This Intrusion Startup Raised $57 Million

By Brian Rhodes, Published Jun 04, 2014, 12:00am EDT

One of the top VCs in the world has invested a staggering $57 million in a DIY Intrusion monitoring company, Simplisafe.

But who is Simplisafe? Why did they get $57 million? And how do they compare to traditional offerings like ADT?

In this note, we examine the key drivers and structural differences. This is the first part of our Simplisafe review, which will conclude with a full test of the system later this month.

Major Distinctions

While the system's technology is similar to others, the platform emphasizes two key distinctions:

  • DIY: SimpliSafe is targeted at the 'do-it-yourselfer', from purchase to install, and monitoring. All system peripherals are wireless, battery powered, and adhesive mounted like stickers onto walls, doors, and windows.
  • Monitoring Optional: When it comes to alarming, options range from no additional monthly cost local (system siren) alarming only, up to paying a monthly central station service (that will dispatch police/fire) costing between $15 - $25 per month. Pricing increases when features like smartphone app access and remote SMS/Text message notifications are desired.

When it comes to hardware and sensor design, SimpliSafe is not unique. The central 'panel' connects to peripheral keypads, buttons, and contact intrusion sensors and PIR-type motion sensors all common to countless intrusion offerings.

Product Overview

SimpliSafe packages all consist of the same basic elements, with less expensive packages containing fewer, more basic sensors, and the expensive options featuring more sensors for larger buildings and types for specialty uses. Take a look at the short video below for a general overview and installation plan of a system:

Key Details:

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Every system contains the same 'head end', a cone shaped 'base station' wireless receiver that contains a GSM radio, an 85 dB sounder, a ~24 hour backup battery, and a status light. All sensors are registered wirelessly to this headend that offers about 400 - 500 feet range.

Up to 41 devices can be connected to one head end cone, a mix of these basic, core system units including entry sensors, entry sensors, smoke/CO detectors, and expansion keypads and external sirens. Despite being battery powered, the company claims that most sensors will last up to 5 years on standard sized lithium ion batteries.

No Subscription Needed

Aside from the direct sales and DIY installation model, the other major platform difference is optional central station monitoring not contracted over many months. The four basic options are:

 

The $15 monthly 'Standard' package is similar to a basic traditional monitoring offering. For $5 more a month, Simplisafe adds SMS/email alerts, which is not typical for traditional systems but a niche feature. Simplisafe's highest end package, Interactive, at $25 per month, allows for remote control, which is essentially a low-end / basic automation offering.

UL Central Station

In the monitoring market, a 'UL Listed' central station is the standard rating for professional grade service providers. For a central station to achieve 'UL rated' status, it must meet expectations of hardware design, redundancy, and employee competency [link no longer available].  SimpliSafe's central station is a 'UL rated' or 'UL Listed' station, meaning it meets the operational standards of many commercial insurers. It is not a differentiator compared to traditional offerings.

Claimed Advantages

SimpliSafe claims it avoids a number of pitfalls common to traditional alarm companies, including:

  • Wireless vs Wired: The entire SimpliSafe platform is wireless and battery powered, which it claims shaves hundreds off a traditional wired system. While installation is reduced to sticking sensors in place using tape, the ownership cost may not be less expensive, and the cost of changing batteries in all sensors can be ~$50+ even for a modest system of 15 - 20 sensors. A hardwired system does not require similar cost. Additionally, wireless sensors are not uncommon even in incumbent systems, and reliability and maintenance aside, remain an option for any alarm system.
  • Cheaper Monitoring: On this point, SimpliSafe claims its ~$15-$25 /month monitoring is less expensive than incumbents average ~$30 -$50 per panel. Indeed, for basic service, SimpliSafe may be cheaper and boast the same 'UL Listed' quality service as incumbents, but residential customers can find less expensive alternatives from independent monitoring providers.
  • No Minimum Contracts: This point is an advantage for SimpliSafe. Unlike incumbent alarm companies that routinely lock customers for a guaranteed term, often 36 months or longer, SimpliSafe does not require buying anything after initial purchase. If monitoring service is declined, the system is still operational locally, and any service can be cancelled on a month-to-month basis.
  • No POTS Needed: SimpliSafe also claims it needs no phone landline, nor even uses it if available. Using a built-in GSM radio to communicate with central stations allows this, but again this is not exclusive to SimpliSafe. Indeed, most incumbents have offered similar GSM based systems for years and also bypass phone landline requirements.

No Video or Automation

However, SimpliSafe lacks higher end features. For example, 'power features' like HVAC or lighting controls and video surveillance that are available in packages like Total Connect or with equipment like Tuxedo Touch are not offered by SimpliSafe.

While customers are likely attracted to the lower costs of SimpliSafe, the equipment and services are basic compared to full featured offerings like ADT Pulse from incumbents.

Price Comparasion

For users willing to only get in-house audible alerts, Simplisafe saves a lot of money as it is just the one time product cost ($250 to $500) versus ~$1,000 over a 3 year period for a traditional basic system.

However, for those who want centrally monitored alarms, the price difference is much closer. With Simplisafe, you pay the product cost AND then the $15 monthly fee. Over a 3 year period, that is $750 to $1,000, close to what a traditional system costs (given that the product cost is typically bundled / amortized into the monthly fee).

Over long terms (4 years, 5, more), the costs savings of Simplisafe increase as traditional alarm providers continue to charge the same fee even after the equipment has been 'paid off'. 

The $57 Million in Funding

Compared to traditional alarm systems, Simplisafe is not revolutionary but it does offer some savings and some conveniencies. Indeed, Simplisafe is just one of many DIY intrusion offerings.

While Simplisafe was founded in 2006 and reports 100,000 customers, until now, the company appears to have grown with only modest external funding.

The $57 million in funding will let them embark on a Dropcam style massive marketing campaign. And that is the key potential / differentiator here.

Even if Simplisafe does not 'beat' ADT, there clearly is an opportunity for a DIY alarm alternative to become a major player. And with $57 million to spend over the next few years and a powerhouse VC behind them, they have a shot at it.

 

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