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Predicting the future.

AS ELECTRONIC ACCESS CONTROL enters its fifth decade, it is still a dynamic and emerging industry. Although much has changed in the past 10 years, the next 10 promise to be even more exciting and challenging and filled with opportunity. Based on market studies and industry trend analysis, four predictions for the future of the electronic access control industry can be identified.

Growing market. Globally, more than $25 billion worth of access control products will be purchased in the 1990s, compared to $5 billion in the 1980s. The worldwide access control industry will grow at an average annual rate of 15 percent, which compares favorably with the 12 percent projected growth for the overall US security industry. (See Exhibit 1.)

This growth will be fueled by the following three factors.

Increased market penetration. As computer chip technology makes multifunctional controls available in small, inexpensive configurations, access control will become affordable to a broader customer base. Toward the end of the 1980s, major manufacturers began introducing smaller systems. Companies that had previously shown no interest in the small-system niche, where competition is great and profit margins are small, changed their focus because they expect a growing number of customers of the 1990s to be in this market segment.

New markets and applications. Forbes lists industrial controls as one of the leading growth industries for the 1990s. The access control industry will take part in this growth as new applications for receiving information will be combined in distributed systems. Some of these markets already overlap. Electronic access control companies with radio frequency (RF) proximity technology already sell nonsecurity RF identification products for use in transportation, animal identification, industrial automation, and material handling.

Another new growth area for access control will be biometric technologies. The biometric industry struggled in the 1980s as companies were launched, new technologies developed, and products improved. Marketing strategy in this segment was unfocused and in some cases absent.

In the last two years, however, the biometrics industry has begun to make headway toward developing an attractive range of products for customers, and the new products are significantly improved. They are reliable and do what they are supposed to do: provide a means of positive identification. Prices have dropped and manufacturers have begun to market biometric products as identification sensors to be integrated into systems rather than selling them as stand-alone devices.

This new approach has expanded the market appeal of biometrics. Firms in other industries are beginning to view biometric devices as viable products and to design applications combining their own technologies with biometrics. The current biometric technologies-retinal, fingerprint, hand geometry, voice, keystroke, and signature-should be the ones to succeed in the 1990s, along with one or two technologies yet to be developed.

Foreign markets. The most promising growth opportunity for the access control industry will be expansion into overseas markets. In the early 1980s, only a few companies had significant distribution outside North America, and their total sales overseas accounted for less than $5 million to $7 million annually. By 1988, overseas sales by US access control competitors totaled almost $50 million, accounting for 15 percent of their total revenues. Seven of the top 20 competitors earned 20 percent or more of their sales overseas.

This growth represents only minimal penetration into overseas markets. Most of these overseas sales have been in Europe, a market about the same size as that of the United States with fewer indigenous manufacturers. To date there have been no focused efforts in the Pacific Rim, South America, Australia, or the Middle East. Each of these markets holds significant opportunities, and their combined potential may mean that sales in these regions will eclipse those in Europe by the late 1990S.

Globalization of markets. A second prediction expands on this previous thought: Major US companies will generate half of their sales overseas and foreign companies will capture a significant share of the US market in the 1990s. (See Exhibit 2.)

Many of the oldest and largest electronic access control manufacturers are now foreign-owned, most by European firms. This trend is not alarming, however. Relatively few access control manufacturers are headquartered in Europe, compared to the number in the United States. In fact, an analysis of the current European access control industry reveals not only a dearth of manufacturers but also a large number of distributors with strong local sales in their countries of origin but limited transnational sales.

In this type of competitive climate, companies must establish a distinctive product line to grow beyond the local market. European buyers of US companies are investing in the expected growth in the US market and also positioning themselves for the 1992 European unified market.

For European companies there is an ongoing scramble to expand across and beyond an integrated Europe, and the rush to enter Eastern Europe has begun. In ever-increasing numbers European companies are looking to develop, buy, or otherwise secure state-of-the-art access control products from the United States.

