The Market Rational

It has been said that change brings opportunity. The $150 billion global physical security industry is truly in the midst of wide-sweeping change. While historically exhibiting growth rates in the 8-10% range, the market is being transformed by technology-driven convergence. According to the market research firm, Forrester Research, "convergence is the integration of security functions and information onto a common IP network. The market for converged security projects is growing rapidly, and within the United States, is expected to continue at an annual 118 percent rate from 2004 to 2008." We are bullish on this market. In fact, the level of current market and investment activity indicates some level of extraordinary growth in this segment will continue for the foreseeable future. In short, security devices are adopting the language of the Internet, enabling the use of information technology, and transforming the industry in new and exciting ways. The ripple effect of this convergence is being felt in all facets of the industry. At the manufacturer level, new startups and major IT vendors (e.g., IBM, Cisco) are entering the market in a significant way with a shift from proprietary analog-based systems to IP-based components and systems (i.e., cameras, DVRs, access panels, software applications). In the supply chain, the profile of the traditional security dealer is transforming rapidly from that of a factory-trained installer to one of an IT systems integrator. And at the buyer level, security technologies are being deployed in closer alignment with business objectives and with increasing oversight by the IT department. As well, buyer motivations are increasingly being influenced by compliance obligations and an overall heightened awareness of business risks. Throughout the food chain some businesses will fail to adequately prepare for this new world and place their survival at risk while others will capitalize on new growth opportunities.