Race to smarter societies daring economic concerns

The year 2015 has seen a strong global move toward smarter applications. From smart homes at the consumer level to smart cities at the government, customers have been increasingly interested in integrated systems with a single platform to manage them. 

Incidentally, this rush to become smarter has paved way for several changes to the market. For instance, there has been an increased emphasis on integration, which has prompted several large companies to merge their expertise. 

Perhaps more significantly, these changes are occurring at a time when the global economy is going through a rough patch, with the fall of oil prices and slowing growth in China, the world’s second largest economy. 

So how does the industry evaluate the situation? In this article, we ask several major security companies for their views, concerns and expectations on the situation. 

The trend to unify technologies and solutions

“There is a trend toward smarter IP video surveillance that adds value above and beyond simple area monitoring,” said Tristan Haage, CSO of Mobotix. “For example, IP video combined with door intercom is becoming a much more common requirement. Another example of this is systems that provide automated analysis to generate alerts and event triggers through a better understanding of action without the need for a human operator.” 

According to Leon Langlais, Senior Director of Growth Markets and Regional Strategies at Tyco Security Products, customers now expect not just high levels of security but also help to improve their operations and provide business benefits. 

“Smart cities are a perfect example of this type of unification,” Langlais said. “When a city is managed as one comprehensive system, it increases efficiencies across the board and, in particular, helps law enforcement respond more effectively. Eventually, most cities will be smart cities.”

Bodil Sonesson, VP Global Sales at Axis Communications expects this to be a major trend towards the future, and network video systems to have an important role to play in this. 

“Beyond today’s safety and security installations, they will take on the role of smart sensors, facilitating components that provide important data to inform and enable the smart city,” said Langlais. “In the future, network video systems may become the backbone for a city’s Internet of Things, and a platform for the development of smart city applications.”

Paul Webb, CEO of Synectics agreed to this, indicating that the importance of concepts such as smart cities is often highlighted during events of mass gathering. 

“Major events such as the Rugby World Cup throw the importance of smart city technology into perspective,” Webb said. “Using advanced integrated surveillance command and control solutions as the ‘binding strand’ that enables visual, auditory, and numerical data to be shared effectively and efficiently between relevant organizations is a powerful tool.”

Summing up the picture, Kevin Wine, VP of Marketing at Verint, said that there is an increasing demand for the public to be able to communicate what they experience instantly, and for authorities to be able to harness this information and use it. Integrating technologies into a single platform is the result of this need, but while this is considered a natural evolution in the industry, its scope in terms of usage goes beyond conventional security systems. 

“New technology is taking the information smartphone users are sending out and turning it into actionable intelligence,” Wine said. “Through citizen engagement, the general public is able to provide information to public safety professionals so that they are able to address daily hazards, suspicious activities, natural disasters, terror attacks, crime, or vandalism by reporting incidents using their smartphones.”

But such attempts to unify solutions and make it accessible to more people has had yet another result in the industry — an increase in mergers and acquisitions (M&A). 

Mergers and acquisitions with an eye on integration

The market has witnessed quite a few large scale M&A activities this year. Continuing from last year’s acquisition of Milestone Systems, Canon acquired Axis Communications this year. This was followed by other deals, including a recent move by Nice Systems to sell their physical security division to Battery Ventures. 

Such joining-hands of large-scale manufacturers helps to close the security gaps caused by disparate systems and be more cost-efficient. But Eric Fullerton, CEO of Vicon Industries observed that the industry consolidation has resulted in several companies trying to lock up their customers in their proprietary solutions. In other words, customers no longer have as much freedom to pick and choose their solutions as before. 

“I strongly believe that there is a need for end users to have a market that drives toward fully open standards to deliver solutions that are state-of-the art and give the end user freedom of choice to select what solution they need,” Fullerton said. “Then it will be more about how you provide a service, than about how you package your solution.” 

Haage agreed that the large M&As have given rise to concerns of being tied to proprietary solutions. 

“The merger between Canon and Axis and the impact on Milestone has led to some uncertainty in the market with a fear that its commitment to open platforms may decline,” said Haage. 

The technological advantages aside, attempts such as smart cities are also beneficial to the global economy, which is badly in need of a push. In fact, although the security market is looking poised for growth, it is still under the shadow of economic concerns such as weakening oil prices. 

Persistent economic concerns tugging at demand

Global oil prices have come to the spotlight recently as prices dipped significantly after the U.S. nearly doubled its domestic oil production over the last six years. Although there have been some sporadic signs of recovery, many experts believe this to be a new normal, as the prices could remain bearish in the long term. 

For the security industry, in the oil and gas sector and in countries which depend on oil for economic growth, this new disruption to the market has had a negative impact. But according to Webb, while it is a cause of concern, there have been significant patches of light in an otherwise stormy sky. 

“A tough economic environment has led to oil and gas companies reviewing risk and consolidating operations,” Webb said. “At a corporate level, this has been reflected in mergers and acquisitions such as Shell buying BG Group, or the takeover of Amec by Foster Wheeler (both examples of companies looking to de-risk, gain market sector, and acquire skill sets and technology).” 

But he added that at a practical, operational level it means that whatever investment has been made has mostly focused on expanding existing assets and that presents opportunity for the security market. 

Besides the weak oil prices, slowdown in the Chinese economy has also had an impact on the market, according to Haage. 

“The slowdown in the Chinese economy has led to a bit of a price war fed by distributors in the entry-level camera market,” Haage said. “This segment is low on features and innovation and this has led to a decline in value add from some distributors.”

Smarter technologies a short in the arm for the security industry

The rush for smart cities and safe cities are expected to remain strong in the coming years, along with further developments that could continue to define and redefine the concept of smart technology itself. This should be a strong anchor point for growth of the security industry and could attract more new companies to the sector. 

However, concerns such as weak oil prices would continue to pose considerable headwinds to the pace of growth, and security companies will be forced to adapt themselves more to a changing landscape. This might include diversification of client portfolio, adopting new technology, and expansion to new markets. 

Essentially the coming years could be more eventful for the security industry. Consolidation could continue and the market may continue to mature, but this will only pave way to further blur the sector’s borders and see it becoming integrated with other technologies.