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SECURITY SYSTEMS NEWS JANUARY 2011 www.securitysystemsnews.com MARKET TRENDS 17 Can an integrator still make a profit on video surveillance jobs? Focusing on more complex jobs is a smart strategy “The handcuffs have been removed. That’s By Matt Wickenheiser V ideo surveil- lance is obvi- ously a big mar- ket for integrators, but has it gotten too big? Some observers say that over the past five or so years, the flood of technology and demand has made the video surveillance sector a commodity mar- ket, presenting new challenges to integrators working to squeeze a margin out of products and services. “It’s a whole new set of rules when you Ron Oetjen move from niche to commodity,” said Bill Bozeman, president and CEO of the PSA Security Network. “Everyone is really scratch- ing their head; it will be interesting to see how the industry adapts.” There are hundreds of new products in the market, at much lower price points, and new players, too, seeking to make money off easily installable, inexpensive, plug-and-play cam- eras. That’s a shift from the past, when video manufacturers and integrators had a lock on the closed-circuit market, said Bozeman. “When you used tapes, analog, the industry had handcuffs on it. There was a handful of players. The manufacturers could demand high margins, and the integrators, in turn, could demand high margins from the end users,” said Bozeman. “There was magic attached to the business—a limited supply of both product and of qualified integrators who could deploy out in the field—this is just no longer the case. why it’s become a commodity, and it’s becom- ing more so.” The current transition in video is similar to what happened in the burglar alarm business years ago, said Bozeman, in the late 1970s and early 1980s. Residential systems cost around $3,600, with tape dialers and no recur- ring-revenue model. But the cost of the tech dropped, the market became a commodity. Similar systems can be bought now for $200, Bozeman noted. But firms that recognized the commoditiza- tion of that market moved toward a services model, with recurring revenue, Bozeman said. Bozeman said the very small “ma and pa” integrators will probably survive this trend. They can work out of their home, with a hand- ful of employees, and cut margins on a dime. The larger integrators—the Diebolds, Siemens, etc.—won’t be affected, said Bozeman. But the mid-sized integrator, $5 million to $15 million in annual revenue, will have to adapt to survive, he said. “They have no choice. Those who don’t are going to have a very, very difficult time,” said Bozeman. There are some opportunities. Bozeman suggested integrators can protect their business with “the shield of complexity and liability”—focusing on jobs that are sophisticated and include components of access control. “It’s a much more difficult business to Bill Bozeman concerns, insurance and liability concerns,” said Bozeman. Ron Oetjen, president and co-founder of Intelligent Access Systems, said his firm has always been leery of video-only jobs. Over the last five to six years, those jobs have presented lower margins than access control or integrated systems projects, he said. Just adding access control to a bid adds at least three more points, and it’s a more niche market. “It takes away a lot of the competition, a lot of the really small startup companies haven’t established relationships with access control vendors,” said Oetjen. Oetjen said Intelligent Access has worked in recent years to make its sales force aware of the increasing challenges of video jobs. “Video has traditionally been a great mar- ket for us, but we have to do a very good job qualifying each of our prospects—asking questions, understanding what they’re looking for,” said Oetjen. There are an increasing number of jobs that aren’t even worth bidding on, said Oetjen. The company can end up wasting its time, quoting something that’s too expensive for the competition that’s out there—and for what the client is really looking for, he said. “It’s a hard job to win, and you’re really not going to make that much money on it, unless it’s volume based—if you’re doing a CVS or Eckerd’s,” said Oetjen. That’s on the analog side, said Oetjen. On the IP camera side, the challenge hasn’t hurt the company. Most of the firm’s customer base is industrial and institutional, he commoditize. There’s no plug-and-play. And, in addition, there are huge life safety that surrounds you. said. “Your blue chip corporate customers still see the value in the brand, in the warranty, the brand promise. You can still sell them your Pelcos, your Bosches, the higher-end analog video,” said Oetjen. “When you talk to a retirement facility or gas station or any of that light commercial stuff—they’re usually price-conscious.” Likewise, Pierre Trapenese of Northland Controls said their high-level custom- ers in Silicon Valley include firms like eBay, Apple, Symantec, Stanford University, and others. Those clients see the lower-end bids and products, and their security directors believe “you get what you pay for,” said Trapenese. Northland is adapting to the changing Barry Lawson market by exploring lower margins on equip- ment, but maintaining margins on labor rates—which is what the IT sector does, and is a model their clients accept. “The value add is still in labor,” said Trapenese. Oetjen said that in the last year, his firm has also begun a move to managed video services. He said the company takes on all that goes around the IP video system, from hard drives to bandwidth management, Ethernet systems, firewalls—“the things traditional security people don’t want to be involved in.” “You need the experience of the past video world, but you need to be more along the lines of your IP technicians, your tier 1 IP techni- cians,” said Oetjen. “We like that space. It gives you the recurring revenue component. It’s not an easy thing to do, but if you’re dedicated to the idea, you can figure it out.” Oetjen said that in two years, if an integrator’s main focus is still analog video, they will need to sell a lot of it to play in the commodity market. They’ll need a good marketing strategy, he said, and a good sales organization to pull it off. “You either need to do that, or start looking at digital IP solutions and the dif- ferent software vendors that are out there,” he said. Meanwhile, camera manufacturers like Pelco are hedging their bets. Barry Lawson, product marketing man- ager for analog cameras at Pelco, said his company has developed a strong IP camera line. But it recently refreshed its analog offerings, too, he said, pointing to the Camclosure 2 line. Lawson said Pelco has pushed differenti- ating features, such as the highest resolution it could provide, adaptive metering that can handle both light and dark in a scene, video motion detection and other offer- ings. Lawson said a number of customers have chosen not to transition to IP camera systems in the downturn, instead sticking with their analog infrastructure. By offering high-quality systems, said Lawson, Pelco is extending the market for its analog offerings. Bozeman said there will always be a 180° (AV8185DN) or 360° (AV8365DN) Panoramic Versions Four 2MP Sensors for 6400 x 1200 Total Resolution Dual Compression H.264 and MJPEG Day/Night Functionality IP66 Surface/In-ceiling Mount Enclosure Wall, Pendant, Corner and Pole Mount Options Heater/Blower Options 1-818-937-0700 • arecontvision.com MADE IN THE USA market for high-end products and services, despite the commoditization of video. “There will always be people who buy high-quality, high-performance, profes- sionally integrated systems,” said Bozeman. “The question is, how big will that market be? People will always buy BMWs and Lexuses, but how many people buy Toyotas and Hyundais? Quite a few.” SSN