The world is facing the greatest financial and economic crisis to have occurred in more than half a century. As 2009 draws to a close, the Security 50 companies share strategies for surviving the turbulence and their realistic hopes for the future.
Security 50 Ranking Tables
From sales drops to stunted growth, it is clear that the recession has taken a heavy toll on the security industry, making analysts and interest groups reevaluate those recession-proof claims and groundings. In 2008, more than 90 percent of the 50 participating companies experienced growth. This year's ranking, however, shows that almost half of our participants' revenues declined. It is not all bad news. Although the recession has forced companies to tighten budgets and readjust spending, those who have taken the necessary measures have survived — and some triumphed.
Whereas 2008 was dotted with mergers and acquisitions up and down the ranking, 2009 has seen diminished activity, with the exceptions of Assa Abloy and Nice Systems. This year, most companies agreed that growth factors were attributed to playing both strong defense as well as offense. "On the defensive side, we've made sure we've driven productivity improvements in our operations and have really focused on the cost side of the equation," said John Koch, President of ADT Security, in a prepared statement.
Indeed, companies have paid very close attention to profit and cash flow. "In the past, the most important thing was revenues. Now, the focus is on cash and profit," said Amir Hayek, President and CEO of Electronics Line 3000.
For medium-sized manufacturers, a significant ROI on previously launched products has to be achieved before new ones are endorsed, said Eric Assouline, Export Sales Manager at CDVI Group. On the offense side, growth can be seen as a result of continued R&D investment, expansion of global presence (with special attention to emerging markets), strengthened customer and partner relationships, and increased marketing efforts. "In terms of marketing efforts, we've developed a new Web site and product packaging," said Dr. Avigdor Shachrai, President and CEO of Visonic.
Expanding Presence and Portfolios
With mature markets such as the U.S. and Western Europe severely hit, companies that stayed afloat turned to expanding their operations and local presence in new markets. Emerging markets — especially those of China, India, Latin America and the Middle East - have been penetrated with doubled efforts. "We've added personnel in different regions to support our system integration partners," said Ray Mauritsson, CEO of Axis Communications.
Improved support and communication with existing and new partners and customers also helped companies stand out. "Our traffic server now comes with service and maintenance packages," said Mario van der Kroef, Global Marketing Director of Optelecom-NKF.
More integration and interaction between industry players have also born fruit. "Expanding our partner ecosystem ensures integration with multiple third-party surveillance products and access control systems," said Peter Wilenius, VP of Marketing at March Networks. "Our open-platform video management software (VMS) is now certified for use with a number of third-party host and storage systems."
Mauritsson added that "the need for integration is one of the key drivers for the analog-to-digital shift. System integrators found this a great opportunity to add more value in a project."
For some companies, resilient figures were results of major transitions, such as branding. "What we're seeing is that only a small customer base is familiar with our new brand for IP-based products. We want them to see all our products as part of a total, hybrid solution," van der Kroef said.
Others continue to refine their brand image. "Customers perceive our brand as good quality. This year, we've provided video surveillance components and systems for analog, hybrid and digital technology, with open interfaces for easy migration and integration," said Katharina Geutebrück, MD of Geutebruck.
"The slowdown was steep and happened quite fast," Mauritsson said. "The high growth rate we had a year ago is not there today." Major players such as ADT, Bosch Security Systems, Assa Abloy, L-1 Identity Solutions and Axis have noticeably lowered their projections. Others have gone straight into decline.
Project business slowed as well. Installations have been significantly stalled due to tightened budgets and delayed payments. Distributors have driven down their inventories to wait for new order forms, further fueling uncertainty, said Lutz Coelen, CFO of Mobotix. Some companies, however, see this crisis as a chance to gain market share. "With the weak economy and less budgets available, attractive features of cameras include using high resolution, free software and built-in storage," Coelen said. "Our overall cost-effective solution has helped us gain market share."
Looking at forecasts, there are concerns that the general optimism for recovery is rather premature. "We don't see it happening as quickly as next year," Mauritsson said. Long-term growth potential, however, is unchanged, especially with new products being launched.
"We expect the recession to continue to negatively influence the first two quarters of 2010," van der Kroef said, echoing similar skepticism.
Opportunities Yet Abound
Where companies lacked local presence, they have looked for partners. Eastern Europe, Africa, Latin America and Asia were popular regions for business development.
