Industry Analysis SECURITY PRODUCTS Research Report

Segment Definitions .......................................................................................................3

07/12/2006 Jerry Lvovich Barington Capital Group

Industry Overview
Security industry consists of thousands of individuals and businesses (not including public sector law enforcement) that provide products and services for the protection and monitoring of life, property and information. Segments, comprising the security industry, consist of Access Control, Biometrics, Closed Circuit Television, Fire Protection, Home Automation, Monitoring and System Integration. The market for security industry is estimated to be greater than $30 billion. Different segments are growing between 5% and 20% per year. The security industry caters to either government or business. Three main business groups of clients are Commercial, Industrial and Residential. In 2005, commercial segment was near 50% of total business market revenues, despite decreasing by 7% compared to 2004 in absolute value. Revenues from industrial customers were 31%, a growth from 2004 of 11% in absolute terms. Residential customers generated 19% of all revenues, demonstrating the largest increase, 26%, in absolute value. CCTV is leading product revenue generator source with 38% with access control the next highest at just 21% according to Security Sales & Integrations 2005 Installation Business Report. Fire Protection generates 10% of revenues while Home Automation only4%.

Industry Profile Segment Definitions

1. Access Control Access Control is the use of qualifying devices or identification methods at various points to control the passages of people, assets and vehicles into or out of an area or structure. Access control systems limit access to people who have authorization to enter through selected points. In short, it can control who or what goes where and when. 2. Biometrics Biometric identification uses some unique physiological or behavioral characteristic, not shared by any other individual, to positively identify an individual. 3. Closed Circuit Television Closed Circuit Television, also known by the acronym CCTV, is a private video system within a building or complex used to visually monitor a location for security or industrial purposes. A CCTV system can be recorded and viewed on-site or viewed remotely through the use of telephone lines. 4. Fire Protection Fire alarm signaling systems consist of a fire alarm control panel, initiating devices (smoke detectors, heat detectors, water flow switches, pull stations) and notification devices (horns, strobes, bells). The system automatically sends a signal to notify building occupants and outside monitoring stations that a fire alarm condition exists.

5. Building Automation
Home automation is the use of microprocessor-based intelligence to integrate or control electronic products and systems in the home. Examples of products to be controlled or integrated are floodlights, coffee makers and computers. Systems (or "subsystems" of a home automation system) include security systems, heating and cooling systems, lighting control systems and audio/video (home theater) systems. 6. Monitoring If it can be sensed it can be detected, and if it can be detected it can be reported. Monitoring is the key reporting link in electronic security. Alarm communications transmits digital, audio and video data over thousands of miles using telephone, broadband connectivity, VOIP, radio or other technologies. The location that receives and processes this vital information is known either as a central station or a monitoring center. There are options as to who, how and where monitoring takes place. 7. System Integration System Integrators are firms and individuals who implement for end users technology described in every segment above. System integrators develop and deliver security solutions to be employed by government, business and residential consumers.

Convergence 1.
Centralization of Systems Control

Convergence is main tendency in security systems markets. In commercial and government settings, todays fire, alarm, security and other systems tend to tie into central information technology networks. Large international companies increasingly want to manage security systems across multiple sites from a central location. The industrys challenges are to develop crossfunctional packaged systems and to service such clients. Overcoming these challenges has resulted in consolidation process. Integration will cover intrusion, locking and access control, all in easy-toperform functions without having to perform each of the three different functions separately. Such solutions offer integrators foolproof operation and a much better level of safety and security for their clients. 2. Security: Information vs. Physical Assets The industry is moving from a command and control model to a business coverage model by converging physical and logical security. The transition goes from worrying about the cost of an asset to worrying about the information on the asset. As a result IT security is becoming essential part of the security industry. Below is the historical and forecasted data on spending related to convergence projects. Security Convergence Spending in North America and Europe ($mm) Year 2004 2005 2006 2007 2008 Total Spending $506 1,123 2,713 5,962 11,290

Industry Participants
1. Large Consolidated Players Over the past five year industry went through a wave of consolidation. Large players have bought over 50 security and fire systems companies. Conglomerates that operate security divisions include Bosch, Tyco, Panasonic, Sony, General Electric, Honeywell, Assa Abloy, etc actively participate across industry segments. Despite consolidation there are still a few medium and small competitors. Smaller firms are finding it more difficult to compete in the new environments. However the most successful ones find their strength in product and customer focus, attention to detail and technology innovation.

