The Residential Security Industry in the U.S.

Introduction

The security of American citizens primarily lies in the hands of law enforcers. However, it is undeniable that the availability of police officers to thwart every crime is a pipe dream. Instead, burglars are growing bold each day, with this phenomenon evident by the increase in crime rates in the United States. Burglars have become bold enough as most of the homes breaking incidences are occurring in broad daylight. Further still, burglary incidences are occurring every 15 seconds all over the country. Residential security firms offer additional security to its subscribers to curb the occurrences of home breakings. These companies do not replace the functions of law enforces in the U.S, but rather, they provide more security in places where the law enforcers cannot be present all the time 1 . The residential security companies use technology in curbing burglary incidences. These companies liaise with the law enforces in the country to ensure that burglars and other lawbreakers are apprehended, through providing adequate evidence in the courts of the land. One of the residential security companies is ADT Inc. The firm is the biggest home security company in the U.S. The analysis of the residential security industry is important because it plays a significant role in the U.S security situation.

This paper will discuss the history of the residential security industry, its performances, the legal environment it is operating in and the future of this sector in the U.S. Additionally, the paper will conduct an analysis on ADT Inc., its formation, supply and demand factors, and the level of competition with other biggest industry players. The first section of the paper will discuss the history of the residential security industry and its formation and market dynamics. The second segment will talk about the level of competition in the sector. The last part will discuss the future of residential security industry.

Residential Security Industry

Private security businesses operate under the Residential Security Industry. Private security refers to individuals, business, or agencies, apart from public law enforcement agencies, whose motive of operation is crime prevention, loss, or harm to specific individuals, organizations, or facilities. The emergence of private security firms was immediately after the end of First World War. After the global war, insecurity rose because of the availability of non-regulated weapons in the hands of civilians. Consequently, American population began to be sensitive to their security and of their property. It was in this period of time when the demand for alarm systems rose. Firms in this industry provided these alarms, which was connected to a battery and bell. Later, the businesses operating under residential security industry upgraded and started offering video surveillance. Initially, the surveillance camera was big and the owner had to control it remotely. Moreover, the cameras were transmitting grainy images that made it difficult for the homeowners or the private security companies to identify intruders. Fast forward, the current home surveillance cameras supplied by the private security businesses are powerful and small. Moreover, technology has enabled the cameras to be connected to the internet. The powerful lenses inside these cameras capture and transmit high definition images to their recipients anywhere in the world. In continuation, technology is enabling these private security businesses to come up with fire alarms for public and private buildings. These companies are installing smoke sensors in their alarms in a bid to tackle the fire menace.

However, the primary existence of private firms is to not only manufacture and sell surveillance products but they also perform other tasks as well. The private security business is rapidly expanding. Currently, they are being involved in other duties, which previously was under the public law enforcement agencies. These businesses offer investigation services, guard, patrol, lie detection, alarm, and armored transportation. Additionally, these businesses and individuals engage in legal aspects, risk management, crisis management, counterterrorism, security architecture, emergency planning.

The Structure of Residential Security Industry

The classification of businesses under the private security industry is in different forms. One of the classifications is according to their duties. In this sense, they are corporate security, investigative services, security guard companies, armored car businesses, or other tasks. The categorization goes further into separating the private business as either of having the powers to arrest, search, and seize or those who do not have this privileges.

However, the American Society for Industrial Security (ASIS) International categorizes residential security as either proprietary or contract security. Proprietary Security refers to private security services used by an organization purposeful to offer protection against its property and personnel 2 . The selection of private officers or surveillance equipment is under the owners’ jurisdiction. On the other hand, under contractual security, one company offers security services to another company on a paid contractual basis 3 . Proprietary Security is very risky, as it requires the organization to conduct a lot of background check on its personnel. Typically, the success of the proprietary security segment is dependent on the level of loyalty shown by the security personnel. ASIS provides guidelines on private security that is also beneficial to proprietary security. One of the contract security firms in the U.S is ADT Inc.

Company overview 

ADT Inc. is an American residential and small business security provider. The company’s primary products and services include home security systems, home video surveillance, business intrusion detection, business video surveillance, remote access and automatic door locks business remote interactive management and automation systems. The business has a presence in more than 30 countries. The firm is the largest home security company in the world and the U.S. The business has thousands of employees and millions of customers in the U.S and all over the world.

