Why Do System Integrators Have Trouble Growing Their Recurring Revenue?

I'm sitting in the Toronto airport on a layover right now, thinking about a discussion I had yesterday with a handful of integrators. We were trying to get to the bottom of the ongoing struggle that integration companies have in growing their RMR.

So, I thought I'd pose the question to this group... why do system integrators struggle growing their RMR?


In todays age, more and more people do not want Central Station monitoring and just want to monitor it themselves on their smartphones. Why have a cop show up to your house, because the wife forgot to turn off the alarm, and then have to pay for the cop showing up? It can be a hassle.

However, the Upper Middle Class and the Rich are still willing to stick with the Central Station as they do not want to deal with things themselves. The RMR that is dissapearing is from the sub-class between the Middle Class and the Upper Middle Class.

How do you come up with new means of RMR? By finding a competitor of Dropcams, one that will partner with Alarm Dealers, and provide hosting service and alarm video to your smartphone. Why don't people buy DropCam? Because the vast majority of people do not want the hassle to set it up themselves or amazingly do not know about it, because it means nothing to them, yet home security does from a trusted source. Alarm dealers could also get into the hosting business on a local level and use a variety of Residential cameras.

On a similar note - Many police departments will not go to your house unless you are onsite and verify your house is being broken into or has been broke into. Video evidence is not enough. Yet police will go if the Central Station contacts them.

Thanks Jeremiah, but I'm more curious about the system integrators that install and service technology (access control, video, etc.) into the commercial / industrial markets. They've been trying for years to grow their RMR and haven't been able to. There are exceptions, but as a whole their RMR:Total Revenue ratio is a pretty low %.

Chris, with regards to access and video RMR, what are the products or offerings one will provide that generate RMR?

The 'best' video and access products are almost never services. Sure, you can resell Axis AVHS hosted video but it's not really competitive (ditto for Genetec VSaaS). On the access side, there's Brivo and.... not a lot else.

My perception is that it is primarily driven by the overall value / competitive positioning of the products / solutions on the market not being services / RMR generators.

John - the value of the video solutions isn't quite there yet. However, for those smaller end-user clients that need a few cameras and want to take advantage of the benefits of cloud services, there seems to be a fit. Have you checked out Salient's hosted product? I've had decent feedback, but have to admit that I'm no expert.

Regarding access, check out Feenics. New company, but the product has been in the field for a few years. They're getting some great feedback from VARs who have been long-time dealers of the big guys. They seem to be unique because they can install traditionally, allow the VAR to host or manage it, or they'll host or manage it.

Again, I help companies with their sales operations ... I'm not a product expert - this info is from feedback I've heard.

Chris, thanks for the feedback.

Hosted video / VSaaS is certainly the closest fit for smaller end-users with a few cameras. There are two limitations though:

  • The alternative there is super inexpensive Costco kits that through cloud access for free (e.g., see our $499 8 channel HD kit test that comes with free cloud access). Because of that, it's often a hard sell.
  • That part of the market is a very small percentage of an integrator's overall business, so even if you could sell it there, it still would not drive up integrator recurring revenue that much.
  • And, third, as a counter example, Dropcam is doing well in just this segment but they have done this by cutting integrators out :(

Thanks for the heads up on Feenics. There are not a lot of new access companies! Brian will reach out to them to learn more.

Somenew business is coming from the maintenance. Lots of cutsomers discover that their IP systems need maintenance but can't be done the same way analog was . Preventive and corrective maintenance of IP devices is probably the most complex things to do because you don't even control what has been installed... but.... if you survey well, get trained and can takeover large installations, it does bring nice regular revenues. ( I know because i'm training some large Services Facilities companies moving from Analog DVR to IP/VMS/NVR and discovering the process and the knowledge are completly different .. (just the optical propreties are common sometimes)

Requires more trained people, more accessories, more pre sets, backups, tests, and so and so

Analytic is an other way to bring higher revenues. Instead of proposing low end price competition , you bring a solution with a configuration and knowhow (and real on site testing at night ...during no moon raining days) - based on regular practice and continuous improvements (like LPR don't even think to be good if you install once per quarter) When you sell thermal cameras and analytic,you know why you are here...