2. Small Fragmented Businesses

Implementation segment of security industry is still highly fragmented. 50,000 individual companies in the United States and just as many abroad comprise the industry of manufacturers, security installation companies and locksmiths. There has not been a major roll up which suits smaller providers of security

equipment and services. This suites well medium and smaller firms as their clients find them to be the right size.

Economic Distribution and Trends

Systems integrators experienced a rise in the scale and price of installations, as well as in gross and net profits. As a result, integrators are installing nearly twice as much of CCTV products then any other product. This can be interpreted as a growth potential for CCTV product suppliers and manufactures. On the other hand, suppliers and manufacturers of access control systems may have to reevaluate their strategy. Research report by Frost & Sullivan notes that key factors behind increased demand for electronic security equipment are stringent insurance requirements and new technology developments.

Network Cameras
Network camera market is expected to grow 53% annually to exceed $1billion by year 2009 according to World Market for CCTV & Video Surveillance Equipment, a study from UK research firm. IP-surveillance market was over $200 million in 2005, however this year along there are numerous examples of installation contracts for major airports. This segment represents a great feasible growth opportunity. Airport Security Equipment Industry earned 2,616 billion in 2004 and is expected, by Frost & Sullivan to earn $6,120 million in 2009 an average annual growth of 18.5%. Such tremendous growth can be explained by two factors, heightened awareness of the products value and introduction of higher quality equipment, such as mega-pixel cameras and network-dome cameras. Note, that this segment had grown in 04 and 05 faster previous research had predicted.

Biometrics
Biometrics market is growing at a phenomenal pace. In 2002, total size of global and North American biometrics market was $561million and $249million respectively. In 2004, market size grew to $1,137million and $527million doubling in size over only two years. Moreover, in 2008, Global market is expected to reach 3,449million, while North American would account for $1,419 million of it 32% annual growth globally and 28% annual growth for North America. Currently, traditional fingerprint technology represents most of the market size. Most of the growth, however, would come from developing more then one technology. Purchasers demand integrated multimodal (more then one verification method) solutions. Currently 95% of players offer only one-in-seven technologies. This factor may contribute to great consolidation within this industry segment. Over 70% of respondents support biometrics as a way of verifying identity according to a recent study of publics attitude across the world. Convenience of not having to memorize ids and passwords was named as a major advantage. Voice recognition lead the list preferred methods, according to The Ponemon Institute, followed by fingerprints, facial recognition, hand geometry and iris scans.

Access Control

Access control is possibly the most mature segment of Security Products industry. Current U.S. access control systems market at $768.5 million, while globally its expected to exceed $1,700 million by the end of 2006. Market research firm RNCOS expects this market to grow at annual average rate of anywhere between 10% to 37%. At the same time, Access Control segment participants enjoy the widest gross margins of any other industry segment. According to IMS Research, intrusion detection portion of access control market could experience annual growth of 6% for at least next 5 years. The major contributor to such growth is higher reliability of wireless alarm equipment, that previously was considered to be to risky for security.

RFID
Consumer Packaged Goods Sales of Radio Frequency Identification (RFID) systems, which account for a large portion of Access Control market, have tremendous growth potential. Wide use of RFID tagging is becoming imminent, as security concerns widen and modern technology evolves. This technology should replace barcode system in the supply chain. However, there are questions regarding ROI on RFID technology use in Consumer Packaged Products sector. Currently ADT and OAT Systems are sponsoring major study on ROI value in retail involving major CPG manufacturers and retailers. Wal-Mart has adopted an RFID requirement to all of its suppliers. FDA has urged pharmaceutical companies to consider RFID tags as a way to battle exploded counterfeiting of drugs. RFID tag technology allows for instant tracking and global locating of marked assets. According to In-Stat, market research provider, 1.5 billion tags were produced in 2005, while 33 billion are expected to be produced in 2010. This represent 85% expected annual growth of units sold. Personal Identification Another area of possible RFID growth is using passive RFID chips in passports, drivers licenses and other identification documents. However, using RFID in non-government issued Ids might become illegal. States such as California, Alabama, Illinois, New Hampshire and Rhode Island are considering either complete or partial ban on the use of Radio Frequency chips by business consumers.

