IT -Fication
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.