In North America, longer sales cycles were typical, with customers moving less aggressively on project rollouts, Wilenius said. "To balance that, our revenues outside of North America increased by 58 percent during the first quarter of the 2009 fiscal year (May to July of calendar year 2008)." Like March Networks, the majority of other companies looked toward markets ripe for plucking, and have opened offices, invested in local personnel and tendered for projects in a myriad of vertical markets.
Despite the slowdown, North America is still the biggest market worldwide. Mobotix, Optelecom-NKF, March Networks, Axis, CDVI, Electronics Line and GeoVision have continued to fortify their sales channels there. "We're splitting focus between partners, expanding from our presence in Colorado to locating partners in the East Coast, Midlands and West Coast," Hayek said.
"While we're seeing signs of rising customer activity compared to earlier in 2009, we anticipate that North American organizations will maintain a more cautious approach to projects until further stability and growth are reached," Wilenius said. George Tai, CEO of Geovision, added that the education sector will remain opportune for next year.
In Western Europe. France, Scandinavia and the U.K. are picking up momentum in wireless products and IP adoption, Dr. Shachrai said. "It will take at least another year before we see the European market up and running again," Hayek added.
Latin America, especially Brazil, has been an increasingly solid market this past year. Where the commercial, industrial, transportation and banking sectors are concerned, the region is very promising. "We recently established our own office and personnel, and it's definitely an emerging market where we expect high growth," Mauritsson said. However, for most, Latin America is not yet the biggest piece of the pie.
In Asia, particularly China and India, companies have expanded their operations the most aggressively. "In India, we've signed more contracts with distributors and have done very well. Our strategies in China are different; we focus more on monitoring companies," Dr. Shachrai said, as China reigns as one of the world's largest and most stable markets in these trying times.
Consensus was that industrial and government projects have been the hottest verticals. Larger government sponsored projects have been delayed but are recently getting back on track.
Transportation has been a huge development area. IP-based video surveillance systems for traffic control and mobile solutions, including ALPR, network cameras, video analytics, sophisticated VMS and so on, have contributed to several companies' growth. "We anticipate that our company's revenue from traffic applications will increase by more than 25 percent, now that we have launched our traffic servers," van der Kroef said. March Networks, Axis and Nice have also been heavily involved with transportation projects.
With increased crime rates around the world, public surveillance and critical infrastructure have tightened security measures on all fronts. In both emerging and mature markets, IP-based video surveillance is increasingly deployed to better protect citizens and utilities.
In residential and retail segments, a growing middle class will expand needs for safety and security, said Laird Hamberlin, VP of Global Accounts, ADT Security. "We have seen some of our larger retail customers with some good investments continuing, but not necessarily at their historic levels," Koch added, in a prepared statement. A full recovery of Axis' retail business, Mauritsson said, is not yet expected for 2010.
Companies that focus on small-to-medium projects, however, were not as dependent on single verticals. As a result, they had more flexibility. "Our average project size is less than US$10,000, and our solutions are a good fit for many verticals — banking, transportation, retail and mobile solutions," Coelen said.
Products for 2009
Despite tighter budgets, growth has favored companies who continued to invest in R&D, resulting in a healthy number of new products being launched. "We invested more than 10 percent of our sales in R&D, which we believe is essential to provide innovative and reliable solutions," said Uwe Thym, VP of Marketing at Bosch Security Systems.
The majority of video surveillance solution providers zoomed in on improving resolution, frame rates and/or outdoor capability.
Mobotix released its newest hemispheric camera, using decentralized technology to restore panoramic images distorted by fisheye lenses. "This product was the most successful launch Mobotix ever had," Coelen said. The camera uses a 360-degree lens and has built-in storage, allowing users to work with fewer cameras but get increased resolution.
March Networks bolstered its portfolio with IP-based HD cameras supporting H.264 compression, and refined its software offerings. "We'll aggressively promote these products in the next six to 12 months," Wilenius said.
Optelecom-NKF, for better compression, also released its H.264-enabled video server, to integrate analytic algorithms and storage. Continuous development will eventually incorporate VMS and recording technology into a single solution, van der Kroef said.
Axis launched some 30 network video products this year, focusing specifically on two categories — H.264 (improved image quality) and enhanced outdoor capabilities. "Our HDTV-quality cameras with H.264 compression standards have been a success," Mauritsson said. Another focus was an outdoor ready, out -of - the-box product which shortens installation time and eliminates the need for an external housing.
