These are the major conclusions of a multi-client study – entitled 'Security Systems: The European Market 2001-2006' – conducted by research specialist i&i Proplan. The final report reviews the CCTV, access control and intruder alarm product sectors in Belgium, France, Germany, Italy, the Netherlands, Spain and the UK (in other words, the 'EU7').
The study shows that the UK market for CCTV systems in non-residential buildings and public surveillance represented nearly 40% of the total EU7 CCTV systems market. Indeed, the UK market is a robust one. More than 30% of all business is for retrofit/replacement and extension projects, while maintenance and service accounts for at least a further 15% of turnover for the majority of the top players.
In spite of this, the market remains far from saturated. Strong demand has not reduced competitive pressures, nor has it relaxed the managerial need to develop appropriate strategies to meet the enlightened requests of end users in this ever-changing market.
Without doubt, technological developments have been rapid in recent times. It's fair to say that digitisation of surveillance, IT networks and the current influx of Web-enabled products and systems is beginning to revolutionise control and remote management. Such a multi-user, multi-tasking environment is starting to reduce the need for manned security on site (at least in its traditional guise), in turn bringing enormous benefits to the end user in terms of information gathering and security management. That is why many clients are switching over to the digital age.
For the time being, digital technology is allowing the production of products and systems that will meet customer demands for more secure, safe, flexible and productive working environments. In turn, this will allow higher margins to be made through both product and/or 'total security solutions'.
Despite its relative maturity in the security world, the surveillance sector is now experiencing an exciting period of change. It's certainly evolving at a rapid rate. Already a substantial product sector in its own right, the CCTV market still has the potential to be half as big again by 2006.
Market structure and segmentation
The supply structure is strong and competitive in the UK, with all the international companies present. That said, although well-developed third party distribution channels are now in place, they're not appropriate for delivering digital technology.
One of the most surprising and striking features of the CCTV systems business on home shores is that, despite major consolidation during the past decade, it's still a very fragmented market. Of the total systems business, no single player takes more than 10% of the revenue to be made, while the Top Six suppliers account for less than 25% of the market. Currently, there's over 140 million euros' worth of sales to medium-sized projects, and more than 35 million euros attributable to projects larger than 140,000 euros in value.
However, the biggest part of the market is shared by several hundred small suppliers that enjoy less than 1% share and only operate on a national basis. The lion's share of manufacturers' product sales are to these third party suppliers. This characteristic is underlined by the fact that more than two thirds of contracts are worth less than 28,000 euros. As they struggle to resource the skills necessary to support the new technologies, many of these smaller companies will either disappear or be absorbed into bigger groups.
The cash taken by volume sales is relatively small, since the majority of business in the UK CCTV sector is made directly with the end user. However, there's still a strong element of customers being locked into their suppliers here, and cash flow from servicing "heritage estates" is a greatly-valued prize.
One of the most surprising and striking features of the CCTV systems business in the UK is that, despite major consolidation during the past decade, it’s still a very fragmented market. Of the total systems business here, no single player takes more tha
More than half of all CCTV sales are down to cameras and their housings. Nothing new about that, but – somewhat surprisingly – digital technologies such as recording, storage and transmission, etc do not account for as great a proportion of market share in the UK as they do in numerous other European countries. A direct legacy, one suspects, of our large installed base of analogue systems which generates much repeat business.
Key drivers in the sector
The growing incidence of violent crime coupled with the fear of crime among the public at large – not to mention the renewed threat from international terrorism – will continue to generate demand for CCTV well into 2003 and beyond. The gradual replacement of security officers, particularly once their hours are legally subject to the Working Time Directive, as well as a rapidly-developing offering of more sophisticated digital products and systems, is enabling the upgrade of existing analogue systems – at the same time creating a market for new applications capable of being integrated with a host of IT-based solutions.
A robust UK 'new construction' market throughout the latter half of the 1990s followed by strong output in refurbishment and retrofit have contributed in no small measure to the growth of the CCTV sector. By 2001, refurbishment accounted for well over one third of all CCTV business in the UK (one of the highest proportions in Europe for this sector).
The industrial sector accounted for the biggest share of CCTV sales, followed by the commercial arena. However, public surveillance represents almost one fifth of the market, and is a far bigger contributor to CCTV sales here than is the case anywhere else in the EU7.
Computer and communications systems-rich buildings experienced a meteoric growth during the 90s, of course, but now that the so-called 'dot.com' bubble has well and truly burst, the demand for such building projects has diminished. Sales of CCTV equipment to this sector will remain slow for some time to come. Transport hubs – including airports and sea ports – will experience high rates of growth during the next three years, and thus increase their share of the business.