Sources 1. Security Industry Association Research Update Report for the 1st Quarter,
2006 2. SecurityInfoWatch.com 3. www.SecuritySales.com Market Statistics 4. Frost & Sullivan (www.frost.com) market research firm

Appendix A: Detailed Segment Description

Access Control
What Is Access Control? Mechanical locks and keys are the most basic form of access control, but electronic access control solutions are now the norm in commercial facilities and increasingly in residential applications. The use of electronic card readers, keypads, biometric devices or a combination of technologies that restrict the passage of persons, assets or vehicles from one point to another. Digital memory can keep track of who/what went where and when. Access control is typically to control entry to parking lots/structures, building entrances, critical areas within buildings, elevators, etc. Components of Access Control Systems Credential: This is the identification device carried by the user to access controlled areas. It can take any of the following forms: electronic key/tag flat card suitable for photo ID lamination personal identification number (PIN) assigned to the user biometric (fingerprint, hand geometry, or iris) In some instances, a card may offer more than one technology, thus allowing the card to be used for either multiple applications or on multiple systems simultaneously. Access Control Readers: Readers are devices that only allow access to a preprogrammed set of identifiers such as a numerical code, a magnetically encoded or pre-encoded set of data or a biometric template such as a fingerprint, hand geometry, or iris. Readers incorporating technology such as PIN, proximity, Wiegand, magnetic stripe, smart card, or a biometric are designed to meet access control needs in a variety of environments. Readers are available in multi-colors and styles, including lowprofile, mullion mount, brass and stainless-steel vandal-resistant versions. Access control readers may be stand-alone units controlling one door each, or in larger systems may be connected to a door controller. Door Controller: A door controller is the backbone of a multi-door access control system. Today, door controllers typically manage two, four or eight doors. Except in the case of small or off-line systems, door controllers are connected to a centralized PC; this connection can be hardwired or done through a LAN/WAN or TCP/IP connection. Using distributed logic and information retained from the software management system residing on the PC, the door controller processes information received from the reader. Dependent upon the system, the door controller has a number of functions including locking/unlocking doors and sending alarms.

Optional PC Administration: As the number of doors in an access control system increases, the easiest way to manage the system is via central administration with a personal computer. Remote sites can be linked to the central network controller via LAN/WAN, TCP/IP connection, modem, fiber optic, microwave or radio link. Today most access control systems run on Windows or LINUX based operating systems. Applications Who is using Access Control? Commercial office buildings both single and multi-tenant Property Management companies Government / Military Airports Educational facilities Public buildings (libraries, museums) Manufacturing Financial institutions Parking structures and lots Prison Systems Healthcare And many more

10

Biometrics
How Does Biometric Identification Work? All biometric devices work by matching an individual's features to the one recorded in the device's memory. That individual's record is commonly distinguished by the use of a PIN (personal identification number). This one-to-one comparison mode of operation is known as verification of identity of the "verify" operational mode. The user must identify him/herself to the device by way of a personal number or card so that his or her identity may also be corroborated by the device. Comparing Bioidentifier Technologies Trait comparison The bioidentifier technologies that register and compare these characteristics may be further divided into three categories: Behavioral Traits, Topological Traits and Discrete Traits. Behavioral Traits are habituated activities which a person does in a regular, learned or otherwise consistent manner. Examples are handwriting, keyboard dynamics and voice verification. Topological Traits are unique, superficial, physiological characteristics which remain reasonably stable enough throughout an individual's lifetime to serve as bioidentifiers. Among these are fingerprints, hand geometry and facial features. Discrete Traits are characteristics which are neither behavioral nor topological. Discrete traits may not be acquired without the knowledge and consent of users nor be used to track persons. Retinal vasculature is an example of a discrete trait. Measuring comparison Another way of comparing bioidentifier strategies is through the technique by which the trait is recorded or measured. Although there are some hybrids of the following methods, the basic types of trait signature methodologies are by means of: 1. The recording of "minutaie" or a set of minute feature detail types and locations extracted from imaging of the trait, accomplished by physical contact method and/or electromagnetic scan such as in fingerprint or eye/iris scan; 2. Graphically based measurement comparison via physical contact method or electromagnetic scan such as facial characteristics or hand geometry; 3. Sound (voice) recording analysis; 4.Non graphical remote electromagnetic trait acquisition and comparison which does not record minutaie or video images such as retinal recognition.

