Many traditional technology manufacturing companies were able to survive quite happily, generating sustainable and profitable revenues through development, manufacture and distribution of products for direct sale or resale through a sales channel. Never had the manufacturers to worry about much else, except perhaps for some minimal support when occasionally a product would fail and perhaps some training would be required to ensure that the customer could cope with most of the product support topics themselves. This is how it has been for many years for product-centric companies in the technology environment.
Over the last 20 years it has been witnessed how the pace of change of technology has accelerated the overall complexity of equipment supply. Support has taken on a new meaning, as customers now demand increasingly higher levels of interaction with the equipment supplier to achieve the same success they were accustomed to in the past.
Astute suppliers in the market have adapted to this, by structuring their offerings to include value-added elements, which serve to ensure continuity and sustainability of sales in the longer term. Inescapably, suppliers in technology markets have had no choice but to adapt to the new paradigm. Those who have not adapted have already become marginalised and begin to fall 'by the way side', slowly realising that product alone no longer meets expectations of end-users.
A common factor in all technology orientated industries is that as complexity increases, the competence required to achieve the same success as in the past declines if no alternate direction is embarked upon. When viewing the technology markets from a high level, clear examples are evident where lessons can be learned.
Solutions not products
In the IT market, hardware has almost become unimportant, accompanied by lower margins and pressure on market pricing. Software appears to be heading the same way and has become almost as unimportant. Customers increasingly seek answers to their problems, seeking solutions not products, equipment or software. Product-centric thinking, not only amongst equipment suppliers, but also amongst customers and end-users, slows the evolution of smoother project implementation. Product in itself has become almost irrelevant. In the telecoms market, it is hard to differentiate between what is IT and what is telecoms. Convergence between IT and telecoms has almost gone a full circle of evolution.
Nothing in the security industry is new. Yet it behaves according to trends already experienced in the technology markets for many years prior. Do we learn from this? If we analyse the segments of the technology markets, what lessoned can we learn?
The security industry lags the IT industry by about five to 10 years, maybe more, as far as technology evolution is concerned. Because evolution in most segments of technology-centric markets shows similar trends, we are able to draw valuable conclusions from this.
Suppliers in the security industry struggle to keep up with the demands of the market, as it tracks and converges with the IT market. Where the market not only demands better product, but demands also relief from technical topics such as system design, integration, now critical for successful solutions. With the phenomena of convergence, many manufacturers try to increase their strategic leverage by offering converged solutions, or even so called “full” or complete solutions, to promote their products above other competitors.
For example, in the security industry, digital IP-based technologies increasingly dominate the security landscape. The IP CCTV revolution has been ongoing for some years already, and the substitution of analogue systems with IP systems is common. Yet we have seen this trend before in other industries.
Slow is good for security players
Luckily for us in the security industry, we are behind the evolutionary cycle. The migration from product revenues to service revenues is happening as we speak in every segment of the technology arena. From storage to servers to software, more and more revenue is being generated through service transactions as opposed to product transactions. This is the trend that leaves product companies flustered, wondering which direction to pursue.
The security industry has more or less reached the same point in its evolution.
Markets growths in IP systems are good, with growth on analogue systems declining at the higher-end of the market. IP systems provide better longer term ROI (return on investment), better possibility for expansion with reduced effort and cost for installations. New features abound, as we saw how quickly HD technology replaced standard SD technology. The advent of convergence means end users can also now integrate all the security and life safety systems onto common platforms. All this new found technology looking quite exciting for end-users.
The proliferation of ONVIF for the CCTV surveillance industry, the initiative to find common ground in multi-vendor environments, dilutes the single-vendor value proposition, favouring those vendors who struggle for market share and disadvantaging those vendors who have spent much time building market leadership. But convergence is inevitable, and with convergence comes the requirement for interoperability.
