PSIM Market Size and Projections Examined

In this 5 page note, we examine 4 projections for the PSIM market, providing guidance on the key issues and factors impacting adoption, growth and size. This is an especially interesting case as the projections are widely divergent based on competing assumptions. At the end of the note, we provide our recommendations on key challenges and likely outcomes.

Let's start with a review and summary of 4 industry projections:

• IMS projection: "By 2014, IMS Research forecasts that the world market for PSIM software will be worth around $200 million" and "if services, maintenance, design and consulting revenues were added; it is conceivable that the market for PSIM software would exceed $1 billion by 2014"
• Frost projection and Executive Summary [link no longer available]: "The worldwide physical security information management (PSIM) market is expected to grow from $80.0 million in 2009 to $544.0 million in 2015, with a Compound Annual Growth Rate (CAGR) of 37.6%"
• Imperial Capital projection [link no longer available]: "PSIM industry growth appears now to be quite robust, with a couple of the leading companies growing at or above 100% annualized, albeit from levels of $10 million or less in revenue"
• SecurityDreamer projection [link no longer available]: "PSIM software solutions will earn $3 billion to $4 billion annually by 2012."

[UPDATE August 2012: Frost now projects PSIM to be worth $2.79 Billion in 2021.]

PSIM Market Categorizations

The extreme range of projections is driven by differences in PSIM market categorization. Specifically, what companies, products and services are counted.

• IMS and Imperial have the narrowest categorizations, basing their numbers on a broad set of advanced functionalities. Let's call this 'true' or 'full PSIM'
• Frost is adding in VMS providers with PSIM 'like' functionality:  a "mix of companies which are either very strong in 'pure' PSIM solutions and others that are adding functionalities to a basic Video Management Software (VMS)"
• SecurityDreamer has the broadest categorization including solutions that integrate a few systems and provide basic situation management

We do not believe there is a 'right' or 'wrong' answer to this. Ultimately different customer segments value different levels of integration and depth of functionality. The larger and more mission critical the organization, the more they need 'true' PSIM. Conversely, smaller, less sophisticated organizations are often satisfied by 'video-centric' PSIM or access-video integration.

On the other hand, if you are sizing or projecting the PSIM market, it's very important to be clear about what offerings count (or do not count).

PSIM Today

All of the stats on 'true' PSIM point to a clear fact: the PSIM market is tiny today. $70 - $100 Million is a good approximation for 2010 PSIM sales.

Not only is PSIM tiny but the individual providers are fairly small. In an email conversation, IMS noted that approximately 35 suppliers qualified for their PSIM definition. While only a few startups aggressively market PSIM (CNL, Proximex and Vidsys the most common), a number of large defense contractors and small regional players exist around the world. We're continuously amazed by the variety of tiny regional PSIM providers that contact us. It feels that every region of the world has their own. Many of these offerings emerge as extensions of custom integration projects from military bases or government facilities. As such, you have quite a number of system integrators with small in house development teams offering PSIM.

Also, there's no break out PSIM 'winner'. No single company dominates or even has a third of the overall market. As Imperial Capital notes, each of the companies marketing themselves as PSIM has under $10 Million in revenue. Even the bigger named/sized companies have relatively small PSIM revenue. In our October 2010 analysis of Integraph, the company estimated their security/PSIM revenue was abut $30 Million (though only 30% or about $10 Million was from PSIM software, the rest was services). Contrast this to ICX who in their H1 2010 results reported $8M in solution 'product' revenue including their PSIM and other offerings (plus an additional $20 Million in services).

On this point, a lot more money may be made from selling related services. This is part of IMS's claim that associated revenue in PSIM projects (like professional services,  maintenance, etc.) could be 400% more than PSIM software itself. On the one hand, such a high ratio is shown already by Intergraph and ICX's results. On the other, the more 'extra' costs are needed, the higher the average selling price is and the more complex projects are. On a per deal basis, this will mean extra profit. For the overall market, this will limit potential adoption.

