Security Industry Builds on Value and Service
Editor / Provider: a&s International | Updated: 12/22/2011 | Article type: Hot Topics
Uncertainty is the theme for 2012. a&s talks to researchers, solution providers, channel partners and consultants to find out what's next in the year to come.
Uncertainty is the refrain of 2012. While the 2008 financial crisis eliminated unfit players in physical security, a looming debt crisis slowed a “recession-proof” industry.
As security players hunker down for tough times, the lessons of 2008 apply to 2012. With impending austerity cutbacks across Europe, the immediate economic effects will be felt for at least a decade. However, the risk of increased crime will fuel security demand. “Businesses have limited budgets and we advise them on activities to achieve the best value for money and return on their investment,” said Jon Roadnight, Senior Director of Cornerstone Group, a UK consultancy. “The ROI and additional business benefit are things people look for more in tough times, as opposed to just achieving security.”
Manufacturers had to prove their solutions offered clear financial benefits during the recession, which will be the business case in 2012 as well. “We believe that having a compelling value proposition for our products, constantly driving efficiency improvements and targeting the early warning threat detection niche — rather the general market — is the key to our success in good and bad economic times,” said Kim Loy, VP of Remote Surveillance, Xtralis.
Although 2011 was the year of delays, other experts are more optimistic about 2012. “A theme I see carrying over in 2012 is doing more with less,” said Eduard Emde, 2012 President of ASIS International. “There are some differences, but in general security practitioners must do more at a higher level with less resources and money than in the past.”
Tyco Security Products exemplifies a company in flux; it was split from ADT services into different business units for better focus. It expects triple-digit growth in APAC for the next five years, but will take a few more years before it can match EMEA for sales, said David Grinstead, VP of Worldwide Sales.
While consolidation continues, the emphasis has changed from size to strategic value, Grinstead said.
With the recession still a fresh memory, some trimmed in-house costs such as operations and supply chain expenses. An efficient business model paid off for UK distributor Norbain, with plans to continue it into 2012. “If you follow industry standards of a lean organization, you make use of human and operational resources,” said Barry Shakespeare, MD. “A lot of our competitors chased very thin-margin business. Some competitors chased any and all business, regardless of the quality and customer.”
Given the gloomy economic climate, 2012 is expected to be challenging. “However, SimonsVoss Technologies is confident to achieve in 2012 — as in year 2008 — a business performance well above the industry average,” said Hans-Gernot Illig, CEO.
In the face of lean times, security providers are more focused on R&D than ever, making sure their product road map is tied to real customer needs, said Debjit Das, VP of Marketing, Verint Systems.
Beating the Market
For a lucky few, the recession had little effect. “Our sales in 2008 actually grew globally by about 25 percent, so we are fortunate to be growing rapidly and we have been able to put on a number of resources in our corporate head office and globally in the growing markets,” said Curtis Edgecombe, GM of Security, Gallagher Security (a Gallagher Group division). “We have found there is a need for innovation, particularly during a recession. It's important to differentiate business and products, and to grow your brand, to maintain loyalty from existing customers, and attract new customers to your offering.”
Megapixel video manufacturer Avigilon also did well despite the downturn; its revenue grew 26 times to US$5.2 million in 2008 and reached $32.3 million in 2010. The company went public in 2011. “When you're the best in uncertain times, people want to get more value for their money,” said Alexander Fernandes, President and CEO. It plans to use its funding from the stock offering to expand its sales team into emerging markets and double its R&D staff in the next six months.
Network video manufacturer Vivotek experienced growth from government initiatives in emerging markets and its comprehensive supply chain. “Our market share in China now stands at No. 4,” said William Ku, Brand Business Director. [NextPage]
A slow economy and flat globe mean competition is bound to heat up in 2012. ASIS reflects this globalization, adding “International” to its name 10 years ago and naming its first non-American president for 2012. “Headquarters benefits from the range of perspectives and security challenges, as well as the important local flavors, derived from its global membership,” Emde said. The IT space is poised to compete with security, particularly for IP applications. “It's about drawing the complete picture. A lot of vendors are focused on the product, how it's the latest and fastest,” Shakespeare said. “Well, so what? Why should I buy it? The application story is the real difference in the space we're in.”