Then ... you can become master of the universe. Making detection works with good results where other just false positive with poor embedded crossing fence, never working in outdoor darkness Just need one camera among 50....to win the market and kill the competitors. then I agree, propose counter measure with Alarms / Access control ... a complete solution

By the way: analytic maintenance requires specific process and knowhow...and shorter preventive operations...

Marc, how are analytics being sold as a service / recurring revenue? I get one can sell analytics as a premium offering to increase differentiator but what does that have to do with RMR?

In general it's yearly recurrent revenues you can spred over the months. Then I you decide to finance and do some leasing ... you get monthly recurent fees it's mather of financing choice like xDSL, 3G/4G or Telesurveillance you monthly pay for. For me the important, how to differentiate.

If Orange goes seriously to a Video B2C or SMB B2B they can kill anybody. So There is place till the big guys didn't decide to invest .. but how long will that last?

Low margin in bulk (so financement, logistic / resources are important) or High margin on few projects ?

Marc, I am not sure what you just said. How does that relate to analytics?

Analytic, as a solution can be proposed and invoiced on a monthly base like a security service (traditiona leasing) or as business intelligence service (people counting, heat maping for shop manager or marketing guys, coupled with Digital signage) People are ready to pay for that if the service is good. Monthly charges are prefered instead of depreciated investments.

'Monthly charges are prefered instead of depreciated investments.'

If this is the case, why is not all security systems done with monthly charges? Additionally, why is leasing so unpopular / uncommon?

Short-sightedness. Monthly charges are preferred, in my opinion, because that is how it has always been. There is not a lot of original thinking sometimes. Integrators get hammered about RMR constantly. Security companies get bought and sold in many cases because of RMR. RAR (Recurring Annual Revenue) is just as important, but doesn't mean as much for some reason.

As for leasing, never been able to figure that one out. Customers lease all kinds of things. But rarely security. Let me know when you figure that one out. Probably a poor job of explaining the finance implications by the integrator.

I will say one more thing about RMR. It is very closely studied and monitored. Just a few years ago the retention rate of RMR was 98%. That is awfully good. I am curious to know what it is now that smart devices are so popular.

RMR for what service / offering? Is that percentage per month, per year?

We have worked on this for years. From our perspective only, our clients, mostly businesses not residential, absolutely and positively will not allow vendors onto their networks; and they do not want their employees data to be shared under any circumstances (credit a strict interpretation of Sarbanes-Oxley). We have a few who we have arrangements with, but for the most part, it is a no-go. When you see what is happening to businesses of all types, shapes and sizes with regards to hacking, you really cannot blame them. As IT and Information Security Managers become more and more involved in the decision process, they have a much larger voice than ever before, and that will only continue to grow. I don't even remember the last designed job we worked on that IT did not have a seat at the table.

Another factor is still the cost. Smaller business owners weigh the cost of hosting along with privacy issues and just decide it is not worth it. For them, they prefer a pay-as-you-go plan. Mid-sized decision makers see the cost of RMI over 20, 30 or 50 sites and decide it is cheaper to do it in house. They are looking for something simple to operate but powerful enough to manage multiple sites easily.

But by and large, access to networks in any form is our largest stumbling block.

Interestingly enough, for the mid to large customer base we are finding a nice substitute for traditional RMI sources is on-going training and licensing. There is not nearly as much work for us day to day, and if the customers want to continue to operate their own equipment they have to maintain their certifications and pay for seat licenses and software updates annually. Some even pay for direct access to manufacturers help desk. I was skeptical about it until I saw the inner-workings and numbers.

There is more than one way to skin that cat.

Thanks Mark! You've illustrated with great detail the primary reason that I've identified for the poor adoption rate of RMR solutions: the customer doesn't know how or why to buy it.

It's very simple and almost impossible at the same time. Every day a client out there asks this question: "why isn't our data in the cloud?" Within a few years, the majority of clients will ask this question. The integrators that will survive this shift are the ones that are educating the end-users today. Not selling them, but educating them when there is not a project to win.

