State of the Market: Video Surveillance
Security integrators and manufacturers reflect on strong 2019 sales and positive expectations for 2020 in the video marketplace as the segment continues to mature and evolve.
The video surveillance market is ripe with opportunity, according to sources. Many security integrators and manufacturers realized strong revenues for 2019 and are even more optimistic for 2020. A number of factors, including easier deployment, maturing technology and open, customized systems are making it easier for integrators to meet demand from technically savvy end users wanting to upgrade legacy systems or use surveillance to meet their security and operational needs. Though products and technology are maturing and allowing for broader deployment, the evolution is a security integrator’s biggest challenge, making it difficult to stay knowledgeable, trained and focused on changing solutions.
For this edition of State of the Market, SDM looks at performance and expectations across the video segment, along with the biggest influencers and verticals for 2020.
“We had an excellent year on all fronts for 2019,” says Scott Dunn, senior director, business development solutions and services for the Americas, Axis Communications, Chelmsford, Mass. “I think there is a good economy, and a lot of new construction and expansion going on in many businesses; along with all the security threats right now in the world, this is creating more demand for security.”
Dunn has seen an uptick in deployment of simple video analytics this past year. He also expects technology improvements such as 5G wireless to continue to push growth in the IP and integration spaces. “These technology advancements will create an environment where more intelligent devices can be added to the IP infrastructure, creating opportunities in 2020 and beyond,” he adds.
“The 2019 atmosphere was great as far as growth,” says Matt Sailor, founder and CEO of IC Realtime Security Solutions, Pompano Beach, Fla. “We budgeted for a 4.5 percent increase and got closer to 9 percent. I would say what’s driving the market forward is a growing need for what we do. Ten or 15 years ago, surveillance was more of a want rather than a need, but what’s happening in the world continues to create paranoia and, along with regulations and mandates, it has been a major driver.”
Though Sailor expected more deployments from the company’s AI search engine, Ella, in the past, this year he anticipates wider adoption. “I do think the industry is finally ready for this type of technology,” he says. To further position itself for growth this year, the company migrated 30 percent of its higher end components from China to South Korea, and is also pursuing U.S. government Federal Information Processing Standards (FIPS) certification for its software. “We are extremely optimistic for 2020,” Sailor says.
A strong video market contributed to Arecont Vision Costar’s flat revenue for 2019, despite filing for Chapter 11 bankruptcy, being acquired by Costar Technologies Inc., reshaping the company’s focus and business, and opening up new offices, says Shane Compton, general manager, Glendale, Calif. “For us, we saw a lot of activity and a strong focus on cyber security, especially with the Senate bill in California,” Compton says, referring to SB-327, the first state-level IoT cybersecurity law. “As a whole that’s been, and will be, a big driver for people migrating to other camera systems,” Compton predicts.
While Paul Verruto, sales manager at Wayne Alarm, Lynn, Mass., attributes some of the company’s 15 percent revenue increase in 2019 to a few large clients upgrading surveillance systems and building new locations, he predicts continued growth in 2020. “I think surveillance is on a steady growth rate,” he says.
Verruto expects to see clients continue upgrading older systems. The company also is ramping up marketing efforts for 2020 to meet the needs of marijuana dispensaries, along with marketing simple video systems to its residential client base. “I think there is a lot of opportunity there,” he says. Though RMR from video is less than 1 percent of recurring monthly revenue for the company, Verruto sees video system health monitoring, service agreements and video verification as potential areas for growth this year.
Austin, Texas-based Eagle Eye Networks’ global expansion in 2019 led to between 75 and 300 percent growth depending on the region, says Founder and CEO Dean Drako. “The general market continues to grow as people want more safety and security,” he says. Cloud-based solutions are seeing growth with clients upgrading to newer systems and technologies, Drako says. “I also see open platforms and the ability to integrate with a diverse set of systems playing a significant role in growing our industry even more going forward.”
Several industry sources say that open standards and non-proprietary platforms are seeing increased interest and deployment across all verticals. Paul Fisher, vice president, key and national accounts – global at Salient Systems, Austin, Texas, says that last year the company began hiring specific vertical market industry experts to speak the same language of the targeted verticals, such as healthcare, banking, corrections, etc. “These systems are becoming more and more complex and to play in this true IT space, we have to be the experts to our customers and talk intelligently about what it is we do,” he says.
