Access Control: State of the Market 2006
Last year was an excellent one for the access control market â€“ and based on comments from a wide range of systems integrators, manufacturers and distributors, 2006 is also likely to provide the foundation for a healthy access control business. Several external factors are having a positive effect on sales, while dealers and integrators are facing pricing and profit pressures with creativity and business acumen.
â€œAccess control has gone beyond the basics of protecting a door and an area,â€ notes Joe Hassan, president of Certified Security Systems, a Jacksonville, Fla.-based systems integrator that has seen access control sales grow more than 100 percent in the last six months. Hassan cites the example of a recently installed six-building system that controls the floors an employee can access. Two or three years ago, companies often were concerned only about controlling certain high-security areas of their facilities, he says. â€œNow they may look at an entire 20,000- or 50,000-square foot building.â€
But at the same time that high-end customers are installing more complex and sophisticated systems, new opportunities also are opening up at the low-end of the market. Hassan notes, for example, that he has also seen residential customers take an interest in access control. â€œA few years ago, that was unheard of,â€ he says, adding that he expects access control â€“ which now accounts for 30 percent of Certifiedâ€™s business â€“ to play a key role in the 35 to 40 percent growth the company is forecasting for 2006.
The bottom lineAlthough Certifiedâ€™s access control growth rate is higher than the industry average, it is not the only systems integrator to have seen a strong positive trend in 2005. â€œWe have two times as many jobs on the books as we had a year ago at this time,â€ notes Ed Goldberg, president of Birmingham, Ala.-based Alscan, adding that access control now accounts for about 60 percent of the companyâ€™s business. The company made a decision a year or two ago to concentrate on access control because it observed less price competition there than in its traditional video surveillance business, Goldberg says.
Companies that have been emphasizing access control for a longer period of time have seen less dramatic, but still above-average growth. MidCo Inc. of Burr Ridge, Ill., SCI Inc. of Albuquerque, and Tech Systems of Duluth, Ga., have experienced 10 to 20 percent growth in access control jobs over the past six months â€“ and Guerry Bruner, vice president for Tech Systems, is even more optimistic for 2006. While he expects the industry to grow at about 15 percent for the year, he expects Tech Systems to see an increase in the range of 50 percent, adding that access control will jump from 60 percent of the companyâ€™s business to 65 to 70 percent. The company has had an increase in both average revenue and margin per job because it has begun to sell more service contracts, which have a higher margin.
Tech Systems is one of several companies â€“ including Certified, SCI and Selectron Inc. of Portland, Ore. â€“ that have experienced an increase in average revenue per job. â€œIntegration is driving the price tag,â€ notes Hassan, who says 60 percent of the access control systems his company sells today are integrated with video surveillance, intrusion or other security system.
SCIâ€™s average revenue per job increased by 25 percent during 2005, notes SCI co-owner Daved Levine. â€œThe scope of what weâ€™re doing for customers has increased,â€ says Levine. â€œThey donâ€™t just want to lock doors and give someone a card. They want to link to human resources and other subsystems and processes.â€
The reasons behind Selectronâ€™s increase in average revenue per job, however, suggest a bit less rosy image of the industry overall. â€œOur revenue per job is up because weâ€™re more selective,â€ notes Selectron vice president of sales Mike Kobelin. â€œWe rarely quote on smaller jobs anymore.â€ Driving this move was a desire to improve margins, which â€œfelt pressureâ€ in 2005, according to Kobelin. â€œWith a conscious effort to do more integrated systems and fewer small systems, weâ€™re positively counting on improving margins in 2006,â€ he says. â€œWe expect revenue to be the same or increase, but we wonâ€™t increase it at the risk of reducing margins.â€
Two other systems integrators that have felt the squeeze of price competition are MidCo and Trans-American Security Services Inc. of Burnsville, Minn. MidCo has maintained its average revenue per job, but has noted a 10 to 15 percent decrease in profit margins. â€œProfit levels have declined dramatically with many new competitors entering the market trying to buy market share,â€ notes MidCo security division manager Michael Kielbasa, who says that some competitors are unrealistic in the number of hours of labor they bid on jobs.
