State of the Market: Video Surveillance 2006
The video surveillance market is poised for a great 2006. Thatâ€™s the consensus among a wide range of security dealer, manufacturer and distributor executives with whom SDM Magazine spoke recently. Rapid advances in video surveillance technology are bringing clearly demonstrable benefits to end users, but at the same time, the technology is mature enough that it can be appealingly priced and broadly sold to a wide range of markets. Annual growth rates in video surveillance revenues of 10 percent to 15 percent per year are common among the security dealers SDM interviewed.
A few dealers are seeing growth rates that far surpass the industry average. â€œWeâ€™ve doubled or tripled our video sales each year over the last three years,â€ notes Bruce Turry, president of Atlanta-based Ackerman Security Systems. The company has seen a significant increase in the complexity of systems that it sells and in the number of locations that each business customer is connecting, Turry adds. â€œCustomers realize that video is a real tool for the prevention of incidents and keeps costs down,â€ he says. â€œThey often see a reduction in security staff and operating costs.â€
Along with heightened awareness has come increased funding for security within many organizations, particularly those involving transportation, such as airports and transit authorities. Such organizations â€œhave a mandate and have cash,â€ notes Joe Moore, vice president of marketing for Monmouth, N.J.-based manufacturer Infinova.
High-profile incidents such as the London subway bombings also have raised awareness about how sophisticated todayâ€™s video surveillance systems have become. MCM Integrated Systems, a Van Nuys, Calif.-based systems integrator that sells video surveillance as part of an integrated security system that also includes access control or intrusion protection, has noted a particularly surprising trend. â€œCustomers are upgrading DVRs that we only put in two years ago,â€ notes MCM president Rich McMillan. â€œThe technology has improved so much that theyâ€™re swapping out their old units.â€
Pricing and ProfitabilityVirtually every security dealer SDM interviewed reported that the number of video jobs it sells has increased over the past six to 24 months. Some also have seen an increase in the revenue per job. Dan McDevitt, president of Hamilton Safe of Northeast Ohio in Canal Fulton, Ohio, notes that the average price per job has increased because he now sells more DVRs, which cost more than VCRs. The company, which has many customers in the banking industry, also has begun selling more cameras per job. By including cameras at drive-up windows and other outdoor locations, potential robbers cannot easily hide their faces on their way into a bank, McDevitt notes.
Some other dealers have noted a drop in average revenue per job, however â€“ and many of them attribute this to an influx of lower-cost equipment from new entrants into the manufacturing market.
â€œThere are about a million and a half camera manufacturers,â€ jokes Bryan Maker, president of Advanced Electronic Solutions in Edmond, Okla. â€œBecause of that, prices have decreased rapidly. To get jobs, we have to play with the numbers and our margins may drop.â€
Maker also notes that opportunities in video surveillance have drawn new competitors on the installation side, some of whom may have significantly lower overhead. â€œVideo surveillance is not governed by licensing in Oklahoma,â€ Maker says. â€œMy dog could start selling camera systems. That makes it hard for those of us in the security industry.â€ Increasingly, Maker has found himself bidding against companies he never heard of before that can do the work for 25 percent to 30 percent less. Maker doesnâ€™t expect this situation to continue forever, though. â€œOnce the state requires mandatory licensing for video surveillance, those people will go away,â€ he says.
Because price competition is so tough, some security dealers are making an effort to differentiate their offerings based on the knowledge and skill level of their personnel. Turry attributes much of Ackermanâ€™s success in the video surveillance market to the investment in personnel that the company has made. â€œWhat will distinguish Ackerman is the ability to use highly advanced systems,â€ he says. â€œWeâ€™ve had an influx of good quality talent that we recruited â€“ industry specialists in video.â€ Ackerman also has leveraged the relationships that it has with established manufacturers to help make sales to large clients, Turry says.
Decision-makersAs video systems become more sophisticated and evolve into networked systems that run on an organizationâ€™s computer network, security dealers find themselves interacting more and more with a new type of decision-maker.
â€œThe IT groups are more involved,â€ notes John Droege, operations manager for Dynamic Controls in Peoria, Ill. â€œWe used to deal with a superintendent or owner. Now IT has to be involved.â€ That trend is a good one for Dynamic Controls because the company has a heritage of working with information technology personnel. â€œWe integrate HVAC systems with video and security so weâ€™ve been dealing with IT for years,â€ Droege says.
Jeff Kezar, CEO of Boise, Idaho-based systems integrator The Security Group, says his company has completely reinvented itself to better capitalize on opportunities involving the convergence of information technology and security, including video surveillance. A key component of that reinvention has been to redefine the companyâ€™s target market. â€œWe used to call on facility managers; we now target CTOs and IT managers,â€ Kezar says. Like Ackerman, The Security Group has made an effort to hire people with a high-tech skill set. â€œIf youâ€™re not employing people who understand networks and bandwidth, youâ€™re going to be left behind,â€ Kezar believes.
