Arlo Technologies (NYSE: ARLO) may be thinking it's better to introduce a video doorbell late than never, but in reality it is a case of too little, too late. It should have released one last summer when it introduced its Audio Doorbell model -- which lets you talk to people at the door but not see them -- but back then it seemed Arlo didn't want to cut into sales of its security cameras.
Now it is far behind rivals that have had video doorbells on the market for a while, such as Amazon.com. Its Ring device virtually owned the market two years ago with a 97% share, but since then the field has become crowded with numerous players including August Home from Assa Abloy, Amazon's Blink, Nest from Alphabet's Google, and many other manufacturers competing for share. It's estimated the top five manufacturers account for over 76% of the segment's revenue.
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At this late date, Arlo's best hope for achieving growth in the niche may be the truism that a rising tide lifts all boats.
Doorbells open the door for growth
Analysts see the video doorbell market as one of the fastest-growing segments in the connected-home field. Some suggest this niche could hit $21 billion by 2024, a remarkable 61% compound annual growth rate over five years.
Although it's true that market researchers have a penchant for simply drawing a straight line up and to the right when they extrapolate figures into the future, it's clear that a video doorbell is a popular consumer choice. And the doorbells are a gateway device to the broader home security market that Arlo sells into.
Although Arlo's forte has been security cameras that have been popular with the public, more recently it has made a definitive push into the services side of the industry, increasingly integrating subscription-based services into its operations. It also recently announced a partnership to provide security company I-View Now with video services.
The transition from hardware maker to services provider is evident in Arlo's earnings report. First-quarter revenue fell to $57.9 million, but services revenue jumped 37% year over year to $11.3 million while it added 276,000 registered users to its rolls, bringing the total to 3.1 million, a 62% increase from last year. Paid subscribers grew to approximately 174,000, an 89% surge year over year. Services now represent 19% of revenue versus just 8% a year ago.
How will Arlo compete?
But a video doorbell had been notably absent from the company's product lineup, and Arlo is starting well behind the competition, a problem compounded by its model not even coming to market until later this year. It did divulge, though, that the device is expected to have full-HD video quality, a wide field of view, and two-way audio. But no price was provided -- and price will be key.
Although the specs offered are fine, it doesn't really distinguish itself from the competition. At the Consumer Electronics Show earlier this year, Ring introduced its fifth doorbell model, one which also comes with 1080p HD video quality and two-way audio, but also features door activity detection, night vision, and a rechargeable battery. It simply fits over your existing peephole, making it especially convenient for apartments and rental homes. It's expected to retail for under $199.
Arlo needs a video doorbell to help continue adding subscribers. Doorbells will ultimately pave the way for upgrades to added devices, which will lead to more subscribers.
A recent Parks Associates survey found 67% of those buying a security system want video alerts when someone is approaching the home, so not having a doorbell along with a separate camera system is a decided disadvantage.
The key takeaway
Arlo isn't operating in a vacuum, though, and its competitors with video doorbells also offer monitoring services. Ring and Nest, the market leaders, have comparable services, sometimes at lower cost.
So while it is about time Arlo Technologies offers a more comprehensive security solution with a video doorbell as an integral part of the whole, it has allowed itself to fall so far behind the competition that it may not be able to unring the bell of being so late to market.
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