This becomes clear when you look at the total number of global deployments which is likely between 500 and 2,000 per year. Assuming the average price for PSIM software is $50,000 to $200,000 and a market size of $100 Million produces this range. Indeed, $50,000 is generally entry level pricing for PSIM software. As such, we suspect the number is closer to 500 than 2,000. Even individual providers usually acknowledge that they are doing no more than a few dozen projects per year.

On the other hand, video - access integration is likely 10x or 100x more common in the market. Deployments in the tens of thousands are likely. This reflects the much lower cost (integration usually starts at $10,000) and much lower simplicity (generally integration is offered out of the box and can be implemented by an SI rather than a software developer).

PSIM Future

The good news for PSIM is that more organizations are using security and more devices are being deployed. Even with minimal technology improvement, the market should experience solid growth as the most demanding organizations determine that the issues with poor integration and response are untenable (SFO is a good example).

The bad news is that the same 5 fundamental PSIM problems we reported in 2008 are still fundamental problems today. Most critically, integration between systems remains difficult and market fragmentation is still high. Even if PSIMs can provide advanced functionality, unless they work with your existing subsystems they are not very attractive.

While VC investment has helped some PSIM providers integrate with a dozen to a few dozen security systems, (1) that's still a very low percentage of the market and (2) fragmentation has increased during the same time as new IP system providers have emerged.

Because of these barriers and the resulting cost/complexity increases that follow, 'true' PSIM systems in 2010 are very uncommon. Looking at the future, unless these barriers are overcome, while 'true' PSIM use certainly will grow, it is likely to remain a product of the rich (i.e., the equivalent of a personal jet).

Expanding beyond today's niche use, we project 2 key applications/developments.

PSIM and Video

Even today, it is obvious that the major VMS providers are moving into PSIM. While OnSSI has been the most vocal, Genetec is quietly becoming a PSIM in its on right. Also, Vicon is marketing its VMS as a PSIM. As VMS systems continue to move upmarket, we think it will become quite common for them to offer PSIM functionalities. Of course, this will raise important questions over 'how' PSIM these offerings are.

This path is neither new nor surprising. While never using PSIM marketing, access control providers have been offering multi-system integration and advanced management functionality for at least a decade. We expect VMS providers to follow a similar path.

For both VMS and access control providers, 'impure' PSIM is quite attractive as it positions their offerings as the 'top box' in a customer deployment. This top box is the main user interface for end users on a daily basis. As such, end users are very reluctant to make changes as it can disrupt operations. Because of this, offering such functionalities helps increase lock-in, a very desirable trait for the provider.

Even if the fundamental issues of PSIM are not resolved, it's clear that VMS vendors will step up their product development for PSIM 'style' control and command.

Minimally, in 2014, we will have broader but still niche use of 'true' PSIM and 'partial PSIM' via both access and VMS systems.

PSIM and Standards

For PSIM to become very broadly used, standards will need to be widely adopted. Integration amongst systems has to be made easier. Either this will come from dramatic market consolidation or standards that reduce cost/complexity of integrating 3rd party systems together.

While IP camera standards are much discussed, these have no impact on PSIM. The main integration is amongst recorders, access and intrusion systems - not with cameras. Unfortunately, standards for these systems are very early stage and essentially no one is using these in production.

It is hard for us to even guess where these standards will be (or not be) in 2014. On the positive side, the industry has more momentum behind standards than it ever has. On the negative side, these standards will be technically complex and require firmly entrenched incumbents to provide openness that might weaken their foothold in existing accounts.

If and when standards amongst security systems do become a reality, a few things will become clear:

• The market for any type of PSIM will skyrocket as the customized development and high risks that plague projects like SFO diminish
• The price for providing PSIM will fall significantly, as maintaining proprietary integrations are a major cost for providers today
• PSIM 'style' offerings will increase dramatically as existing providers add support for 3rd party systems to their existing VMS, access and central monitoring systems