Google's DIY Security Exit Spurs Doubts About Segment's Future: Parks
Google's decision to discontinue its three-year-old Nest Secure do-it-yourself security system wasn’t a surprise, given Google’s $450 million investment in security stalwart ADT in August, Parks Associates analyst Brad Russell told us. It raises questions about the staying power of the DIY security system market, Russell said, noting the low uptake of recurring monthly contracts in the segment vs. the 88% adoption among professionally installed systems.
Nest Secure “hadn’t gotten a lot of traction,” with just 13% of the DIY security space in Q2 2019 behind Amazon’s Ring and SimpliSafe, Russell said. Google’s partnership with Brinks for professional monitoring “was unsuccessful,” he said, calling it a “misalignment.” Customers who would go to Brinks for pro monitoring “are just not Google Nest customers.” Google didn’t respond to questions.
The decision reinforces questions about whether DIY systems "have legs long term," Russell said, despite being a low-cost alternative for the 70% of U.S. broadband households that don’t have a security system. DIY systems have brought in about 1.5% of “greenfield buyers” who didn’t have a home security system, but the category isn’t “setting the world on fire,” he said. It’s not clear how much consumers see DIY systems as an alternative to traditional pro-installed, pro-monitored systems, Russell said; even less clear is how many of those will attach pro monitoring.
But Google is still involved in the space through its $450 million investment in ADT (see 2008040064) which appears to be a “big deal,” Russell said. Short term, Google can make money attaching devices such as a security camera or video doorbell to ADT’s security offering. With 8 million customers, ADT is the “behemoth of the pro monitoring space.” Google brings to ADT data analytics, video analytics, artificial intelligence and “user experience chops” that ADT doesn’t have.
ADT, primarily a sales and marketing company that works through a dealer network, uses Alarm.com’s cloud-based software platform, the backbone of most U.S. residential security systems, Russell noted. “The question is, will a long-term Google-ADT relationship ultimately result in Google stepping into the cloud software space” as a competitor to Alarm.com? That would be a way for Google to achieve scale in the security industry that it doesn't have now, Russell said. He sees the “next big play” of the Google-ADT relationship happening in two-three years.
Google’s exit may indicate the DIY security market “may not be big enough right now for a lot of system players,” Russell said, but it’s not going away. About 40% of security dealers have taken on DIY products as an entry-level option for value-conscious customers, he noted. ADT has its own version, Blue by ADT, which launched at CES and recently began shipping. Blue is an opportunity for Google to attach Nest cameras, he said.
Parks believes smart home automation will be the add-on that drives the home security market beyond the current 30% of U.S. household adoption. Smart home devices also help support the value of a recurring monthly contract because the consumer gets a “tightly curated set of devices that are guaranteed to work together, a unified experience in the security system control app, and a local dealer who can troubleshoot,” he said: “There’s a lot of value there.” Smart home has changed the model for security dealers, who used to install a system and then “forget it.” Customers “never saw the dealer again and there was no value,” he said.