“We have seen a trend of a lot of companies trying to do it all — access control, cameras, and other network devices — but I think the reality is you can’t be the best in everything. And I think we are seeing that it doesn’t make sense to reinvent the wheel in a lot of cases. An open platform allows you to take the best in breed in each device,” Fisher explains.
Adds Daniel Gundlach, general manager and vice president of security at FLIR Systems, Wilsonville, Ore., “I think that integrated solutions and open standards don’t have to be a contradiction. ONVIF has done a lot and continues to do so, and open platforms are very valuable to the industry as a whole. We will see that continue to drive overall growth.”
Tim Palmquist, vice president of the Americas at Milestone Systems, Portland, Ore., says that the company experienced a solid revenue increase in 2019 and he is even more optimistic about growth in 2020. “Integrators fueled a lot of growth with client upgrades. We have also found a rich appetite among users for annual software maintenance agreements. The demand to keep up to date with improvements, cyber security and performance has been great,” Palmquist shares. On the other hand, industry consolidation and competitive takeovers have resulted in more aggressive pricing than ever before, says Palmquist, and he predicts that behavior will continue in 2020. “Some integrators and manufacturers will respond with new innovation and others will respond with price, but we will all have to balance these behaviors as the market moves forward,” he cautions.
In terms of growth verticals for 2020, one vertical which Peter Strom, president and CEO of March Networks, Ottawa, Ontario, Canada, has seen strong growth from in 2019 is the hospitality market and its adoption of video-as-a-service. In fact, software and managed services are one of the key drivers for the company in this space, according to Strom, and helped lead March Networks to record numbers in 2019. Other verticals that will drive continued demand in this space include retail and commercial/industrial, he predicts.
While Strom says that wide adoption of analytics will take time, he sees the technology as an influencer in the surveillance market. “I still believe we are in the early adoption stages of analytics as folks are trying to wrap their heads around the value of them for a specific application and how they will be managed internally, but I’m very optimistic that it will become a key driver in this industry,” Strom says.
Gundlach of FLIR Systems saw 2019 as a year where AI, video analytics and integrated systems experienced growth in both interest and deployment. “Overall, we definitely saw the market making an effort toward complete and total solutions to really address a variety of threats and incident management. We also saw, from a technical perspective, wider capabilities of AI and that cast demand for deployments in 2019 with those solutions being more robust than ever,” Gundlach says. “Video analytics and AI have been talked about for a long time, but we are at a point where it can really be deployed in an effective way and that has done a lot to drive the market.” He adds that the challenge with such technologies as AI — along with cyber security technologies and issues, and whether they help or hinder growth in the market — largely comes down to the security integrator. “Lack of training or education can erode customer confidence and that’s probably the biggest factor or challenge for advancement,” he emphasizes.
Andrew Elvish, vice president of marketing at Genetec, Montreal, Quebec, Canada, says that the company experienced strong growth in its video business in 2019 and he expects that to continue if industry partners stay alert and agile when it comes to meeting end user needs. “There is a huge spotlight on privacy and cyber security right now. I think in general, in the physical security industry, literacy around cyber security remains too low. We as an industry have got to be more proactive and intelligent about the risks of video surveillance on the network as it relates to cyber security,” Elvish says. “We have the ability to protect people’s privacy while performing the core functions of surveillance, and there is a lot of opportunity to help [end users] such as municipalities, implement sophisticated camera systems that still maintain individual privacy. I believe that will drive business for the integrator going forward.”
Speco Technologies, Amityville, N.Y., saw revenue increase in 2019, according to Todd Keller, president of the company. “I expect that the market will perform even better in 2020, due to the progression in which the technology is evolving, along with the increasing security needs in both the commercial and residential markets,” he says. Keller points to dropping prices for surveillance systems that will drive additional business to residential and other markets that would not have typically considered video surveillance as a solution before.
Though security integrators may be challenged with retaining qualified, educated employees in this space, sources say many end users are showing a distinct increase in security knowledge and tech savviness, fueling growth. “In this market in general, people are more educated and savvy and that bodes well for us as an industry,” says Ian Siemer, vice president, product and marketing, OpenEye, Liberty Lake, Wash. “For example, for the past three or four years, every time we’ve given a pitch talking about web solutions and cloud-based management, we have had to explain less. In 2019, we didn’t have to explain at all. We have seen people actively researching, understanding and seeking out solutions, informed about what is out there.”
