2023 Security Industry Forecast: Experts Tackle Technology, Markets, Supply Chain & More
Amid a landscape forever changed by the pandemic and related impacts, it’s all about navigating the new normal. More than two-dozen security industry experts explain what that will look like for 2023.
Particularly in light of pandemic, supply chain, inflation and labor challenges, most physical security practitioners are pleased if not relieved by how their business played out during 2022. However, the fact that most of those issues remain unresolved and there is increasing uncertainty where the economy is concerned has made the term cautiously optimistic more widely shared than perhaps ever before.
“For 2023, the security industry will continue to be resilient; however, it may experience a modest downturn in the first half as the economy navigates higher inflation and rising interest rates,” says George De Marco, managing partner, DECO Ventures. “Consumers and businesses may pull back their spending until there is more certainty in the direction of the economy, including the reality and depth of any pending recession. As the uncertainty of the economic landscape plays out, security professionals should closely monitor their financial metrics that assess labor, collections, attrition, inventory and sales.”
For those integrators feeling a little more uneasy or even pessimistic, there is always the exit option, which industry analysts say may not be a bad play in the current climate.
“The M&A market for security integrators has been red hot for several years. Private equity has been the main driving force, and 2023 should continue to see strong valuations and robust activity,” says Charles Durant, managing director, Sandra Jones and Co. “While it will remain a sellers’ market in 2023 with strong valuations, the pool of potential buyers for integrators with less than $10 million in annual sales has shrunk some in recent years. But there are still many strategic buyers interested in acquiring smaller integrators.”
It’s always good to know your options and retirement is one thing, but otherwise the majority of company owners and operators fully appreciate that security is an uncommonly stable and essential industry.
De Marco and Durant are among the 25 security experts weighing in on technology, markets, operations and much more (for deeper dives into the access control and video sectors, check out the dedicated features in this issue). It’s all laid bare in SSI’s Annual Industry Forecast.
2023: Security Technology
Brach Bengtzen, Director of Marketing, ProdataKey
Cloud solutions will dominate the residential and commercial markets. Related to this is the desire to integrate access control with many other apps and security platforms. Demand for mobile credentials continues to rise. As workers return to the office, there’s an increased desire for convenience and touch-free technology. In a hybrid work environment, mobile credentials allow administrators to add new employees to the building’s security system without being physically present to hand over a card or fob.
The DIY trend will impact the residential market, but not commercial. With the proliferation of DIY camera systems, Ring doorbells, Nest thermostats, programmable lighting and WiFi deadbolts that can be run from an app, the opportunity for ambitious self-installers to incorporate security solutions into their home automation projects is readily available. But the complexity of commercial systems still requires professional installation — even for smaller businesses.
Eddie Reynolds, CEO, iluminar
In a flooded market, where video surveillance technology, AI and IoT options abound, I’ve seen competition make it difficult for customers to evaluate the quality of the products they purchase. For many manufacturers, the task may seem to be developing the most functional technologies and getting them to market the fastest. However, in the long term, I believe quality always outweighs quantity. Especially when it comes to building relationships with clients, manufacturers that excel in customer service and technology support and distribute products that are built to last will rise to the top.
Jeremy McLerran, Senior Director, Global Marketing, Johnson Controls
Interoperability is a key issue. There will never be one “winner” in the race to own the smart home/business. It’s about embracing all the devices and services with all the various protocols and finding ways to partner to bring independent services together into a unified experience. Sure you want customers to buy your sensors, use your services, but if they have a loyalty to a specific brand or device, your best pathway is to work with it rather than saying, “Ignore what you already own and come buy the identical thing from me.”
Charles Durant, Managing Director, Sandra Jones and Co.
AI and machine learning, IoT, Cloud, SaaS, Blockchain, physical and cybersecurity convergence, video monitoring and video management advances, computer vision and other technologies will continue to reshape our industry over time. But physical security service providers are so busy meeting the end-user demands for traditional access control, video and intrusion systems the impact of new tech may take longer to penetrate the market than anticipated.
AI will bring about the greatest changes and opportunities, with near-term impact on video management and analytics. Its impact will not stop there as the applications are literally boundless. Video management will continue to be hot with computer vision garnering a lot of attention. CV utilizes AI, among other tech, that allows computers to gain high-level understanding from digital images or videos. Expect to see new entrants bringing CV solutions from other industries into security.