Tailoring solutions to local tastes is one way to distinguish a brand. With all eyes on China, the effort to reach buyers has redoubled, even by domestic vendors. The “Safe City” initiative offered tremendous opportunities over the past six years, but public spending has slowed in China and overseas demand is contracting.
Safe-city projects were limited in scope, providing video for the police but few other benefits, said Yangzhong Hu, President of Hikvision Digital Technology. Going forward, the push for smart cities will provide networked benefits and services to citizens, making security part of the solution but not the focus. As the numbers of projects and clients shrink, security will likely not be a separate industry but part of a complete service offering.
China's growth may be slowing, but it remains a target for global security players. Bosch operations in China now report directly to the board for quicker response and better management. “We have our own product development team and plans specialized for China, and the R&D results can be shared with the rest of the world as well,” said Koen Rommel, VP of Sales for China, Bosch Security Systems. “In fact, China is a continent; we have opened up 25 regional offices throughout the country so far, to have better eyes and ears on the market and to actively support customers and projects.”
APAC also figures prominently for Genetec in 2012. “Every quarter, I fly to every region to check on things,” said Guy Chénard, VP of Worldwide Sales and Business Development. “These trips are critical, as 80 percent of our business comes from working closely with system integrators and consultants.”
Entering a new market requires an understanding of the local mindset. “We cannot simply replicate and transfer what we have done in the mature markets to here directly,” said Daniel Chau, Marketing Director for APAC, Honeywell Security. “China today is the largest country for luxury goods worldwide; sometimes, customers here want even higherend, more advanced features.”
Other vendors have set up shop overseas. “In Asia, we have centers of excellence in Shanghai and Bangalore, as what has worked in the U.S. or Europe might not work in the region,” said John Becker, Senior Sales Director for APAC, Tyco Security Products. “There is no silver bullet; focus, communication and partner recruitment have to be ongoing.”
The local infrastructure also needs to be considered. For China,broadband penetration figures are higher than US figures, but the rate of penetration is not as widespread, Chau said. DSL and 3-G networks are only beginning to be rolled out in Tiers 3 and 4 cities.
Having IP solutions is a boon, as they expand a vendor's reach into more projects; each project or country has its unique requirements. “For example, we need to make sure the new products are not affected by static electricity caused by carpets, which may not be a concern in China but are a real issue in many parts of the world,” said Ricardo Ebri Sambeat, GM of China and IP Division Director, Fermax Electronics. “In the Netherlands, we need to make sure everyone can input their name regardless of length. In France, a special button for mailmen is required by law.” [NextPage]
Standards of Tomorrow
Access control is the next frontier for standards bodies. PSIA released its area control specifications in November 2011 for access control and intrusion, while ONVIF plans to introduce its access control specification in the first half of 2012. By the numbers, ONVIF is beating PSIA handily — more than 340 members and at least 1,300 conformant products — making it the organization to watch in 2012.
ONVIF presently has multiple versions of its specification, which are not interoperable. The profile concept will be finalized in 2012, simplifying setup. “Users will no longer need to determine if specific devices introduced in ONVIF 2.0 are compatible with clients that conform to ONVIF 1.0 or with newer versions introduced in the future,” said Jonas Andersson, Chairman of ONVIF's Steering Committee and Business Development Director for Axis Communications. “Instead, users will be able to easily select the appropriate profile that offers interoperability at a specific functional level among units and software that fits their needs.”
Open standards are one of many factors, but not the panacea, to promote network video surveillance growth, cautioned Gary Wong, Senior Research Analyst for IMS Research. Two standards are better than none at all, as they provide a reference for buyers.
However, clear interoperability statements are missing from manufacturers, such as whether a network camera is compatible with a third-party VMS. “It looks to be a long way to go to achieve the goal,” said Carlos Eduardo Bonilha, President of Digifort. “It may be the idealist's dream.”
