Distribution trends shift away from traditional dealers

Out of the Box

• By Ted Turczyn
• Feb 14, 2008

Until recently, security professionals had three primary system infrastructures to implement— video, access control and alarm systems—and the sales channels supporting these systems had different paths. Those dealers with greater financial resources, which often accompanied higher sales volumes, dealt directly with manufacturers. Small-business dealers, which typically dealt with smaller systems, purchased through distributors.

This go-to-market model worked well, as manufacturers were often reluctant to take on the expenses and ensuing credit issues associated with managing many small-business dealers, but the universe of small-business security dealers was so large that sales through distribution quickly grew into a more than $1 billion industry.

This growth further segregated dealers into two groups—those purchasing based on sales volume and those purchasing from regional and national distributors—with the former built on volume sales and the latter on personal relationships between the local distributor and dealer. Additionally, with the advent of digital technology and the trend toward integrated systems, video, access control and alarm systems have continued to merge into one solution, resulting in reduced costs and higher operating efficiency. This also has greatly affected traditional distribution models.

Changing Roles
Previous distribution models are changing as a direct result of IP- or network-based security systems and the integration capabilities they represent. The most significant factors are the roles security personnel have in selecting and purchasing networked systems and the infrastructure required to support them. While security directors still determine what security measures need to be implemented based on actual needs, they no longer control the means to transmit the signals that carry and control them. And although security directors were the primary purchase influencers for both system equipment and the transmission system, transmission systems have increasingly become the responsibility of IT network administrators. The change is dramatic.

Recent studies indicate that DVRs will have decreasing life spans and eventually be phased out altogether. System recording is shifting more and more to video servers, which are driven by network-based operating systems like Windows® and SQL databases. As this occurs, the role of IT network administrators in security systems will continue to expand. As a result, the traditional channels that sell and service security equipment already are changing.

New Challenges
Distribution is often defined as the sale of boxes. The approach is simple: sell based on pricing, and achieve profitability via volume. Profits also are maximized by maintaining low overhead. Traditionally, distributors look to sell as many boxes as possible and have the customer deal directly with the manufacturer if a problem exists. This arrangement works well when dealing with individual components such as cameras. If the product fails, it is easy for the customer to call the manufacturer for service or replacement.

However, this sales channel approach just doesn’t work well when dealing with IP-networked video surveillance systems because the components are interactive. A server is a piece of hardware. Its security function is based on combining the hardware with software. The process is done either at the dealer/integrator level or by the user working directly with the software supplier—not a distributor. Here lies a real threat to the future of traditional security product distribution.

The value of computer/IT product distribution already is firmly established far above even the largest security distributors. As the saying goes, the war was over before it even began. Aside from the obvious size advantage computer/IT distributors have over security product distributors, selling IP security solutions also requires in-depth knowledge beyond just being able to quote a price. Security distributor telephone salespeople will need more education to effectively compete with their computer/ IT counterparts. In addition to the learning curve, better-educated employees usually earn better pay. The time and costs it may take some distributors to implement these changes will have a detrimental effect on sales.

In addition, some manufacturers specializing in IP-based products have elected to bypass security distributors altogether and go directly to computer and network distributors.

The movement toward server-based recording is not the only reason behind these changes. Existing network infrastructure capable of hosting access control and alarm systems does so with little impact on overall network applications. However, video systems are bandwidth-intensive and generally require dedicated network backbones. This, in turn, requires the ability to design and provide more network-based products. Servers require network switches, which require data networks employing structured cable to run on. So it is no surprise that larger distributors of structured cable also have entered the security distribution market.

An Uncertain Future
Trends in distribution are shifting the security systems business from traditional security distributors to computer/IT distributors and structured cable distributors for obvious reasons. IT distributors are larger than security distributors and already provide the equipment required for IP-based security systems. And structured cable distributors offer the solutions that determine how signals are transmitted over network infrastructure.

It appears that security distributors are being attacked from all sides. However, as IP security moves down the food chain to smaller dealers that service smaller markets, local dealers will become more dependent on smaller distributors—not just for product, but for training and after-sales service. And although price will continue to be an issue for smaller system sales, the opportunity exists for traditional security distribution channels to become better acquainted with networking and integration to capitalize on established relationships with security dealers. These operational changes and resulting costs, along with competition from computer/IT and structured cable distributors, may result in the restructuring of larger, traditional security distributors and the potential closing of smaller ones.

All this raises several questions: If technology trends signal an end to traditional security distribution, who will service local, small-business dealers? Can larger security dealers operate more like IT distributors? If so, is there room for security distributors to profit in an already overcrowded field of IT distributors? And will security product manufacturers be forced to move away from more traditional sales channels to computer/IT distribution channels? Only time will tell, but the channels by which security products are sold and purchased are certain to change.