Comments on video critical of ADT / is ADT dying May 15, 2023

KEN KIRSCHENBAUM, ESQ
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Comments on video critical of ADT / is ADT dying
May 15, 2023

Comments on video critical of ADT from article on May 5, 2023

Ken:
          I did watch the entire video and there are some false statements with the driving point is the attrition will end up killing ADT.
          Very interesting article…….
Respectfully,
Joseph Pfefer, President & Founder
Jade Alarm Co.
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Ken
          This is my take on ADT blasted by U Tube, and I didn't bother watching the video. I recently answered an ADT ad as a fact finding mission. What I found was that for an average residential system I would pay for the equipment at a reasonable cost, but that was where reasonable ended. I would also be locked into a 5 year contract at $60.00 per month. Maybe I'm behind the times, but this seems pretty excessive to me. I feel like most local companies would be more reasonable and service would be much better. ADT and companies like them make it pretty easy for the DIY companies to make themselves look very attractive.
LD
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Ken,
          Responding to your May 5th 2023 post about a UTube video that supposedly “exposes” ADT. The video was made by an outfit called ModernMBA. I looked them up and there isn’t much info on them other than they purport to provide information on “business strategies of today’s companies.” When I was in grad school, earning my Master of Science in Accounting we referred to the MBAs as “Mostly Bewildered Accountants.”
          I’m sitting at the airport waiting on a plane on a Friday afternoon so I watched the video all of the way through. It discusses alarms, is a little bit accurate, and it focuses on ADT’s purported use of “sleazy long term contracts.” It compared ADT to companies such as SimpliSafe that “have month to month commitments.” What it fails to discuss is that ADT requires customers to sign a multi-year contract because the customer is receiving hundreds of dollars of equipment and installation labor. A DIY customer is typically purchasing the equipment outright and the DIY provider has been fully paid up front. This is no different than a cellular phone provider rolling the handset cost into the monthly service charge, a cable company supplying a free cable box, or many other providers of similar services that require a long term contract. The model isn’t much different that landlords requiring a lease or car leasing companies requiring long term contracts. Amusingly ModernMBA is streaming on UTube which offers a subscription option to its users.
          They mention that thousands of ADT subscribers have flooded regulatory agencies with complaints. While some complaints may be legitimate, the majority are from people who received free equipment, signed an Agreement, then got tired of paying. These complaints don’t hold water just as complaints from apartment tenants who want to move because their “rent it too high” don’t carry any weight.
          The video goes on to “reveal” that ADT doesn’t really make money on installation fees, it makes money by retaining customers over the long term. This isn’t a new business model, telephone and electric utilities have been doing this for over a century. When a city expands, the phone, electric, natural gas, etc.. companies build infrastructure to provide a service to the new residents. They don’t make money doing this, they make money providing service to their customers over the long term. How is this any different than an alarm company?
          The video claims that ADT’s business is “dying.” To support this they cite ADT’s 12.5% “churn” (attrition) rate. If you set aside the MBA doublespeak here and use math, a 12.5% “churn” rate means that the average customer is lasting for 8 years. So, if it takes 24 – 36 months to recoup your investment (as the video claims) and you get an additional 5 – 6 years of cash flow, at 80% margins, is your business really “dying,” The video claims that ADT is compensating for this by increasing monitoring rates. They back this up by claiming that average monitoring rates have risen from $46 to $57 dollars from 2017 to 2019. What they fail to mention is the dramatic increase in customers using third party and interactive services. Not only does this add more revenue from monitoring, it increases the use of the system and makes customers “stickier.” Some of the increases can also be attributed to customer replacing their POTS lines and requiring cellular service but why mention that when they are on a roll. Another factor in the higher than average monitoring rates is that ADT is not purely a residential company.   Quite a bit of ADT’s monitoring revenue comes from fire, UL burg, and other sophisticated services that command a much higher rate than that for a three bedroom house.
          They completely misunderstand the Dealer Program model. The video claims that the Dealers “install the systems, maintain the customers for 12 -13 months, then sell them to ADT for extra cash.” This isn’t what happens at all. The ADT Dealers sell and install systems according to ADT’s guidelines and are paid by ADT for the assignment of the customer relationship. The Dealer’s costs are similar to those of ADTs organic installation, but the Dealers give ADT a dependable, steady source of new RMR. I once saw the CFO of Tyson Chicken speak at a dinner. He said “We don’t sell chickens, we sell eggs to chicken farmers, they raise the chickens and we buy them back.” Not much different than the dealer program model. They also claim that “half of ADT’s sales force is beyond their control.” I believe that the Dealer Program Management at ADT would differ, they work as a team to keep the controls in place and are quick to react when there is an issue.
          The video concludes with a bunch of suppositions and baseless conclusions, including the assertion that the future of the security business is in equipment supply and not a “dying service provider, like ADT.” When I was in grad school we called this “MBA gibberish”. The Security industry isn’t dying, and, if it were, what would the future be in supplying “equipment” to dying businesses. If they would step back and look at the financial structure of a supplier they would realize that manufacturers spend tens of millions of dollars developing and patenting new technologies with the expectation of recovering their investment by selling the equipment at decent margins for multiple years.
          To loosely quote Mark Twain “Reports of the alarm industry’s death are greatly exaggerated.”
Mitch Reitman
817 698 9999 XT 101
Reitman Consulting Group
http://www.reitman.us

Response

          The alarm industry is alive and well and likely to stay on its sky rocket trajectory as innovation turns out more devices and services.

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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
ken@kirschenbaumesq.com
www.KirschenbaumEsq.com