The IT world has flourished through standards, which is a long way off for security. “History gives us a clue what this industry will look like,” Shakespeare said. “It will go to a single standard.”
For enterprise customers, customized deep integration of systems serves specific needs. This is achieved through PSIM, which does not require systems to comply with PSIA or ONVIF standards. “These are not consumer-grade software applications,” Das of Verint said. While basic “plug-and-play” ONVIF products may be enough for small to midsize customers, large applications will demand more functionality. The future of standards may not be in the bodies, but in high-level PSIM deployments.
Other standards are mandated, such as RoHS certification. Grade 2 EN 50313 is required in Spain and in other European countries, said Noemi Ferrarons, Export Manager, JR Security Systems.
The proliferation of network video has driven demand for VMS platforms. More vendors are emerging, which cater to specific regions. AxxonSoft dominates Russia, while SeeTec is strong in Western Europe. Digifort has a loyal following in Latin America, while China has homegrown offerings from NetPosa and Ragile. Genetec and Milestone Systems have global footprints, but face challenges in new markets from local contenders.
The more regional and productfocused VMS offerings become, the greater the risk of a split product market becomes. “With the security market being end user-driven and moving toward open systems, regional VMS will lead to VMS vendors having to settle with a reduced customer base,” said Balaji Srimoolanthan, Program Manager for Aerospace, Defense and Security at Frost & Sullivan.
However, country - specific offerings provide more support for products. “Deep integration has always been the aim of our policy, and the architecture of our products is optimized for it,” said Evgenia Ostrovskaya, Global Business Development Director, AxxonSoft.
Others felt a global product strategy was more future-proof. “If country-specific standards emerge, VMS offerings may be too fragmented and therefore not scalable for global adoption, which will not benefit end users in the long run,” said Lars Gudbrandsson, Head of Product Management, Milestone Systems.
While a universal policy is ideal, it is not focused or customized enough to break into new markets. Scalability is also an issue, as increased camera counts will require server upgrades. New cameras and servers will need additional licenses, usually on a recurring annual basis, making the open path scalable but pricey.
To address specific market needs, add-on modules allow customers to do more than monitor cameras, Bonilha said. Wong added, “There has been an ongoing trend among the VMS companies to begin to focus on the integration of equipment beyond just video surveillance equipment, such as life safety sensors.”
A global policy cannot overlook localc omplexities .Genetec encourages engineers to see how solutions are used in the real world and partners with local hardware manufacturers. “In video, data just keeps coming, so there is no second chance; you must get it right the first time,” said Charles Cousins, MD of APAC, Genetec. [NextPage]
“Affordable” is a marketing buzzword and will remain firmly embedded in 2012's dialogue. Companies that previously targeted enterprise customers are shifting toward SMB buyers, as budgets tighten. “We think it is important to keep our reputation of high-quality products, even if we also address the lower-cost markets,” said Ray Mauritsson, CEO of Axis Communications. “We make sure all of our offerings are professional solutions.”
Leading manufacturers hope to differentiate their products by their brand and not just by cost. Avigilon's offerings include a 29-megapixel camera, but a corner store would not require that much performance nor pixels. “Most surveillance is bad video quality and bad compression,” Fernandes said. “People need fewer features for less deployment, but they want the same thing: a real, clear picture.”
As cost is the primary factor in SMB purchase decisions, demonstrating ROI can turn a grudge purchase into a great benefit for a business, said James Smith, European Marketing Manager at Samsung Techwin. “Increasingly, customers are using our equipment f o r mul t ipl e purpo s e s , such as security, health and safety, monitoring processes and business optimization.”
Technology holds tantalizing promise ,but can yield disappointment. Biometric identification was to do away with keys, cards and PIN codes, but cost and development hurdles burst its bubble. It is of limited significance for most customers, Illig said.
VCA has suffered bad press, due to overpromising and underdelivering. “This is beginning to change,” Wong said. “A sense of realism and pragmatism emerged in the VCA space. IMS Research forecasts that the market for intelligent video devices will grow at an annual rate of more than 20 percent over the next five years.”
