Until recently, security equipment in Europe was distributed using a four-tier model. This model included wholesalers, distributors, system integrators and, in some cases, resellers, before the equipment reached end users. This model was, and in some cases still is, predominantly used for the highly undifferentiated analog market. With the advancement of security solutions, user expectations have also changed.
Until recently, security equipment in Europe was distributed using a four-tier model. This model included wholesalers, distributors, system integrators and, in some cases, resellers, before the equipment reached end users. This model was, and in some cases still is, predominantly used for the highly undifferentiated analog market. With the advancement of security solutions, user expectations have also changed.
The current distribution channel for different security products mainly involves three-tier distribution. Many manufacturers prefer to work with value-added distributors, as they provide some of the presales and after-sales services and training. Any queries and technical difficulties from system integrators are handled by these value-added distributors.
The three-tier model is the most suitable channel for IP products in the coming years because of the technical know-how that must be in-house for companies to guarantee user satisfaction.
In some European markets, "box movers" and system integrators are slowly being replaced by companies that offer value-added services. At present, the distribution channel for security systems in Europe is increasingly consisting of both traditional security and IT players. IT distribution has received more prominence in the last five to six years, mainly due to IP technology in video surveillance and access control.
Furthermore, the implementation of logical access control along with physical access control has created opportunities for IT distributors and system integrators to enter the security service market, with companies such as Accenture, HP and IBM getting an increasingly large share of the market. Traditional distribution channel and system integrators are, thus, facing increasing competition; they also experience declining profit margins and are forced to reorganize their product and service portfolios.
What to Expect
In the next five to seven years, it is expected that the distribution channel for security systems in Europe will become a two-tier channel. In the long run, the difference between value-added distributors and system integrators will become increasingly blurred as they start offering similar services and products to end users.
Companies, in the long run, will witness the evolution of system integrators and value-added distributors and resellers (VADs/VARs) to solution providers and security partners, which will offer real business solutions.
There will be a consolidation of small and medium distributors to form fewer but stronger channel partners at a national level. This will, of course, have significant geographical differences, with more mature markets such as the United Kingdom ahead of the curve, while the southern European region will be more resilient.
Trends
Among market drivers, the first is that the need for security is an ever-increasing .jpg)
phenomenon worldwide, and Europe is no exception. This translates directly to a constantly increasing market and tougher competition. Manufacturers are, therefore, in need of reliable channel partners that are capable of delivering value-added services and pre-/after-sales support in order to ensure customer satisfaction and recurring business.
IP in video surveillance, multifactor authentication in access control and wireless intrusion detection are examples of some of the technological advancements in the security space. These trends increase the responsibility of the channel to keep end users aware of the changes and, at the same time, educate them on features, applications and enhanced complexity that new systems offer.
To keep pace with the changes in the market, many participants that belong to the traditional distribution channel have started selling IP-based products and recruiting personnel from the IT domain. Traditional distributors are making a conscious effort to match the service level of the IT channel.
Increasing competition between security and IT channels has also reduced the number of box movers. The penetration of IP security products has opened the market to distributors and system integrators from the IT world that have expertise in providing IT infrastructure, cabling, integration, networking and so on.
These IT players are in a better position to understand the technological changes and provide the same to customers; however, they often lack the necessary experience in physical security. This competition has benefited end users as they can now access a broad range of products and services.
Impact of Economic Recession
The current economic situation is hindering the growth of the security market. Major vertical markets in the commercial sector like financial institutions are closely scrutinizing their capital expenditure plans.
This is expected to directly and adversely affect security channels, with overall revenues and even more profit margins to decrease significantly in the following months, with some form of relieves expected only in 2010.
Profit margins for distributors are expected to fall between 5 and 10 percent, due to over dilution of products and the recession. These percentages are expected to be higher in segments more directly impacted, such as retail.
Tier one and large tier two distributors are forced to continuously redefine their portfolios, both in terms of products and services. The migration to IP poses opportunities and threats that need to be addressed by system integrators, distributors and other service providers.
The economic recession is happening at an extremely critical moment, in which traditional system integrators and distributors need to continue their investment to boost their IP capabilities. This is the time in which capital-intensive projects are being put on hold, slowing the migration to IP-based systems, and this is also the time to play "catch up."
As end users (and manufacturers) are looking for more value for money, companies presenting themselves as simple box movers are going to lose market share and progressively being pushed out of the market. The economic recession is, therefore, expected to boost the concentration process around system integrators and VADs/VARs.