Control4 Boosting Security Offerings, Will Launch Software First, Products Next

Security and camera support is a primary area of interest for Control4 in its pipeline of new development, said CEO Martin Plaehn on a Q4 earnings call Tuesday. Security and safety is an application area that’s important to homeowners and “highly relevant” to the emerging connected home, and the company is strengthening offerings in that category, he said. Software for security and camera support will be coming “quite promptly” from the company, he said. Control4 shares rose 16.2 percent in Wednesday trading to $23.41.

The first step toward a security offering will be to ensure that interoperability among cameras, network video recorders and security panels along with the integration of leading third-party products in those categories “are really spectacular and compelling in the Control4 environment,” Plaehn said. That includes integration into Control4’s Simple Device Discovery Protocol (SDDP), which enables automatic discovery, pairing and interoperability between networked devices and Control4 automation systems. The company is also developing tools for dealers to program security functions that interact with lighting, heating and air conditioning, video monitoring and other control features of the home. Software from Control4 is the first piece, followed by physical camera and security products, he said.

On whether a Control4 security offering would provide a subscription revenue opportunity, Plaehn cited its 4Sight subscription service for remote access, which is “growing nicely” but still has a “statistically small” installed base when compared with other broad-based Internet subscription services. Once the company has strong offerings in security cameras, networked video recorders, interfaces and interoperability with security panels, “it is not beyond reason to think about layers of offerings for 4Sight that step into that demand,” he said. While that vision is “off in the future,” he said, “it’s not an unreasonable leap of faith” that security could fit into the 4Sight program, but the company has to “get the platform and the offerings right first and the subscription services follow."

Updating the SDDP program, Plaehn said 59 companies signed the SDDP license agreement last year and some 180 third-party devices are available with SDDP. “Hundreds more” are expected to ship in 2014, he said. The most recent companies to join the SDDP program are Harmon, TiVo and Epson, joining Denon, Dish Network, Integra, Lilin, Marantz, Onkyo, Pioneer, Sharp, Sony, Toshiba and Yamaha.

Control4 is using feedback from dealers and end-users to improve the user experience, Plaehn said. That includes speeding up operation by simplifying and streamlining the user interface so “actions intended by the consumer are at their fingertips versus a sequence of drill-down menus,” Plaehn said. Responding to a question about simplifying the access of Control4 users operating over a virtual private network from outside the home, Plaehn said, “We are aware that when people travel in certain countries and their home is in the U.S. that there is some latency with regard to connection time to go through the various security layers, and we're looking at how to optimize that on a global basis.”

Other areas Control4 is providing “significant areas of strengthening” include multiroom audio and video experiences as well as HVAC and pool and spa control, he said. “There’s a lot to do here,” Plaehn said, calling the company’s efforts a “multiyear voyage.

Control4 is looking to boost the company’s profile through marketing, with recent product advances as part of the message, Plaehn said. He called out the new digital lighting product family that controls LED lighting and the company’s recently launched wireless music bridge that allows family members to stream personal music to a single room or throughout the home.

In Control4’s international business, revenue fell 4 percent sequentially, the company said. A priority this year is to grow the sales coverage and effectiveness of sales channels in North America, Europe, China, India and Latin America, Plaehn said. The company is “still working through specific near-term headwinds” and expects international growth to “begin to rebound during 2014,” Plaehn said. The global home automation opportunity “remains very strong,” he said. Control4 added 44 international dealers and ended Q4 with 578 active dealers, Plaehn said. He reported “good progress” with the shift in China from a two-tier to a direct distribution model and said the company added 13 direct dealers in China that will be generating revenue this year. Sales support and training centers in Shanghai and Bangalore are open for new dealer recruiting and training, he said.

China represents just over 10 percent of international revenue today, Plaehn said, which he called “very, very small relative to the opportunity.” Opportunities in Shanghai, Beijing and Hong Kong alone should bring in a “significant amount” of additional revenue compared with today’s numbers, he said.

"Softer growth” in Europe and in Latin America was due to “sales and installation execution” rather than a macroeconomic trend, Plaehn said. The company is adding sales and technical support staff in those regions to help distributors and dealers reach sales expectations, he said.

North America core revenue for Q4 grew 27 percent year over year, he said. In Q4, Control4 brought 70 new dealers on board in North America while “weeding out less productive” ones, Plaehn said. The company ended the quarter with 2,465 active dealers, and 2013 dealer productivity metrics “increased significantly” over 2012, he said.

On Google’s $3.2 billion purchase of Nest (CED Feb 3 p3), Plaehn repeated previous company statements that it’s a validation of the potential size of the home automation industry. He referred to Nest’s selection of Control4 in September as its launch partner for its open API program. “Our technical work with Nest continues today as they formalize their interfaces for interoperability,” said Plaehn.