At the close of the 1980s this scramble took the form of acquisitions. In the 1990s the approach will be more studied and deliberate and include both acquisitions and joint ventures. Initiatives from both sides of the Atlantic can be expected. After all, a combined US-Western European total market of $1.5 billion to $2 billion is an attractive lure for combining American technology with European marketing. And this market total does not include other potential markets in Eastern Europe, Africa, Asia, and South America, which are accessible through European trade agreements.

In the 1990s the Pacific Rim will also produce competition in the role of acquirer or joint venture partner. Currently only Japan has made forays into the US security market, primarily in the alarm services and telecommunications security services segments. The Japanese will likely follow the example of the British and buy their way into the US security industry.

High technology-driven market. Technical innovations in the 1980s were primarily in hardware. The third prediction for the 1990s is that software is where the action will be.

Throughout the early 1980s technological innovations in the access control market were limited to enhancements of card technology and incremental improvements in reporting and data management. Vendors relied on clumsy proprietary central processors, thus limiting their market to large customers who could afford the average per-system price tag of almost $100,000.

By the mid-1980s, the explosion in the personal computer (PC) market completely altered the nature of access control. The PC brought about several profound changes in the structure of the industry. Barriers to entry were greatly lowered as costs for developing control systems dropped, and the marketing focus began to shift from hardware - cards and readers-to software-controls and reporting. (See Exhibit 3.)

Prices dropped by as much as 50 percent as new competitors with low overhead aggressively and successfully marketed to dealers and customers. The established leaders whose businesses were based on their proprietary hardware were slow in adapting, and the top three suppliers' market share declined from almost 46 percent in 1983 to 30 percent by 1988.

Finally, the PC put the industry in touch with the high-tech age, so that the time between innovations in electronic processing and their adoption as applications in access control was greatly compressed. Distributed processing, networking, user-friendly displays, and new computer languages quickly followed the PC into the mainstream product line offered by access control manufacturers.

What to expect in the '90s? Just follow the trends in high tech. As PCs become faster and more powerful and more coherent operating software is developed, access control systems will be able to integrate other control functions, from lighting to electronic mail. The use of access control applications will also be expanded into other facets of industrial monitoring.

Electronic access control competitors will be greatly affected by these technological developments. Even today, suppliers that do not have a PC-based distributed intelligence product cannot be competitive. This type of technological pressure will only increase, leading to greater research and development (R and D) expenditures and a rush to get new technology to market.

As the market grows increasingly toward technology and away from its traditional security orientation, more nonsecurity firms will enter into competition. Companies that fail to invest in R and D and production or are slow to get new technology to market will lose the race for new customers.

This emphasis on technology will mean good things for the consumer. Electronic access control systems of the 1990s will possess improved user interfaces and more flexible applications, while manufacturers will provide better product support, training, and customer service and lower prices.

Industry consolidation. A final prediction for the access control industry in the 1990s is that the era of independent access control companies will come to a close. More and more, customers will buy access control products as part of a total integrated security system solution.

The access control industry has begun to consolidate. Consolidation is a by-product of the other trends addressed here as well as other market forces that favor larger competitors. Also, security customers' growing need for integrated systems will require that security products be packaged into a single system.

It is estimated that in 1990 11 percent of electronic security products ended up in an integrated system, representing a doubling of the integrated security systems market since 1985. By 1995 the market will have doubled again to a $1.6 billion market. Customer surveys reveal a 30 percent increase in the number of integrated systems purchased as a portion of the total number of access control systems purchased from 1985 to 1988.

What is perhaps more significant is the growth in the diversity of organizations using integrated systems. In the early 1980s integrated security systems could be found only at nuclear power facilities and other high-security sites. By 1987 and 1988, however, integrated systems were in use in corporate headquarters, manufacturing facilities, computer rooms, and even retail stores.

Electronic access control systems are often the nucleus for interior integrated security systems, providing the basis for remote identification of authorized personnel and for two-way communication between central alarm stations and protected facilities.

Despite promising growth in the 1980s, access control equipment used in integrated systems never accounted for more than one fifth of the overall access control market. In the 1990s the outlook for integrated systems solutions is much stronger, thanks to industry-wide emphasis on integrated systems and new industry attitudes toward technology. The industry has shifted its focus from hardware to software. The development of PC-controlled distributed systems was crucial in establishing the technical base for integration and orienting manufacturers toward software development.

