SPECIAL REPORT: Access Control: State of the Market
April 1, 2008
Growth in access control is strong, industry professionals report, and although perhaps it is not as dramatic as one sees in the video surveillance business, technological advancements in access control are providing many ways for security companies to expand their revenue.
Internet protocol (IP) access systems and ones that provide remote access through virtual private networks (VPNs) or Web browsers are gaining attention and growth, and in some cases, are increasing the number of access control installations, as small to medium-sized businesses find a growing need for it and increasing affordability.
Regulations requiring standardized access cards are affecting the government sector of the business and specialized areas, such as ports. But in some cases, installation of biometric devices in industry still is not growing as quickly as in the government sector.
On the whole, access control dealers, integrators, distributors and manufacturers are reporting satisfactory sales of access control installations and equipment and not seeing a slowdown in business yet.
Besides access control system sales, services such as central station managed access control represent a significant revenue stream. For companies with roots in the alarm business, such as Doyle Security Systems, Rochester, N.Y., this can be a natural evolution of their business model.
“For us there’s been a transition,” Doyle Security’s chief operating officer, Kevin Stone, reports. “We used to sell large systems for people that had their own security departments and 25-plus doors. We’ve totally refocused and are going to smaller systems. We see a tremendous opportunity for systems of eight doors or less, with 100 users or less.
“We’re geared towards recurring revenue. [Small] companies don’t have the wherewithal to administer the systems themselves. We administer these systems through our central station,” Stone explains, adding that he thinks this new direction has provided Doyle Security with potential customers that it did not have two years ago.
He believes there are so many customer benefits that it becomes easily apparent why someone should contract with Doyle Security for an access control system managed by its central station. For starters, the end users don’t need to do their own data entry, make their own repairs or worry about having on-site IT support. “All we’re doing is shifting the administration of the system to us,” Stone says. The end user can request database changes 24 hours a day, if necessary, to add or delete a cardholder; and they can receive reports or have their own access to audit information online, he says.
“There’s quite a story you can tell about what you can provide to them,” Stone relates. “The more we do for them, the greater charge we have each and every month. It’s based on the number of users/cardholders and also on the number of doors. The monthly fee can include numerous services and there are additional services they can add on.”
Doyle Security, a First Alert Professional Authorized Dealer, uses Honeywell’s WIN-PAK Pro Central Station solution to provide this service. For Doyle Security as well as others, the demand for access control among smaller businesses is where the opportunity’s at now.
Tom Heenan, vice president of business development for MAC Systems Inc., Canton, Mass., characterizes the company’s business outlook for 2008 as very good.
“We see considerably more activity in the next six months than in the previous six,” Heenan reports. “I don’t know if it’s because some decisions were delayed last year that now are being made, but the sales activity for us is clearly up, so we’re excited about 2008.”
Twelve months ago, the industry was flat, Heenan maintains. “But since then, it’s been increasing,” he reports. “We think 2008 is going to be a promising year. We see sales, profits and activity up.”
Glenn Heywood, MAC Systems’ director of sales, has been interviewing sales candidates. “We’re optimistic about the potential, and as a result, we’re looking to bring on more people,” Heywood explains, suggesting that smaller size jobs may be contributing to the increase in sales activity.
“What we’re seeing a lot more of is smaller access control system opportunities,” Heywood observes. “We attribute this to the fact that small is now more affordable in the access market. When I say small, I’m talking about 30 doors or less.”
Steve Thompson, director of technology for fire and security at Johnson Controls Inc., Milwaukee, sees access control internationally. “In general, access has been strong. It’s been a good market for us all over the world, including North America,” Thompson says.
“We haven’t seen an effect of any kind of recession on our global business,” he reports, adding they have not even seen it in North America. “In lots of the markets we’re dealing with, security is so critical that those kinds of fluctuations aren’t having a near-term effect on us anyway.”
Bill Bozeman, president and CEO of PSA Security Network, Westminster, Colo., is positive about the market for access control in 2008.
“I would say the outlook is strong, although not as strong as video surveillance; video is fire-hot right now,” Bozeman exclaims, which he attributes to the high number of technological improvements that are being made in video surveillance.
“That’s not to say that the access business is not good, but we aren’t seeing the same excitement or the same new markets opening up as we’re seeing in the video surveillance business,” he explains. “The industry leaders I’ve spoken with are optimistic about access control.”
Richard Goldsobel, vice president of Continental Access, Amityville, N.Y., thinks access is a hot market. “There’s a lot happening, so there are sales coming through from many different vertical markets,” Goldsobel asserts. “It’s a fun place to be right now. All in all, total panel sales are increasing, and reader sales totals are increasing and doing well.”