Instead of hype — the notorious example of identifying a terrorist in a crowded airport — VCA emphasizes the practical, such as smart searches through hours of footage. Onboard analytics will benefit from better chipsets with faster processing, which will improve accuracy.
The HD boom makes VCA all the more relevant. Basic algorithms can detect motion and only record in HD during an event, then downscale when nothing is going on. As the catastrophic flooding in Thailand sunk nearly half of worldwide hard drive shipments, storage will become a valuable commodity in 2012. The country accounted for 40 to 45 percent of worldwide production in the first half of 2011, which will slow computer and hard-drive shipments, said IDC in a November 2011 report. “Growth for 2012 is anyone's guess, but it should be the year of harvest for HD,” said Keiki Warashina, Acting Sales Manager, Industrial Optics Business Unit, Tamron. The company will roll out 8- and 10-megapixel lenses in 2012 for better image quality and cost control.
The emergence of HD-SDI has been embraced by incumbent vendors, although it has been difficult to gauge buyer interest due to limited product availability. More product launches are scheduled for 2012, but it remains unclear whether SDI can overcome storage, processing and distance bottlenecks.
All -Access Pass
Access control lends itself to many applications beyond security, and the proliferation of mobile devices is accelerating that functionality. “Customers are seeking a more seamless experience with their credentials that incorporates the use of many applications in a single card,” said Eric Chiu, Sales Director for China, HID Global (an Assa Abloy company).
Near-field communications for smartphones and the convergence of physical-logical identity platforms are extending the credential's value. “The way we differentiate ourselves is through dedication; we can integrate with video and intrusion, but we are dedicated to secured identity and access control,” Chiu said.
Better integration with business operations further boosts the usefulness of access control. “Gallagher is trying to penetrate toward the high end of the market, offering value to customers outside of just physical security,” Edgecombe said. “We are doing this by developing our products to provide value through integration with business processes, ERP systems, and on-boarding/off-boarding of employees and contractors, and provisioning of people in an organization.” [NextPage]
A brand sinks or swims depending on the manufacturer's choice of channel partners. The right partner finds quality customers and provides technical support to them, offering manufacturers and buyers a win-win proposition. However, not all partners have the knowledge or skill set to support network solutions, resulting in dissatisfaction and relatively low-margin business.
The traditional security channel has shown ambivalence about IP, but is picking up network know-how fast. “How we approach the market can be divided into three ways: electronics channel distribution (with the new budget product line), traditional value-added security resellers, and engineered solutions and software (closely with system integrators),” said Gert van Iperen, Chairman and President, Bosch Security Systems. “Given our comprehensive portfolio, our networks are not yet fully integrated at the moment, but training and certifying our partners will continue to be an ongoing process.”
Simplifying installation eases the learning curve for distribution partners. “We're primarily selling through the traditional channel,” Fernandes said. “They can just take out the camera from the box and turn it on. That's it.”
Training and education are continued efforts for security and IT channels. “It is clear to see that distributor businesses are changing, with traditional security distributors taking on network equipment product lines and hiring in expertise in this area,” Smith said. “Likewise, traditional network distributors are taking in security product lines and expertise.”
The reach and immediacy of social media have made it indispensable for communication. More providers train channel partners through webinars. Users and integrators can get answers through Web calls, instant messages and even Facebook posts. “We see huge potential for use of social media for certain applications,” Edgecombe said. “You are able to identify your audience more easily than in traditional media.”
While it is hard to beat the trade show experience, microblogging through Twitter offers rapid online interaction. Some countries block social media, requiring familiarity with local equivalents, such as China's Sina Weibo tweets. “We are able to receive instant feedback that allows HID not only to better partner with customers and provide them with products and solutions that meet their specific requirements, but also enhance the customers and technical support they need to do business and perform at the highest levels,” said Simon Siew, MD for APAC, HID Global (an Assa Abloy company).
