IT Will Be a Key Sales Channel
Convergence has many faces and many interpretations in today’s security industry. Integrated systems is one term that sometimes gets in the way. In the interest of clarity, most regard it as meaning the interconnection of video, access control and, perhaps, intrusion systems within the security department. Normally, however, the most useful meaning is the interconnection of all electronic security with the organization’s IT network, so as to unify the command and response structure over the end user’s central nervous system. Within this picture there is a subordinate level of convergence that’s also growing within the overall convergence trend. It involves the channels through which security products are sold. Security manufacturers are now finding a new and increasingly receptive channel for their products in the IT industry.
To get a fix on this trend we asked these suppliers about their practice of selling all types of middlemen and users on a direct basis. As shown in the chart below, 30 percent of all security manufacturers are presently selling their products directly to security dealers and integrators; 30 percent (mainly smaller producers) are selling directly to end users; 19 percent are selling to security distributors; and 18 percent are selling to IT integrators and distributors.
Each manufacturer chooses to sell to the channel it perceives best serves its purposes — and this now applies to almost one in every five security suppliers currently selling to the IT channel. In the face of this analysis, we also asked manufacturers for the picture they see five years from now and whether this IT channel trend would grow. Indeed, it will, they say.
By 2012, suppliers believe the 18 percent now selling to IT middlemen will almost double to 32 percent. And they believe the great majority of this increase will be subtracted from suppliers that currently sell directly to security users. The two main security channels are predicted to decline only slightly in importance.
While the security industry has been growing steadily for years, even before 9/11, this has not been the case in the IT industry. After investing heavily for years in IT equipment, large corporate users decided a few years ago it was time for IT productivity.
They elected to curtail their IT investments, or at least leave them unchanged. Of course, this flattening of IT user demand affected the revenue levels of IT integrators and distributors, which naturally led to an industry- wide IT search for new electronic communication market opportunities.
We receive these calls regularly from the IT industry, since security industry growth now pings strongly on the IT radar screen. After addressing a national meeting of one of the industry’s key leaders last year, a number of IT middlemen wanted private meetings with me to discuss opportunities in the security industry and how best to exploit them. This was a clear signal of what would come, and now security manufacturers are reluctantly predicting it.
New Revenue Source Emerges
Why should the bulk of IT middleman security growth come from direct- to-user selling? As a result of its multiyear flat sales curve, IT competition became fierce. The battle for a sale can come down to only a handful of dollars. Whereas security distributors traditionally made a living on gross margins between 12 and 17 percent, IT distributors learned how to survive on far less margin. Right now, for instance, an IT distributor (with superior network training) may operate on only a 5-percent margin compared to a security distributor at 12 percent.
To do so successfully, however, much higher sales volumes are required. Thus, security sales are added to IT sales and a new source of growth is born. And the new source is not just an overlaid incremental business. It happens to be one IT users are seeing more and more every day, as reflected in the chart, involving true network convergence.
The question is … will the percentage changes in the chart actually occur? After all, they’re just guesstimates for the time being. But it does look like security sales forces will have more new people to call on in the future.
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