Peter Boriskin, vice president of access control for Tyco, Boca Raton, Fla., is not seeing a slowdown in budgeted capital expenditures for access control but is withholding judgment on negotiated sales of smaller projects.
“The bigger jobs are unaffected for quite some time because we have such a long sales cycle, and for larger systems, it really does need to be a budgeted expense,” Boriskin points out. “But for smaller systems that are discretionary, they may choose to put a hold on that until they see how things play out. It would happen with negotiated sales first, and then bid work later.”
Sales were up in 2007 for DKS DoorKing Inc., Inglewood, Calif., reports Richard Sedivy, director of marketing. “We’re seeing an awful lot of card access systems going up,” he notes. “We also manufacture the vehicular gate operators as a part of a perimeter access system, and we’re seeing some steady growth there.”
PRESSURE ON PROFITSCompetition is coming from electrical contractors, Heenan observes. “Over the past couple of years, a number of electrical companies have entered into the fray of security,” he reports. “Either they have started their own security division or purchased a security company.
“For many electrical contractors, telecommunications used to be a strong point of their business,” Heenan explains. “Now that this revenue stream has slowly evaporated, they’re focusing on security, where there’s more demand.”
MAC Systems is seeing overall revenue rise from the increase in the quantity of access control jobs, but its revenue-per-job has fallen.
“I would attribute that to the fact that, on average, we’re seeing the size of the access control system as smaller,” Heenan declares. “However, there are other factors contributing to this. For example, wireless reader technology minimizes labor costs associated with overhead wiring, trenching, conduit work and travel cable – saving thousands of dollars.”
Although margins have decreased for MAC Systems, overall profitability has improved. How did that happen?
“I think we’re not only doing a much better job of estimating work, but we’re doing extremely well at delivering jobs,” Heenan explains, citing MAC Systems’ quality control team as the primary reason.
The team consists of a half-dozen managers who meet weekly to review installations to ensure that the company is performing in the same consistent manner with the same best practices. “So, internally, from a quality point of view, we’ve seen operational efficiency improvements that have helped profitability,” Heenan observes.
IT IS UPHeywood attributes the growth in smaller access control jobs to browser-based and IP systems. “I think new technologies, such as IP-based access systems and wireless readers, are helping add to this growth,” he adds.
“Companies that have an IP focus have found it’s something they’re used to and are more accepting of newer technologies,” Heenan echoes.
As most security dealers and systems integrators are finding, an end user’s IT department is becoming much more involved in the security selection process when networked security components are being considered.
“What we’re finding is if it touches the network, the IT director wants to be involved,” Heywood observes. “The trend is going toward creating your own security network, either a dedicated one or a VPN.”
When IT becomes involved they are often much more influential in the choice of the solution. “Security directors often describe their needs, and then IT recommends the product,” Heywood describes. “As trusted advisors, we can help bridge the gap between both of these organizations.”
David Heinen, product marketing manager for Bosch Security Systems Inc., Fairport, N.Y., thinks IT personnel may be able to make a better case for upgrading systems than security employees.
“The people that control company finances will wait until something happens or a regulation requirement forces them to budget for an upgraded security system,” Heinen says. “IT personnel are more accustomed to being proactive and explaining the business case for new technology.
“They understand how to communicate in dollars and cents – explaining how an investment will save the company money down the road,” he continues. “By working more closely with IT directors, security personnel are more prone to think long-term about future investments and be more proactive with the types of technologies they would like to implement to improve operations.”
Bozeman is enthused about Web-based access control. “I believe it is going to be the future of the business, where the only things at the job site will be the card readers and the controller,” Bozeman predicts. “There will be no PC to manage, no software to update. It will be interesting to see how traditional access control manufacturers adjust to this.”
Thompson says Johnson Controls is seeing a trend toward an “IP-centric type” of access system. “The user interface increasingly is becoming a Web browser,” he notes.
Tony Sorrentino, vice president of merchandising for ScanSource Security Distribution Inc., Greenville, S.C., attributes a very good potential for access control sales in 2008 to IP-based access systems.
"We entered the security distribution marketplace four years ago, and so at our point of entry, the industry was at a crossroads where the business was still dominated by the analog systems out there, but everybody saw that IP was going to be the way of the future,” Sorrentino relates. “So our timing was pretty good, because our go-to-market strategy is to educate and train and assist dealers with the technology that we sell.
