2.7.20 – SSI
There will be several new “paradigms” emerging all of which will impact the costs of monitoring. As an industry, we need to consider them very carefully.
It isn’t surprising that many mass marketing organizations in our industry have shifted down and changed the way they do business. Nor is the reason obscure: giving away hundreds of dollars of alarm equipment as an incentive for new customers no longer makes sense in the face of the rapidly growing costs of subscriber acquisition.
The math is pretty easy. If your cost of acquisition is in the high 20’s, it’s well nigh impossible to make that work in a 36-month contract. Increasingly, acquisition programs charge more money upfront to offset their costs or higher monthly rates are stated. In some cases, a financing option is offered in addition to monthly monitoring.
There are myriad reasons why the cost of acquisition is more expensive, and it would be easy to say, “Isn’t everything?”. Unfortunately, there are very compelling reasons that are endemic to our industry, and they make it certain that a major change needs to be in the works.
Both wholesale monitoring and full-service centers have had to do their part in dealing with the compressed margins their dealers are facing, but in many markets, it has been a race to the bottom. Those with larger economies of scale, along with additional technology, have been successful in lowering prices and maintaining margins while continuing to provide good service.
Still, even those are teetering on the edge.
Most large-scale monitoring operations are not in a position to do that, just yet. A good example is that the cost of MS SQL licensing has increased by an order of 10 over the last eight years. It’s not uncommon to spend five times the cost of hardware on software licensing for the same machine.
The second focal point in the cost of technology is the skyrocketing costs for network and data security. It wasn’t that long ago that a monitoring company could get by with a mediocre firewall and some antivirus software running on the PC’s. Now, an effective firewall costs hundreds of thousands of dollars and antivirus software is a thing of the past, replaced by end-point protection applications.
Lastly, size does matter. Monitoring services that exhibit economies of scale, where all the costs can be distributed across a larger number of accounts, make a lot of sense. Accordingly, what we are seeing in the marketplace is two things. For all the reasons already mentioned, many smaller central stations are looking to get out of the business completely and move the monitoring to a wholesale center. The stigma of not having your own center is long gone, and the cost of providing the service for a smaller center is many times the cost of letting a wholesale company do the work.
Similarly, we are seeing more and more medium-size organizations move towards a hosted central station platform, CSaaS (Central Station as a Service). In this model all the receivers, servers and applications are hosted by another organization, allowing the medium-sized organization to focus on the things they are used to managing, like operators, training and customer service, but without the high cost of maintaining the infrastructure. All of these options and methods are ways that alarm companies and monitoring companies can use to reduce costs.
This is an exciting time for the alarm industry, in general, but for those that pay attention to details, that are very concerned about the customer experience and are listening to what their customers need and want, it is especially so. Those are the organizations that will be very successful and will flourish as security becomes more and more a lifestyle.