The effect of technologies such as the Cloud and the trend of integrating physical Access Control with Identity Management, have been well documented. What is less clear, is how the business will evolve and which companies will gain or lose market share.
Our figures show the physical security product business in 2012 was worth about $20 billion (of this Access Control products took around $5 billion.) in hardware and around $45 / $50 billion at installed prices (excluding maintenance and services).
Access Control certainly seems to lend itself much better to Cloud services, more so than the much-hyped VSaaS (Video Surveillance as a Service). There has been lot of interest in VSaaS over the last 5 years but it has failed to take off as quickly as some predicted.
The major reason appears to be bandwidth issues for streaming video, making the service expensive and not commercially viable in many cases. Small installations of 10 to 20 cameras are economically viable, but this for the most part is a very fragmented business.
So where does Microsoft fit into the Access Control picture? Through their Global Security Operations Center Solution they are offering various off the shelf Microsoft technologies and integrating them with 3rd party products from the likes of Lenel and General Dynamics.
Nothing particularly new so far… There are various industry players offering Cloud solutions through partnerships such as HID Global and RedCloud’s offering which integrates HID’s EDGE EVO and VertX EVO networked access control solutions into RedCloud’s line of web-based networked access control appliances.
Microsoft, however, is in a very strong position with their huge installed base of enterprise identity management software. Something no pure security player can come close to.
Their massive investment in their own Cloud platform called “Azure” and their deeper understand of Cyber Security issues will also provide much leverage for their physical security business. Their Global Security Operations Center and partnering strategy should allow them to gain significant market share, particularly among enterprise focused customers.
It will be particularly interesting to see how the incumbent Access Control players react to the challenge.
In its industry research released late in 2012, Memoori, an independent market research and investment consultancy out of the UK, produced some interesting facts about the industry's future. (See more at: http://www.memoori.com/#sthash.pHRvgYkT.dpuf).
- Of the world’s security equipment market at factory gate prices in 2012 was $20.57 billion. Of this video surveillance products at $10 billion took a share of 49%. The developed markets of North America and Europe are losing market share to Asia and particularly China which will be the largest single market before the end of this decade.
- The physical security industry in the first half of 2012 has well outperformed what most stakeholders had forecast despite setbacks in economic fortunes. We expect this to continue for the rest of the year. The continuation of the growth in 2011 has been driven by a combination of factors including strong growth in IP Video Networking products, buoyant markets in Asia and higher levels of penetration in vertical markets such as transport, retail and health and education.
- Whilst technology has been the enabler of change, the driver and motivator is now clearly to deliver products and services that increase productivity and provide a better Return on Investment and reduce the Total Cost of Ownership. This has helped to convert physical security from a cost center to a profit center.
- Strategic buys within the industry have been the main driver for consolidation in 2012 but its impact is down on 2011 and this trend may well continue as companies from the ICT and Defense business and private equity companies make further forays into the security industry.
- The value of merger and acquisition deals in 2011 was $9.847 billion a rise of 23% over the previous year, but in 2012 it declined to $7.168 billion a fall of 27%. Poor economic trading conditions reduced the confidence of major suppliers to go for growth through Merger and Acquisition. However we don’t expect this to continue and forecast a steady annual growth rate in M&A deals of 6.5% over the next 5 years to 2017.
- For the period from September 2011 to August 2012 we identified 18 arrangements by VCs in the physical security industry having a total investment of $267 million. This is almost double the investment made in 2010 and 2011. Clearly VCs are much more confident of investing in the physical security industry. The majority of these involved investment in US based companies by US based venture capitalists.