“One thing that we’ve certainly benefited from is the fact that access is becoming much more of an IP-based product than it ever has been before,” Sorrentino maintains. “It’s a little behind the curve in terms of where video surveillance is on a network basis.
“So if we’re talking about access from a system standpoint – as opposed to door hardware and locks and that type of thing – we’re most excited about the all the new developments out there where products are becoming Web-based,” he notes.
Sorrentino thinks the opportunities for integrating access control with other building automation functions are growing, as large companies acquire specialists in various types of security equipment.
Sean Leonard, director of marketing for Honeywell Access Systems, Louisville, Ky., praises a Web interface for its value to the user. “The Web really allows users to access and manage their systems from anywhere, and that gives users a lot more flexibility and control,” Leonard points out. “Honeywell is committed to providing a complete solution to our customers starting with last year’s release of our Web-based NetAXS® control panel. Going forward, Honeywell’s products will feature on-board IP communications and a Web server.
“IP-based systems and the Web-based systems are interrelated,” Leonard notes. “The way I think about it is IP is really the transmission mechanism, and the Web-based interface is how you use that transmission mechanism to be more efficient in your business, to make your security policy easier to deploy or manage.
“You have to be concerned about the core things â€” data recovery, backup, securing the data,” he emphasizes. “As we move towards Web-based solutions, these issues become even more important.”
WHAT IS SELLING?Heywood thinks growth is in smart card technology. “We’re finding that our new customers are deploying smart cards rather than even proximity,” he reports. “The price point, the performance has now all switched over to smart cards, so we’re seeing an increase there.”
Sedivy reports strong sales of proximity cards, but acknowledges that may be due to the markets his company occupies, which are gated communities and apartment complexes.
“That seems to be the choice as far as a controlling device for access control,” he concedes, adding that proximity cards are simple, inexpensive and easy to use. He is seeing fewer sales of low-end, low-tech keypads.
Ken Francis, general manager of integrated systems and access platforms for GE Security, Bradenton, Fla., reports that integrated software offerings, such as visitor management credentialing and audio command-and-control, are growing.
“IP-enabled edge devices and products are the fastest growing segment of the market,” Francis declares. “Access-only applications are slowing. Customers are looking for more integrated solutions that address their challenges.”
Francis believes end users are more IT-savvy. “They’re looking more at the total cost of ownership than the upfront investment,” he asserts. “We’re increasingly dealing with a more educated customer. They’re looking for long-term strategic planning, ROI, those types of things.”
Boriskin reports growth in sales of biometrics to the government sector. “Outside of that, there’s a lot of interest in biometrics, but we don’t see a heavily deployed set of solutions here,” he declares.
“Biometrics for time-and-attendance we see a lot more of, especially to deal with buddy punching,” Boriskin continues. “We see smart cards are experiencing an increased growth, and we’re seeing an up-tick in multi-technology readers.”
Goldsobel also reports the popularity of biometrics in government. “Biometrics absolutely are hot, especially in government markets,” he maintains. “That gets linked with some of the newer card technologies. FIPS 201 support is big in the government markets.”
He also considers dual-technology readers popular as a transitional device that has been used in previous transitions to newer technologies, such as from bar codes to proximity cards.
“All of those are stepping stones for bridging your customers from one technology to another available technology,” Goldsobel points out. “Very often they are the right solutions for a variety of customers, to get them from where they were to where they want to be.”
Universality is an important feature in product adaptation, professionals assert. “What we’ve gotten a lot of interest in lately, in terms of door strikes, you’re seeing more and more kinds of universal strikes designed to meet numerous applications,” Sorrentino reports. “So from a distribution standpoint, it makes our lives a lot easier and dealers’ a lot easier, because there are not 10,000 varieties. One door strike can accommodate many different applications.
As technology evolves, demand for newer products and systems will grow. The budgets of end users for updated and improved access control systems eventually will enlarge as legacy systems move closer to replacement time.
Security dealers and systems integrators who keep their customers informed about the latest technological developments in access control and demonstrate how they will improve their customers’ bottom lines stand a better chance of convincing the customer to make the change sooner rather than later.
Sidebar: Regulations Driving BusinessCompliance requirements and regulations are seen as drivers of access control business by Sean Leonard, director of marketing for Honeywell Access Systems, Louisville, Ky.
“We’re seeing those as business drivers in the marketplace, and our security platforms can help solve those problems for our customers,” Leonard declares.
“We find that a vertical market approach is a nice way to drive value for your end customers by focusing on their needs and the problems they face,” he emphasizes. “It is an opportunity to develop solutions to allow them to solve the operational or compliance issues they have.”