11

Biometric Verification vs. Automated Positive Identification Systems Biometric verification systems operate on the principle that a device is able to measure a unique physiological or behavioral characteristic and compare that characteristic with a record of the enrolled individual. An enrolled user first identifies him/herself by means of a code and then allows the targeted trait (which was registered at enrollment) to be read again by the device to compare that reading with the enrolled trait. In this manner, the device is able to verify whether the individual is, in fact, the person whom s/he claims to be. The advantage of this process is that it validates or "verifies" the authorization of the user of the card of code as a protection against its use by unauthorized individuals. Automated positive identification (APID) systems also acquire a trait "signature" from an individual, but perform identifications in a fundamentally different manner. Individuals' characteristics are archived within the system's memory as they are in biometric verification systems, but subsequent trait readings are compared to all archived templates and "recognized" on the basis of whether a match exists with anyone enrolled. The advantages of APID are that they completely eliminate the device or code custody requirements for such things as keys, combinations, codes, cards and passwords which are the weakest links in conventional security and identification systems. Recognized Biometric Identification Technologies include: DNA Electrophoresis * Laboratory setting only Handwriting Dynamics Eye - Iris Scan Eye - Retinal Recognition Infrared Imaging Facial Characteristics Keyboard Dynamics Fingerprint/AFIS * Automated fingerprint Identification Systems Voice Verification Application Hand/Physiological Geometry

Electronic bioidentifiers have been applied in a wide variety of security applications. Among these applications are: Electronic access control Inmate booking & release/parole ID Safe & vault security Elimination of welfare fraud Time and attendance Information security ATM Benefits disbursement

12

CCTV
What are the Basic Components of a CCTV System? Most CCTV systems consist of the following equipment:

1. CCD (Charged Coupled Device) Camera

The modern CCTV video camera is available in both monochrome (black and white) and color. Cameras can be set in fixed positions or placed on pan-and-tilt devices which will allow the camera to be moved up, down, left and right. Using a zoom lens will allow a closer view of the person or object you wish to see. 2. Monitor A monitor is very similar to a standard television set, however, it lacks the electronics to pick up regular television. Monitors are available in both monochrome and color versions. 3. Time-Lapse Recorder The video recorder commonly used in the security industry has the ability to record up to one week of video on one tape. The most commonly used timing is the 24-hour mode. Having to change tapes only once a day and retaining large amounts of information are advantages of using this type of recorder. 4. Coax Cable Coax cable is the standard means of transmitting video in a CCTV system. Coax is the same type of cable used by cable companies to send television into the home. 5. Control Unit If a CCTV system has more than one camera, there must be a way to control each video signal going to the VCR and the monitor. There are three basic types of Video Control Units: Switchers: Units that provide full screen images, one camera after another, typically for 3 to 5 seconds each. When one camera is on the screen the other cameras are not being recorded. 6. Quads A Quad sends up to four cameras to the screen and to the recorder at the same time, each camera gets a quarter of the screen. All of the information from each camera gets recorded but only in small quarterscreen clarity. 7. Multiplexers These units are high-speed switchers that provide full-screen images from up to 16 cameras. Multiplexers can playback everything that happened on any one camera without interference from the other cameras on the system. What is Resolution? Resolution is a measure of how clear and crisp an image on the monitor appears. Each piece of CCTV equipment in a system plays a part in the overall image quality and the final image will only be as clear as the piece of equipment with thelowest resolution. If you are using a high-resolution monitor and a lowresolution camera, the monitor will display the image quality of the lower resolution camera. This becomes increasingly important when recording the system. The image quality when playing back a tape is typically half that of your normal monitor image. Be sure that the resolution of a system will fit your needs

13

before installing the system. What is Remote Transmission and Alarm Verification? Remote Transmission and Alarm Verification are new CCTV technologies that allow a CCTV system to be monitored and alarm conditions to be verified from a professional central monitoring station anywhere in the world. The central monitoring station responds to alarm situations not only by recording and viewing the site, but also by turning on lights, opening or closing gates and doors and even interceding with live audio. While this technology cuts down on false alarms and gives authorities better information, such as license plate numbers and physical descriptions, it also gives companies the ability to "look in" on inventories, point of sale displays and employees. Where is CCTV Being Used? CCTV is being used effectively almost everywhere. From airports to day care centers, even in our homes we are finding benefits in seeing who is at the front door or watching the baby. You will find cameras protecting parking garages, apartment complexes and many of our workplaces. You'll find cameras in many police vehicles to document and help keep our roads safe.