Stuart Rawling, vice president of market strategy at Pelco, Fresno, Calif., agrees. “End users are way more aware of technology today. A lot is going on in this space and end users are in a stronger position to make suggestions and demands of integrators and manufacturers,” he says. That education and user expectation will translate, says Rawling, into making 2020 a year where end users will focus on using the capabilities of their systems and using them in ways that are more efficient. “If all you get after acquiring this new technology is a better alarm, I think the industry will have settled,” Rawling predicts. “Now is an opportunity to change the game and really help with operational and security improvements. That’s going to drive things forward.”
Recurring revenue with video can be tricky for some industry professionals. Aside from video monitoring, sources are finding success with subscription-based models for system health monitoring, service agreements, cloud management or storage, and leasing equipment. “We saw strong growth in our purely subscription-based version of cloud management,” says Siemer of OpenEye. “We have had several major customers adopt this model, wanting a pay-as-you-go solution that they can keep track of.”
John Nemerofsky, chief operating officer at Sage Integration, Kent, Ohio, credits much of the company’s growth last year to clients upgrading their systems driven by cyber security concerns, as well as more clients signing up for hosted video services. The company found a sweet spot managing client video offsite, as well as embedding technicians at client locations for everyday service and proactive maintenance. Those two services of hosted video and embedded technicians made up about 30 percent of Sage Integration’s overall revenue last year.
“In the senior living space, for example, most places don’t have an IT director onsite to manage their servers so we’ve really seen that segment become a hosted market,” Nemerofsky describes. “It’s a greater level of customer service; we don’t want to wait for the client to call when something happens, so it is better for higher levels of satisfaction. “
Of course, the challenge with providing high levels of customer service and knowledgeable, helpful staff becomes retaining educated employees and maintaining focus.
“When you are in an aggressively growing marketplace like we are experiencing, one opportunity and challenge is to stay focused on our core capabilities” says Bill Fitzhenry, chief sales officer at Bastion Security, Portland, Ore., an integrator that focuses on live video monitoring. “We know what resonates with our customers around success and it’s important not to get distracted with a lot of other things outside of what we provide.” The company saw increased deployment in a number of verticals in 2019, according to Fitzhenry, including commercial real estate, retail, parking management and multi-family. In 2020, with the help of analytics, Fitzhenry expects to see more clients asking for solutions inside their buildings, in addition to outside.
Joe Jordan, chief strategy officer at FE Moran Security Solutions LLC, Champaign, Ill., agrees that the company’s biggest challenge is staying focused as it continues to grow. “When you become a large company, it can cloud your vision. We don’t want to be a jack of all trades, but that can happen, so finding that voice is very important,” Jordan says. “We’ve also got to continue to invest in educating ourselves and educating our clients on products, solutions and best practices.”
Jordan says that the company saw a dramatic increase in sales and recurring monthly revenue in 2019 and he estimates that 40 percent to 50 percent of RMR was from video. The company saw positive response with its in-house leasing program, which offered clients video monitoring, product leasing and service agreements as a bundle or à la carte. “A lot of clients are asking for video and we are seeing a major increase in clients requesting video verification,” he says. He notes that a few of the influencers growing that part of the industry are municipalities requiring video verification and verticals, such as banking and healthcare, turning to video for compliance reasons.
Mandates and regulations are influencing the current state of the video market in a broad way, say sources. Numerous and constantly changing mandates at the local, state and federal levels affect many verticals and client segments, including government, pharmaceuticals, cannabis and commercial/industrial clients that deal with shipping items across the border. In some cases, such mandates create a need for surveillance solutions, driving growth in the general marketplace, and in other cases, they stipulate specific systems or services.
“Compliance is the new buzzword and a significant justification for the installation of new and/or upgraded system technologies. ... Whether implemented based on internal policies, government regulations or industry standards, failure to meet compliance can have significant consequences,” says William Brennan, vice president, security division, Panasonic i-PRO Sensing Solutions, Rolling Meadows, Ill. “This has been a catalyst for more accurate and reliable system health monitoring solutions that automatically alert system operators if a networked device or software application [is] not operating properly. In addition to creating a new services category for solution providers, the need for compliance opens new sources of RMR for [security systems integrators] and [managed service providers] who offer system monitoring services.”