Another trend impacting how systems are sold is an increasing tendency for organizations to outsource tasks that previously were handled in house. Some business customers of Hamilton Safe of Northeast Ohio have begun to outsource facilities management, for example. â€œWeâ€™re sometimes selling to a third party now,â€ McDevitt relates.
PromotionsSeveral dealers SDM spoke with said they dedicated marketing dollars toward promoting video surveillance systems in 2005. Dynamic Controls, for example, sometimes holds meetings to demonstrate product capabilities and has found industrial equipment shows to be a good way to find new video customers. Often gaining just a single customer can pay for the cost of participation, Droege notes.
Ackerman also has found product demonstrations to be helpful in promoting its video business. Turry adds, though, that, â€œWeâ€™re not doing anything outside the box there.â€ The company has achieved its impressive video sales growth primarily through hard work, he says.
Although Fleenor Security of Knoxville, Tenn. hasnâ€™t developed any marketing programs specifically for video, that situation may change for 2006, notes Phil Roberts, operations manager for the company. Fleenor is one of only a few companies SDM interviewed that remotely monitors video systems for its customers â€“ and the company is considering investing some money in promoting that capability, Roberts says.
The Overall EconomyOverall economic conditions also can have an impact on video surveillance sales â€“ an impact that can be either positive or negative, depending on a dealerâ€™s target market. MCM, for example, finds that its business, which is typically triggered by a business customerâ€™s move to a new facility, is strongest when the overall economy is up. â€œVideo is one of those things people can put off, but if the economy stays strong, next year will be good,â€ McMillan adds.
In contrast, Mark Schasser, partner in MTI Security of Lexington, Mich., expects to see an economic downturn in his area for 2006. But thatâ€™s good for his business, he says. Schasser primarily does residential work and notes that when the economy dips, crime increases and people are more likely to purchase video systems. Some Michigan municipalities have installed video surveillance throughout their communities, which also has helped drive interest in the technology, Schasser says.
Sidebar: For Manufacturers & Distributors, Demand Translates to Needed SupportThe video surveillance market is so strong that several equipment manufacturers recently expanded their facilities to accommodate growth in that area. Bosch recently invested $3 million in its Fairport, N.Y., facility to house additional customer service, research and development, and marketing employees. Meanwhile, Speco Technologies added a wing onto its Amityville, N.Y., headquarters, and Infinova of Monmouth Junction, N.J., moved to a larger location for the third year in a row.
Also in 2005, GE acquired VisioWave, a digital video recording and transmission equipment manufacturer. â€œThey have a very interesting technology that is used heavily in large transportation-related areas, including the Paris metro system,â€ notes Kostas Mellos, GEâ€™s Boca Raton, Fla.-based senior product manager for intelligent video.
Not all manufacturers SDM spoke with were willing to share investment numbers, but several â€“ including Infinova, Speco, Mitsubishi and GE â€“ said they increased spending on research and development in 2005. Video surveillance technology is â€œvery fast moving,â€ Mellos notes. â€œWe have to be sure we have a complete line and weâ€™re providing what customers need.â€
But some say the equipment manufacturing market is growing too fast. A number of new entrants are flooding the market with low-priced goods of poor quality with little customer support, they say. Low-end competitors â€œplant a seed about what a product should cost,â€ notes Gary Perlin, vice president of video products for Speco. â€œTheyâ€™re not successful in selling against us, but we have to explain the differences between our product and theirs.â€
Pricing pressures also have created challenges for distributors, but as Nick LaBella, director of product management for ADI notes, â€œThe increase in demand has kept up with the price erosion so we can continue to see growth.â€
Price competition is toughest on commodity items, notes Brigid McDermott, director of strategic marketing for Honeywell of Syosset, N.Y. In response, Honeywell is focusing on areas where it can offer differentiated products, she says. â€œWeâ€™re focusing on analytics and doing a lot of work with transaction integration,â€ McDermott adds. â€œWe take information from the cash register and tie it in with whatâ€™s happening on video. Itâ€™s a way of making video even more useful.â€ To help support efforts to make video more sophisticated, Honeywell reorganized during 2005, bringing its access control and video surveillance units together. â€œWe see a huge future in integrated systems,â€ McDermott says.
Bosch Security Systemsâ€™ president Shamus Hurley sees video as the primary driver behind the trend toward integration. â€œVideo technology itself is providing a great ROI opportunity,â€ Hurley admits. â€œIf you look at security technology, video is probably where the technology is evolving the fastest. A lot of intelligence is moving toward the edge to accommodate compression requirements and analytics. You need a lot of software â€“ and if youâ€™ve got that, you may as well integrate other things.â€
As manufacturers begin to sell a higher percentage of software, they ultimately may see better profit margins, but will be challenged to keep sales volumes up. Hurley notes, for example, that large enterprises increasingly will push video storage to server farms on the corporate network, minimizing the need for DVRs with high storage capacity.
With video equipment becoming more sophisticated, marketing that equipment also has become more complex. Almost all manufacturers increased their spending on advertising and promotions in 2005.