Snapshot of the future
In the security industry, we are extremely lucky to have these trends playing themselves out in other technology markets, right before our eyes. In essence, we have a snapshot of the future, of where the security will be not too long from now.
More interestingly will be to see how the dominant security vendors adapt. Those vendors with foresight will be rapidly developing their vendor-specific support, education and professional services to counter the barrage of increased complexity, convergence and the end-users quest for realised value in the form of real solutions rather than products.
There is still some time before the security industry is significantly impacted by cloud computing, but this is not a long way off. For the security industry this is fortunate, because it gives us time to think, act and adapt. But time is limited. Because as the cloud concept begins to grow and finally mature, product companies will be under pressure to adapt quicker than ever before, and quicker than in other industries that have already started to change.
For the product provider who continues on the current path without considering these key influencing factors, the boat has started to sink.
If we draw parallels to other segments of the technology markets, it becomes crystal clear where the security market is heading. Trends in different segments of the technology markets tend to behave the same. We only need to look at technology in the IT and telecoms market to see how we can learn where products supply is headed.
* Technology evolution and convergence almost always leads to increased technical complexity of products for the design, implementation, operation and maintenance of products and systems.
* Technology evolution and the adoption of new technologies leads to convergence, whereby more areas of business and market segments become interdependent on each other for intelligent management and control, enabled by the increase in capability through better and more complex features, interconnectivity and bandwidth.
* Increased technical complexity and convergence leads to relative decline of competence, as much more effort and skills are needed to achieve the same level of success that was enjoyed in the past with simpler products.
* The market, end-users and consultants eventually become frustrated with the levels of quality and success rates of their projects, citing that manufacturers and their sales channels are not effective at fulfilling requirements and expectations. Proactive consultants begin to separate services from product in their tenders to provide focus on delivery and fulfilment rather than product focus alone.
* As technology markets mature, revenues and margins become service centric. Product companies and their margins contract or shrink in mature markets.
All about service
Because of these trends, technology companies begin more and more to adopt service strategies to compensate and to support the implementation, operations and maintenance of their complex products for continuity of operations as well as revenue opportunity.
* Product companies seem to think that features differentiate themselves from the competition. This used to be true. What is true in today’s times is that end-users increasingly adopt only what is deemed as absolutely necessary while trying to reduce cost and maintain stable systems.
* The consumption and absorption of features is currently kept to a minimum or declines with time, if without proactive strategies by the manufacturers and the sales channel to increase realised value as experienced by the end-user.
* The concept of ‘security systems in the cloud’ in some form or other is eventual and inevitable, which will be disruptive to all product and service business models, and more so for the product provider.
* Converged solutions are becoming more important in securing revenue streams for suppliers of product, of which the product is only part of the solution, and not a solution in itself.
* We learn that high-end product will become less important as high-end solutions become more important.
* That what was once high-end and regarded as sophisticated technology, will eventually and most probably evolve to become low-end or ‘standard’ business in the future, as termed by some. The high-end will feed the low-end and what is high-end product today, will be lower-end tomorrow.
* To remain competitive at the high-end, not only will good products be needed and supported by R&D investment, but a well thought out strategy will be required to maintain and support the complexity of solutions as convergence and shift towards IT accelerates.
* The difference between product and solutions is service. The security industry will eventually follow with respect to product/service evolution.
Michael Howard is a registered professional engineer and consultant, author of the research titled 'The Product – Service Evolution', MD of PinnSec, Pinnacle Security Solutions. Pinnacle Holdings is one of the largest IT distributors in Africa and is listed on the JSE. PinnSec was founded late in 2012 to address the opportunity for security convergence and services in the lower-end of the market as well as addressing the complexity of larger projects at the higher-end of the market through the acquisition of Devtrade.
For more information contact Pinnacle Security Solutions, +27 (0)11 265 3178, firstname.lastname@example.org, www.pinnacleafrica.co.za
© Technews Publishing (Pty) Ltd | All Rights Reserved