Security Systems Services

SIC 7382

Companies in this industry

Industry report:

This classification includes establishments primarily engaged in monitoring and maintaining security systems devices, such as burglar and fire alarms. Establishments of this industry may sell or lease and install the security systems that they monitor and maintain. Establishments primarily engaged in the sales and installation, or installation only, of such devices are classified in SIC 1731: Electrical Work.

Industry Snapshot

In 2010, there were approximately 6,630 establishments providing security system monitoring services, according to the U.S. Census Bureau. These businesses generated nearly $15.8 billion in revenues and employed an estimated 100,800 people who earned a total annual payroll of almost $4.4 million. Security monitoring system coverage was distributed relatively evenly among residential, commercial, and industrial locations, with the number of monitored locations totaling well over 32 million.

Simple on-site burglar alarms, which may deter an intruder with their noise and attract the attention of a passerby, are usually insufficient for the higher security needs of many businesses and some residences. Security systems services provide added security by continuously monitoring property alarms for multiple clients through their own off-site central station. Accordingly, these companies often are referred to as central stations.

Central station-monitored alarms, when triggered, send a silent alarm signal to the station through a leased telephone line, a coaxial cable (television) line, or a reserved radio frequency. By the early twenty-first century, wireless broadband was a widely used medium for the transfer of alarm signals. Then, unless contacted by the subscriber within a few minutes to cancel a false alarm, the station calls the police, possibly dispatches its own guard, and notifies the client. The monitoring agreement may involve keeping the central station notified of the business's regular hours and when the alarm is turned on or off, thus sharing the responsibility for and the control of operating the alarm system.

Most of the commercial alarm monitoring businesses deal with burglar alarms. Only a small number of police stations are willing to directly monitor alarm systems themselves because of the high incidence of false alarms and limited police resources. Alarm systems connected directly to police stations usually exist only when no private central station is operating within a particular area. Private monitoring companies are considered to have greater security advantages than police station monitoring systems. Fire alarm systems, on the other hand, are monitored directly by fire departments as well as private companies, and false alarms occur less frequently.

Burglar alarm systems typically include both door and window trip switches to detect break-ins and sensors to detect motion. Both kinds of devices are linked by wires or short-range radio transmitters to a central console, where the system is switched on or off. Different detection systems provide varying levels of security. Alarm systems are rated by Underwriters Laboratories (UL), an independent product testing organization that serves insurance underwriters.

UL not only tests alarm equipment but also inspects and rates the firms installing and monitoring the equipment. In addition, UL certifies alarm service companies upon approval. Central stations are graded according to the length of time they take to dispatch a guard to the property and whether the line that runs from the property to the central station is protected from electronic tampering. Other than UL's services, the industry is relatively self-regulated. Not every state requires the licensing of alarm installers.

Central stations often install the alarm systems, a service the manufacturer of the system usually does not perform. As for the maintenance of alarm systems, installers typically provide a one-year warranty on parts and labor. Thereafter, annual maintenance contracts usually cost around 10 percent of the original installation price.

Organization and Structure

Establishments in the United States engaged in security systems services include both private and publicly held companies and a number of unincorporated individual proprietorships or partnerships. The majority of firms concentrate on the monitoring of burglar alarms. Most provide only local service, although several are national in scope. Central stations serve both residential and business clients and occasionally specialize in particular types of clients. Many central stations are specialized in the business of security service monitoring, but some companies also offer on-site security guard services, other electrical equipment installation contracting, and other building maintenance activities, such as janitorial services.

Background and Development

In the 1920s, crime increased significantly in the United States, and burglar alarm systems were devised as a response. Originally, most alarms were monitored directly by the police, but police stations gradually became overwhelmed by false alarms. In some cities, the police responded only to alarms owned by special permit holders or those protecting businesses requiring high security, such as banks and jewelry stores. Private enterprise central stations gradually took over for the police.

In the 1980s and 1990s, private central stations began monitoring fire alarms as well. Fire alarm monitoring, however, tended to be contracted out by municipal fire departments, rather than directly by property owners. A number of cities began to privatize their fire alarm monitoring services to save money, to avoid having to make continuous investments to keep up with the latest technology, or to avoid having to compete against private companies. Often, central stations that already handled other types of alarms, such as burglar alarms, took on fire alarm monitoring as well.

