The Changing RMR Landscape: Interactive Services, Managed Services and More

There’s never been a better time to be in the RMR business.

The security industry, which has traditionally generated its recurring monthly revenue (RMR) from alarm monitoring services, is seeing many new ways to capture RMR, helping companies profit and create value. 

From the expansion of interactive services like home automation and energy management to hosted and managed services, like managed access control and hosted video, to data management and PERs (personal emergency response systems) — RMR is almost everywhere!

In the residential market, the best and brightest RMR opportunities are the interactive services add-ons to the straight security offering, says John Brady, President of TRG Associates and a presenter in ESX’s Conference and Education program (“RMR Best Practices for Service and Maintenance Contracts,” Wednesday, June 19 at 10:45 am). 

“They’re selling this stuff like it’s hotcakes,” he says.

Interactive services continue to gather steam, says Brady, because the offerings continue to get more interesting and easier to use, and dealers increasingly understand them and how to sell them.

About half of the industry currently views interactive services as an up-sell to the basic security offering, while the other half sees it as a basic sale, says Brady. “Because of the summer programs and the strong regionals,” which are leading the charge, “the rest of the industry is going to get pulled along,” he says.

The strong regional companies wouldn’t dream of selling anything but interactive services as their basic offering, says Brady. In fact, when Vivint was purchased by Blackstone Group late last year, the assumption was that all of their installs would be interactive - and that the entire industry would be there in time, too.

Hosted and Managed Services are the Commercial Opportunity
While interactive services are booming in the residential market, hosted and managed services are taking over in the commercial market. Hosted video is a great opportunity for both residential and commercial clients, and managed access is allowing commercial customers to worry less about maintaining hardware and software and let the monitoring stations take care of it.

However, Brady is excited about the IT and software opportunities for security companies who work in the commercial market.

Central stations who have invested tons of capital building up their data and IT infrastructures are finding that providing managed services, including providing data deposit services and acting as a redundant backup center, is a huge opportunity in the commercial market, he says.

Contract monitoring companies, says Brady, are starting to see this as a big opportunity because they’ve invested in their central stations, and now they can go to other corporations who wouldn’t dream of putting that kind of capital in a room just to house their software and provide them service.

It’s easier for companies to deal with a service provider than to build up their own IT knowledge and maintain their own equipment and services. The cost makes a lot more sense for a company to simply go to a central station that’s open 24/7/365.

“That’s exciting, and really just getting off the ground,” says Brady.

Can Interactive Services Increase Market Penetration and Reduce Attrition?
With the security industry looking to higher its penetration rates, the explosion of interactive services couldn’t come at a better time.

“I think [interactive services are] being adopted a lot easier than straight security and it’s going to help grow our penetration,” says Brady. “I think people value the ability to maintain their environment more than straight security.”

Part of that penetration is likely to come from a younger generation, which isn’t always interested in a traditional security system, but would happily invest in a system where they can control their thermostat, lights and more from their smartphones. 

“You start to appeal to a much younger group because there's so much more capability to control the surroundings they live in remotely,” he says. The monthly cost for the services is nothing to a young, two-income family if the entire system saves them $1000 a year in heating costs, he says.

“You can absolutely see where it’s helping to maintain the customer base and decrease attrition,” says Brady. “The fourth-leading reason for attrition — not using your system — now we have a solution for that. The market has already started to change,” he says.

“I think what the numbers will prove is that the interactive offering absolutely increases use and lowers attrition,” says Brady.

On the commercial side, central stations providing IT solutions to corporations are also seeing low attrition rates, since once these companies are set up, they normally don’t leave (unless you screw up), says Brady. “That’s one where you don’t have a lot of attrition,” he says.

The Increasing Value of Your RMR
If having the additional monthly revenue wasn’t enough, interactive services are doing a good job of making traditional RMR more profitable. 

If a dealer is charging $35/month and has a $5/month cost for monitoring and is able to bump up to $50/month and the cost only goes up to $9/month, they’re generating increasing margins across the board.

One of the reasons the cable and telecom companies have re-emerged in the market is that they see it’s not just about security any more - the value of the RMR from interactive services is appealing to them, as well.

“It’s helping the marketplace as a whole because it offers so much more,” says Brady.

Not selling interactive services won’t devalue the RMR of more traditional security companies, says Brady, but at some point they’ll need to upgrade their panels to ones that offer interactive or someone else will. “I need to be doing it before someone else knocks on their door and shows them this really neat panel,” says Brady.

The bigger problem is for companies who haven’t upgraded their customers’ panels to be wireless, as their RMR may be devalued since they are still reliant on a landline. If that company were to be acquired, they may lose value on each customer since the buyer will need to go and replace all of their panels. “They’re getting hit on their valuations since I [the buyer] have to do that work,” says Brady.

While interactive services and hosted and managed services are leading the new RMR opportunities, Brady points out that there’s so much potential in PERs for building new revenue streams. 

“The marketplace for PERs is expanding dramatically. It’s going to expand even more as ObamaCare takes hold,” he says. “You’re beginning to see a lot of the security industry realize” [the potential] in PERs. It intrinsically sounds like it’s more dangerous to be that business, but it’s not.”

One potential RMR generator that hasn’t hit its potential, however, is the use of GPS for monitoring. “The one that hasn’t taken off is the GPS,” like with apps on smartphones, says Brady, partially because AHJs (authorities having jurisdiction) tend not to like to to be dispatched to the corner of a street because there’s a problem there. 

While GPS built a huge industry in vehicle tracking, it hasn’t really developed when considering protection of the individual. 

To stay on top of these trends and get real-world advice for expanding your RMR horizon, register for seminars in the RMR Track, sponsored Winland Electronics. For course descriptions and times, visit: www.esxweb.com/seminars.