14

Fire Protection
What are the Basic Components of a Fire Alarm System? 1. Fire Alarm Control Panel A fire alarm control panel provides the necessary circuits to power the fire alarm system. It receives signals from detectors and transmits the signal to the notification devices. Fire alarm control panels also supervise the system wiring and the primary power source to the panel. Auxiliary power supplies in the control panel are required in the event of a power failure. 2. Initiating Devices Smoke Detectors: Devices that detect invisible and/or visible products of combustion. These detectors can be of the photoelectric or ionization type and can also have a heat sensing element; Heat Detector: Devices that detect high temperatures or a certain change in temperature over a fixed time period, called rate-of-rise detectors; Pull Station: Fire alarm box containing a glass plate, rod or pull element that manually activates an alarm; Waterflow Switch: Switch installed in the fire alarm sprinkler system that monitors the flow of water in piping serving sprinkler heads. This switch will activate when a sprinkler head discharges. 3. Notification Devices (also called Indicating Appliances) Strobe and Horns: Audible or visible devices used for signaling an alarm condition in a building. Horns must be of a certain decibel level over ambient noise to effectively alert occupants to a fire. Fire alarm strobes typically employ xenon tubes and light efficient reflectors to pulse at a certain flash rate to signal warning of a fire. The Americans With Disabilities Act additionally specifies strobe requirements for evacuation of the hearing impaired. These strobes feature an extremely high illumination (candela) to ensure that occupants, especially those in sleeping quarters of hotels, will be adequately protected in the event of a fire. How Does the System Work? When a smoke detector senses particles of combustion, or a heat detector is activated through an increase in temperature, or a pull station is manually activated by an individual, an alarm condition is conveyed to the fire alarm control panel through the initiating circuit. The fire alarm control panel then responds by activating the indicating appliance circuit, sounding the horns and firing the strobes. Monitored fire alarm systems can simultaneously alert building occupants and a central station of the fire department that there is an alarm condition at the protected premise. If there is a power failure in the building, the fire alarm system will still be powered by a battery backup. This battery backup must be capable of functioning and activating an alarm for a specified length of time per NFPA (National Fire Protection Association) requirements. In addition to having UL approval on all components, fire alarm systems are also required to have smoke detectors and panels listed with Underwriters Laboratories to ensure that they will be electrically compatible.

15

Unlike stand-alone residential smoke detectors which have reset buttons, fire alarm systems must be reset at the panel. Action must be taken to investigate the cause of fire before the system can be reset, ensuring the highest level of protection and life safety.

16

Home Automation A home automation system is a central processor that receives signals from several electronic devices (or from events like sunrise) and responds by transmitting appropriate signals to other devices. For instance, upon receiving an "input" from an occupancy sensor that detects motion in the front hallway, a home automation system might trigger the "output" that turns the hallway lights on and cranks up the heating in the home. The input could be an internal clock that strikes 7 a.m., with the output being to start the coffee pot, draw open the motorized drapes in the bedroom and start spinning a slow CD. User Interfaces A home automation (or "home control" or "whole-house control") system normally takes the form of a central processor unit (CPU) and several user interfaces. The CPU initiates or routes communications signals throughout the house. User interfaces can be: keypads touchscreens panic buttons TV screens computers telephones hand-held remotes or other devices that consumers use to send/receive signals to/from the CPU. Home Automation Networks Regardless of how a home's electronics communicate with each other, they must communicate over some kind of residual network. The networks can be wireless (infrared or radio frequency), or wired, the more widely used approach today. Wired communications offers several options. Components may be hardwired to each other, so that, for instance, one dedicated wire connects a bank of lights in the living room to the home automation system. For new construction applications, hardwiring is normally considered the best option -- the proper cables can be installed before the walls go up. For retrofit applications, when it can be costly or difficult to fish dedicated wiring behind the walls, "softwiring" might be a better option. Softwiring employs cabling that already exists in the house to route signals throughout the house. The cables are the AC wiring that can be accessed through standard electrical outlets and telephone wiring that can be accessed through phone jacks. Although softwire communications has improved tremendously over the years and can support even elaborate home automation networks, it is often

17

considered to be less reliable than hardwiring since multiple devices share the same wiring, and noise may be present. Home Automation Standards So many types of products--PCs, light switches, coffee makers, thermostats, televisions, etc.--can be integrated into a home network. Yet these electronics are made by a wide range of manufacturers who build the products without integration in mind. When an array of products from disparate manufacturers all coexist on the same network, the communications between them can get muddled. Installers may spend months writing programming codes to allow one system to communicate with another. To facilitate cross communication in a whole-house network, the home automation community is attempting to develop some technological standard -- in the form of a chip -- that can be built into home electronics. The oldest standard is X-10, the SMART HOUSE standard that has been utilized for years, but in a limited fashion because of the proprietary nature of the technology. Other more open protocols under discussion include the Consumer Electronics Bus (CEBus) and LonWorks; however, no industry standard has prevailed. Manufacturers have been reluctant to build intelligence into their products until they are confident that other compatible products will be available.