The number of alarm monitoring companies in the United States declined because of a number of acquisitions. The industry was originally very fragmented and localized but began to consolidate in the late 1980s, a trend that accelerated in the early 1990s. Larger companies took over smaller ones by offering limited partnerships. Alert Holdings Inc., for example, acquired close to 400 companies between 1985 and 1991. Smaller companies found it difficult to compete with larger ones that offered lower-priced installations. The alarm monitoring business easily benefited from economies of scale. National companies could monitor clients in other states through one central station.

In the late 1980s, alarm monitoring services began to earnestly target their marketing efforts toward private home owners. The residential market was not as well penetrated as the business market because homeowners usually took care of their security needs with simple on-site siren systems they installed themselves. Decreasing alarm system installation prices and rising crime, however, boosted the residential business of central stations. Installation costs of centrally monitored systems fell from around $3,250 in 1970 to $1,250 in 1993. Occasionally, installations were offered at no charge as part of a multiyear monitoring contract. Residential monitoring services also began to offer other security services, including the monitoring of medical alert signals, possible water pipe and gas leaks, and thermostat controls. Consequently, centrally monitored alarms represented the fastest growing segment of the home alarm business in the early 1990s.

About 1 million home systems were installed in 1992, for roughly $1.4 billion in service fees and equipment expenses. About 75 percent of these professionally installed systems were connected to central stations, accounting for $1.9 billion in annual revenue from monthly residential security monitoring and maintenance fees.

In 1990, alarm monitoring represented the third largest use of information services over telephone lines, after database services and transaction processing, and ahead of telephone answering services and 900 telephone number services. Alarm monitoring through telephone lines accounted for about $2.5 billion worth of services.

Growth was fueled not only by an increasing fear of crime but also because some property insurance underwriters required their clients in high-risk businesses to obtain security services before a policy was issued. The security systems services industry experienced steady growth, and total revenues increased markedly due to continued public concern over security issues. In 1987, the security systems services industry recorded $2.2 billion in revenue. The industry had an average yearly growth pattern of over 6 percent from 1993 to 1997. Most notably, during the intervening decade, total industry annual receipts more than doubled by 1997 to $5.9 billion.

Some commercial alarm monitoring services broadened their services in response to client requests, including drive-by spot checks and the dispatching of guards. In the wake of the Oklahoma City bombing in 1995, fear of crime was high, even though actual crime statistics failed to support public perceptions, and security companies tooled up for an anticipated surge in demand. As it turned out, although demand for more security remained strong, the sector of the industry involved in reselling, installing, and monitoring remained unsettled.

Alarm monitoring brought in about 20 percent of all revenue in 1996, with equipment and installation accounting for most of the rest. Greater consolidation also continued within the industry in 1996, as the largest national and regional firms bought up smaller firms and accounts. The trend continued for a time as cash-rich utilities, Wall Street investors, telephone companies, and powerhouse retailers all bought their way into the security industry. Companies also showed less interest in the home security market, an overly price-sensitive and amorphous area whose needs were difficult to gauge. The industry was also worried about the growing do-it-yourself (DIY) business. The sale of home computers with home automation bundled in and the sale of DIY sensors, detectors, and even closed circuit television (CCTV) components posed a serious threat to alarm installation and monitoring firms. As a result, many companies turned their attention to the large commercial market where they were able to offer systems integration services, reap higher profits, and build longer-lasting client relationships.

Already one of the fastest growing industries in the United States by 2000, electronic security products and services as a whole brought in an estimated $22.4 billion in 2002, up 9.7 percent from 2001; and as of 2003, there were about 14,000 electronic security businesses in the country. In 2001, the alarm monitoring section of the industry had grown into an $11.1 billion business, up 9.9 percent from $6.9 billion just five years earlier. The security industry thrived in the environment following the September 11, 2001 terrorist attacks on the United States, with everyone from big businesses to private residences beefing up or installing new security systems. Updated technology was probably the other major contributor to this sector's good fortune, with more customers upgrading their systems in a quest to own the latest security offered. Sales for digital video recorders and access control systems increased so significantly that some sources began dubbing 2002 "The Year of the DVR." The annual study by Security Distributing & Marketing, (SDM), found that 16 percent of total dealer/integrator revenues came from video surveillance systems in 2002. A strong housing market in the early 2000s, driven in part by lower than ever interest rates, also aided sales in security. Many new homeowners were purchasing alarm systems. However, most security companies found commercial customers were still the key to sales. The industry also saw some growth in the government and food markets. Some markets were not as profitable, such as educational systems. With cuts to school budgets, educational institutions contributed little to demand in new security systems.