As analytics mature, companies like Axis and Geutebrück have added them as built-in features. "We've launched a new network camera designed with outdoor motion detection running on the DSP," Geutebrück said.
Bosch launched a selection of cost-effective, all-in-one network cameras with onboard storage, catering to SMBs to protect and monitor property. "We also launched a dome camera with full PTZ capabilities," Thym said.
Wireless intrusion detection solutions, in particular, sold well in 2008. "Our wireless control panel, with built-in GSM/GPRS, serves entry-level needs and meets international standards," Dr. Shachrai said, emphasizing that this product is Visonic's best-seller of the year.
Web-based solutions were popular with Bosch and CDVI. "We developed a Web-based solution that uses a built-in Web server for access management," Thym said. And the CDVI solution includes software for visitor, parking and asset management, Assouline said. Integrating other systems gives manufacturers a better chance to sell their products and asks of end users to only familiarize themselves with one system, rather than several disparate systems.
Challenges that most of companies faced this year are careful channel partner selection and inadequate education of industry participants. More than ever before, these long-standing obstacles must be dealt with if companies expect growth to continue.
Strategic expansion includes training for integrators, distributors and resellers to ensure project wins. "We continue to focus on providing our sales channels with the information and support they need to help customers transition from analog to full IP-based video surveillance environments," Wilenius said. "Additionally, we've launched an improvement program for our architect, engineer and consultant community."
Some companies supported customers who were more affected by the economic crisis, through extending payment terms or giving extra discounts. "We also increased marketing support for our partners by designing campaigns and attending trade shows," Assouline said.
For network camera providers, one key marketing challenge was to reach system integrators and end users with the full benefits of IP-based systems — there are simply too many people to reach. "Sometimes, system integrators have little incentive to change because IP is something new and they have to learn. This means leaving what you're comfortable with," Mauritsson said.
Educating partners has been vital for growth. To this end, Mobotix has made countless webinars, themed training sessions and short films available on popular Internet portals, Coelen said.
A number of other companies, including Axis, Bosch, March Networks, Hikvision, Nice, Optelecom-NKF, Geutebruck, GeoVision, Hitron Systems, Victor Company of Japan (JVC), VIVOTEK and Tamron, have joined efforts in the ONVIF initiative, to help drive the technology shift by creating standard parameters. "We need to make sure that system integrators are up to speed with new techniques and can choose the best of breed when selecting a system," Mauritsson said.
However, lack of regulators to enforce compliance with existing standards could halt progress. "ONVIF and PSIA efforts to enhance standards seem like a good start, but we need to see if they will be enforced," Assouline said.
Rapid innovation, high market fragmentation and new alliances all contribute to a massive range of product offerings. "It is, thus, imperative to help end users distinguish pure marketing gimmicks from true value offerings," Geutebrück said.
Overall, the two biggest weaknesses of the industry are collective complacency (explosive growth in previous years) and conservativeness. To varying degrees, most economies are still suffering from the recession, which makes for difficult prediction and overall uncertainty. According to IMS Research, video surveillance equipment sales in Europe will have declined by nearly 7 percent by the end of this year, with the U.K. and Spain hit particularly hard. The Americas are expected to pose slight growth, said Udi Segall, Senior Product Marketing Manager at Nice Systems. Large stimulus packages in both the U.S. and Europe will cushion the blow somewhat.
Additionally, fluctuations in currency exchange rates make it difficult to penetrate certain geographical markets. "Fluctuations make our imported products more expensive," Dr. Shachrai said.
Security is a conservative and tricky business full of users reluctant to adopt innovative technologies, prolonging the transition from analog to digital. Looking purely at the video market, analog shares are still very high, and IP-based solutions are of a low penetration, Coelen said. When investments shrink, the result is a relatively large, negative impact on network video expansion. However, the slowdown is not an indication that the technology shift is not happening; rather, it simply shows that growth is reduced, Mauritsson said.
Clearly, it has been a tough year, to have to balance budgets with continued innovation while maintaining or expanding global presence. On top of that, providing sufficient support to channel partners and increased vigilance in training may mean make or break for any company. Between a company's self preservation and its social responsibility, the Security 50 participants of 2009 have had a trying year, yet those who managed to tie all these loose ends have reaped rewards despite the volatile environment. Although the forecast for 2010 is far from transparent, attention paid to these areas and the Security 50's shared experiences will better prepare industry players for the future.