Gazing Into the Security Industry Crystal Ball

For most of us, there are times when we wonder if we’re living in an alternate universe. You know the feeling — you read or hear something that you know just can’t be true. It can be as simple as someone describing the best meal they’ve ever had, and they went to a restaurant you feel should be closed down by the health department.

This comes up a lot in the universe I live in, particularly with regard to product trends, statistics and predictions.

Analysts and writers who cover our industry often get a skewed view, since they read press releases and hear about advanced, “gee-whiz” features that are taking the market by storm.

Many manufacturers are running scared, fearing that their existing product lines will be obsolete before a replacement has emerged. And end users often postpone purchase decisions — no one wants to buy obsolete equipment, but do they really need all of these new features and can they afford them?

As a public service, I’ll do my best to separate the myths from the reality.

A Boom Time for Security?
Quite a few manufacturers told me that 2005 was the year the economy came back for them, but it has been far from “boom times” for most.

Despite glowing reports of how everyone was upgrading their security systems, it has been a long, slow climb back for many electronic security companies — just as it has been with other industries.

Infrastructure projects (fiber, cable, racking) appear to have finally recovered, which bodes well for the future — these often foretell greater trends. Equipment sales are up, but pricing continues to erode.

When you look at the increasing amount of product that must be sold and supported just to stay even with the previous year, higher volumes are often accompanied by lower margins.

The boom isn’t back just yet, but the trend is moving in the right direction.

Prediction: More of the same. We’ll continue to see an industry-wide economic recovery, but the companies that post amazing growth will likely be the ones with small sales numbers to begin with or have venture capital funding that insulates them from the need to show a profit just yet. The larger, more established companies will stick to the old saying “Slow and steady wins the race.”

The Year of IP Cameras?
Once again, IP (Internet protocol) video was poised to take over the world in 2005, according to all the marketing folks and press releases. While there’s no denying that mindshare has increased for IP video, analog hasn’t gone anywhere just yet. Analog cameras are just too darn inexpensive, and the variety of configurations, specialty packaging and performance improvements is breathtaking.

There are too many ways to use a digital back-end with analog cameras for folks to shift away from them. With that, we’re seeing a slow, steady increase in IP camera usage, but only in places where it makes financial sense — not the wholesale change-out that has been predicted for years.

Prediction: 2006 will be called the year of IP cameras. Forget that you’ve been hearing that for five years now.

If you’re not sure, buy what makes sense for the application and don’t worry about the hype. If you’re like most people, greater than 90 percent of your applications will make more sense with analog cameras, and that reality is likely to stick with us for at least another year.

A Digital Success Story
While digital video may not have made it all the way out to the camera, it sure gained ground in the closet and head-end.

Entry-level DVR prices continue to reach new lows, and the market has accepted the hard drive, thumb drive and CD-ROM as the new storage kings. The popularization of consumer digital video products such as TIVO™, the video enabled iPod™ and cable TV video on demand has definitely helped feed this increase.

Rumors of 1TB hard drives will continue the downward pricing pressure, which fuels sales growth.

Prediction: VHS is finally going away. Of course we’ve been hearing that one for a while as well, but it’s getting to be a safer bet.

Make 2006 the year you refuse to buy or sell VCRs, because 2007 is surely going to be the year you can no longer get them repaired or replaced.

The Monitor World Is Flat
The lowly video monitor has become an innovative growth area for many.

As the large, flat-screen market has taken off in the consumer electronics market, innovation has ceased in the CRT monitor supply chain and everyone seems happy to see them go away.

It’s going to be difficult for a little while — CRT monitors still outperform LCD monitors for critical viewing, and there are fewer choices there than ever before — but the performance gap has narrowed enough to be insignificant for all but the most discerning applications. The reduced heat, smaller footprint and elimination of glare is winning new converts every day.

Prediction: Since the availability of these products is closely tied to the consumer market, and since we’re only at about 12-percent market penetration, expect significant price decreases and brisk business in converting older control centers.

Industry Keeps Consolidating
I’m not sure how many people predicted continuation of the industry consolidation trend in 2005, but it remained a major event. In fact, some of the acquisitions are seriously changing the competitive landscape, as one company buys another one to impact a third.

Many people believe that in large companies, innovation happens only with acquisition. While Pelco continues to prove this theory wrong, smaller companies with exciting new technologies are hard for the larger fish to resist.

Prediction: Smaller companies will continue to include being acquired as a major milestone in their business plans, and larger companies will continue to oblige them.

Expect the cycle to continue and, as with previous years, expect companies that were not previously associated with electronic security to use acquisition to get into this market (think GE, Bosch and Stanley). If anything, this is a trend that will accelerate in 2006 and beyond.

Changing Skills for Integrators
Last year was the year the last of the integrators finally recognized the importance of having IT-savvy people on staff as both technicians and salespeople.

Security products are becoming more like computers and less like telecommunications devices every day. At the technician level, the bottleneck in system performance is often the networking gear, not the security equipment. Simply hooking everything up according to the manual is no longer enough.

In addition, salespeople are increasingly required to cater to a decision-maker with an IT background in addition to the traditional security director with a history in law enforcement.

Prediction: While this trend will continue, I see one dinosaur going away. The end of the “self-taught” installer, project manager or technician is rapidly approaching. Experience will always be valued, but products are just getting too complicated and interconnected to muddle through without some formal computer and network training.

If you’re one of those dinosaurs, consider taking some night classes and buying some books to stay ahead of the curve. If you’re not, find someone who is and learn as much as you can from their experience while they’re still around.

Feeling Like a Magic-8 Ball
So why are my predictions and analysis better than anyone else’s? Well, ordinarily, I would say they’re not.

Our industry is undergoing tremendous advancements in technology, with consolidati
on at one end of the spectrum and fierce entrepreneurship at the other end. On top of that, there’s a magnified degree of attention brought on by national security concerns.

Given these circumstances, predicting trends with a

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