Outlining business trends among integrators

There were a few major themes that permeated throughout the annual Electronic Security Association (ESA) Leadership Summit this week in Orlando — one was that video is still a driving technology force in the marketplace for security dealers and integrators; another was that the migration to IP-centric solutions is quickly changing the landscape of both the services and monitoring sides of the security business; the third was that the big are just getting bigger.

These facts were highlighted when ESA director and CEO Merlin Guilbeau presented the findings of the 2013 Megatrends Research Report during a luncheon at the Rosen Centre Hotel.

The online survey was sent out to the ESX industry database — from the 22,000 professionals that were solicited, results were filtered down to 129 ESA regular members to keep comparison statistics consistent. Of the 129 respondents, 76% were identified as executive management; 40% were systems integrators with central station operations; and 46% were integrators without central stations. Respondents represent a sampling of very stable companies, with 83% having been in business for 11 or more years, and 38% reporting revenues more than $5 million.

Bigger is Better

The survey found that companies whose annual revenue was more than $2.5 million saw a year-to-year growth rate of 7.6% vs. 1.3% for businesses bringing in less than $2.5 million — underscoring  the fact that larger companies were growing at a much more rapid pace than their smaller to mid-sized competitors. This is a sustained trend that ESA has seen in all three years of its survey — bigger companies growing faster than smaller companies, Guilbeau said.

This trend was expected, according to many industry analysts. “It is just a sign of the times,” said ASG President and CEO Joe Nuccio, who has been an industry leader for nearly 28 years. “The margins continue to erode and the larger companies can sustain the market pressures better than their smaller counterparts.”

Nuccio added that 2012 was a very good year for his company compared to 2011 – particularly when assessing organic growth, which he said accounted for a nearly 40-percent revenue growth.

Michael Pope, President of Safety Technologies Inc. (STI), said that larger companies like his have an advantage when pursuing the national or enterprise-type accounts because of their in-house resources. STI uses a marketing department that is social media-savvy and provides the impact corporate clients want. “Corporate America is looking for that company that can demonstrate it is equipped to handle enterprise-wide strategies and projects,” Pope said.

Technology Growth

When it comes to technology category involvement and projected revenue growth per technology, the big four of video surveillance, intrusion detection, electronic access control and fire detection continue to drive industry growth. The four technology sectors were up a combined 7.2% in revenue in 2011. Revenues for commercial networking and IT technology, along with building automation, increased an average of 4%.

Both Nuccio and Pope said while video, IDS, access control and fire were the sustainable technologies, trends are showing diversification into areas such as commercial digital signage, home automation and residential networking — where they said companies will make or break their future bottom line.

It was no surprise that video continues to be the technology growth leader. The survey showed video is expected to grow an average of 9.1% over the next two years, with electronic access control right behind at 7.2%. “As manufacturers continue to produce better quality cameras at a lower cost point — especially IP cameras — you will see video remain dominant,” Pope said. “There are a lot of older technology cameras reaching the end of their life cycles. These failures represent plenty of opportunity — our video growth last year was more than 200 percent.”

Nuccio noted that he is seeing more of his customers requesting an integrated solution that combines seamless links between video and access control.

Interactive Services

The growth of expanded technology applications certainly shows how evolving interactive services could be a game-changer for the industry. Over the next two years, survey respondents list potential revenue growth coming from alternative alarm signal transmission (replacing POTS), system control with smart phones and tablets, security riding on the IT network and replacing guards with video surveillance.

“This syncs with every trend in our business,” Nuccio said. “Mobile devices and apps are everything! We have always had a culture here of subscription-based services, so moving service technology offerings to the cloud is an easy transition for us. We have been extremely active in transitioning to interactive services over the past 18 to 20 months and this will remain a priority.”

Another hot button for survey respondents were potential opportunities in the light commercial sector as they related to interactive services. Last year’s survey results demonstrated a growing RMR option for those who embraced residential interactive services; however, the survey indicated that the opportunity for light commercial applications may actually represent an even larger revenue base for integration companies.

“The gating factor for light commercial is the systems are not as cookie-cutter as on the residential side,” Guilbeau said. “You need more product variety and greater technical knowledge to provide integrated security and small-scale control for retailers, professional service organizations and the like. So there’s more to think through and prepare for to be successful in this area.”

The survey also supported the new environment of today’s dealer and systems integrator, as three of the top four operational investment projections for respondents were geared towards IT. They included IP/IT training, technical staff recruitment, training and development, and IT solutions systems design and installation — with an average annual investment increase of 8% for each. “As the traditional commercial market started to deteriorate there has been more emphasis on building the interactive services end of the business,” said Nuccio. “It is a learning experience for us all.”