BTW, this goes for service / maintenance agreements too. If you can educate your client base on the value of these agreements (assuming your agreements are more valuable that a T&M model), then they will be warmed up to the concept when you propose it again.

Again, simple for me to write, but almost impossible to implement. You have to have a process for sales and management, and the discipline to methodically grow this side of the business.

Chris, you claim, "the customer doesn't know how or why to buy [RMR solutions]."

This sounds close to the old saying / excuse that the problem is education, not the product.

Here's a 4 year old quote on video analytics:

"One of the primary reasons that video analytics has been slow to adoption is due to a lack education of both end users and integrators."

Analytics has continued to do very poorly and it's fairly obvious that the products just are not good enough.

To me, it's the same with RMR solutions. If we need to cite Salient and a startup no one knows as example of good products in this segment, it's pretty clear sign that the market lacks sufficient credible offerings to drive adoption.

John - I'm not implying that the quality of the offerings aren't part of the slow adoption - they are. However, I believe the primary reason is a lack of education that we provide.

As Mark states above, many times the objection is a refusal to share data. Hospitals and banks have been using hosted services for at least 10 years, and I have to believe they consider their data to be sensitive. Storing data in the cloud doesn't have much to do with the credibility of the video and access control applications, but it's one of the primary objections. Among the reasons for this objection is a lack of education. We need to do a better job of getting in front of our clients when there is not a sales opportunity and educating them on the benefits of hosted/managed solutions.

There's always a mix of the two (product vs. education) but in this scenario, I think it's 80% a product problem.

One of the hidden reasons is the fact that sales people have an alternative to the solutions in the cloud. If a customer balks at a hosted access control option, they can take the easy route and propose a client server solution. Most of the time, they're paid more on the client server product anyway, so why risk confrontation with a client?

It's not magic, but you have to set the ground rules early in each sales engagement. Be sure to remind the client from the very first discussion, that not one single camera manufacturer offers an onsight repair service or warranty reimbursement program to authorized dealers, so once this system is installed, what's your expectations of maintenance and support?

Be sure to let the client discuss their plans in detail. It's likely they are automatically thinking that your quote is going to include this, but not necessarily as a line item, and it's likely they'll think it's forever. Haha.

We're fortunate, in that we've been 100% managed services in our IT business for almost 25 years, and have invested in RMM and automation tools and can demonstrate strong committment to managing IT/IP technology, so you do need to step up and actually have a proactive monitoring / management / response capability, and not just try and sell prepaid hours. You have to commit the offering a single flat rate to keep their systems running.

All of the technology industries suffer the same issues, I.T., Telephony, CCTV, etc. And an underlying issue is the Sales Comp plan that rewards on the margin of the sale. You may want to include a bonus that pays the first full maintenance payment and declining amount for the next few months...

Because most commercial/industrial end users are smart enough to realize that most RMR services aren't in their best interests.

I find these discussions somewhat confusing and missing the point. For the commerical markets, most clients are inclined to buy service agreements. I have grown two firms (sold one), and had recurring revenue representing 25% of our annual revenues. Even though the technology has changed over time, the needs are still the same - - fix my problem quickly. I have written a book on this as well.

It is true that it takes time to create a strong recurring revenue stream, but it is easy to do. Those that say that they cannot do this do not understand the basic force driving client decisions, especially with larger systems.

Alan, I think we agree about the service side.

The 'debate' is around RMR for new installs. In other words, why don't you do 50% or 75% recurring revenue? I presume it's because your customers prefer to pay you up front for new installs?

Strong Proprietary Product Base with limited dealerships

Give Products away at low cost , with great strong longterm lease agreements and contracts that permit no one to service or sell products with out you getting a commision for sales,service or installs.

Sell Products and Services on Time , Not Price

Set Up dependable responsive networks of companys for service and return callbacks , support

Make sure that your equipment is disposable and self stick , ease of installation so the customer can do all the labor themselves

Charge for a yearly commitment to service & support , not on call basis

Use a lot of offshore support channels that can lookup manuals and not know anything , but what they read from the manual.

Fully developed and in place by the big companys.

But there is still no place like the boys club where you get the contracts because your in the club or family .

Who is a good example of this today ADT - Control 4 ?