Don’t underestimate the business model changes that the evolution to IP will drive

by Paul Constantine on February 14, 2011 · 0 comments

in Business,IP Security,ScanSource Security

As a 16-year veteran of the technology distribution business, I’ve witnessed and participated in a lot of change. Change can be fun and exciting, but it’s also pretty scary, especially to those with business models and practices built around the “old” ways of doing business.

When I got involved in the physical security business in mid-2008, I was intrigued by the evolution to IP Video Surveillance and Access Control that seemed to have just started to gather momentum. When I met with manufacturers or read industry pundits, the conversation would invariably revolve around the technical aspects of IP vs. Analog, and the extent of the business conversation would be limited to the ROI and cost justification of an IP solution.

From my perch, however, it’s the “creative destruction” that is being unleashed on the world of physical security that has me excited and curious about the future of the industry. Classical economist Joseph Schumpeter defines creative destruction as “the process of transformation that accompanies radical innovation”. It can be fatal for some businesses, painful for others, and a source a tremendous opportunity for those who understand the transformation and embrace the change.

Just look at the creative destruction we’ve seen unleashed in the retail space. The industry has been transformed by the efficient inventory management systems of Wal-Mart; the online power of; and the emphasis on quality and fashion by niche retailers like J Crew, Aeropostale, and Buckle. Old behemoths like Circuit City, Montgomery Ward, K-Mart and Sears have either gone out of business or have been forced to radically and painfully transform themselves.

At its core, the evolution to IP has that same potential in the physical security space. IP technology will result in standards; standards will enable competition; competition will result in lower price points; lower prices will expand the base of potential end users; and standards will allow end users to build solutions using best-of-breed components.

It will also drive new competition in all areas of the industry. New manufacturers, new distributors, and new integrators and resellers will emerge. And many of those new competitors will be free to build a business around tomorrow’s dynamics, beholden to no constituencies or processes. Just because a company excels at one part of the sales cycle or in one area of the solution, will no longer be an advantage if they attempt to hang onto areas of the business that are not core competencies or best-of-breed. And businesses that are “jack of all trades, master of none” will be forced to compete with solutions built using the best products for the end-user’s needs and budget.

Based on experiences in other technologies, and what we are already seeing in the marketplace, consider the following:

  • Product fulfillment is no longer a “value add.” And as an integrator or dealer, you can’t expect to make your margin on hardware alone.
  • Expect new competition. Whether it’s from e-tailers or IT integrators, there will be more responses to RFPs than ever before. And aggressive end-user purchasing departments will drive margins down.
  • Therefore, it becomes imperative to charge for your expertise. Whether it’s consulting and system design, installation and training, or services after the sale, quantify it, and charge for it or negotiate with it.
  • IP will create opportunities for services after the sale. Remote monitoring, managed services, and software as a service will generate significant revenues for integrators and dealers.
  • Get lean and mean. Look at your business model and evaluate your partnerships based on “who can help me take costs out of my business, or grow without adding costs.” Don’t spend money unless it’s directly related to your value proposition.
  • Expect manufacturers to value and reward demand-creation and end-user customer satisfaction over pure volume. Make sure you can quantify to your key vendor partners the incremental opportunities you bring to the table.

As a manufacturer or integrator/dealer, how you respond to the next few years will have a profound impact on the future of your company. We are in the beginning of the IP revolution, as even former cynics are now predicting IP to take over the majority of industry shipments in the next several years.

Keep an open mind, and learn from other’s experiences. Read “How The Mighty Fall” by Jim Collins. It’s a short but eye-opening read. It points out some of the symptoms of what causes great companies to fail and what to look for in your company. Also try “The Innovator’s Dilemma” by Clayton Christensen. It documents how innovation and change allow small upstart companies to displace large established players in a marketplace.

What experiences have you had with the dynamics described above? How are your organizations adapting or taking advantage of the IP evolution?

This post was written by

Paul Constantine is Vice President of Merchandising at ScanSource Security in Greenville, SC. He has over 12 years of experience working with vendors and customers at ScanSource, Inc., and is a regular contributor to The Source on marketing, vendor programs, and the state of the physical security industry.

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