Should Security Integrators Focus on Recurring Revenues?

Author: John Honovich, Published on Oct 28, 2009

While integrators have historically generated 90% or more of their revenues from projects, for years many have advocated a shift to more service and recurring based revenue sources.

An October 2009 SSN interview with Ray Dean of Niscayah is the most recent to advocate the move to services. [Background Note: Ray Dean's company PEI was acquired by Niscayah in 2007. At the time, PEI's total 2006 revenue was reported as $11.6 Million USD with 20% through service contracts.]

The interview discusses changing integrator's mindsets including resistance by sales staff used to making commissions. Niscayah says they are focusing on jobs with a service oriented connection such as remote video monitoring, guard replacement, video escort, etc.

Economic Challenges

While such services are useful ancillary revenue streams for commercial/government integrators, it is unlikely that this can replace the financial importance of projects for many years to come.

Unlike residential offerings where the capital cost is low relative to the services that can be sold, the commercial/government market is the opposite. Most businesses need tens or hundreds of thousands of dollars of on-site equipment (readers, cameras, panel, servers, etc.). Since the customer needs 100% use of this equipment and tend not to need many services, the products have to be sold. Of course, some recurring revenue can be generated from maintenance contracts but most revenue will remain project based.

This is starting to change but only at the low end of the market. Managed/hosted video services are showing that similar to alarm monitoring, the capital equipment costs are becoming low enough that those costs can be subsidized from ongoing service contracts.

Central Financial Problem for Security Integrators

At the same time, security integrators face two major problems -- declines in gross margins for integration projects and a decrease in overall integration projects. The gross margin problem will likely never recover with margins permanently squeezed by the rise of on-line price competition. The decrease in integration projects is likely to be more temporary and should recover along with the economy.

The third emerging problem is new entrants (like cable companies, telcos and installation companies) with lower cost structure than security integrators offering managed/hosted video and access. Security integrators generally have design expertise and specialists in configuring and optimizing security systems. The more security systems move to "the cloud," the lower the need for on-site expertise reducing the competitive advantage of integrators.

While securing recurring revenue may be a goal, the feasibility for security integrators to achieve it is questionable.

[Update: While integrators like Niscayah have been pushing Axis hosted video, the results appear to be weak and insignificant to their overall business.]

1 report cite this report:

Top US Integrator Acquired by European Conglomerate on Nov 18, 2009
Adesta, one of the top US integrators and representative of network convergence was acquired by European based conglomerate G4S. In the US, Adesta...
Comments : PRO Members only. Login. or Join.

Related Reports on Integrators

Uniview / UNV Favorability Results 2019 on Feb 12, 2019
Uniview / UNV, the self-proclaimed #3 China manufacturer, while starting late, has been working to make inroads internationally. In IPVM's 2019...
Barnes Buchanan 2019: Despite 'Strange Narrative' Great Time To Be In Security on Feb 11, 2019
A "strange narrative" is being spun, said Michael Barnes at the 2019 Barnes Buchanan Conference. However, despite that narrative, it is a "great...
FLIR Favorability Results 2019 on Feb 08, 2019
FLIR has had a challenging past few years including FLIR Security business struggling, FLIR restructuring their security division and FLIR selling...
Sony Favorability Results 2019 on Feb 05, 2019
Sony Favorability amongst integrators improved moderately compared to their 2017 favorability results, with a modest net positive...
Hanwha Techwin Favorability Results 2019 on Jan 31, 2019
Hanwha Techwin's favorability results surged, in IPVM's 2019 study, going from barely neutral in 2016 to strongly net positive, as the results...
Vivotek Favorability Report 2019 on Jan 29, 2019
Taiwanese video surveillance manufacturers, even relatively large ones like Vivotek, have lost ground in the PRC-China-driven race to the bottom....
Genetec Favorability Report 2019 on Jan 25, 2019
Genetec's favorability moderately strengthed, in new IPVM integrator statistics over their results from 2017, with 2019 results showing solid, but...
Bosch Favorability Results 2019 on Jan 23, 2019
Bosch's favorability moderately strengthed, in new IPVM integrator statistics over their results from 2017, with 2019 results showing strong net...
Milestone Favorability Results 2019 on Jan 21, 2019
Milestone's favorability moderately strengthed, in new IPVM integrator statistics over their results from 2016. While the industry has been...
Avigilon Favorability Results 2019 on Jan 15, 2019
Since IPVM's 2017 Avigilon favorability results, the company was acquired by Motorola and has shifted from being an aggressive startup to a more...

Most Recent Industry Reports

Hanwha Smaller Multi Imager Tested (PNM-9000VQ) on Feb 14, 2019
Hanwha's first repositionable multi imager PNM-9081VQ tested well, but was huge, over 12" wide and weighing in at over 10 pounds. Now, they have...
ADT And 'The Defenders' Silent About Massive Complaints on Feb 14, 2019
ADT's largest dealer, "The Defenders" has been the subject of a massive number of complaints over many years and many forums, most recently a CBS...
Hikvision Chairman Praises United Front on Feb 14, 2019
Hikvision’s controlling shareholder held a meeting last month praising the United Front, a Communist Party organization known for its secretive...
Sales Turnover At Anyvision on Feb 13, 2019
Anyvision raised a $43 million Series A and according to their newest investor: what you need to do is push the gas pedal and build an...
Cisco Meraki Cloud VMS/Cameras Tested on Feb 13, 2019
Cisco Meraki says their cameras "bring Meraki magic to the enterprise video security world". According to Meraki, their magic is their management...
Uniview / UNV Favorability Results 2019 on Feb 12, 2019
Uniview / UNV, the self-proclaimed #3 China manufacturer, while starting late, has been working to make inroads internationally. In IPVM's 2019...
Nortek Mobile Access Reader BluePass Examined on Feb 12, 2019
Nortek's Linear access control division claims to make mobile credentials "more secure and easier to use than ever before" with their BluePass...
Solink Raises $16 Million - Company Profile on Feb 12, 2019
Most industry professionals have never heard of Solink, a company whose tagline is: It's time to revolutionize the way business uses...
Barnes Buchanan 2019: Despite 'Strange Narrative' Great Time To Be In Security on Feb 11, 2019
A "strange narrative" is being spun, said Michael Barnes at the 2019 Barnes Buchanan Conference. However, despite that narrative, it is a "great...
Milestone Drops Hikvision From Elite Partners on Feb 11, 2019
Milestone has quietly dropped Hikvision from their 'Elite Partners', less than 3 years after adding the Chinese government-owned...

The world's leading video surveillance information source, IPVM provides the best reporting, testing and training for 10,000+ members globally. Dedicated to independent and objective information, we uniquely refuse any and all advertisements, sponsorship and consulting from manufacturers.

About | FAQ | Contact