, and it brings new opportunities for the security installer and dealer alike. Those in the security industry all know of the buzzwords that infest office chatter each day. And somewhere in the background someone is speaking of home automation. Home automation is the use of one or more systems to control basic home functions and features automatically or remotely. Security professionals will soon hear a lot more about automating the home and its impact on the industry. Just as IT converges with security, home entertainment and control also is making its way into the offering platforms of security professionals.

Just as IT converges with security, home entertainment and control also is making its way into the offering platforms of security professionals.

Custom home installers will tell you that one of their main drivers of business is the real estate market. Custom installers keep abreast of all the latest home building statistics for their revenue is drawn in large part by new home construction. With the expansion of new homes across the United States, it's safe to say that things are finally starting to cool off.

"Builders are seeing a softening in demand because of rising interest rates, affordability issues and a reduced presence of investors/speculators in the housing market," said David Pressly, president of the National Association of Home Builders and a home builder from Statesville, N.C. "Builders understand that the market is cooling off from the frenetic pace of the last several years and are adjusting accordingly."

"Ninety percent of our installations come from new constructions. We see that changing very soon because they've slowed down in building houses in Arizona," said Dennis Sage of Dennis Sage Home Entertainment. "Companies like ours look at the retrofit market to make sure that we keep things going. The retrofit market is a big thing for us, and we'll see more of it in the next couple of years."

Though new home construction is subsiding to an average growth rate, it doesn't mean that these new homes lack necessary components to automation or that future homes won't be fully automated. Parks Associates estimates that residential sales for home systems installers/integrators grew 18 percent in 2005. And installing dealers had total sales of more than $7 billion to residential customers in 2005, an increase from 2004's $6.2 billion. Parks sees the installing dealer channel expanding in both the number of integrators/installers and in sales.

Behind the great move to increase sales in home automation, custom installers do have certain obstacles to overcome first -- one being the home builder.

Working in Harmony
The relationship between the custom installer and the home builder can be described as a love-hate relationship at times, each having their own priorities that might not comply with the other. Tension can mount when the builder's issues come as roadblocks for the custom installer or vice versa. As the world becomes more tech savvy and information technology integrates into the lives of more people, the relationship between the builder and custom installer ultimately matures into an appreciation of one another.

Dennis Sage Home Entertainment estimates that about 80 percent of its jobs come directly from builders, and most of its customers come from the referrals made by those builders.

Home builders are seeing the value of automating a home, and they?re building strong relationships with custom installers to deliver what homeowners today are asking for. In the process of delivering a state-of-the-art home, builders are looking for the partner that will best suit the home's needs.

"We've developed relationships with our builders. They've stuck with us and we take good care of them. Though our company started in audio/video, the builders we work with said 'listen, we only want to make one phone call. If you want our business, you have to take on security, HVAC, intercom and more,'" Sage said.

And that's a message that has been heard throughout most home installer circles.

"We're seeing national builders wanting to deal with one partner and not having to deal with multiple security companies," said Tim McKinney, director of ADT's Custom Home Services. "If a builder wants us to come in and do a low-cost pre-wiring, and are not really interested in additional services, that becomes a challenge for all parties down the road. We look for that full turnkey opportunity from the builder's world."

So custom installers are listening to the builders they work with and are delving into the security space at an alarming rate. On the flip side, security installers also are noticing the trend and are dipping into non-security-related, low-voltage offerings in the automation arena.

"Builders are adding structured wiring as a standard, security as a standard. Instead of just adding a pre-wire for security, builders are starting to see that people want a security system, so they're giving them a security system. The trend is quite encouraging to us," Sage said.

The trend also trembles excitement in the security arena. It provides an opportunity for a security professional to expand their business beyond the security space.

What This Means to Security Pros
The market for home automation is expected to increase significantly in the coming years. There's a great opportunity for security professionals to get in the game while it's hot. Frost & Sullivan finds that the North American home automation market earned revenues of more than $1,200 million in 2005 and estimates this to reach more than $2,000 million by 2012.