Blogs are common, but falling out of favor. Most ineffectively post self-promoting content, such as product releases or show announcements, defeating the purpose of dialogue. Instead of blogging, Digifort opts for direct online contact. “We choose and operate an online forum to communicate with developers and users, on top of webinars and periodic newsletters,” Bonilha said.
Security procurement has long been an upfront cost, but new business models will require users to rethink this approach. Norbain introduced technical support fees in September 2011, as its diverse portfolio needs additional resources. “Companies need to create valueadded service,” Shakespeare said. “The single-digit margin in IT is bolstered by richer margins from value-added services with margin, such as training. In the IT space, people are very prepared to pay. In security, they expect a high product margin, but they don't expect to pay for service.”
Hosted Video and Access Control
Value-added service will be essential for survival in 2012, particularly in challenging financial and economic conditions.
Cloud deployments have taken place but have yet to gain widespread adoption in 2011. “IMS Research believes that while VSaaS will likely suffer from some growing pains due to up-link speeds and ‘the last mile,' the world market for VSaaS solutions is forecast to continue to grow strongly, by more than 18 percent year-on-year toward 2020,” Wong said.
Privacy concerns have limited current hosted services to private cloud offerings. MVaaS has not taken off though there's a lot of “fuss,” Mauritsson said. “It is a great opportunity for our market, and for system integrators to provide for customers and generate recurring revenue.”
Enterprise cloud deployments provide benefits such as scalability and low start-up costs, Srimoolanthan said.
However, questions remain about where information is stored, making hosted video unthinkable for a sensitive government application. Hosted video may be limited to smaller deployments such as homes and small shops, Bonilha said.
The kinks are being worked out, but the technology to deliver hosted video is already in place. “Improved IT, networking and unified communications will allow Xtralis to better integrate its fire and security solutions into seamless, comprehensive threat detection systems,” Loy said. Its remote monitoring app lets users view multiple sites at high refresh rates. “Mobility extends the reach and improves the reaction to security threats.”
Access control is closely tied to business systems, making a good fit for physical-logical hosted services. “IMS Research believes that SaaS for access control has potential to be used extensively, but this has not yet come to pass,” Wong said.
Service is differentiating players, particularly with data. An intrusion solution provider branched out with a home-monitoring pilot in Europe that successfully became a long-term offering. “Although the economic situation in Europe is complicated, we believe that providing a cost-effective solution with added values such as self-monitoring and smartphone apps will help our partners increase their market share,” said Max Gadot, Marketing Manager at Risco Group. “We plan to roll out our self-monitoring service in other regions as well.” [NextPage]
Security is shifting toward IP, with standards leveling the playing field. As mature markets are spending less, the push into emerging pricesensitive markets means vendors must shave profit margins. While the security industry is unlike to operate on IT's single-digit margins, it is inevitable that margins will shrink. “In the IT world, products are commoditized, and security is going that way,” Roadnight said. “But in the scheme of things, the volume is not big enough.”
Value-added services that are able to differentiate one vendor from another are important, as well as constant innovation. “It is difficult to say at this point of time if vendors could be looking at single-digit margins, as many are bringing in new strategies to keep themselves profitable,” Wong said.
A healthy investment in R&D will give manufacturers an edge. “Products now come in building blocks, so real differentiation lies in software,” Van Iperen said. “This added value, in addition to great relations with suppliers of critical components and end users, will keep us ahead of the game.”
As margins go down in security, some profitability has to be sacrificed. “As soon as we are not able to add value to new products, we will see price erosion and pressure on gross margins,” Mauritsson said. “There are still many years of useful innovation and developments left, which will help maintain margins and the value of products.”
Due to the fragmented nature of the security industry, the level of competition will escalate in 2012. With more suppliers, cutthroat pricing will lead to a decline in margins. However, in the long run, consolidation of the supply chain will stabilize competition and establish healthy margins. The security industry remains robust, warding off bad times by diversifying sales targets and developing more focused solutions.
Our next section offers a sneak peek at what's ahead in 2012. It features viewpoints from leading players on security and building automation trends for 2012.