Formation 

Edward A. Calahan founded ADT Inc., formerly ADT Corporation in 1874, as a branch of his Gold and Stock Telegraph Company. The resident private security business was part of the larger telegraph company, whose popularity was beginning to wane because of the consumer shift to the use of the telephone. ADT business to counter against its dwindling fortune decided to diversify into fire and security alarm product line. The firm became a public traded company in the 1960s.

Demand and Supply 

The growth of ADT Inc. is because of the demand for its products previously and currently. The increase in demand for its products and services were prevalent before the Second World War. The company started utilizing technology in its products and services making it popular among customers. After the Second World War, the business because of the reduction in the supply of workers resolved to utilize technology in its production. It was after the Second World War when ADT Inc. produced two technologically advanced products that further cement its position as a market leader. One of the products was ADT Teletherm , a fire detection system. The other product was ADT Telewave , an automated invasion detection system. Moreover, the demand for the business products and services was sole because of the economic boom witnessed in the U.S after the Second World War. The population became wealthy and they needed to protect themselves and their properties. Currently, demand for the company’s product is evident with the home security firm monitoring operations at the airports countywide. The business due to the increase in demand for monitored security products and services have ventured into financial and banking services.

ADT Inc. previously was a monopoly in the home security industry. This condition was there because other providers of home security controlled non-significant market segment. This situation led to ADT Inc. controlling the larger part of the market segment. Furthermore, the company did not entertain competition, and in most instances priced out rivals. The business strategy was to offer prices that were much lower than the market rate. This approach assisted ADT Inc. to maintain its monopoly status. Currently, there is an influx of other products and service providers like Protect America and Stanley CSS. Due to increase in demand and evolving technology, the supply of private security is increasing to a point of attaining the market demand. Consumers have a variety of home security companies to choose from, with this situation diluting the monopoly status of ADT Inc.

Evolution of ADT Incorporation 

The first major development in ADT Inc. history was the merger between the former and Western Union. The new merger again in 1909 became part of the American Telephone & Telegraph Company (AT&T). Subsequently, in 1987 the Hawley Group purchased ADT and rebranded it as DT Security Systems, Inc. Under the new management, the business grew tremendously in the process controlling the vast share of the home security market. Moreover, ADT Inc. FOCUS system became a popular product during this period because of its use in designated zones. Additionally, revenue and profits grew because of its effective marketing technique. Later, Tyco International Limited acquired ADT Inc. from Hawley Group in 1996. The former bided for ADT Inc. to prevent a hostile takeover by a company known as Western Resources. Under Tyco International Limited, ADT Inc. entered the international GPS market. In continuation, the next merger occurred in 2010 when Tyco brought Broadwater and merged it with ADT Inc.

Residential Security Industry performances

The residential security industry has been expanding over the past five years. However, this growth is attributable to mergers and acquisition of industry players. The weakened profits and high operating costs prompt both small and larger firms to merge in a bid to create a big market force. Over the past five years, the industry has been witnessing tremendous with industry players reporting huge revenue growth.

Revenues growth and profitability 

According to industry research by IBISWorld, the industry generated $ 26 Billion in revenues over the past five years 4 . The average growth rate in the same period was 5.4%. Much of the growth witnessed in this industry is because of the increase in demand for security products and services. Additionally, increase in construction of residential and business properties has fuelled the demand for the products and services of private security firms. In continuation, increase in focus on security matters among the public means that industry players will continue to generate revenues in the near future. The millennial consumers are also boosting the revenues of residential security businesses. Millennial consumers have been boosting other industries with their demand 5 , and the security sector is not exceptional. Increase in revenues and the use of cost control measures ensure profitability for these companies in the private security sector. The tremendous growth of this sector is boosting its standings and it is estimated that the market will surpass $ 100 billion mark by the year 2020. Besides, the industry will be accounting for a forecasted figure of $ 47billion of the total security market in 2020.

Tech innovation 

The primary reason why consumers prefer residential security is its adoption of technology. Businesses in this industry compete on the level of technological innovation of their surveillance products. Firms in this industry are using “smart home” features and other wireless technology in their products, to boost convenience and flexibility to its consumers. Companies in the sector are adopting the DIY Home security systems so that the homeowners can install and monitor personally. Some of the DIY home security systems found in the market include SimpliSafe, Blinkhome security camera system 3-camera kit, and EZVIZ Mini O 720p indoor mini Wi-Fi camera. Certain factors are driving the application of technology in the industry. One of the factors is cost-consciousness, where firms in the industry purposefully employ technology in a bid to reduce workers salary, which is the biggest cost industry players’ grapple with. Moreover, industry consumers are demanding solutions from this private security business in the process making these firms to be innovative in technology in a bid to please its customer base. Additionally, the industry is now dealing with technically mature clientele who would like to see the use of technology in matters concerning their security. ADT Inc. has been in the front in ensuring that there is a technological incorporation of its products. For instance, the ADT Canopy platform uses technology to integrate third part hubs, Internet of things, and the DIY solutions. The success of ADT is attributable to their incorporation of technology since the business inception to the current time. The mentioning of private security is in the same line with technological innovation.