2023: Security Markets
Alison Forsythe, President, Bold Group
While homes are becoming smarter thanks to the proliferation of IoT devices, Big Tech is solidifying its dominance in residential security. But it has still not been able to break into the high-end commercial systems and services market, a significant opportunity this year. As we move further from COVID, companies are starting to spend more on inventory and technology — especially as they look to lower labor costs and improve operations — which results in an increase in demand for security systems and solutions. The education market continues to grow.
In the past, campuses did not prioritize security from an investment standpoint. Unfortunately, with where we are today, security needs to be a strong investment that all educational institutions take part in. More security presence is needed in order to create a safe environment for our students. Security companies need not only to address the specific needs of each market by instilling the voice of the customer in their solutions but must play an advisor role as well — providing deep expertise and value to customers.
Judy Jones-Shand, Vice President, Marketing, NAPCO Security Technologies
In times of economic turbulence, crime rises and directly correlates with demand for electronic security in all forms and markets. This is especially true now that many people formerly working from home have returned to their workplaces. In our video-centric, multitasking culture, it’s natural that now, back in the office, people still want to closely monitor activity at their homes — be it for criminal/alarm activity or routine occurrences.
Reflecting customers’ tastes and purchase behaviors, integrators are offering more remote interactive lifestyle services, enabling accounts to stay in constant contact with their homes or businesses via a connected smart system that communicates vital information to a smartphone, tablet or online.
Rick Koscinski, General Manager, Honeywell
As verticals continue to become more mature, we expect to continue to see an increase in requests for more customized solutions to meet specific customer challenges. For example, in the healthcare vertical, as more compliance specifications and regulations are added to the mix customers will look for solutions that meet them where they are yet help them move forward as the industry evolves.
Jennifer Kent, Vice President Research, Parks Associates
Security players are making moves in the multidwelling unit, or MDU, market. According to the National Apartment Association, demand for apartments is at an all-time high, driven by factors like the increase in young adults who are delaying home ownership and an aging population choosing to live in apartments. Technology product and services providers are increasingly targeting the multi-family space, offering services targeted to both MDU residents and rental property owners.
According to Parks Associates research, 80% of property managers plan to introduce smart home devices in their units within the next 12 months. As professional security providers feel competitive pressure from lower-cost DIY players, the MDU market is an attractive play. The premium costs of installation, monitoring and support are likely to hold their value in a commercial setting.
2023: Business & Operations
Kirk MacDowell, President, MacGuard Security Advisors
Talent continues to be the most talked-about dilemma facing our industry. This problem is facing all industries, so we are not only looking for talent but competing across sectors for it. The Foundation for Advancing Talent, FAST, is a joint effort from SIA and ESA to attract new talent to our ranks. Another way to attract employees is security executives mentoring and teaching at colleges.
But we need to hold on to the talent we already have by rewarding staff based on sound KPIs for the individual, department and company. Then from an overall competitive standpoint, there is a plethora amount of money and investors looking at the physical security space. Some will invest in existing operating entities with others looking at new startups. So, competition is becoming fiercer. The antidote is to focus on employee retention and exceeding customer expectations. By doing so, the attrition rate will be acceptable, or less than 10%.
Matt Barnette, CEO, PSA
Unfortunately, with a downturn, most companies scale back on employee training, talent development and any significant recruiting. More advanced companies will invest in those areas during a downturn. Traditionally, we see those companies that invest in their people and retain their top talent will be the ones who come out in better shape. Also, there will be a credit crunch as the cost of money has gone up. Likewise, the cost of insurance has gone up, especially cyber insurance, presenting a challenge for 2023 and beyond.
George De Marco, Managing Partner, DECO Ventures
Consumers want a great customer experience; in fact, they demand it. The power of social media proves this every second of every day. Consumers and businesses choose what goods and services they spend their money on. Although the security industry is fortunate to remain high on the list as a trusted resource for end users, the competition is heating up and the customer acquisition costs are accelerating.
Pricing and quality are still significant factors in the decision-making process, but the overall customer experience is a critical component for businesses to remain relevant and grow their revenues and customer base. The question every security and monitoring company should ask is, “How difficult is it to do business with my company?”
