What Google’s Investment in ADT Means for Monitored Home Security

The Google and ADT partnership, announced in August, will see Google investing US$450 million in the monitored security stalwart. It also brings Google Nest devices into the ADT installer channel and a commitment from each to work in tandem in both business and technical terms. The deal represents the latest in the blurring between smart home and monitored home security, with the former continuing to reconstruct the latter.

The deal, which gives Google a 6.6% stake in ADT, also commits both companies to investing US$150 million each into developing, marketing, and training people to sell their combination of services. ADT is adding Google Nest products to the list of items sold through its channel, which comprises 20,000 installer technicians, and eventually ADT’s security monitoring operating will be available through the Nest system, including using Google Assistant as voice control.

The investment comes as ADT continues to operate with more than US$10 billion in debt. In February 2016, the company was acquired by Apollo Global Management for US$6.9 billion in a leveraged buyout. After a period as a privately-held company, ADT was relisted two year later. In its latest quarterly report, the ADT saw second quarter revenue up 4% Year-over-Year (YOY) to US$1,331 million, while key monitoring service and related revenue fell 4% was primarily due to a reduction of revenue as a result of the sale of ADT Canada. However, net losses for the quarter were up 3%, to US$107 million, compared to prior year’s net loss of US$104 million.

This deal rationalizes the ongoing disruption that smart home continues to bring to the home security in the key North American market.

Security has long been seen as the path to monetizing smart home services, as smart home players saw its potential to undercut the traditional high monthly subscription and long contract demands of monitored security offerings. Over time, smart home offerings have expanded to include monitored security as well. Both Amazon and Google offer monitored security with the Ring and Nest Aware systems launched they have in the past few years.

For its part, ADT was at the forefront of the intersection between monitored home security and smart home capabilities, launching its Pulse smart home additional service in 2010. But the company has long been split between its existing business and customer base and a commitment to a changing marketplace driven by smart home service adoption.

In defending its market, ADT has tried a number of partnerships to bring both hardware and software in to support the company’s efforts. In October 2017, a partnership with Samsung SmartThings brought Do It Yourself (DIY) installation to the ADT offering. That partnership ended after ADT bought LifeShield in February 2019, bringing its DIY offering in-house. At CES 2019, the company launched its new generation hardware tied to a platform partnership with Alarm.com. The ADT Command offering was set to push the company into greater platform integration with third-party devices, improve app integration, and deliver support for voice control via Amazon Alexa.

The Google deal speaks to the cost and complexity for ADT to continue to compete in the smart home security market. Although the investment is far from controlling, the deal does signpost a combination of ADT’s brand, consumer awareness, and installer channel reach with Google’s smart home technology and roadmap. So far, it is unclear what the Google deal will mean for Alarm.com, which has long specialized in delivering smart home capabilities to the monitored security market. However, with future integration development highlighted as part of the investment, it seems likely that Google will push for the Google Nest ecosystem over Alarm.com’s continued engagement.

For the wider market, the deal will give Google Nest greater access to an installer channel and a channel likely to benefit from offering customers a wider selection of device with greater appeal and functionality from Google Nest.

Broadly, this deal speaks to the value of Google Nest’s device portfolio and the cloud services and extending Machine Learning (ML) capabilities behind making those devices useful to consumers and valuable to Google. ADT is looking to cut the expense of developing generation after generation of smart home-capable devices and services. Meanwhile, Google wants access to the ADT sales channel, which brings the growing potential for installer services to push further into and support smart home sales.

The deal also speaks specifically to ADT’s smart home story. ADT’s smart home efforts had long been an extension of its core, traditional business. Smart home development has long been in the control of key partnerships such as SmartThings, but most importantly on the platform side with iControl and then Alarm.com. This deal continues that strategy, but hands over greater control to its new partner.

Google’s investment doesn’t speak to the demise of monitored home security in favor of smart home services, but it does reflect the increasing value in seamlessly combining the two and ensuring that technology development within monitored security is able to keep pace with the functionality and capabilities driving progress in the smart home. Google paid close to half of ADT’s current customer Recurring Monthly Revenue (RMR) value. That probably reflects the lack of control that comes with just a single-digit stake in the company; however, monitored security RMR remains the key valuation of monitored security players across the United States. It is the valuation that speaks to the health and longevity of the industry, and smart home players looking to expand their sales and installer capabilities, as well as existing monitored security players, will be carefully watching ADT’s RMR performance.