Securing New Ground, Day 2

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11/14/2007
Attendees here largely woke up on time to catch Jeff Kessler's presentation at 8:45 a.m. He was bullish, to put it in Wall Street terms, saying, "This is about the most positive I’ve been about the industry in a long time." His big message was that he sees the security industry finally moving from a situation where it's simply seen as a necessity, like an insurance policy, "to a situation where people need the applications that are being offered to them by the security companies." However, his brand of positivism is geared toward the performance of public companies, remember. The market as a whole could do poorly while the public companies happen to do well because of irrational investor exuberance, for instance. Just because, to quote, "the stocks that we cover, the security index, has continued for five of the last six years to outpace the S&P 500 [and] we believe those will continue to outpace the S&P for the next five years," doesn't mean the bottom line of every integrator will show positive results. Kessler generally seems to be of the belief that the large public companies, the Brink's and ADTs, will recognize the need to provide additional services, or already have, and will therefore get the margins they're looking for. "There will remain a lot of people who are satisfied being just installers," he theorized, "but you’ll have to get used to 25 percent gross margins." To get 40 percent gross margins, integrators are going to have to show customers an ROI case, or, rather, "help people save money. That is where the 40 percent margins are going to come in the integrator community. A material portion of these integrators are going to get it, the others will go out of business or be satisfied with the lower margins." This again represents optimism on Kessler's part, as this time last year he was more of the gloom-and-doom mentality that security integrators will never be able to keep up with the IT resellers entering the market and taking advantage of networking ability. Now, he's changed his tune. "I was part of the Steve Hunt camp, the Dan Dunkel camp up until the last six months," he said. "I thought there was extreme danger to almost every systems integrator, but I thnk that the IQ of intergators is going up now." Is this wishful thinking? A drinking of security conference Kool-Aid? Or reality? From my conversations with integrators, I generally agree with him, and was never as negative as Kessler was last year in terms of the impending IT takeover (remember that Kessler was just as bullish in terms of stock performance last year as he was this year - he just thought the security integrators were going to be left behind).