Distributed architecture eliminates the need for independent control systems for each type of security device. Most integration tasks-time and attendance; lighting; heating, ventilating, and air conditioning (HVAC); production controls; and even intrusion detection and CCTV-are local operations that do not require centralized processing, except for reporting and record keeping. In fact, central integration of these tasks requires too much memory and is too slow. A distributed system capable of integrated operations and multitasking-and with the software capability to link different technologies and signals to operate efficiently and provide useful, understandable information to a multiuser base-is the key to providing a truly integrated product.

The industry is now only part of the way there. The trend is toward integration because integrated systems manufacturers will need one common software to control their product line rather than multiple software for different systems. This change will significantly affect cost structure. Also, because of the similarity of components such as cards and readers, integrated systems suppliers will be able to compete in both large and small systems markets. Finally, to compete globally, competitors must have a highly flexible and complete product line.

More integrated applications and products are on the market. There has been developmental work in large system integration of CCTV and access control in a fully automatic operating and reporting system. Some companies are now offering off-the-shelf CCTV-access control integrated systems. Several companies have integrated one or more biometric technologies into their access control products. Manufacturers are thinking in terms of multiple security and control smart devices linked together by intelligent controllers and reporting to one or more central consoles.

The key to widespread acceptance of integrated systems will be for manufacturers and dealers to market this concept to customers who are already seeking ways to improve productivity through advanced control technologies. Before the end of the 1990s security, environmental, and industrial control systems will report to a single console.

While the customer demand for integrated systems is pulling competitors toward consolidation, other market forces will be pushing in the same direction:

Increased emphasis on technical performance. Throughout most of the last decade success has been predicated on marketing and distribution. Superior technology, while important, was by no means essential. Successful companies were effective marketers with established images synonymous with reliability and longevity.

Despite early dominance in the market, some companies found themselves losing market share by the mid-1980s because they had not invested in updating their technology and had fallen behind. Some of them responded by developing and introducing new systems, while others were able to shore up their positions by joining forces with more technically innovative competitors. The overall competitive structure did not change significantly and the market leaders were able to rebound, although it is still too early to determine how far.

But the pace of technology change is quickening. While it took almost 10 years for proximity to progress from a specialized high-end product to a staple of each major competitor's product line, distributed intelligence control architecture took the same journey in roughly one quarter of the time. Keeping up with technology requires substantial reinvestment of capital into R and D as well as continually keeping abreast of technological innovations in related industries and constantly feeling the pulse of the customer. As the competitors become more technology oriented, the pressure to be the first to market with a new product will intensify and result in an industry-wide acceleration of concept-to-market time.

Increased competitive pressure. At the beginning of the 1980s approximately 25 companies manufactured card access control systems. By 1989 the number of competitors had swelled to more than 100. More significantly, recent market entrants have included large companies rather than the small garage operations that fueled the mid-1980s expansion.

As the market continues its growth, more and more large defense, engineering, and telecommunications companies, both US and foreign, will be attracted to access control as a new market where they can leverage their technology, capabilities, and distribution. With the entry of these larger players and the continual upgrading of product lines by existing competitors, product lines among the major competitors will roughly be equal. This predicament will cause competitors to seek another means of differentiation, such as service.

Increased service and support requirements. Some of the more successful access control companies have created unparalleled dealer networks by recruiting the best dealers, developing a favorable position with them to ensure exclusivity, and then supporting them well and not competing with them. This commitment to a dealer network allows a company to operate with lower overhead than its principal competitors, who sell direct through sales offices instead of networks.

In the 1990s distribution will still be a key factor, as there are more products available and fewer dealers to sell them. To reach the end user, a manufacturer must have technically competent, reliable, reputable dealers. More manufacturers will establish partnerships with their dealers rather than relying on the traditional supplier-vendor relationship.

Advances in technology will require manufacturers and dealers to offer more ambitious training programs and customer support services. Long-term planning for success will mean jointly developing marketing and sales training. These developments will entail significant investment by manufacturers, which will have to be protected by guarantees of exclusivity.

