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The Canary in an Access Control Coal Mine: Multifamily Vertical

Typically when I answer the question, What will the access control industry look like in the future?, I use the multifamily vertical as an example. In my opinion, it is the best example of what Mark Andreessen, founder of Netscape and well-known venture capitalist, meant when he said, "software is eating the world, in all sectors. In the future every company will become a software company."

Here is why:

The value arbitrage in multifamily access control and locks is occurring right now, as we speak. It is moving FROM access control systems and locks TO property management software and smart building/apartment software companies. The access control and lock companies in the multifamily market are becoming nothing but a feature. Important? Yes. But a feature of a much more significant value proposition owned mid and long term, by the property management software and smart building/apartment software companies.

It is not all bad news for the access control and lock companies. There is still plenty of opportunity.  But it needs to be met with desire and action. Some have already started to move and it is a clear signal to what is to become the norm.

Look at it this way, the market (note: the market. Some have not turned all of these corners, but the market has) went FROM:

  • Mechanical Locks TO Electronic Locks with configuration software included
  • TO Electronic Locks with configuration software integrating with Access Control Software
  • TO Access Control Software with Electronic Locks integrated with Property Management Software and Smart Apartment Software
  • TO Property Management Sofware and Smart Apartment Software with Access Control and Locks as a feature of a much more involved solution

A business evolution and value arbitration case study.

Here are two examples to show it in action. One is of a lock company (Assa Abloy) and the other is an access control company (Brivo), seeing this trend and doing something about it:

  1. Assa Abloy (as reported) either buying or partnering deeply with Chirp Systems.
  2. Brivo buying Parakeet.

I will throw a third example in the mix, in an effort to strengthen the point that things have changed. An asset management company (Brookfield) invested in a smart lock and smart building/apartment software company (Latch).

So what does this all mean? Here are some thoughts on what I think this all means:

Overall, the market is going to go from being highly fragmented to being 3 dominant players that are vertically integrated. It will be lead by software companies.

If you are a lock company, I suggest 2 paths depending on whether or not you have a software strategy.

First path: If you are a lock company and do NOT have a software strategy, I suggest that you focus on being the best "bent metal" manufacturer in the world and make your products a platform to support 3rd party user experiences. There is no shame in that business. Own it. There is a good amount of revenue and margin in it.  That said, I think long term, the margins, and revenues are going to get squeezed if you do not continue to innovate. Especially as new construction slows and the aftermarket or retrofit market starts to heat up, there are going to be even more new companies bringing a lower cost, "good enough" lock to market. There will be even more that understand software as a core competency and do not treat it as a feature, but as a key part of the value proposition. Customers are looking for partners and solutions that do both well now and show the ability to do so for the long term.

Second path: If you are a lock company and DO have a software strategy, I suggest, in the short term, partner with all the access control, property management software, and smart building/apartment software companies that make sense for your business to capitalize on today's business. I would, however, at the same time, start building or acquiring your own solution in both for the long term. Verticalize.

If you are an access control provider in this vertical, I feel you are the most susceptible to becoming irrelevant. I would shift either out of the vertical completely or build your own software solution to do more than just access control.  You sit in a weird spot between the lock companies and the smart building/apartment/property management software companies. Not a good place to be.  If you are well-capitalized, an even better solution is to acquire one of the smart building/apartment software companies and partner with the property management software companies.

If you are a smart building/apartment software company, I would start "acting as if" and leading. Partner deeply with the property management companies. I would take a hard look at your lock partners, also partner deeply here, but start looking for those that will support the experiences you know your customers are asking for and you need. As far as what to do with access control providers? I would continue to integrate as there are a lot of existing systems on the market now, but I would have a parallel plan on building those core functionalities into your software solution. If you are capitalized well enough, maybe also go acquire the solution and deeply integrate it.

The long and short of it all is that the market has already changed. It is now about speed and decisive action based on a strategy of which you choose to execute. Sure, doing nothing is also a strategy, but it is not a winning one. The overall access control industry needs to take a hard look at what is happening in the multifamily space and start critically thinking about what good is going to look like long term. You have the worlds largest excuse right now to make changes.