For the $180 billion security industry, by our estimates, 2010 is turning out to be the breath that refreshes after a major time-out by clients in 2009 to think about return on investment (ROI), total cost of ownership and future proofing.
In 2009, despite gains by (1) Internet Protocol (IP) video management systems and physical security information management (PSIM) providers, (2) a few selected (and smart) integrators, and in (3) recurring monthly revenue (RMR) generated by service companies, the overall industry was at best flat and likely contracted in the low single digits. However, some vertical markets and installers were down as much as 15 to 30 percent. Despite consumer unemployment woes in 2010, the overall tenor of the security industry is much more positive now. One of the reasons for the improvement in 2010, based on interviews with end-users, was due to much more than a mere rebound from the corporate paralysis that hit in 2009. The recession actually provided C-level executives with an opportunity to step back, take a deep breath and assess whether they really wanted to keep upgrading legacy systems or start spending to "future-proof" their security by bridging to IP networks or simply going straight to IP. Senior executives also became more educated and more demanding regarding the specific security solution they needed. This is reflected in both the continued decline in all analog-related security sales and the acceleration in IP related sales-not just in video.
Consumer and small business monitoring
Following a tough but resilient 2009 in which new sales declined despite increases in RMR, and in which consumers continued to complain about rising prices, the consumer and small business monitoring segment is now in a state of flux-we think for the better. Several leading companies were sold or refinanced and the industry faces a host of upcoming issues ranging from alarm verification and police response times, to POTS and ultimately GSM sunsets, to be replaced by broadband and new wireless communication protocols (possibly even WiMax and mesh). New marketing trends are also roiling the industry, including sophisticated SEO and SEM Web-based marketing and smarter summer programs that, with better sales training, have drastically reduced the number of complaints. All this has increased the scrutiny paid to the metric of the cost of creating new customers. With all these issues, we can realize the potential of consumer penetration breaking through the 20 to 30 percent barrier toward 50 percent if new, enhanced services being offered today, in their infancy (video verification and surveillance, PERS, remote metering, personal services, etc.) are accepted by a new wireless generation as part of their lifestyle. Certainly those companies that are of the view that they can continue to raise RMR without commensurate value perception by the customer will lose market share.
The value-add delivers revenue
Just how are integrators creating value and margin in 2010? One difference in 2010 is that the large integrators are carving out highly-trained divisions to install and support PSIM and other security event management-level solutions. Other integrators are moving toward managed access and, more recently, managed video offerings. Still other integrators are adding pre- and post-project planning and analysis and future-proofing services to clients. Previously, the only consistent integrator service had been field service and maintenance. This is a sea change that a few of the integrators will embrace and under which they may even thrive. Unfortunately, we only foresee a minority of integrators moving to this model, leaving a majority of integrators to continue to struggle with profit margin pressures because they lack the capital and scale to adapt their business model (as described above) and ability to re-purpose their personnel to become more IT-oriented.
An offshoot of this is the move to more managed and network-based services being added by integrators putting pressure on third-party monitoring companies to invest in more robust communication and network-capable monitoring and systems that can handle IP networked infrastructures. This will weigh in favor of larger, better capitalized third-party monitoring centers.