Homeowners are becoming more aware of the advantages afforded by a fully automated home and are asking for homes that incorporate total control of different systems. Frost & Sullivan analysts say that manufacturers have had a hand in educating homeowners about new technologies and are offering packages that include automating different aspects of the home, including security, lighting and entertainment.

"We've grown and work with almost every low-voltage thing you can think of," Sage said. "We've been working with security for about eight years. After three or four years of owning our company, we brought security into it. We hired a local security professional and started from scratch."

Currently, Parks Associates estimates 70 percent of security dealer revenues from residential sales come from traditional security systems and monitoring services, and 30 percent of revenue comes from advanced, non-traditional systems. Parks predicts this number will increase over the next five years as control, audio and home theater systems become more capable and affordable, but more complicated.

More homeowners are demanding state-of-the-art systems and products that are innovative, but do require professional installation. It's important for security installers who want to add another vertical to know what they're getting into before they start. Nonetheless, most custom installers agree that security is a vital component to automation.

"We've been doing security for a long time, but it has never been the backbone of a system until the automation has come about," said Doug Ketchen, senior sales director for Dennis Sage Home Entertainment. "Now that automation has come about, we realize that security is the backbone and what really starts the triggers."

And those who already have years of involvement in security are one step ahead of custom installers looking to add security to their mix.

"One reason why custom installers don't want to take on the security side is because the liability that's involved with security is much greater than that with home entertainment," McKinney said. "Furthermore, you have to be licensed to be a security installer and in home entertainment that's not the case."

It's no surprise that disparate markets have changed throughout the years. Today, there's more of a blending between different verticals. Though it may not be the choice for some professionals, there might be significant growth opportunities for those looking to take the chance.

"As we look at our market, it's changed dramatically since the 15 years I've been in it. We're seeing a bridge of all technologies. People that knew security did security. People that knew A/V did A/V. Now, to keep a client or to keep a builder, you have to add more things to the mix," Sage said. "Security guys know a lot about security, but not a lot about audio/video. If someone belongs in this business doing everything, they'll survive. If they don't belong, they won't survive."

How to Stay Alive
Plunging into home automation is easier said than done. There are a number of custom installers that have honed their skills in home automation and who already have an existing client base in the market.

In efforts to get started, it's imperative to go through training, conduct research and to gain as much knowledge as possible about the home automation industry. The lack of proper training for installers ultimately affects the sales of home automation systems. And when a system is improperly installed, it's likely that someone else will be called to fix it, having to justify pricing and procedures for doing the job correctly.

"Our technicians have necessary certifications that are needed to create the custom work that people are looking for in this environment," McKinney said. "We also do intensive research with consumers to know what they want. It comes down to make it simple and reliable, and they'll use it."

As more and more clients look to have these services completed by their dealers and installers, more professionals will see the trend take shape. As it is, there are associations and channels being formed by industry professionals to help regulate and streamline the professionalism and work that goes on behind the automation. The International Electrotechnical Commission creates standards that define the infrastructure that serves all kinds of applications from home and building control by way of information technologies and multimedia to TV. The KNX Association is an industry consortium of more than 100 companies that specialize in home and building control. Getting involved with associations like these can help create partnerships with those in the home automation market that already have a knack for their business.

"At our level, we look at what we do well and stay true to the strategy -- electronic security. If you stay true to your core competency and do that well, then find a partner that can help in other areas, that's a smart approach," McKinney said.

It's a trend that's gaining momentum in both markets. Security professionals are teaming with custom installers and they're creating a bigger portfolio that's needed for both in each industry. And this can flourish if done properly. Only time will tell if security has a space in this arena. Ultimately, those sitting at the wheel will direct the outcome of this partnership.

"The future is here today," McKinney said. "We just have to continue to listen to the customer."