Residential Security stocks performances 

Increase in the incidences of insecurity is resulting to an increase in spending of security equipments. Consequently, security companies stocks are benefiting from the spending. The industry’s stocks are attracting investors with a high tolerance for risk 6 . These investors believe that the long-term security needs will guarantee them a return on their investments. The stock analysis between the two giant players in home security industry, ADT Inc. and Fortune Brands Home & Security show mixed performances. In 2018, ADT Inc. shares rose 4.3% premarket and improvement from previous 13% slump 7 . However, since offering IPO, the company’s share has not risen above $ 14 IPO prices. On the other hand, Fortune Brands Home & Security is also showing volatility closing at 57.51 as at April 19, 2018.

The primary reason for share volatility of businesses operating in this sector is leverage and competition. Investors are wary of the debt level associated with firms operating in the home security industry. The use of debt is for expansionary purposes and innovation. In the fourth quarter of 2017, Fortune Brands Home & Security debts stood at $ 1.5 billion meaning it would greatly affect its profitability. The decrease in demand for the companies stocks reduces their prices. Additionally, the threat of international expansion and industry competition is affecting the existence of some of the business in this sector. Consequently, the demand for their stocks is falling and this reduces their prices.

Residential security Industry level of competition

The home security industry is a multi-billion industry, and it is expected it will attain $ 100 billion mark. This statistic means that it will still attract new entrants. For a long period, ADT Inc. was enjoying a monopoly status. The business used pricing as a competitive strategy, to keep out other players out of its large market segment. However, currently, other biggest competitors in the industry include Stanley CSS and Vivint Inc 8 .

Stanley CSS 

The home security firm is a subsidiary of Stanley Black and Decker, Inc. The business primary products and services include fire monitoring and intrusion services, video surveillance and emergency response solution. Additionally, the business offers burglary response services to its customers. Some of its customers include commercial, government, residential and industrial. The business has vast presence in North America, with approximately 300,000 customers in this region. The subsidiary posted $ 2.097 as part of security revenues in the 2017 financial period.

Profitability performance 

The net sales posted by the security segment of Stanley Black and Decker dropped by 4% from its previous posting in 2016 financial period. In continuation, the business posted a profit rate of 11.1 %. This was also a decline in comparison with the previous fiscal period.

Strength 

One of the strengths of Stanley CSS is strong employees’ relationship with the management. This situation has led to staff retention. Workers are important in the security business in regards to innovation and customer services. The subsidiary provides better packages and remuneration, a key reason for retaining its workers. Moreover, the business has not been in existence for long meaning it employs young and energetic workers to achieve its objectives. ADT Inc. has been in existence for a long period in comparison with Stanley CSS. However, the company is experiencing huge employees turn over because of poaching and rigid working conditions. The company still insists on the old management ways, which are peculiar among new generation staffs. Stanley CSS is also employing new specialized features that reduce the cases of false alarm. This innovation is proving to be disruptive in the industry with other players emulating the technological innovation.

Weakness 

The subsidiary has been under criticism because of its Xfinity home security Alarm system. There has been a public outcry on high cancelation fee in any event of call off the contract. Besides, it is hard to cancel Xfinity switch when it is combined with other services. This home security system is also expensive in comparison with what ADT Inc. offers. ADT Inc. ADT Inc. offers the same product and services but it has a good brand name, in addition to offering guarantees. Separately, Stanley CSS does not concentrate on home users like the way ADT Inc. does. The latter primarily concentrates on home security with little attention to securing businesses. ADT Inc. has built a brand by concentrating on home security due to its demand. Businesses tend to employ their own security services meaning they have limited business offer to contract companies and individuals. ADT Inc. understood this fact early and decided to venture into home security more than business security.

Vivint Inc. 

