Independents: Don’t get stepped on

Sunday, February 1, 2004

Perhaps you have noticed a few changes going on in our industry. Some very large corporations view security as a platform to fuel the 15 percent annual revenue growth to which their stockholders have become accustomed. Some are assembling portfolios of security equipment manufacturers. Others are purchasing independent integrators to form national fulfillment channels. And some are doing both.

Our industry is no longer flying below the radar! Larger players dominating our marketplace undoubtedly will shake-up some of the comfortable niches traditionally enjoyed by many independent integrators. These challenges are disrupting business-as-usual.

Beware of the elephant

Large players have entered our industry before and often departed with very disappointing results. Certainly, competing regularly with elephant-size enterprises is something many independent integrators have done successfully for a long time. The trick is to keep out from under their feet! What seems different today is these large companies now own a critical mass of our industry’s manufacturers.

One consequence of the consolidation of manufacturers is having fewer but more influential suppliers. We are seeing sophisticated loyalty programs being developed to provide compelling reasons to direct increasing amounts of our business to a given manufacturer. Like frequent flyer programs, advantages are given to the best customers. At the same time, the products within each manufacturer’s portfolio seem to work best (and with richer feature sets) when everything is kept within the manufacturer’s “family.” The trend will be for integrators and dealers primarily to use products from only one or two manufacturers. Those not accumulating enough frequent flyer points may find their seat assignments given away.

As our world becomes increasingly “connected,” so do our security systems. More corporations are choosing to deploy standardized security applications connected over their enterprise networks. This vibrant market segment requires a national and sometimes global reach that transcends the footprint of most integrators. It is the domain of a growing list of national integrators and a few networks of strong independent integrators who have learned to work as one. If you are an independent integrator, aligning with a national network may allow you to participate as the local presence needed to support these often-large national opportunities. Make sure to align with a group that believes in all partners succeeding and sharing profits.

Of course, large corporations controlling supply chains and influencing service delivery channels are not the only challenges affecting our industry. The marketplace currently has too many integrators chasing too few jobs. Margins have dropped in many North American markets (often to unhealthy levels) causing concern to undercapitalized integrators and reduced profits for all.

A tale of two worlds
The integration marketplace is splitting into two parts. Ray Dean, president of PEI in New York city, recognized this trend a while back and gave it a name - “Market Bifurcation.” One part of the market is becoming “plug and play” with manufacturers marketing products that integrate together easily and address the needs of many applications much of the time. The second, more complex, part of the market requires integrators to invest in the expertise of computer operating systems, databases, and networks along with the skills to design customized solutions for large and sophisticated end users. Many industry leaders believe margins will drop more quickly on the “plug and play” side while those investing in complexity will experience increased competition from the IT industry. Neither road looks to be without some peril.

Finally, savvy end users are becoming more knowledgeable about security systems and more sophisticated in their purchasing processes. Aggressive purchasing departments procuring for large security projects are sometimes separating products from services and sourcing the equipment by way of reverse auctions. These online bloodbaths have bidders (often manufacturers) giving progressively lower bids until all but one throw in the towel.

Independent integrators traditionally make up the backbone of the systems integration marketplace. Today we jockey for position often among larger players in an industry many think is staged for significant growth but has rough waters ahead.

Tomorrow there will be fewer seats at the head table and harsh treatment for those clinging to old business models. The advantages of the independent integrator will always be market agility, personal attention to the customer, and local ownership commitment.

Amidst all these challenges, remember to have fun…it’s a great fringe benefit of being independent. Whatever tactics you choose for dealing with these challenges, make sure to include looking out for large feet coming down from above!
Brad Wilson is the immediate past-president and Jim Coleman is president of SecurityNet, an association of 16 regional integrators across North America.