MARKET ANALYSIS

Access control leads growth in physical security market but video surveillance still dominates

Ron Alalouff

Freelance journalist

Author Bio ▼

Ron Alalouff is a journalist specialising in the fire and security markets, and a former editor of websites and magazines in the same fields.
January 25, 2018

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For the second consecutive year, access control is the fastest growing sector in the global physical security industry, according to a comprehensive report from market research consultancy Memoori.

The total value of physical security products at factory gate prices was just over $29bn, an increase of around 5% compared to 2016. Access control has maintained its average annual growth of 7% over the last three years, and now accounts for 24% of the total market.

For the last two years, access control has achieved a higher rate of growth than either video surveillance or intruder alarms, and this is forecast to continue or improve slightly in 2018.

The report says access control has over the last five years become a more attractive business, because of the move into IP technology and improving product and management performance. Growth will be driven by considerations such as access control as a service (ACaaS), biometric readers, identity management, wireless locking systems and the increased penetration of IP network systems.

“We are bullish about the access control sector as it moves further into IP networking and strengthens its relationship with biometrics and identity management.” Memoori

But there are some potential hurdles to look out for: examples include the low uptake on the part of manufacturers in adopting the latest ONVIF conformant standards, and the challenge posed by Chinese companies which are now investing heavily in access control solutions.

“We are bullish about this business as it moves further into IP networking and strengthens its relationship with biometrics and identity management,” comments Memoori.  “These trends are significant drivers that should maintain the growth momentum that has built up over the last three years, but it will also require open standards to be adopted.

“If access control manufactures hang on to proprietary systems, it will not be good news for business growth. Traditional proprietary systems mean limited options, central servers with complex and expensive cabling, as well as restricted possibilities for integration and scalability.”

Access control as a service (ACaaS) is a fast-growing market segment. Using cloud-based solutions removes the need for customers to have their own IT departments to develop and maintain costly servers and infrastructures, so the total cost of ownership should fall.

Video surveillance – a race to the bottom?

With major Chinese manufacturers Dahua and Hikvision driving down prices in order to rapidly gain volume and market share, there has been something of a ‘race to the bottom’ in terms of video surveillance pricing. There are, however, signs that the race is over – at least for the time being.

The world market for video surveillance products grew by nearly 6% compared to 2016, standing at almost $16bn in 2017. The growth rate has slowed – over the previous five years it had averaged almost 10% a year – but it’s still higher than many had feared.

The reason for the slower performance is put down to the “drastic” fall in camera prices over the past two to three years, putting a great deal of pressure on profitability, especially on manufacturers based in the west. There is a stark choice for them, either to try and compete by going for volume through the small and midsize business market, or concentrating on their brands by focusing on enterprise solutions.

Having said all that, the video surveillance sector is by far the largest in the physical security business, accounting for almost 55% of the market.

“Major companies such as Axis Communications, Avigilon, Bosch and Panasonic can reduce margins to hang on to market share, but must innovate in improving total cost of ownership to grow it.” Memoori

“Major companies such as Axis Communications, Avigilon, Bosch and Panasonic are in a position to reduce their margins sufficiently to hang on to their share,” says Memoori. “But to continue growing their share they need to invest more in innovative products that offer a better TCO (total cost of ownership) metric, but with depleted margins they would need to increase their financial resources.”

Dahua and Hikvision alone shared over $5bn of product sales in 2016, which puts them well ahead of even the largest western manufacturers, and enables them to undercut their competitors and increase their market share. Most manufacturers cannot compete with them on price, though there are signs that the rate of growth may be slowing for the two Chinese players, albeit from a very high rate. Scale is a critical factor in the camera market and the report suggests it will become even more important over the next five years.

There are, however, some areas where price is not such a dominant factor and where innovative products can deliver a better total cost of ownership. Axis Communications, for example, has shown it can improve on average growth and remain profitable, and there are a number of other companies that have shown better financial performance recently.

“Even if the ‘race to the bottom’ is slowing, the next five years is going to be difficult for many small manufacturers to survive,” Memoori says, “particularly those that are not focused on developing brand recognition in some market verticals. The opportunity to shine here is going to be provided by the next wave of video analytics.” In spite of this, the global market for video surveillance products is forecast to grow at a rate of around 7.5% to 2022, when it will reach a value of just under $23bn.

Intruder alarms renaissance?

Even the relatively mature intruder alarm system business managed to grow in 2017, albeit by just 2.5%. The use of radar technology for perimeter protection, advances in sensor technologies such as long-range passive infrared detectors, the growth of wireless technology and increasing integration with access control and video surveillance are all said to be drivers for growth.

And wireless networks for outdoor industrial energy-saving LED lighting systems are in some cases also being used for intruder security sensors. An increasing emphasis on perimeter protection for critical infrastructure such as utilities, transport and border security has also contributed to growth.

“The growth of new LED lighting systems in industrial complexes across the globe will also help to pull through demand for both retrofitting existing installations and installing new perimeter protection systems. ” said Memoori in an earlier report, The Physical Security Business 2016 to 2021.

“It is important for intruder alarm manufacturers to closely examine the growing influence of lighting and its control, particularly as wireless technology is a strong component of growth for both services.”

As intruder systems become more integrated with access control and video surveillance, purchasing decisions are likely to move away from those traditionally taking them to buyers of integrated physical security solutions, so manufacturers need to engage with these other supply routes.

Although growth in the intruder alarms sector has lagged behind video surveillance and access control for many years, the demand for integrated solutions and the growing influence of the Internet of Things will provide the opportunity for steady growth in the sector over the next five years.

The Physical Security Business 2017-2022 is available from Memoori

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