Face Forward and Watch Your Back

For the foreseeable future, the need for security products and services will continue to increase. However, new industry expansion is not likely to mirror the expansion of past years. Security needs drive the industry's growth, but four critical factors...


For the foreseeable future, the need for security products and services will continue to increase. However, new industry expansion is not likely to mirror the expansion of past years. Security needs drive the industry's growth, but four critical factors shape it: technology development, competition, customer expectation and demands and investor interest. Convergence has significantly changed the scope and direction of these factors.

A Security Stock Watch
SecurityStockWatch.com (SSW) is an independent leading research and analysis firm specializing in the security industry. The SSW 100 Index is the only market index dedicated to the security industry, and it has sharply outperformed the Dow, Nasdaq and S&P 500 on a consistent basis since 2002. Full details of the index are contained in an SSW report titled, "Profitability Survey, Research and Analysis of the Security Industries," available for free download at www.securitystockwatch.com.

For investors, this is good news, because in prior years it has been difficult to get a handle on the security industry from an investment perspective. One reason for the excellent performance of the index is that it goes well outside the categories of companies that most of us associate with security. The stocks fall into these groupings:

* Biodefense (11 companies)
* Environmental Security (13 companies)
* Fraud Prevention (23 companies)
* Military Defense (18 companies)
* Network Security (18 companies)
* Physical Security (17 companies)

This author reclassified the companies on the SSW 100 Index to reflect the type of company providing the solution as opposed to the security area to which the solution belongs. The purpose of the reclassification was to help identify convergence factors relating to the index. Figure 2 shows the results.

Fifty-three companies more than half of the index are IT sector companies. Some of the companies counted in more than one category.

The SSW 100 Index included IT companies to achieve growth and performance. Likewise, most of today's security manufacturers, integrators and consultants must eventually reach out to embrace some aspects of IT. If they do not, they risk losing business to an expanding pool of competition.

IT Integrators Take On Physical Security
IT systems integrators have been eyeing physical security projects for two reasons. First, physical security is an important part of information systems security. Second, physical security systems are increasingly becoming computer-based and network-based. Physical access control projects often interface with human resources systems, increasingly for the purpose of integrating physical and logical user provisioning (assignment of access privileges). This type of IT integration provides an increased ROI for physical security access control systems that are capable of being integrated. The IT side is more complex than the physical security side, which has comparatively few computers. This has led IT integrators to conclude that if they can handle the IT side, they can handle the physical security side, especially for IP-based systems.

The annual IT project revenues of each of the eight largest IT systems integrators exceed the combined revenues of the top 100 physical security systems integrators. Certainly they have the financial wherewithal to incorporate physical security products and services into their businesses.

In the Digital Video Arena
IP-based digital video systems have opened the physical security door for many IT systems integrators. For example, Cisco Systems Inc. recently completed a project to migrate its 2,600 cameras from a proprietary DVR solution to a network-centric Lenel Systems software application, which Cisco Security Operations controls and Cisco IT supports from its existing server and network operations centers. Prior to the project, Cisco's Safety and Security department stored digital video on DVRs. The system grew until the Security, Technology, and Systems (STS) department found itself managing more than 330 servers at Cisco facilities worldwide.

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