Trans-American had a decrease in average revenue per job, but because demand is strong, the company is still forecasting a 10 percent increase in revenues for 2006. Despite strong competition, the company has maintained its profit margins, notes Trans-American sales and marketing manager Brian Torney. â€œHolding margins steady has been a real focus for us,â€ he says. â€œWeâ€™ve had to work harder and negotiate more with suppliers. We partner up with suppliers more than we used to. When a marquis account opportunity comes along, we tell suppliers theyâ€™ll have to do something special to get the business.â€ He adds, though, that the company takes care not â€œto go to the well too many times.â€
Supply SideAs overall sales have improved for systems integrators so, too, has growth in the number of units of access control products sold for several manufacturers. For example, Bosch, MDI Security Systems, and Honeywell note increases in the range of 15 to 50 percent over the past 24 months.
â€œOur unit numbers have probably increased about 40 to 50 percent in two years,â€ notes Honeywellâ€™s Milwaukee-based product marketing manager John Smith. He attributes this strong growth, at least in part, to the fact that the company has gotten more aggressive at the lower end of the market. â€œWeâ€™re converting dealers and locksmiths who never did access control before.â€
Distributors also have seen strong unit sales of access control products. Clark Security Products of San Diego and Systems Depot of Hildebran, N.C., acknowledge increases in the range of 12 to 30 percent over the past 24 months and ADIâ€™s Melville, N.Y.-based product manager Stacy Deveraux says, â€œCompared to last year we have seen significant growth.â€
Several manufacturers and distributors admit that revenue per unit and profit margins have remained stable. Smith notes â€œsome price erosion, not a lot,â€ but adds that â€œin the future, prices will be higher because of increased functionality â€“ products are becoming more Web-based.â€
At least three manufacturers â€“ International Bar Code, HID Corp., and Bosch â€“ have disclosed an increase in the profit margins on their access control products. â€œWeâ€™re very good at that,â€ notes Joseph Mizla, president of International Bar Code. â€œWe re-engineer a product when we see a need to decrease cost.â€ Irvine, Calif.-based HID Corp. in 2005 revamped its manufacturing operations to better handle a higher volume, notes Holly Sacks, HID executive vice president of marketing. "In general, as we become more efficient, we reinvest," she says. Boschâ€™s Fairport, N.Y.-based product marketing manager David Heinen attributes the improvement in that companyâ€™s access control product margins to the fact that much of its manufacturing is now done in China. â€œOur newer products have better margins because of where we manufacture them,â€ he says.
Investing in the FutureOne way of gauging future prospects for a technology category is to look at the money currently being invested in it â€“ and using that yardstick, the access control market clearly seems to be a healthy one. Of the six manufacturers SDM interviewed for this article, five said they increased their payroll in 2005, mostly in sales, engineering and technical support. The only manufacturer to decrease payroll was San Antonio-based MDI, which did a re-organization aimed at enabling the company to better serve its government customers by concentrating personnel involved in government customer support in Ontario, Calif.
However, MDI â€“ along with the other five manufacturers â€“ increased spending on research and development in 2005. MDIâ€™s research and development focus has been on software, including video algorithms and open systems interfaces to other manufacturers. Web-based and remotely managed systems have been a key R&D focus for three manufacturers, including Brivo, Honeywell and Bosch. Meanwhile, International Bar Code has been investing in developing fingerprint technology and time-and-attendance systems â€“ and HID has increased spending to support its contactless smart cards and readers, along with central station monitoring equipment for access control systems.
Positive and Negative Growth FactorsThere are a number of external factors that could have a positive impact on the access control industry moving forward.
Systems integrators agree that, as people in general have become more security-conscious since September 11, awareness and knowledge of access control has increased. â€œWhile access control was on the radar in the past, it was not high on the priority list,â€ notes Noelle Britton, marketing director for Siemens Building Technologies of Buffalo Grove, Ill. â€œCurrently the awareness of security requirements is at a much more heightened state. Access control is a fundamental piece for creating safe and secure environments and is often the first step in implementing a security plan.â€
Several sources interviewed for this article see strong potential in the small business market. Noting that a small percentage of small businesses have access control, Heinen refers to them as a â€œhuge untapped market.â€ Deveraux adds that there is a strong case for small businesses to use access control. â€œIf a manager leaves a company and it is deemed necessary to re-key all the locks, that gets expensive,â€ Deveraux notes. â€œLocksmiths charge roughly $100 an hour.â€ In comparison, she says, there are now access control systems available for â€œa couple hundred dollars for equipment, plus installation,â€ while each card costs only about two dollars and can be easily deleted.
