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During the last 3 years the competitive landscape in 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 incremental and product differentiation has been more difficult to achieve.
At the same time changes in the leadership of the market have favoured the relative new entrants who have operated a more aggressive marketing campaign, built up stronger partnership links with the System Integrators and have revamped their distributor channel.
This has enabled them together with their partners to demonstrate how improved ROI can be achieved. The next challenge will be to show that connectivity through the Internet of Things (IoT) will bring further benefits and an improved ROI.
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.
We have identified 4 main factors that need to be addressed when security product manufacturers are reviewing their business model;
1 – The Geographic Distribution of Sales is changing with Asia Dominant
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.
However the leading edge manufacturers of the West are failing to get their share of this business which is dominated by Chinese manufacturers. 2 of the world’s 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 manufacturers, both in their home market and Asia.
China is about to go ahead with major pilot projects to demonstrate IoT and Smart Cities. Without a leading edge manufacturer of IP Network cameras being part of these projects they will have problems. There has to be a strong synergy here for Western companies to partner with Chinese companies to help market their products through each others distribution networks.
2 – Manufacturers need to adapt to the New Channels of Distribution
Channels of Distribution are changing & IP Networking manufacturers need to review how they work the routes to market and form partnerships with Specialist Distributors that “design” and supply equipment packages that will properly interface and meet the plug and play requirements of Installer / System Integrators.
IP Networking products cannot be sold as “boxes” which have historically been the format for analogue products. A key finding from a recent research report showed that almost 80% of North American systems installers required better training from their suppliers of IP-based video surveillance products and simple interface tools to join their products together.
3 – Product Focus / Package Solutions – Back to Product Focus with ONVIF
The traditional business model in the Video Surveillance market was built around manufactures specialising on one particular product such as Cameras, VMS, DVR’s and NVR’s. These products had to work together to make up a system and this was achieved partly through alliance between the many different manufacturers.
For the most part this process worked. However the system integrators & installers often found that configuring the system was a time consuming and difficult task. To overcome this during the last 6 years many manufacturers have gradually increased their product range and have joined the various horizontal layers together. This model has worked well for them and is common practice for all the major Video Surveillance equipment manufactures.
The ONVIF open standard will in time negate this model. This does not mean that the leaders here are going to go back and refocus on their best option from which they started. But they will progressively meet more competition from new entrants that focus on one product area developing more innovative and lower cost products that meet the ONVIF standard.
Provided ONVIF continues to improve their standard and police its rules then, plug and play becomes a reality and the strategy of product focus will not suffer the limitations and constraints that it had in the past. The introduction of IoT is likely to have the same result with most small companies and new entrants going back to focus on one product.
4 – Security as a Service is Growing and this will impact on Conventional Practices
Rather than selling their products for cash up front, more and more security companies seem willing to invest the necessary money themselves in the manufacture, installation and operation of their security systems, and then charge their customers over time for what they call “Security as a Service,” which is essentially a “pay-as-you-go” business model.
Security as a Service, which is often shortened to “SaaS,” has become attractive to many customers – both government and commercial – because budgets are invariably tight and upfront funds are frequently hard to find
The expense of continuously upgrading the underlying technologies remains the responsibility of the vendor, rather than the customer; and the complexity of operating some of these security systems is best left in the hands of the companies that have conceived, designed and developed them. Whilst we have not measured it, research reports confirm that there is a growing trend towards going down the SaaS route.