During the last 3 years the competitive landscape of the physical security market has undergone significant change as prices have fallen and margins tightened. This is the result of the growing maturity of IP Networking products where innovation has become more incremental and product differentiation has been difficult to achieve.
At the same time changes in the leadership of the market have favoured the relative new entrants who have pursued innovative R&D programmes and more aggressive marketing campaigns; built up stronger partnership links with System Integrators and have revamped their distributor channel.
This has enabled them (together with their partners) to demonstrate how improved ROI can be achieved through IP network systems. The next challenge will be to show that connectivity through the Internet of Things (IoT) will create further value. IoT is now at the top of the Hype Curve and it will take at least 5 years before it reaches the slope of enlightenment, according to Gartner. When it does the cycle of innovation in IP will accelerate and analogue systems will suffer a rapid decline.
Set against this background the latest edition of our annual report “The Physical Security Business 2014 to 2018” has identified 3 main forces that need to be addressed when security product manufacturers are reviewing their business model for the next 5 years. You can Download a FREE Synopsis of the Report Here.
1. Cyber Security is Critical
Physical Security Systems that are open and vulnerable to “hacking” pose a significant threat to the reputation of this business. Manufacturers should be increasingly concerned that if their products are targeted by hackers their image could suffer along with a decrease in revenue.
This has been brought into sharp focus as a story unfolded this month about China’s No. 1 Video manufacturer Hikvision having its devices hacked at a Chinese government site. This follows up on stories that they have been hit by a number of security issues over the past few years.
Hikvision, partly owned by the Chinese government has secured the lion’s share of the Video Surveillance contracts on the multi billion dollar Safe City projects in China over last few years. Ironically it is believed that the Chinese government has restricted foreign products on these contracts because it would expose them to hacking attacks.
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Hikvision's stock dropped 7.5% in the first day of trading after the full disclosure. Losing $1 billion USD. Although this is not a financial blow to the company it may cause their biggest client to seek a solution from the West and that would certainly have major consequences. However in the short term of the next 12 months we think the impact will be more severe in Europe and North America.
2. The Geographic Distribution of Sales is changing with Asia Dominant
So could this event open up the opportunity to establish a serious presence for foreign leading edge suppliers in China (the world’s largest Video Surveillance market)?
A major change in the geographic distribution of sales is taking place with Asia delivering the highest rate of growth and increasing its market share. This will continue because there is still a massive latent demand waiting to be exploited. In China penetration is only one third of that in North America. Well before this demand has been exploited the Chinese market will be taking the largest market share.
The leading edge manufacturers of the west are failing to get their share of this business which is dominated by Chinese manufacturers. The world’s 2 largest manufacturers of Video Surveillance systems are now Chinese and they have within the last 2 years established a significant presence in the western world. Their products are now regarded as OK and they sell at very attractive prices. If this gap continues, the scale of their operations will cause serious problems for many North American and European manufacturer both in their home market and Asia.
The Chinese Government is now going ahead with major pilot projects to demonstrate Smart & Safe Cities. Without an indigenous manufacturer of leading edge IP Network cameras they will need to open up to western IP technology. It would be incongruous for China to accept a weak cyber security in the Safe City projects so it has to either rapidly develop its own solutions or brings in western technology.
3. Preparing for the Internet of Things (IoT)
The IoT will eventually drive & control all Building Automation services (BAS) including physical security products delivering connectivity through IP. Video Surveillance is well down this road with IP network cameras; whilst Access Control and Intruder alarms / Perimeter protection are now following its lead. But to enable all the BAS services to be joined seamlessly together will require fundamental changes to the way contractual procedures are organized.
We are already seeing cross fertilization of Security Systems with Building Energy Controls and the new breed of System Integrators from the IT Communications business are gearing up to offer full BAS services as they install the communications network platform and attach the enablement hardware - http://memoori.com/portfolio/internet-things-smart-buildings-2014-2020/
No precedent has yet been set on where the security software for PSIM, PIAM and Situational awareness will reside but Big Data software will help the processing of data from all sources (not just security systems) and central operation could deliver better decisions at lower cost. Video Management Software (VMS) software is more likely to stay decentralised on the edge.