The dramatic events of September 11 2001 have certainly had a major impact on world security, and have brought security issues to the forefront of blue chip companies' investment planning. Efforts are seemingly being concentrated on new digital CCTV technologies, focusing in particular on the areas of video motion detection, facial recognition and video image transmission.
Here in the UK we have become accustomed to a relatively high level of terrorist threat down the years. Hence the proliferation of public space CCTV schemes the length and breadth of the nation. Public acceptance of the technology and what it can now do is so high that cameras on virtually every street corner are pretty much taken for granted.
However, this isn't yet the case throughout Europe, where the interpretation of the European Convention on Human Rights has restricted the demand for surveillance. As such, there's an enormous difference in the penetration of CCTV between EU7 countries. Spain and Italy have the lowest, the other EU7 states are on a par with each other while the UK is more than double the EU7 average.
Technology: the crux of change
Technology continues to be at the crux of structural change in the UK CCTV sector, for it has spawned a wide variety of small, low cost surveillance tools that are flexible enough to be used just about anywhere. We must also bear in mind that a variety of technologies from other industries are applied to products in this sector.
Indeed, it's largely what happens outside of the CCTV industry – particularly advances in IT, communications and software – that determines the pace of product change within it. In general, technological developments have been rapid. This has given rise to a technology push in the security industry as a whole rather than the product development determined by demand-pull which characterised the industry during its early stages of development.
Four prime movers are bringing about change in the CCTV market – systems integration, technical market convergence, technology/ communications developments and new standards. These forces are coercing CCTV manufacturers into adopting new strategies
During the past five years, the industry has made some fundamental changes to its CCTV products and systems. The pace of change has quickened of late, taking on board further advances in microelectronics. At the same time, the Microsoft Windows environment has provided a cheap form of multi-user, multi-tasking and the Internet – by way of Web-enabled products – has revolutionised the processes of remote management and control.
Microprocessor technology has made available much cheaper, faster and more powerful hardware that can more than meet the needs of this industry. Using microprocessors and high performance algorithms has produced 'intelligent' applications such as video motion monitoring to automatically analyse and act upon live images, while Web-enabled technology is now revolutionising the concept of 'open systems'.
In this context, Web-enabled means that, without any special software, building operators may use a standard Web browser on any PC to access their building sites from Amsterdam to Zurich – and make the data available to authorised users anywhere in the world. Building operators and security managers don't really need to be sold this concept, for they know that through such tools they can immediately improve the security of their corporate hqs and outlying buildings. This technology will undoubtedly have a major impact on the growth of Alarm Receiving Centres (ARCs).
Using existing IT networks to transmit digital signals processed from cameras provides cheaper and more flexible surveillance solutions. Adopting computer network technology – whereby all cameras are linked to a networked system in the same way as PCs – avoids all the disadvantages of traditional analogue systems. Camera signals may be stored anywhere (and can be accessed from anywhere) in the network. Digital recording is fast becoming the standard option for multiple camera sites.
Integration is the way forward
Interestingly, i&i Proplan's research reveals that security system suppliers – be they specialist CCTV companies or providers of a wider spectrum of security systems – rarely involve themselves in an holistic approach to improving overall building productivity through the provision of completely integrated building management systems. They ought to. With external players heavily promoting such a solution, security system suppliers will lose out if they don't take heed.
In terms of maximising the opportunities for integrating different security functions (including CCTV and access control), common communication protocols are certainly proving to be beneficial. Neither product standards nor standard communication protocols have yet to impact on the business. Unlike the fire and security industries, the building environmental controls sector has picked up on three common communication standards – namely BACnet, EIB and LonWorks. These standards have been around for more than a decade now, but only account for a small percentage of business.
Other i&i Proplan investigations into the building controls market show that European manufacturers have had a significant shift in attitude over the past couple of years or so, with most now believing that by 2005 their products will use one or two of the aforementioned protocols. Since it now seems unlikely that the security industry will develop its own standards, if a standard communication protocol is to be adopted then the three protocols listed could be prime candidates.
Either way, 'interconnectivity' will be provided for some time to come by overlaying manufacturers' proprietary protocols on IT networks by way of TCP/IP.
Prime forces for change
In essence, then, four prime forces are bringing about change in the CCTV market – systems integration, technical market convergence, technology/communications developments and new standards. These forces are coercing CCTV manufacturers into adopting new strategies, but there are strong indications to suggest that they have not yet taken on board the full implications of the dynamics of this industry and adopted strategies that embody alliance, specialisation and consolidation.
CCTV system developers are finding out that there's no quick fix to rapid growth in this market as the share of business taken by volume sales is relatively small, and growth by acquisition could be expensive and messy.
Source
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Postscript
Jeremy Towler is senior consultant in the Proplan Division at i&i
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