With an ever-changing landscape of compliance, manufacturers say that certifications and government or other approval processes can help drive business. “Some of these standards make [end users] outside the vertical comfortable as well, even when it doesn’t apply to them,” says Tom Cook, senior vice president of sales at Hanwha Techwin America, Teaneck, N.J. For example, Cook says, the company is currently going through the Department of Defense’s Risk Management Framework accreditation process, which goes beyond just a product and looks at a company’s process of disseminating data and information. “It’s expensive and challenging, but something that will bleed over to many verticals eventually,” he explains.
Opportunities for 2020 in the video market abound as manufacturers and integrators continue to find their footing in this ever-changing environment. Pike Goss, CEO of Pedestal PRO, Lindon, Utah, has seen significant growth in custom camera and video mounting solutions, a nod perhaps to the greater trend that many in the surveillance market are seeing of high levels of integration and customization, particularly for enterprise clients.
“This side of the business is growing pretty fast,” Goss says. “This past year, about 40 percent of our growth overall was in the video category. We expect business as a whole to grow even more significantly in 2020 than in 2019 due to market conditions, the economy, and the popularity of security itself. All these factors have lined up to make 2020 a great year and video will be riding that wave at least for several years to come.”
Bosch Security and Safety Systems, Fairport, N.Y., has seen a lot of growth across a number of verticals driven by upgrades from analog to IP systems, along with adoption of analytics for both security and non-security related applications. “Wrong-way detection on a highway, queues in a grocery store, parking applications and manufacturing situations. ... We are seeing clients use cameras already installed for security to help with business operations. For us, we are seeing a lot of growth there,” says Ed Pedersen, vice president of sales – security integrator and distributor channels.
Keith Drummond, senior director of sales at IDIS America, Coppell, Texas, says that price competition coupled with better technology and services really drove buying for 2019. “Sometimes you see large spikes in the year due to different buying cycles, but in 2019 we saw extremely steady growth and that’s refreshing,” he describes. Drummond says that increasingly large distribution facilities (part of what he calls the “Amazon effect”) are presenting real opportunities for video players as technology has finally caught up with the challenge of improving efficiencies and providing quality video in these historically difficult-to-deploy spaces. “There is real value to the customer here and real opportunities,” Drummond adds.
SMG Security Holdings LLC, Elk Grove Village, Ill., sees great potential for 2020 in a few places. The company has inside sales and marketing staff focusing on upgrade opportunities with new video technologies. Brad Tolliver, vice president of sales, explains that the company has added reps to target more industrial, commercial and educational facilities. “I would say we are even more optimistic going into this year than we were last year,” he says. “We already have had a lot of activity to start out this year and we anticipate that to continue. The economy is strong right now; the new construction market has been strong; there’s been a lot of activity in the cannabis world; and technologies have advanced to a point where it has created a lot of opportunity for upgrades. We see all that continuing into 2020.”
Skip Haight, vice president of marketing at Communication Networks (ComNet), Danbury, Conn., says he fully expects the video market to grow 5 percent to 10 percent in 2020. For ComNet, technologies adopting the latest PoE standard IEEE 802.3bt 4PPoE will aid in growth, he says. The September 2018 standard allows integrators to offer higher-powered solutions and more flexibility, according to Haight. “Video has become easier than ever. More power makes it even easier. It took the manufacturers a few years to get up to the standard, but now it’s here,” he says.
As the first quarter of the new year gets underway, most security professionals are looking at 2020 in a positive light, barring unforeseen political or economic factors. For integrator company Marquee Security of Morris Plains, N.J. — in its second year of business — John Yakawiak, director of operations, expects to see continued interest from end users in systems upgrades, applications involving risk mitigation and further deployment of video analytics and remote monitoring. “People are also asking very heavily for systems such as cameras, access control and analytics all under one platform so I believe that that will be very big this year moving forward,” he says. “Overall I see a very strong market and continued strength for 2020.”
Dan Budinoff, president and CEO of Security Specialists, Stamford, Conn., says he is just as optimistic about 2020 as he was about 2019. Budinoff says that much of the company’s video growth in 2019 consisted of upgrades and large building projects. “Last year at this time I knew we had a lot of stuff coming down the [pike], so I had a pretty good window into the future. We have wound down some big projects here, but the phone is still ringing off the wall,” he says. “We will take it.”