The security market's steady growth won't be changing any time soon. What is changing is the way the market is divided up between tiers of manufacturers. For a long time, customers could choose between name-brand products, mid-market and new entrants. Historically, these categories have come with different expectations and price points. Those expectations are now changing. Ultimately that will force a shake-out which will shape the business for years to come. This change will affect everyone from the manufacturers, through systems integrators and distributors, and right on down to customers.
This is part of the business cycle in technology-based industries. Look at the 30-plus year history of the personal computer.
On August 12, 1981, IBM introduced the model 5150. The world hasn't been the same since. It was followed by the enhanced XT that added a hard drive in 1983. The second-generation arrived with the AT the next year. If you happen to run across these antiques today, what's amazing is their build quality. They're name-brand Big Blue built to last like their mainframe computers with bulletproof cases made of thick-gauge steel and rock solid components. Since then, cost reduction engineering has taken PCs from durable goods to disposable ones. And for all the advances, yesterday's and today's PCs still have the same core applications. Yes, working with today's word processors, spreadsheets and databases is faster and easier than what we had in the 80's, but these are just tweaks compared to the original innovation.
The real point here is: Where's IBM’s PC in all this? The last piece of their PC business was the premier ThinkPad laptop lineup. To stay cost-competitive, they off-shored manufacturing to what was then an unknown outfit called Lenovo. A few years back, IBM finally exited the PC business selling the ThinkPad brand to Lenovo. Towards the end, it was already a Lenovo PC selling under the IBM brand. Lenovo has since established its brand here to become a top-tier manufacturer.
There's a pattern to this.
Top-tier manufacturers create the business by making the R&D investments that drive innovation. The reward is that, for a time, they own the market. Name-brand prices and high margins pay for that high R&D overhead. Eventually, this innovation moves down-market as the technology becomes available to second and then third-tier vendors. To stay ahead, the top-tier keeps pushing the technology envelope leveraging R&D investments to create unique products that maintain the brand and their edge.
As the industry matures, off-brand, off-shore products keep improving. This is tough for market leaders with the R&D overhead. They're up against followers often using the same technology and components who can hit price points they can't. Worse, as the no-names get traction in the market, they start to make a name for themselves. The traditional market divides between name-brand, mid-market and no-names change in this race between innovation and commoditization.
It's easy to see how this is playing out in the security industry today.
Does this mean top-tier manufacturers will suffer IBM's fate in the PC business? Hardly. The market - and the technology - is far from mature. There's plenty of innovation ahead in security, and the top-tier own that and the customers who go along with it. The real question is: Can they learn how to navigate this change effectively, fending off newcomers cutting into their market share?
Still, what’s thought of as the traditional second- and third-tier manufacturers are opening the eyes of customers who, till now, have only purchased from top-tier brands. At the same time, they aren't simply eating up the market created by the top-tier. They are opening and expanding the market as lower prices draw a broader base.
All this commotion points to a robust industry. Ultimately, the big winner is the customer. They get better products for significantly lower price points with like quality. The business challenge is keeping it profitable.
About the Author: Mark Collett has more than 20 years of security industry experience, most recently serving as general manager of Sony Electronics' Security Systems Divisions and as director of IBM's Digital Video Surveillance. He can be reached at [email protected].