For Speco, marketing is critical now that the company has reinvented itself as a higher-tech company, Perlin explains. â€œOur products are more sophisticated,â€ he says, â€œand we need people to help customers set them up and get on the Internet. Marketing is not like the old days when you could take a full page ad, throw a camera on it and you were set. Itâ€™s a more complicated message.â€
Mitsubishi also has increased spending on marketing. â€œMore effective marketing, better distribution channels, partnerships and association activities have helped in increasing mind share about our products and technology,â€ Riuchi says.
American Dynamics has launched a program of seminars for its sales channel partners on an industry basis. â€œWe discuss issues with our products and use the seminars to provide feedback to sales and engineering about how to improve our products,â€ notes American Dynamics director of research & development Gareth McClean. â€œThis has had a fairly big impact and a very positive influence.â€
As information technology managers have become increasingly involved in video surveillance decisions, American Dynamics also has found a need to develop some targeted marketing materials. IT professionals typically donâ€™t have a deep understanding of cameras, for example, which has driven the manufacturer to develop educational materials about cameras for IT decision-makers.
Both Bosch and Honeywell have begun to develop marketing programs that target specific vertical markets. Bosch also recently launched a certified dealer and certified distributor program with the goal of greater brand affiliation. Participants must achieve certain sales volumes; in return, they receive benefits such as cooperative advertising, trade booth rental, special reports and insurance programs.
Distributors also have noted some unique requirements in addressing the video surveillance market. â€œThe number of employees necessary to service customers has increased,â€ notes Greg Bier, vice president of sales and marketing for Video Security Specialists, a Burbank, Calif.-based distributor. The good news for VSS, though, is that â€œincreased technology in higher-priced products such as DVRs, PTZs and IP products results in higher profits and increased dealer reliance on specialized distributors like VSS.â€
Sidebar:Which Vertical Markets Will be Fruitful for You in 2006?â€œMunicipalities, government entities, education, hospitals, health care and hotel/motel are all seeing a lot of momentum as a result of 9/11. Weâ€™re starting to see money allocated now.â€
â€“ Bruce Turry, president, Ackerman Security Systems, Atlanta, Ga.
â€œWe hope to do more business with manufacturers,
especially those with second and third shifts when who knows what people are walking out with.â€
â€“ Butch Youngman, co-owner, Liberty Traffic & Security Services, Swanzey, N.H.
â€œThe biggest growth area the last two years has been residential. Retail will be next. People like being able to see whatâ€™s going on using remote capabilities.â€
â€“ Phil Roberts, operations manager, Fleenor Security, Knoxville, Tenn.
â€œMini-storage companies have to monitor access gates and property. And the commercial and retail markets are seeing more need to defend themselves against theft to control insurance premiums.â€
- Mark Schasser, partner, MTI Security, Lexington, Mich.
â€œRetailers will adopt video surveillance first. Manufacturers will follow suit, and the residential market will be behind them. Thatâ€™s always the trend with any new technology.â€
â€“ Bryan Maker, president, Advanced Electronic Solutions, Edmond, Okla.
â€œRestaurants and bars want to watch employees tighter. For small retailers, the initial application is to see whoâ€™s stealing, but in fact, they find out whoâ€™s doing their job.â€
â€“ Ray Hubbard, co-owner, Secure Devices LLC, Ferryville, Wis.
â€œBanks and government have problems and have money available.â€
â€“ Rich McMillan, president, MCM Integrated Systems, Van Nuys, Calif.
â€œSchools are still a driving force. They always catch someone within one month so they start getting pay back real soon. The costs are part of their budget.â€
â€“ John Droege, operations manager, Dynamic Controls, Peoria, Ill.
â€œWe see a lot of growth in commercial. Industry is seeing the value of good security to minimize losses.â€
â€“ Dan McDevitt, president, Hamilton Safe of Northeast Ohio, Canal Fulton, Ohio
Sidebar: Video Equipment: Whatâ€™s Hot, Whatâ€™s NotAlthough video equipment sales are increasing, that growth is not across the board. Sales of analog equipment, such as VCRs, are actually declining, manufacturers and distributors note. Multiplexer sales also are dropping, although those devices will continue to be used for very large systems with multiple DVRs.
Which products are the hottest? As vice president of sales and marketing for Burbank, Calif.-based distributor Video Security Specialists, Greg Bier should have a good reading on that. â€œDome cameras and DVRs are experiencing the greatest growth rate,â€ he says.
ADI also has noted a trend toward specialty cameras and digital recording. Bullet cameras, day/night cameras and DVRs are growing the fastest, notes Nick LaBella, director of product management for the Melville, N.Y.-based distributor.
Several industry executives see intelligent video, sometimes known as video analytics, as the next growth area. Bruce Turry, president of Ackerman Security Systems, calls it â€œthe most exciting trend in the business.â€
Intelligent video uses software to analyze video data, helping to enable systems to distinguish between an animal and a human, for example. Increasingly, such systems also are expanding the role of video beyond simply security. â€œSecurity is only one aspect of video,â€ notes Jeff Kezar, CEO of The Security Group. Kezar sees increased interest on the part of business customers in using video for marketing purposes, such as making sure all end caps in a retail chain have the correct merchandise on display.