In the products category, burglar alarms made up the largest percentage of revenue in the early 2000s with 43 percent of the market, down from 64 percent a decade earlier. Fire alarms made up 18 percent of 2002 revenue; home systems other than burglar or fire made up 16 percent; video surveillance, 16 percent; access control, 9 percent; integrated security systems, 5 percent; and other types of security products, 2 percent. In the services category, residential security sales/installation accounted for 32 percent of 2002 revenue; home systems sales/installation, 9 percent; nonresidential sales/installation, 28 percent; service/maintenance, 12 percent; monitoring/leasing, 17 percent; and other services, 2 percent.

Along with demand, prices of residential security also rose, from $1,293 in 2001 to $1,424 in 2002. Monthly monitoring charges also went up, from $22.00 in 2001 to $22.75 in 2002. Accordingly, SDM showed that security systems dealers received a larger percentage of total revenue from sales and installation in 2002 than in the previous year.

By 2004, SDM found that 11 percent of total dealer/integrator revenues were directly related to video surveillance systems, down from 16 percent in 2002. The sustained housing industry, coupled with low interest rates, continued to fuel the security systems market.

In the products sector, burglar alarms made up the largest percentage of revenue in 2004, with 46 percent of the market. Fire alarms made up 16 percent of 2004 revenue; home systems, not counting burglar or fire, made up 7 percent; video surveillance accounted for 11 percent; access control, 9 percent; integrated security systems, 9 percent; and other types of security products, 2 percent. In the services sector, residential security sales/installation accounted for 29 percent of 2004 revenue; home systems sales/installation, 7 percent; nonresidential sales/installation, 30 percent; service/maintenance, 11 percent; monitoring/leasing, 8 percent; and other services, 4 percent.

Despite stagnant economic conditions, the security systems services industry continued to profit in the 2000s, reaching revenues of $13.5 billion in 2006. Sales and installation of residential video had more than doubled by the mid-2000s, helping to fuel the market, along with the increased demand for remote video monitoring. New markets and upgrades resulted from the widespread changeover from analog video security systems to digital recorders in the late 2000s, while growth of traditional burglar and fire alarm systems was slow. Along with video surveillance, integrated systems and access control were two of the fastest growing segments of the business at the end of the decade.

According to a report by global market research firm International Data Corporation (IDC) cited by Access Control & Security Systems Integration, the managed security services industry was valued at $1.3 billion in 2007, representing a 19.6 percent increase over 2006. Still highly fragmented, the industry was expected to experience some contraction as larger firms choose to grow through mergers and acquisitions. IDC research analyst Irida Xheneti noted, "Among the many dynamics shaping the U.S. managed security services market today, growing security complexity, the evolving pace of today's technology and stringent compliance mandates are driving demand and spending for managed security services."

The dynamics of crime, law enforcement, and personal, business, and industrial security shifted during the late 2000s when the U.S. economy fell into recession. First, crime was on the increase. According to a 2009 Police Executive Research Forum (PERF) survey, reported by Security Sales & Integration, of the police departments surveyed, 44 percent reported an experience in levels of recession-related crimes. A 2009 University of Florida study, funded by ADT Security Services, found that U.S. retailers alone lost $40.5 billion from theft in 2008. Employee theft accounted for approximately 47 percent of losses, and shoplifting accounted for almost all of the remainder. "The dollar loss to retailers from theft is staggering," Jeffrey Bean, an ADT vice president, said. "Retailers are looking for more sophisticated and integrated security technology solutions to help limit losses, lower costs and keep prices down." Other niche markets were also experiencing increases in crime rates. For example, historically high prices on scrap metal lead to increases in construction site thefts as well as outdoor air conditioning units (for the copper they contain).

Second, although crime rates were increasing during the later 2000s, the economy was forcing traditional law enforcement to cut back on services. According to the PERF survey, about two-thirds of enforcement agencies experienced funding cuts for fiscal 2009. Specifically, 62 percent reported cuts in overtime, and 53 percent (21 percent) reported a hiring freeze of non-police (police) personnel. Nearly 50 percent either cut or eliminated plans for upgrading technology. In this situation of rising crime rates and falling police capacity, security monitoring firms looked to entice new customers to take increasing ownership of their personal and financial security.