The Health Insurance Portability and Accountability Act (HIPAA), which protects the privacy of health information, and the Sarbanes-Oxley Act, commonly called SOX or Sarbox, which establishes standards for financial reporting for public companies, are affecting customers of Bosch Security Systems Inc., Fairport, N.Y.
“These have prompted end users to seek out ways to physically secure their records and be able to run reports on who has accessed paper records and when,” says David Heinen, Bosch’s product marketing manager.
Ken Francis, general manager of integrated systems and access platforms for GE Security, Bradenton, Fla., thinks government regulations are the catalyst to standardization.
“Once the standardization transformation is complete, we’re going to find even the Fortune 500s get onto a smart card, smart chip solution set,” Francis insists. “So it will have an enormous effect as we move forward on the actual products that are manufactured.”
Bill Bozeman, president and CEO of PSA Security Network, Westminster, Colo., sees regulation of security installations as just beginning.
“Regulation is going to change the security industry as we know it,” he maintains. “Those security integrators who aren’t worried and haven’t given any thought to regulation are going to be shocked by the changes our industry is about to experience.
“SIA and other groups are currently working on industry regulations,” he continues. “I anticipate the electronic security industry will be regulated much as the life safety industry currently is. Some scoff at that, and it will take time, but the regulations are starting now.
“Eventually, we are going to see mandates coming from the government, working in conjunction with large insurance companies, to develop and enforce security specifications for various types of facilities,” he predicts. “We are currently seeing such regulation in some industrial plants, hospitals, government facilities and the nuclear industry.
“The electrical contracting industry is well-positioned for the regulated environment because they work in a highly code-driven, standardized environment,” Bozeman notes. “It is going to be difficult for the industrial integrators not used to working in a regulated environment to stay competitive. These integrators are going to have to adjust and adapt.
“I’m not saying this is a negative thing – it’s going to change the access and video surveillance business,” he stresses. “The regulations will improve system installations and maintenance.”
Sidebar: Which Vertical Markets Do You Think Will Offer the Greatest Potential for Sales in the Next 12 Months?“We have found that higher education has traditionally been a very strong access market. Now we’re seeing demand from smaller institutions. Also biotech/pharmaceutical, financial and multi-tenant office buildings are very important vertical markets for us.”
â€” Tom Heenan, MAC Systems Inc., Canton, Mass.
“Health care is big. You always get the same answer from everyone -- health care, government, education, retail. The system integrators who I represent have accepted the fact that there is no way they can be an expert in all these vertical markets, so they team up with a manufacturer who has more financial resources and has a formalized program to take advantage of some of the vertical markets.”
â€” Bill Bozeman, PSA Security Network, Westminster, Colo.
“We’ve seen a lot in the federal space, a lot in manufacturing, office, maybe a little bit increasingly into K-12, higher education, general critical infrastructure, airports and water restrictions.”
â€” Steve Thompson, Johnson Controls Inc., Milwaukee
“Certainly education and government always continue to be strong players, but I would say your smaller mom-and-pop-type stores now have the ability to afford that type of solution, so that whole small-to medium-size business market out there is an opportunity.”
â€” Tony Sorrentino, ScanSource Security Distribution Inc., Greenville, S.C.
“Areas that have some close ties to compliance and operational efficiency are health care and pharmaceutical, financial institutions and banking, where there’s a high cost of compliance and a large benefit around operational efficiencies through access systems.”
â€” Sean Leonard, Honeywell Access Systems, Louisville, Ky.
“We’ve seen continued good vertical markets in education and health care. Those two have been very strong for us for a while and continue to be with a fair amount of depth of Homeland Security money being available. We’re starting to see at the state and local government level some pull-through from those funding efforts, so the next six to 12 months will be good there.”
â€” Richard Goldsobel, Continental Access, Amityville, N.Y.
“We’re going to continue to see growth in the federal space, Homeland Security space, all segments within transportation to critical infrastructure. We’re continuing to see education and retail.”
â€” Ken Francis, GE Security, Bradenton, Fla.
“The next 12 months are going to be tough. I think the private sector may slow down a bit, but government business so far doesn’t seem to be slipping on the perimeter access. We’re seeing some activity with ports and airports, seaports and infrastructure, such as electric plants, water treatment facilities, things of that nature.”
â€” Richard Sedivy, DKS DoorKing Inc., Inglewood, Calif.
“Pharmaceuticals, petrochemicals, government, finance -- those are great verticals for access.”
-- Peter Boriskin, vice president of access control for Tyco, Boca Raton, Fla.