The increase in importance of distribution will favor the security original equipment manufacturers (OEMs), telecommunications, and building management systems companies that already have large distribution networks with the technical skills and marketing base to sell security systems to integrated systems customers.

The result will be a competitive climate defined by technically complex but similar products being offered through large, highly-skilled distribution networks, where competitors will differentiate themselves through the range and quality of services offered to customers.

For smaller companies the investments needed to compete in this market will not be feasible. Their success in the 1980s was based on the availability of low-cost distribution through independent dealers who only wanted price competitiveness. In the 1990s there will be an obligation to increase spending for quality distribution as well as R and D, further favoring the larger, established competitors and new entrants that are subsidiaries of larger high-tech, security, or controls companies and have the financial and technical backing of their corporate parents.

Small companies and new entrants will still be a part of the industry, but they will compete in the small-end market and offer specialized products or services. The result will be consolidation of the industry throughout the decade.

How will these four predictions affect competition?

The 1990s will be not only a decade of increasing challenges for access control competitors but also a time of tremendous opportunities. Growth in demand in the US and overseas markets will generate opportunities for increased revenues. Companies positioned with well-supported distribution and competitive technology will reap the benefits of expanding markets and spin-off applications. Dealers, too, will be fewer in number, larger, and more technically proficient.

For the access control manufacturer, profitability has often been elusive. Product development, engineering, and marketing were generally inefficient, and the high costs associated with them cut into margins. New entrants aggressively bid prices down, and the market leaders were ineffective in exploiting their advantages.

In the future, the advantages of size and technology base will give market leaders a decisive edge if they also continue to spend efficiently on R and D. Companies that have been generally profitable will be successful in efficiently developing their technology and strategically focusing their efforts where they have an advantage.

In the 1990s profitability will come to those competitors that can most cost-effectively develop and get to market customer-oriented products.

Will these trends benefit the consumer? In the next two to three years manufacturers will be busy developing next-generation technology, particularly by designing more complex and powerful PC-based, distributed intelligence products with integration capabilities. By 1992 customers will see a wider selection of faster, more powerful operating systems with more efficient software.

Systems integration and new applications of access control technologies will require adopting new software. Reader technologies will not change significantly, although biometrics, laser technologies, and smart cards may become more acceptable alternatives. Medium- to long-range proximity will be the technology of choice with a wide range of product configurations to choose from.

As leading manufacturers develop these new systems, new entrants will continue to glut the market with undifferentiated products, and competitors in other segments of the security industry will add access control to their product lines either as dealers or OEMS.

But by the second half of the decade the full benefits of consolidation will begin to be seen. Access control products will be fully integratable. Manufacturers and dealers will have greater software capabilities and will be able to assist large system customers in tailoring integrated control systems for a variety of needs. Security software will be available in off-the-shelf packages at affordable prices in a variety of standard languages.

Entrepreneurs will still be in the market offering the next wave of products and keeping the mainstream competitors from becoming complacent. The major players will emphasize quality customer support and their role as one-stop security solution suppliers. The overall result will be that the consumer will have an intelligible choice among price-competitive, powerful, productive, and user-friendly next-generation technology backed by dependable, quality service.

Overall, the 1990s will be a demanding decade for the manufacturer. The industry will mature. Biometrics, smart cards, and RF identification may become significant industries in themselves, though more likely these technologies will not be widely accepted until after the turn of the century. Competitors will get larger, smarter, more efficient, and more customer-oriented or they will not be around in 2000.

Finally, the consumer will select from a wide range of intelligent, reliable products offered by highly professional vendors. If the industry continues the trends begun in the mid to late 1980s, by the year 2000 we can expect a robust and highly profitable access control industry serving even more customers, meeting a greater number of control needs more effectively, and doing all this at lower costs.

About the Author . . . Randy M. Perry has conducted several studies of various segments of the US and European security industry as a senior consultant with JSA International, a strategic consulting firm headquartered in Cambridge, MA. He is a member of ASIS.
COPYRIGHT 1990 American Society for Industrial Security
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Cards: The Key to the Future; special access control supplement
Author:Perry, Randy M.
Publication:Security Management
Date:Nov 1, 1990
Previous Article:Phasing into control.
Next Article:It's all in the cards.

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