Does Size Matter to End Users?

Everyone knows the security industry is highly fragmented. In the market share sections of J.P. Freeman Co. reports, we often show that the “all other” brands — the small suppliers with less than 5-percent shares — can account for as much as 35 percent of the total sales in a single product category. This, for instance, is the case with PC-based recorders and IP cameras.

Yet, the security industry is hot, growing and drawing numerous large companies into its investor/acquisition orbit. So wouldn’t you think that this Fortune 500 attention would absorb the existing fragmentation and consolidate market share points in key product groups? That’s what usually happens when the big guys begin to gobble up the small fries. And indeed, that’s what the small fry hopes for so it can go off to Shangri-La with its well-earned rewards and enjoy life in an idyllic setting.

But it’s not happening that way. What’s happening is there are so many methods of protecting a huge variety of emerging fixed and mobile assets, as well as people, that the opportunities keep coming. And now that the industry strolls down Technology Avenue toward increased efficiency, single international control, IT network integration and the emerging marketplace for infraenviro security, they are coming at a faster pace.

Connecting a Fragmented Industry

The security industry is now so technology-oriented that some companies are paying little attention to their reputations as reliable, proven, trustworthy, personable, state-of-theart providers of security products and services — and what people think of them for that level of quality.

As a former COO of a large corporation, I used to periodically review what our customers thought of our “corporate image” so I could correct any unsatisfactory rating. That’s what this is about: the connection to industry fragmentation. This is vitally important because our latest industry analysis discovered some surprises of which everyone should be aware. We analyzed 43 large, medium and small security suppliers. Some in the medium-sized groups, and the entire small group, are the fragmenters. At present, security users tend to rate the larger security suppliers higher than the medium-sized and smaller ones (as shown in the user rating column in the chart).

When you discount the fact users also rate medium- and small-sized companies with little to no actual knowledge of them, you get the rating ratio that discounts those uninformed ratings. It is this measurement that suggests how much users appreciate their smaller suppliers, and why fragmentation is a basic industry characteristic.

Large suppliers can always acquire these companies and build them up if the smaller companies are interested. But until that happens, we’ll continue to be a vibrant, entrepreneurially oriented industry with new fragmenters appearing at every trade show.

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