Credit Crisis Will Accelerate Convergence

Author: John Honovich, Published on Oct 20, 2008

As we brace ourselves for the credit crisis and the shakeout in the security industry caused by the acceptance of IP CCTV, it is important that we create a system around us that will stand up to this.

We are seeing that the channels are converging from separate Security and IT tracks into one unified track. This includes value-add distributors, broad line box movers, integrators, and resellers are consolidating to a security/IT channel. We see this happening because the technology is advancing enough to enable the end-user demand.

The days of a proprietary vertical solution are numbered because of IT involvement. There is also talk about business optimization or video enabling as I like to call it. IT departments involvement is forcing this transition to open platforms running on IT infrastructures with security being provided as a service for different verticals. This type of converged behavior obviously has consequences for large vendor companies and the channel structure.

THE CREDIT CRUNCH WILL ACCELERATE THIS!

How does this affect distribution channels?
Probably not a lot unless the bottom falls totally out of the economy. Right now we have what I like to call value-add distributors and broad line box movers the first sell on value of solutions and the latter essentially sell by sheer volume and being a single point of purchase. I do not see any of these going away anytime soon. However, I expect to see strong growth in value-add distribution, as the converged security industry is going to need specialized trained support for both pre-sales and post-sales along with demo labs. This is the type of value-add that will bring distribution to the forefront as a business partner and secure them increased growth in security products. The main reason for this is that IP CCTV still is a very technical and high touch sell.

How does it affect Value-add Resellers (VARs) and System Integrators/Installers?
We are going to see a different dynamic because VARs specialize in IT and Integrators specialize in security. The dynamics are different because their knowledge is derived from years of hands-on/in-the-field work, making them very specialized in their respective fields.

Security System Integrators are traditionally trained on vendors' proprietary solutions. At the other end of the spectrum, we have the IT people who are well trained and very knowledgeable on open IT standards and maneuvering an ecosystem of best of breed technology to deploy optimal and future proof solutions.

Traditional security channels have knowledge about security and camera placement, for example, while the IT side obviously has IT-based knowledge. Both of them lack knowledge in each other's trades. They will need to acquire these capabilities by hiring, training or partnering and learning from each other to bring the ultimate value to their end-users.

The credit crunch will accelerate this trend – not only because we will see vertical markets that freeze over but because IP CCTV brings better ROI and TCO to the end user and they will be demanding this in a financially difficult period.

How does it affect Traditional Security Manufacturer Reps?
This particular part of traditional security channel might take one of the biggest hits from convergence and the credit crunch to their traditional work. I would describe a Traditional Rep firm as an agent who works for a number of vendors and has a line-card of several tools for a particular region. These reps by nature have an agenda to promote the line-card they have been able to amass. This in turn seems to be orthogonal to the sales activity of an open and agnostic technology platform. As I mentioned earlier, the end-users' demand is pushing the technology because of better ROI and TCO, so traditional manufacture rep firms simply cannot practice their trade in a traditional way. To fit the market need I see rep firms working on a deal-by-deal or VAR-by-VAR case giving the end-user the ultimate freedom to choose what they see as an open and best-of-breed solution.

How does Milestone view the future?
Milestone believes there needs to be broad distribution with an open platform available to all verticals. The difference is that the value-add does not necessarily come from the Video Management Software (VMS) companies but rather from the best-of-breed components that the platform enables. From the VMS side there will need to be adequate training and a certification process in place to bring value to the end user. If you look at the total value of a solution, it is important to note that the software portion is rarely over 10% of the total cost of an installation, leaving roughly 90% of the solution cost on the hardware side. From an economic standpoint, it does not make sense to try to save money on the software side, only to be locked into a proprietary solution by a single vendor.

So, what is your go-to-market strategy in a "shakeout" and "converging" market? As I see it, the future is bright for those partnering to deliver open, best-in-class solutions. Distribution will also need to be tiered, creating an equal playing field for channel partners and allowing end users to choose best of breed components.

Eric Fullerton is the Chief Sales and Marketing Officer at Milestone Systems.

[Editor's Note: This report is adapted from Milestone's blogs and forums site. The site feature blogs from the entire Milestone management team and publicly viewable forums.]

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