Vivint Inc. is a subsidiary of APX Group Holdings 9 . The business offers monitored security and home automation services to homeowners mostly in the U.S and Canada. The business primary products and services include burglary and monitoring services, remote climate and lighting control services, and indoor and outdoor video surveillance. Vivint Inc. is one of the most innovative companies in the industry posing a great competition to ADT Inc.

Profitability performance 

The business reported $ 228.7 million as revenues in the third quarter of 2017. This figure is owing to its large customer base of more than 1.27 million customers.

Strengths 

Vivint Inc. manages its own accounts meaning that they can control their prices. Customers prefer using its services since it does not vary with location. This strategy means that it maintains its loyal customers who may wish to shift to a new location, and still prefer the business as their home security. Pricing is the most significant approach to attracting new customers and maintain the existing ones. This approach is a threat to ADT Inc. as it exposes their weakness. ADT Inc. utilizes the services of independent dealers in managing its accounts. This means that the independent dealers charge different prices depending on location. Even though the company can argue that the higher prices reflect its quality services, the business is set to lose some of its customers to rivals like Vivint Inc.

Moreover, Vivint Inc. strength lies with its flexible contracts in comparison with other industry players. The month-to-month plan is rare in the residential security sector and it is the innovation of the business. The company offers both monthly and long-term contract of 42 and 60-month plan. Consumers can enjoy the monthly plan if they pay upfront. Conversely, ADT Inc. offers a long-term plan of the 36-month contract without the option of a monthly plan. Consequently, this means that consumers who need security services for a short period will choose Vivint Inc. monthly plan. ADT Inc. loses customers in the process.

Weakness 

One of the primary weaknesses of Vivint Inc. is that it is still new in the market meaning it has limited customers’ coverage. First, chiefly operates in the U.S and Canada. This means that in comparison with other industry players, it has a limited customer base. The business has more than 1 million customers who use their services. On the other hand, other big industry players like ADT Inc. have presence globally meaning their customer base is also wide. For instance, ADT Inc. has more than 6.5 million subscribers. In terms of competition, Vivint Inc. will be weaker.

The regulatory/legal environment in which the industry operates

Residential security industry like other sectors is under the watchful eyes of Federal Trade Commission. The agency protects the public against aggressive sales tactics and misleading advertisements. Nevertheless, the licensing and regulation of the home security firms happen at the state level 10 . The state institutes their regulations, which the private security company must abide. For instance, in California State, the Bureau of Security and Investigative Services (BSIS) regulate private security industry players. Independently, private security companies must have independent certifications to operate their central monitoring bases. The primary reason for the need of certification is to prevent invasion of privacy of its client. Inspection and certification agencies ensure that businesses in this industry adhere to the set regulation. In the case of proprietary officers, different states have different regulations. Some of the requirements include minimum training for armed officers and minimum requirement age.

Future of Residential Security Industry

The future of residential security industry is bound to changes. The traditional method of surveillance will be replaced with new technologies available. Some of the changes in the future of the industry include technological changes, anticipatory security, consumerization, mergers, and takeovers.

Technological Disruptions 

Private security industry will witness further technological developments in the future. One case is the use of artificial intelligence. For example, Vivint Inc. is mulling over the introduction of artificial intelligence, to detect that the homeowner is present in the process lock the door and switch on security system automatically. Moreover, the artificial intelligence will monitor the daily routine of the homeowner and control the settings. The use of drones will also be prevalent among the security companies in the future. This technology will be covered inside the perimeter wall and outside. ADT and Amazon are collaborating with their personal assistant Alexa, a technology that will be using voice commands. This means that customers will be controlling the security settings without being there physically. Home security industry will continue experiencing technological changes in the future.

Anticipatory security 

New technology will ensure that it anticipates a breach of a security zone before it actually happens. The availability of external sensors will have the ability to sense unusual behavior before it occurs. Moreover, technology will ensure that incidences of false alarm are much lower.

Consumerization 

In the near future, private security industry will witness new marketing techniques, important for attracting new customers. Strategies such as customer mapping and other advertisements will be prevalent.

Mergers and Takeovers 

The industry will witness the cases of mergers and takeovers in a bid to survive in the market. In the past five years, larger firms have been acquiring smaller companies as a way of evading competition. Moreover, small business has been posting loses making mergers a necessary escape route.

In conclusion, the importance of private security cannot be undermined. Their presence has significantly reduced cases of burglary and home breakage. In addition, their services are important in ensuring that security of individuals and businesses are guaranteed. However, the position of the biggest players in the industry is under threat because of technological developments and competition.

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