News

14/7/2003

Security Service Providers Bundle Products to Counter High Competition and Low Profit Margins

Security service providers in the U.S. are restrained by low profit margins, an outcome of high market fragmentation and competition. Otherwise, the industry is witnessing significant growth riding on high security requirements after the September 11, 2001 terrorist attacks.

Many companies subsidized installation costs and modified pricing schemes in their bid to win long-term monitoring contracts. This along with mass- market programs have undercut their profits despite the increase in demand.

New analysis from Frost & Sullivan, U.S. Security Services Market, reveals that this market generated revenues worth $20.3 billion in 2002 and is likely to reach $39 billion in 2009.

"Market participants are integrating home automation equipment, telecom services, structured cabling, Internet, and broadband services with their product portfolio to expand target markets and thereby, increase revenue flow," say Frost & Sullivan Senior Industry Analysts Prianka Chopra and Deepak Shetty.

Burglar alarms continue to generate higher revenues even as video surveillance and access control systems are rapidly gaining popularity.

However, companies are facing high attrition rates due to poor focus on target audience, lack of maintenance teams, and less-efficient monitoring. The fluctuating financial position of customers, their relocation, and changes in value perceptions are also prompting cancellation of subscriber accounts.

"Service providers are further beleaguered by the high incidence of false alarms, especially in the commercial segment," says Chopra. "This is leading to imposement of fines and penalties by local governments as false dispatches consume valuable time of law enforcement agencies."

Police departments are deliberating the adoption of non-response or verification-required policies while reacting to alarms. Ordinances to charge companies with an alarm dispatch fees are also under consideration.

"The verification standard formulated by the Central Station Alarm Association, which mandates a second call to be made if the first one fails to reach a responsible individual, is a major step toward curbing false alarms," says Shetty. "However, companies will be compelled to absorb the extra costs involved if they have to avoid a decline in demand."

www.frost.com