Memoori Business Intelligence Ltd

Security systems in the channel: what will tomorrow’s distribution model look like?


Courtesy of Memoori Business Intelligence Ltd

The traditional distribution model for Physical Security products right across the globe, was often referred to as “box shifting”, it offered products off the shelf but with few value add services. This is now rapidly morphing into a sophisticated system delivering value add services that its clients are now demanding. This article uses information from our recent report on the Security business.

There are 5 main reasons why the change in the structure of the physical security industry is causing the distribution model to change.

  • Manufacturers have over time extended the range of their products, which now have a rich layer of features and capabilities. The supply chain must be able to understand and identify where their clients can benefit from them.
  • A strong brand and channel infrastructure giving reach and efficiencies. Marketing across the globe can now be achieved by small companies through the Internet at lower cost and this has increased the number of suppliers and solutions.
  • The pace of innovation is speeding up. Edge based storage and advances in analytics are creating more & more applications for IP Video.
  • Open standards are starting to take a hold. This will open up competition even further and will reduce the barrier to smaller companies. Real competition will then kill off weaker companies and consolidation will come about through open market forces.
  • Increasing demand for full integration across all aspects of Physical Security solutions and now the Business Enterprise.

The channels of distribution in the physical security industry are changing to take account of these factors, particularly in the Video Surveillance sector, where IP network products have taken a major leap forward in the last 3 years requiring new skills for designing and installing systems. In the vast majority of cases the manufacturers don’t want to be directly involved in providing these services to the end user and they therefore require the distribution chain to take on these responsibilities.

This has required new and existing suppliers to set up under the broad classification of distributors but broken down into resellers, system integrators and solution providers. Normally they buy directly from the manufacturer and some have a strong partner relationship to one or a few brands. The term distributor is still used by larger companies from the traditional supply chain and new ones from the Information Communication Technology (ICT) business, but these companies now offer to supply all the components necessary to deliver a solution to installers. In addition many of these companies will also operate straight online sales. Finally a few manufactures normally having specialist products selling to a few verticals have opted to sell direct to the end user and install themselves. So one size does not suite all. However for those manufacturers that want to obtain huge global scale (hundreds of millions in revenue) they need to operate through all the distributor channels but not confuse the market by selling direct.

Since 2006 there have been major changes across the developed markets of the world in how products reach the end user. Our research shows that the value of product passing through the distributor channel has fallen off drastically from over 50% in 2006 to around 30 % in 2011. Their market share has been taken by direct sales to Resellers, System Integrators and Solution Providers which have increased share to approximately 50% in 2011. The installer system integrator route has been joined by specialists from the ICT industry and it would appear that the distributors have lost most of their share to these companies that have partnered with the manufacturers of IP Network products to offer packaged solutions.

Whilst these trend appear to be most marked in the developed markets of Europe and North America similar trends are now being realised in Asia and at the same time are now taking place in the Access Control market; but as yet it’s not as pronounced. Getting IP network products to market is going to be a challenge for distributors and one they will have to meet because it will eventually take 100% of the business.

These changes are not so startling when taken over a 6 year period, but their consequences are now being felt, with the recent exposure of weaknesses in the distributor chain and the major European distributor Norbain’s demise and fall into receivership. IP network products do not lend themselves to the traditional box shifting treatment of analogue products and require more sophisticated application of skills; but few distributors have seen the need to work with the manufacturers to acquire the necessary skills.

Distributors that have become more IP savvy such as the AES Group and Digitalcom in Thailand and Tri-Ed / Northern in the USA have been able to maintain their share by taking on more system integrator duties especially with regard to system / network design and commissioning. But not all distributors have taken up the challenge and have opted to beef up their eCommerce operations which may well work provided they can achieve scale on this low margin business.

There is a place for the distributor but not in the traditional role, at least not for long. Knowledge is paramount, especially in a market increasingly connected through integrated building and security environments and bringing together packages that meet these needs and the IT services that they require is now necessary across the distribution network.

The Controlware Group has provided IT communications networking solutions since 1980. During this time Controlware has accumulated extensive experience in the design, delivery and maintenance of cost-effective IP networks. Since 1997 they have also specialised in the integration of applications such as IT Security, Storage and Video Surveillance systems. They can now offer total packages of IT communications networks, CCTV cameras, CCTV encoders, CCTV Video Management Software, recording, and video content analytics systems. They work closely with Installer and Integrator partners to provide security systems for users from all vertical markets. Their value added services range from consultancy, product advice and supply through to systems design, project management, commissioning, maintenance and installation through their channel partners.

Alliance and partnership is playing a major role in winning market share in the security business as manufacturers extend the range and depth of their alliances and partnerships with other manufacturers of adjacent products and their system integrators and solution providers. More formal arrangements of sharing data within the distribution chain has resulted in many new solutions for the end users going well beyond improving security. In the last 12 months we have identified more alliance arrangements between manufacturers distributors and system integrators, working together to provide a solution for a particular vertical market and sharing the development and promotion costs.

Some 2012 IFSEC exhibitors showed a number of case studies on how business intelligence can be gained through IP Video Surveillance systems brought together through partnerships. Two companies Axis and Panasonic had displays showing how, in particular vertical markets, they had used video streams to provide business intelligence. In both case the concept was instigated by the camera manufacturer as a means to increase sales, but they have worked with other suppliers of surveillance products and access control systems to produce a seamless solution that fitted the needs of the end user. In addition they have worked with system installers and distributors not only to orchestrate the marketing sales strategy but identify new applications where they can add value for the end user.

The trends show that alliance has moved on from just joining different manufacturer’s products together to providing a total solution between all the stakeholders and is driven by what the end user needs in order to deliver real benefits over and above improving the security performance. So if you want to compete with the top camera manufacturers you not only need to be up there close on performance but also driving innovation in providing solutions that deliver more value add and a quicker return on the investment for the buyer. The distribution network has a vital role in making this happen.

Increasingly the shape of the market is changing as security systems supplied for new projects are increasingly delivered as fully integrated systems, whereas in the past they were supplied as 3 separate and discreet systems. This has changed the balance within the routes to market with more of this business going through resellers, system integrators and solution providers.

We believe that as the physical security manufacturing business further consolidates the distribution network will be forced to follow suit and over the next 5 years we shall see fewer but larger distributors playing an enhanced role. The market share of the resellers, system integrators and solution providers will increase as systems become more sophisticated and integrate with the business enterprise.

Good products sell well but they sell better when distributed through the right channel.

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