Current Conditions

Although the economic recession of the late 2000s negatively affected the security services industry in the United States, by the start of the second decade of the twenty-first century, a recovery appeared to be on the horizon. The main factors expected to drive growth through the 2010s, according to Security Sales & Integration magazine, were the increasing use of broadband services and consumer demand for remote monitoring. In 2010, an estimated 18 percent of U.S. households used professionally monitored security systems and generated about $10 billion in service fees. By 2020, that figure was expected to rise to 30 percent of households. According to Bill Ablondi of research firm Parks Associates, "With smartphones and other Web-enabled devices, clients are carrying a link to their home systems. These Internet-connected security systems provide added capabilities and benefits´┐Ż[and] are expanding the residential market by bringing new customers into what was a relatively stagnant consumer base."

Industry Leaders

In the early 2010s, the security services industry became a microcosm of widespread globalization of markets and trends toward acquisitions by conglomerates in related businesses. As a result, total revenues reported for most firms in the industry were not derived solely from security services activity and operations.

Broadview Security (which changed its name from Brink's Home Security in 2009), spun off from parent Brink's Company in 2008. In 2010, Tyco International, the owner of the largest electronic security services company in North America, ADT Security Services Inc., purchased Broadview Security for around $2 billion, creating a security giant that held almost one-third of the U.S. residential security systems market in the early 2010s. The new, larger ADT provided electronic security monitoring services to about 7 million customers in business, consumer, and government markets in North America and Europe. Revenues for 2011 exceeded $1.2 billion with 20,200 employees.

Securitas Security Services North America provided investigation services and guards to residential, business, and government clients in North America through 19 business units and 600 branch offices worldwide and employed more than 22,000 people. UTC Fire & Security, a division of United Technologies, was another industry leader. Some of its offerings included fire security services and products, electronic security systems, and security guards, and most of its customers were commercial or governmental. The firm reported 2011 revenues of almost $6.5 billion with 43,000 employees.

Several other viable competitors operating in the security services industry were also subsidiaries or divisions of conglomerates. G4S Secure Solutions Inc. (formerly the Wackenhut Corp.) offered even more diverse security services, such as private prison management, security employee staffing, and security services (which included security systems) in sensitive markets such as background investigations and facilities in airports, nuclear power plants, and embassies. As such, G4S was likely the most illustrative of the continuing trend of leading security systems industry firms toward operating as part of a consolidated corporate structure composed of a variety of security services. G4S had 38,425 employees and revenues of $914 million in 2011.

Research and Technology

Central stations benefited from technological advancements achieved during the late twentieth century, particularly those emanating from the telecommunications industry. To prevent criminal tampering of leased telephone lines that carried the alarm signal, alarm services developed a computerized method of sending signals made up of thousands of signals sent at random that burglars could not duplicate.

Computer software for alarm monitoring became more sophisticated. There were improvements in installed alarm systems. In particular, efforts were made to reduce the incidence of false alarms through more advanced sensor devices and better consumer and dealer education. One innovation on the technological side was the introduction of shock glass break sensors tuned to the frequency of the glass. Unlike acoustic sensors, these responded only to changes in the glass itself, resulting in significantly fewer false alarms.

In the late 2000s, the security industry was working hard to keep pace with the many technology advancements. In particular, the use of broadband was increasing rapidly, and monitoring companies had to be sure that all equipment was integrated and reliable on these new networks. In 2011, more than 75 percent of the U.S. population had broadband Internet access. As a result, in complementary technological advancements, monitoring was trending rapidly toward wireless set-ups.

By the early 2010s, advances in technology had made possible the creation of security systems that seemed to be straight out of a science fiction thriller. For example, Stanley Security Systems developed a biometric "identity management" system that could recognize and verify a person's identity by scanning the iris of the eye. Although these systems were already being used in high-security industries, Stanley's new device could "capture user's iris code data at a distance and in motion while the individual is approaching," whereas older systems required the person to stand still in front of the scanner until his or her identity could be registered.

© COPYRIGHT 2018 The Gale Group, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. For permission to reuse this article, contact the Copyright Clearance Center.

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