Another important trend in the access control market is the increased influence of information technology managers. Most systems integrators view this as a positive development because IT departments often have large budgets. As Torney puts it, â€œThe magic there is they have the money.â€
Government-driven Homeland Security initiatives also are helping to drive access control sales, as well as the use of more sophisticated â€“ and costlier â€“ systems.
Sidebar 1: Hot Tech for Access Control â€“ Remote & Web-based Managementâ€œThe future of access control will be more Web-based and IT-centric and will involve no software packages per se,â€ predicts Guerry Bruner, vice president for Tech Systems Inc. of Duluth, Ga. Instead, he says, there will be a network appliance that will hang on the network with software embedded in the controller that users will access via a Web browser, eliminating the need to upgrade each client when new software features become available.
Sidebar 2: Hot Tech for Access Control â€“ Smart CardsSeveral companies say theyâ€™re selling more smart cards. Mike Kobelin, vice president of Portland, Ore.-based systems integrator Selectron Inc., is particularly bullish. â€œWe positively expect to sell more smart cards this year,â€ he says. â€œThe technology is finally there and itâ€™s affordable. Thereâ€™s good conversion product out there that reads old cards as well as smart cards. Thatâ€™s what weâ€™ve been waiting for. We may standardize on it.â€
Smart card manufacturer HID Corp. of Irvine, Calif., has seen "volume growth in every period over the past 24 months," notes Holly Sacks, executive vice president for the company. Colleges and universities, in particular, have found significant savings by having a single card for access control, library systems, and "e-purse" applications, she says. "Some are even doing time-and-attendance, especially when students have to get in to take an exam."
Sidebar 3: Hot Tech for Access Control â€“ BiometricsSeveral systems integrators and access control equipment distributors have noted an uptick in biometric reader sales. â€œItâ€™s not the majority of systems, but itâ€™s becoming a greater percentage,â€ notes Joe Hassan, president of Jacksonville, Fla.-based systems integrator Certified Security Systems. Fingerprint technology is likely to retain the lead in the biometric market, sources say.
Side bar 4: How Will You Grow in 2006?â€œCustomers want the ability to control programming and maintenance of access control systems remotely â€“ even several states away. Managing and maintaining systems globally from a single corporate office is a growing trend.â€
â€“ Joe Hassan, president, Certified Security Systems, Jacksonville, Fla.
â€œWeâ€™re installing more access control in smaller offices and rental properties.â€
â€“ Ed Goldberg, president, Alscan, Birmingham, Ala.
â€œOur hottest vertical market right now is property management.â€
â€“ Christie Walters, director of business development and marketing, Brivo Systems, Bethesda, Md.
â€œThe convergence of physical security and information technology is coming true. People are realizing that if youâ€™re going to go to the trouble of securing the IT network, you should lock the front door. You can lose as much information or more by losing a laptop than by having someone hack in to your network.â€
â€“ David Heinen, product marketing manager, Bosch, Fairport, N.Y.
â€œThere are recurring revenue opportunities in access control now that werenâ€™t available in the past. Monitoring and service contracts provide a great source of income for installers.â€
â€“ Stacy Deveraux, product manager, ADI, Melville, N.Y.
â€œWe see smaller dealers in more outlying communities becoming more interested in access control. It used to be unheard of to see access control in less populous areas.â€
â€“ Dane Terry, electronic solutions manager, Clark Security Products, San Diego
"We see expansion of access control deployments in international markets. In 2005, we opened HID China and HID India."
â€“ Holly Sacks, executive vice president of marketing, HID Corp., Irvine, Calif.
Side bar 5: Hot Tech for Access Control â€“ IntegrationLinking access control systems with video or other security systems has become so popular that several systems integrators â€“ including Alscan of Birmingham, Ala.; SCI Inc. of Albuquerque; and Tour Andover Controls of Somerset, N.J. â€“ say integrated systems now represent 80 percent or more of their total access control jobs. Equipment manufacturer MDI, which sells high-tech systems for government applications, offers a glimpse of things to come. â€œThe big word in integration is sensors,â€ notes MDI vice president of marketing Mike Garcia.
For example, notes MDI vice president of technology Tim Rohrbach, government customers want to be able to â€œhear a sound and determine the caliber of weapon fired and present the information through the access control system.â€