Instant Analysis: ADT and Google Join Forces

The news that Google has acquired 6.6% of ADT was the tremor, but the companies’ revelations on Monday about its go-to-market strategy moving forward may turn out to be the tsunami coming behind it.

Google has found its entry point into the professionally installed and monitored security industry via its ADT partnership, and ADT officials confirmed that a plan is now in place to transition all ADT hardware to the Google Home smart home platform and associated Nest products. Although a formal timeline has not been unveiled, ADT flagship products, such as Pulse and the newer Command & Control and DIY Blue platforms, will eventually become legacy products when the transition is complete.

“This is a move that creates a lot more technology inside ADT, from the bottom end to the top,” says Jeff Kessler, managing director of Imperial Capital. “This move gives them more negotiating power – both with its customers and with its providers.”

For Google, the partnership gives them the sought-after professional monitoring and installation element to its products, and an official “in” to the professional side of the security industry.

The Future of the Technology

The first big revelation by ADT is that the company will move forward using Google technology as its building blocks.

“There is a huge emerging opportunity to rethink the home experience using AI and machine intelligence, and building a new kind of holistic platform that connects all these devices together,” Rishi Chandra, VP of Products and General Manager for Google Nest, explained during a press conference on Monday. “That starts with security as kind of a core essence of what we're doing, but for the first time, we can extend that security offering to something that is much more holistic to give peace of mind to consumers. Our intention is to complement ADT services – we are not looking to rebuild or replace existing services out there, whether it be professional monitoring or cybersecurity services.”

“There is still a lot of work to do with the integration – we are building a smart home platform, which is going to allow us to kind of extend the capabilities in a whole bunch of different ways,” Chandra adds. “You can connect your security system to all your other systems that you are actually building inside your house, such as entertainment systems, energy systems and communication systems. That’s what we are looking forward to building over the next few years.”

With 3 million customers already on ADT Pulse and Command & Control platforms, it is unclear how long it may take for ADT to transition them to Nest hardware offerings; however, Jim Boyce, ADT’s President and Chief Business Development Officer, said during the press conference that “we are going to continue partnering with existing suppliers for some time – working with them on legacy platforms, such as Pulse and Command & Control.”

“We want to make sure that we are bridging customers, and that existing customers are not impacted by this change, which is super important,” Chandra added. “That will help us as we come to market with these integrated products over time. We are hoping to make significant progress on that through next year – that is obviously the next big step.”

It is no secret in the industry that ADT Command & Control is built on an Alarm.com software foundation, and Kessler speculates that there will still be a place for Alarm.com at ADT, despite its shift to the Nest/Google Home platform.

“I think that ADT will have to sit down with Alarm.com and work out what their ongoing business plan should be, but I think they still have a good role to play inside of ADT,” Kessler says. “It is my opinion that ADT would be better served to find a place for Alarm.com – not as the single provider of its of its platform anymore, but as one of them.”

Market Impact: ADT’s Perspective

The ADT/Google partnership will not apply to ADT Commercial, which is focused on mid-level to enterprise commercial deployments. Instead, this partnership will be limited to the residential and small business customers of ADT Security Services.

“We will be focused on the high-volume business, which is do-if-for-me residential, DIY, and small and medium business,” Boyce said.

“From ADT’s perspective, they don’t have to worry about the ‘melting iceberg’ argument anymore,” Kessler says. “They now become a major player in the DIY and smart home industry and can easily gear themselves to the high or low end of the smart home. ADT is more than happy to deal with a major player who can help them grow in residential, since they are getting (nearly) all of their growth in commercial and industrial. Google can offer a whole range of systems by which somebody can control their home, which will make ADT really competitive against companies like Vivint and others that have targeted nothing but the smart home, with security being a sidelight.”

Blake Kozak, Senior Principal Analyst of the Smart Home market for research firm Omdia, says this will obviously help ADT go to market: “This partnership will bring brand recognition to ADT without ADT having to explain video analytics and the benefits to customers, since presumably, these customers will be aware of the Nest offering,” he explains. “ADT has its own branded video doorbells and cameras, so this news will certainly impact attach rates of its own-branded technology. Although this investment by Google seems to cannibalize work that ADT has done in recent years, it has a chance to boost ADT’s subscriber base that has been relatively flat over the past several years despite a high take-rate of automation services.” 

Kessler adds that video-based alarm verification, which ADT added via its Oct. 2019 acquisition of I-View-Now, will only be enhanced via the Google partnership. “Electronic alarm verification would be a big value proposition differentiator for ADT without Google – but with Google, they get a major uplift in artificial intelligence and other types of technologies that can even better identify whether or not there is a true anomaly at the perimeter, for example,” Kessler says. “That is a big differentiator for ADT, to be able to protect its RMR.”

Boyce confirmed: “Google's next generation technology, artificial intelligence and machine learning, combined with our professional monitoring and alarm verification technology is going to lead to improvements that I fully expect will lead to the reduction or elimination of false alarms.”

Kessler adds that Google’s technology will benefit ADT as it transitions customers in anticipation of the 3G sunset.

As far as business valuation, the $450 million cost of 6.6% of ADT extrapolates to a $6.81 billion valuation, which is in line with the $6.9 billion that Apollo paid in taking ADT private in Feb. 2016. ADT is scheduled to report its second quarter 2020 earnings on Wednesday.  

Google’s Perspective

For Google, Kessler says the major motivation was being better able to compete with Amazon. “For its part, Google now doesn't have to worry as much about how to proceed against Amazon in the home without crashing on a bunch of smaller, non-integrated home technology companies,” he says. “Amazon is having success getting its technology integrated into other companies’ platforms, whereas Google was not having as good success (in that regard), so the deal with ADT certainly gets them into the 30% of homes with alarms.”

“This news will generate a much-needed boost for the Nest security product line that has been stagnant compared to Arlo and newcomers, such as Wyze,” Kozak says. “Google will get access to ADT’s professional installers for its cameras that are not often DIY friendly compared to the battery-operated cameras from Arlo.”

“Google has always found success through partnerships in whatever industry we've been in – whether it be the mobile industry or the search area, or YouTube, whatever it might be,” Chandra said. “We think this partnership is very consistent with that approach – to build a platform and a deep relationship through partnership to actually bring better experiences to market.”

“There's still a lot to go here on smart homes, and I do think that there's room for a Vivint, there's room for ADT+Google, and there is also room for Verisure as a significant player in Europe and in Latin America,” Kessler says.

Paul Rothman is Editor-in-Chief of Security Business magazine (www.securitybusinessmag.com). Email him your comments or topic suggestions at [email protected].