The Physical Security segment of the security industry is undergoing the most rapid technological change in its history, akin to the advent of the digital dialer in the legacy burglar alarm industry.
Today a combination of rising Internet protocol (IP) adoption, declining legacy analog sales, emerging communication standards from broadband to 4G to Wi-Max and widening acceptance of security technologies as a service is transforming the delivery of physical security services. Security integration makes up about $8 billion of a highly fragmented $250 billion (at end-user level) industry. Although the industry grew at about 14 percent annually for the 10-year period up until 2009, the second half of 2009 and 2010 were poor years for integration, as clients reassessed capital expenditures and, within that, what value proposition they required from their security partners. Overall, the rebound we have seen in 2011 has been perceptible, but modest.
However, within the security integration community, our research has revealed huge market share shifts over the last two years, with most—but certainly not all—integrators fighting falling revenues and margins, while a minority (but still material group) of companies growing revenues, services and backlogs, if not outright installations. This is a change in the industry that looks to be fixed in place for some time and is the crux of our current work in the arena.
New services segment gaining share
With the addition of field-tested and field-selected software analytics and improved communication protocols, end-users are understandably more demanding about potential return on investment for new systems. In this environment, we detail the rise of the new integrator model. This is a model in which falling gross margins in products and installation in a slowly recovering economy is allowing those integrators with stronger “IT IQ” and a focus on recurring service to gain customer mindshare and pocketbook share. By adding a long list of pre- and post-project services, such as project planning and advisory; hosted and remotely managed access control and video; maintenance contracts; software licensing; non-security services such as training, configuration and programming; and internal or third-party monitoring, a segment of the integrator community is rapidly gaining share.
However, dropping the legacy paradigms of high product and installation margins and moving toward a customer-centric service model is an extremely difficult change for many businesses, as this transition requires significant upfront capital and cultural investment. The transformation of the security “solution” from basic physical installations to value-added business partner is creating major distortions in a security industry that is emerging from the recession.
Today for many companies, the service component is critical. When looking at such diverse companies as ADT, Siemens Industry, Diebold, RFI Communications, Interface Security and ASG Security, determining where their commercial monitoring business ends and their integration business begins can be challenging. The line is getting very blurry, as services become critical to winning and keeping the end-user.
Rising standards for video and access control devices likely will be positive for the industry and installers who need to service their projects, but they are unlikely to relieve product margin pressure. The two emerging standards organizations for video, ONVIF and PSIA, could help increase offerings of video and access control as a service and enable recurring revenues; however, these offerings will require intensive near-term capital investment. Product and installation pressures leave integrators with the “choice” of increasing their prices for pre-installation design and consulting, post-installation services (including marketing more functions and technical capabilities of in-house or third-party monitoring), or marketing access and video as a service over the Internet.