Convergence to the 2nd Power
The first generation of convergence has given way to Convergence 2.0 and the recognition that the joining of physical and logical security is truly transforming the way solutions are designed, sold and used.
By No Means a Standard Operation
For at least 10 years the electronic security industry has struggled with the adoption of standard protocols as manufacturers have fiercely maintained proprietary control. That territorial quest has served to slow, to varying degrees, the pace at which physical-logical connectivity has progressed. Convergence 2.0 provides for a holistic vision of building integration that merges security and acces
s control with systems such as fire, HVAC, lighting, intercom and elevators. Such sophisticated integration is theoretically possible, anyway, if only the standards existed to facilitate its fulfillment.
“There are some solutions that integrate one or two of these systems but nothing exists that enables the communication of every system in a building,” says Dilip Sarangan, a principal analyst covering physical security for research firm Frost & Sullivan.
In place of standard protocols, software communicates with each of the distinct systems thereby allowing them to interface. But that is not true integration of multiple building systems into a single control unit, which could provide the kind of value an end user would desire, Sarangan explains.
The Security Industry Association (SIA) has taken a leading role in establishing standardization. SIA’s Open Systems Integration and Performance Standards (OSIPS) framework identifies methods for manufacturers to design products that can easily integrate and interface with other products.
Today in place of open standards the integration of multiple products and systems is made possible by application programming interfaces (API). For instance, if a video recording manufacturer wants to record a particular IP camera’s video stream, they must write a software driver based on the camera vendor’s application programming interface (API). Two competing organizations have emerged with the objective to establish standards for IP video systems interoperability.
The Physical Security Interoperability Alliance (PSIA) was formed by representatives from IP video equipment manufacturers, integrators and networking companies. In March, PSIA approved version 1.0 of its IP Media Device API specification, which is designed to offer interaction standards for IP-enabled security devices. The open API allows IP camera manufacturers to integrate their products seamlessly for systems such as recording, building management and access control.
“The importance of this is we as an industry want to grow the technological capability of the industry as a whole vs. a disjointed effort,” says Raul Calderon, vice president of business development for megapixel camera maker Arecont Vision, which is a member of PSIA. “Having that ability to leverage off of the key technology industries within our society is going to help the security industry by leaps and bounds. PSIA is only one conduit to make that happen.”
The other change agent for standards adoption is the Open Network Video Interface Forum (ONVIF), started by manufacturers Bosch, Sony and Axis. Whichever organization prevails, standards should be considered both a benefit and a disadvantage, says Thomas. While standards set up a baseline for a minimum subset of functions, the agreed-upon protocols often do not address advanced-use cases and high-level features of a given product.
“You end up with advanced features because someone is going to innovate something and make improvement and it just doesn’t fit into the framework of the existing standard,” she says.
Dave Underwood, president of Exacq Technologies, an Indianapolis-based provider of open architecture network video and hybrid recording solutions, says he welcomes the move toward an open API standard.
“That is a good thing. We feel the pain whenever a new IP camera comes out [from the large camera makers]. We have a team of guys writing to support those because our customers get their hands on these new cameras and they immediately want us to support all of the features of their new cameras,” he says. But here’s the rub: Like Thomas, Underwood is concerned the open standard will support only a subset of a product’s advanced features.
“If you want to take advantage of the full functionality of the camera, in particular, you are going to have to support their proprietary standard,” he says. “I can almost guarantee you that will be the case in particular as analytics become more prevalent.”
Ultimately, a huge part of the value of moving onto the IP network is being able to give the integrator and the customer freewill choice of the technologies they deploy.
“At the end of the day manufacturers don’t make decisions on what customers buy,” says Pelco’s Morello. “In our industry today customers are so caught up with the whole compatibility question, and it should not even be an issue. None of this is an issue in the IT industry anymore. Eventually that is where we have to be in the security industry.”
Falling Margins Up Ante for Managed Services
Bill Bozeman, CEO of the systems integrator cooperative PSA Security Network, is a vocal advocate for the recurring monthly revenue (RMR) potential that security contractors can realize by offering managed services as a part of their portfolio.
To more readily persuade integrators and dealers to jump on the managed services bandwagon, Bozeman tolls what amounts to a red alert siren. For those who do not recognize the winds of change brought about, in part, by the convergence of physical and logical security, know this: Bountiful margins long enjoyed by physical security contractors will one day become nothing more than a fond memory. Expect margins to decline continuously in the coming years. Gone will be the days when an installer went from system to system — even very large systems — where there was virtually no back-end services.
“You put the system in and you went to the next job, but you made a really nice margin on all those boxes you sold,” says Bozeman. “What concerns me is the physical security integrators that don’t get the managed services model or just refuse to adapt to it.”
What is pushing margins downward? Mostly, manufacturers today are calling the shots on how much profit an integrator can make on a piece of hardware. Suppliers from the IT industry, where a managed services business model has long prevailed, are especially adamant about maintaining far lower margins than traditional security.
Bozeman recently took part in an industry function during which a systems integrator stood to pose a question to a panelist from Cisco.
“I hear that Cisco is happy if their integrators make a 10-percent margin on their routers and switches,” Bozeman recounts the man saying. “I want to know if that is true.” The Cisco representative firmly replied that was not an accurate percentage. The integrators in the audience were relieved, says Bozeman, right up until the Cisco representative surprised them with, “It’s 8 percent.” He went on to explain convincingly that if an integrator runs its business correctly it can make a better profit and a more predictable cash flow.
Bozeman offers his own experience as a business owner to illustrate declining profits on hardware. In 1996 he sold a systems integration business that at the time was reaping about a 47-percent margin on the products he sold. Today the margins are roughly 30 percent or a 17-point decline since 1996.
“I see the percentages actually going down quicker. It might not get down to 10, but I have already seen some large projects going out on the East Coast at 15 to 17 percent,” he says. “These are big jobs but they also have hefty software maintenance agreements sold with them. This back-end service and monitoring is very profitable.”
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