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Security System Services

Industry Overview

The security systems services industry in the US includes about 5,000 companies with total annual revenue of about $10 billion. Large companies include ADT Security Services, Brink’s Home Security, and Honeywell. The industry has become consolidated at the top. The 20 largest companies hold more than half the market. A typical large regional company operates four branches and has $20 million of annual revenue.

Competitive Landscape

Demand is driven partly by home sales, new home construction, and new commercial and office construction. The profitability of monitoring companies depends on the volume of customers, as most costs are fixed. Large companies have advantages of scale in operating monitoring centers and in national advertising and brand recognition. Small companies often compete by selling customer contracts to the large monitoring companies, or reselling the monitoring companies’ services, which they buy wholesale.

Products, Operations & Technology

Major products are the manufacture, sales, installation and monitoring of electrical security systems. The industry consists of commercial and residential segments, each of which uses different types of equipment and monitoring. Most companies operate in only one segment. The commercial segment accounts for about 60 percent of industry revenue. The main components of a security system are door, window and motion sensors, control keypads, alarms, and communications modules.

Commercial systems are installed by a large number of electrical contractors and security specialists. Commercial security systems are often integrated with fire alarm, access control, and closed-circuit television (CCTV) systems, and may be monitored by the customer on the premises or by a monitoring company at a remote station. Many commercial systems are linked directly to local police departments. Because the components of security systems are fairly simple, a large number of manufacturers produce them, including ADEMCO and Philips Electronics.

Residential systems use the same types of components as commercial systems, but are usually simpler. Residential systems often integrate fire detection and intrusion detection. While some systems merely set off alarms within the home when triggered, others connect through telephone lines directly to police or fire stations or to a service center. Due to the high number of false alarms, service centers are the preferred connection. The major source of revenue for large companies in the residential segment is from renewable contracts (subscriptions) for monitoring fire and security systems. 

Depending on the service options the subscriber requests, operators at service centers take various actions when an alarm triggers. For example, they may notify the subscriber, dispatch company personnel to investigate the site, or notify fire or police departments. National companies have a network of regional service centers; each may monitor several hundred thousand residential and commercial subscribers. If service centers meet certain physical and staffing criteria, they can receive approval of the Underwriters Laboratories (UL). Since deterrence is the primary goal for buyers of security systems, warning decals and yard signs are a prominent feature of security packages.

Staying on top of technological innovations is important for manufacturers, dealers, and monitoring services. The miniaturization of sensors and detectors and advances in communications that permit wireless systems have made security systems affordable to a wider section of the population, but have also reduced the need for professional installation services. Monitoring companies use sophisticated computer systems to manage the large number of accounts they service.

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