In other words, focus on streamlining your processes and remove the hassle factor. Another area to consider is developing a more immersive customer experience that brings more value and turns action into a memorable experience.
2023: Supply Chain
Paul Boucherle, Principal, Matterhorn Consulting
The supply chain will continue to be a thorn in the side of systems integrators, dealers and customers. This is because there are multiple business factors that are moving targets and challenging to accurately predict with any certainty. CDC COVID-19 responses have been draconian with a “zero” infection rate target, which is an impossibility. That will periodically strangle manufacturing, shipping and warehousing. Add the uncertainty of U.S. transportation reliability and fuel costs and you have a perfect hurricane that is wobbling toward the security and A/V industries. Where it makes landfall and with what strength is anyone’s guess.
Brent Boekestein, CEO & Co-Founder, Vintra
Ongoing supply chain challenges will continue to impact the security space in several ways. First and foremost are the limited availability and long lead times that persist for many hardware devices, which in turn impacts any software solutions that are installed downstream on-premises. The inability to deliver hardware and software products hurts both distributors and resellers, and usually results in higher prices for end users.
Consequently, I believe this will drive more end users to consider Cloud deployments, eliminating the need to purchase, install, and maintain on-premises servers and related hardware. Overall, this has the potential to further accelerate the broader acceptance of SaaS in the Cloud.
Tom LeBlanc, Executive Director, NSCA
For integrators dealing with supply chain challenges, contract language is really important. It’s also important to do a better job of inventory management and trying to get really good at projecting needs so that you can stock products that you know are going to be needed as you analyze your pipeline. In the old days, it was just-in-time inventory; now it’s just-in-case inventory. This is easier said than done.
An integration company needs to have a good strategy around making sure that they’re keeping the just-in-case products on hand because they have insight into when they’re going to be needed. The ability to do that well is one of the keys to success as companies work their way through supply chain challenges.
2023: Overall Security Industry
Peter Giacalone, Principal, Giacalone Associates
I believe 2023 will be the start of a new era in the space and all markets. Technology is maturing at a rapid level and deployment will follow. The M&A markets have indicated the great interest by the investment community by their aggressive valuations and large buckets of capital allocated for the space. Monitoring will maintain itself as an essential element in the ecosystem.
Although this is true, the separation between monitoring centers and platforms will continue to grow and will create obvious players that are suited for what is to come, in comparison to those that will concentrate on the legacy business that appears to be shrinking.
Clint Choate, Senior Director – Adjacent Market/Channel Expansion, Snap One
It will be a quiet year for M&A and consolidation given the economic climate. Labor continues to be the No. 1 challenge for our partners and is often the inhibitor to growth. Depending on the location of our partner, the migratory patterns underway in our country are either driving their businesses positively, or negatively. Even in times of uncertainty, we have found that our integrators and customers still have a demand for a smart and secure home or business.
The need for professional quality products and installation remains paramount. DIY products continue to take market share but are also expanding opportunities. Higher-quality systems are still viewed favorably as the best option for many end consumers, but many perceive these products/services as a high-cost ticket item. The best opportunities will come to those who are able to lower the barrier of entry through cost/purchase price awareness.
Warren Hill, Vice President, Marketing and Partner Development, Alula
As a whole, there are a lot of players in the security industry. New entrants are throwing their hats in the ring each year. New DIY offerings having been the most prevalent over the past five years. The market and opportunity for smart security has expanded considerably the past 10 years, but it is challenged to sustain so many players. We may see some consolidation in 2023. Additionally, with the 3G/CDMA sunset behind us, security dealers and systems integrators will no longer be focused on updating old systems. Their focus will shift to growing business through the acquisition of new accounts.
Mitch Reitman, Principal, Reitman Consulting Group
M&A will continue, but multiples will drop due to higher interest costs, shrinking margins on RMR, and some second- and third-tier buyers dropping out. For security alarm dealers, now is the time to increase RMR. Customers are more accepting of price increases when inflation rates are high. Dealers should emphasize quality and not try to compete with low cost or DIY. Integrators should see a rebound as employers force remote employees to return to the office.
Monitored services providers should focus on more complex monitoring and stay away from the race to the bottom, as video monitoring continues to grow with AI and analytics being key. On the supplier side, international economic crises and shipper consolidation means all but the largest companies will struggle with cargo companies.
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