A growing phenomenon in the residential security market is a surge in new entrants. This has been due to various reasons, for example more available funding. While the entry threshold may be lower, vendors are still faced with challenges, for example heightened competition.
A growing phenomenon in the residential security market is a surge in new entrants. This has been due to various reasons, for example more available funding. While the entry threshold may be lower, vendors are still faced with challenges, for example heightened competition.
These were the points raised by
IHS Markit in its latest
report, "Security Start-Up Numbers Soar – Have the Barriers to Entry Ever Been So Low?"
The report, authored by Jim Dearing, Senior Analyst for Building and Security Technology at IHS Markit, first cites an increase in the number of new entrants entering the home security market. “In 2015, companies that were two years old or less accounted for 6 percent of global consumer video-camera market revenues. By 2016, this had grown to over 9 percent,” Dearing said. “At the time of writing, eight active security camera projects and over 100 smart home device active projects were seeking backers on Kickstarter.”
According to Dearing, this phenomenon has been driven by many factors, one of which is the ease of finding an original equipment manufacturer (OEM). “In the past, setting up manufacturing agreements or facilities was somewhat of an art form, with Western companies needing assistance or an outright local presence to manage the careful balancing act of affordability vs. quality vs. the risk of patented technology being stolen. With the help of review systems, virtual factory tours, and third-party quality assurance services, an increasing number of Western suppliers believe it is no longer necessary to visit their factories in person,” he said.
Anorther reason is the fact funding is easier to come by. “Kickstarter and similar crowd funding platforms provide prospective entrepreneurs with access to thousands of potential investors. These funding opportunities encourage new market entrants, but also give companies that would have launched anyway a better chance of surviving their early years due to the free marketing and sales leads generated from the fundraising process,” Dearing said.
Further, the popularity of DIY is also driving more new entrants. “Suppliers aiming their products at the DIY market typically have fewer requirements to meet before they can start selling their product. For example, an alarm system aimed at the higher-end commercial market would need to go through rigorous testing to meet various grading requirements before it could be sold,” Dearing said. “As the DIY market continues to become a more viable source of revenue, an increasing number of companies will become willing to invest in it – therefore further inflating the number of new players.”
Despite this, challenges still remain for the future of security start-ups, Dearing said. One challenge is the fact the DIY market is still overshadowed by professional security. “For example, the DIY market accounted for just 2 percent of global intrusion equipment revenues in 2016. Consumer video fared better, but still only accounted for less than 9 percent of the video surveillance market. This is important because it means for the foreseeable future professional security players that are also active in the consumer space will continue to enjoy the advantages lower production costs and larger marketing budgets,” he said.
Channeling and interoperability are also challenges that need to be looked at. “The retail brick and mortar sales channel – a channel of varying levels of importance depending on geographic region – remains very much closed to smaller players. Unless the supplier can prove itself through consistently outstanding market demand, it has very little chance of securing a place on the shelves of a large big box retailer,” Dearing said. “Interoperability is becoming a key consumer concern. Consumers are now more wary of purchasing products that will not be able to integrate with their existing security/smart home devices. Future start-ups will need to allocate additional developer resources to ensuring that their systems are as open as possible.”