The reason for this belief is not based on the many overly optimistic forecasts by market research companies that have sprung up this month but from qualitative and quantitative information delivered throughout the channels of distribution.
Last month we identified that the second quarter results of public quoted security companies had shown growth in revenues and profitability and forecast a continued but subdued improvement in the second half of the year. This trend has continued this month with March Networks, Image Sensing, Newmark plc and VideoIQ, reporting improved financial performance this last quarter and optimism for the future. But possibly more convincing are the results from the integrator installers claiming increased levels of sales and a growing backlog of business.
Other indicators of confidence in the future are acquisitions, funding and alliances. Five acquisitions were announced during the combined months of July / August compared with eleven in the same period of 2009, showing a dramatic fall off in the volume of activity but the purchase value of just two of these acquisitions amounted to $2.4 billion making the value at least one order of magnitude larger. 4 companies announced funding secured in July / August compared with 3 in the same period of 2009, whilst the number of alliances was 9 in both years.
None of our top 50 acquisition targets have been acquired this month. We have added Exacq Technologies to the list and taken off Plettaq Electronics. Exacq was the highest growth security business in Inc 500 this month and the proprietor directors have sold previous companies that they operated when they reached a slightly larger size. According to a Reuters report this month L1 Identity Solutions, one of our target companies, will be acquired very shortly for around $1 billion. So we expect some renewed acquisition activity in the next two months.
We have shown here some solid evidence that the security market will grow over the next six months and that the tools for its development will be provided through acquisition, alliance and funding but sadly we should not expect demand to be born out of growth in the construction market or government stimulus programmes in the developed markets of the West which were amongst the main drivers for growth in the last decade. So where will growth be primarily focused?
We suggest that the major emphasis will centre on an acceleration of shift to IP from Analog and a sharp increase in a move to managed / hosted video. Much has been written in the last 6 months, about the rapid increase in IP video vendor sales as more companies have seriously taken up this technology. Whilst at the same time, the major analog suppliers have disclosed significant falls in revenue. Demand for managed / hosted video is being driven by both integrators and investors, whilst simultaneously the number of providers launching such services has significantly increased. This demand is being driven by IP Networks ability to reduce operating costs whilst delivering real value add services that generate much higher levels of ROI. I suggest that to find out about how, where and why you should click onto the this article “Its all about the Network” , which is based on a presentation made at the recent Axis Architect & Engineers Technology Summit, by Martin Gren, co-founder of Axis Communications;
Gren and his colleagues have consistently mapped the correct future of network video and then steered their company, to develop the products, partnerships and services enabling significant advances in video surveillance performance. But now the with the network coming strongly into play for channel companies to continue to grow and serve customer needs, the IP Video market will blossom.
The presentation explains that “among the important changes in the channel that are finally driving the adoption of IP technology are the skill sets and knowledge of those that design, engineer and install security systems. For years, analog was king because that was what companies knew how to install and service. IP and Cisco certified installers were few and far between in our market just a few years ago. That is changing now. The system integration companies that will lead in the future are those that have invested in their people as security products have become “IT-ized.”
The report goes onto explain: "Among the biggest log jams being removed are the architect / engineer / consultant (AEC) companies that design security systems. There are two major changes in this space to be aware of. First, AEC’s traditionally servicing the security market is a critical part of your business eco-system. The complexity of networks require you to work with AEC firms in a constructive way to both delight and protect your customers by ensuring successful projects.
Second, new firms from the IT channel and BICSI are being courted by security manufacturers on one side whilst being asked by their clients to provide security solutions on the other. They bring a different design relationship with them either with in-house AEC staff, IT architecture-centric partners or communications-centric partners (IT or BICSI).
The presentation then examines “what’s next for your customers? Cloud computing or software-as-a-service (SaaS). It is happening now. As cloud computing and SaaS emerge as a security platform (if you offer monitoring, you are already selling cloud computing), the investment in capital and operations budgets will be less of an issue. This is another example of the IT-izing of security, but via the finance department. With a cloud-computing model, your customers can lease their security system and budget a fixed-cost / fixed-maintenance program.
As Martin Gren’s visionary statement attested, it really is all about the network and as hosted video growth accelerates, it is the network that provides the opportunity to build these effective and efficient solutions for your clients.