18

Monitoring
What is Proprietary Monitoring? Proprietary monitoring is a business that maintains a monitoring center or central station on its protected premises, or performs those functions for its own properties off-premises. What is Contract Monitoring? Some alarm companies monitor the alarm systems they install by maintaining their own central station or monitoring centers, but the majority of alarm companys contract with third party central stations to provide professional monitoring services to their clients. How Does it Work? An alarm control device (panel) interfaces with a communications network to deliver an encoded electronic message for response. The control can be a closed circuit television system or an alarm system.. In some cases, the central station may initiate video or audio surveillance, but in most instances alarm activation triggers a the encoded signal, which is then transmitted to the central station. The central station decodes and processes the data it receives and acts according to pre-determined instructions. Within seconds, the predetermined response is under way. What Significant Changes have Occurred in Electronic Security Monitoring? Electronic monitoring began well over one hundred years ago when Edwin Holmes draped cotton-coated wires across Boston directly to the first central station in America. Various direct wire technologies dominated the industry until the invention of the "tape dialer" some forty years ago. On alarm activation, the alarm would access the user's standard telephone line and play a pre-recorded message indicating to the police or fire department that assistance was needed. Without the need for direct wires, the market for alarms was greatly expanded. In the early 1970's another technological breakthrough created major changes in this field, i.e. the creation of the digital communicator. This new device called a host receiver to transmit pre-encoded data and was more secure and far more reliable than the tape dialer. More significantly, however, this development led to the formation of the contract central stations that prevail today. Alarm users subscribe to, and have their alarm systems monitored by, a professional monitoring service. By 1975, the first third party contract monitoring service was founded to provide alarm companies and their clients with nationwide coverage, which also relied upon the new WATS (Wide Area Telephone Service) to deliver the encoded messages over great distances on the telephone network. There are now millions of alarm systems utilizing digital communicators that are monitored by central stations throughout The USA, Canada and Europe. Who are the Subscribers of the Third-Party Contract Monitoring Services?

19

Subscribers of contract monitoring services are as diverse as the general population, and include homeowners, commercial & retail firms and remote locations. It is no longer just for businesses and the well-to-do. Affordable alarms and alarm monitoring makes having electronic security system a modern necessity. Home automation and industrial environmental control monitoring are also growing segments of this market. Personal emergency response systems (PERS) exhibit strong growth, and play an active role in health care cost containment. What Types of Conditions are Monitored by Third-Party Contract Monitoring Services? From the most common to the most unusual emergency conditions, central stations monitor them all. Burglar alarms, fire alarms, emergency medical conditions, panic alarms, carbon monoxide detectors, temperature, water level, etc. If a sensor can detect a change in circumstance, the contracted central station can monitor it, direct the proper response - and probably does! Here are a few the more unusual applications: Agricultural - After experiencing a number of explosions, a hog confinement center in the Midwest installed a special gas detector to report high concentrations of methane. Industrial - A photo processing plant monitors dozens of variables, including ambient heat and light, to safeguard the quality of its product, and your family's photos. Commercial - A store in a high crime area signals the central station when it opens and closes. Its system uses listen-in and talk-back microphones to protect both property and personnel. Residential - The common home alarm system senses not only intrusion and fire, but also water in the basement, low temperature and carbon monoxide. While the family vacationed, the heat in their home failed and a water pipe burst. The water sensor activated a digital communicator, notifying the central station, which called a neighbor with a key. A plumber was called and the amily returned to a warm, cozy and dry home.

20

System Integration
What is System Integration? To understand the trends relating to security systems integration, one must first understand the meaning of the term. What exactly is "security systems integration?" Even as definitions are debated among suppliers, end-users and industry suppliers, what it often comes down to is this: It means whatever the customer says it means. For example, for a bank security manager it might mean "combining security, safety and prevention into one package." For the facility manager of an educational institution, it might mean "less paperwork and more control of the total system." In the government realm, it might mean "the ability to combine the new technology with the old." In the industrial/manufacturing setting, it could mean "ease of use" or "systems information collected and compiled on one piece of equipment." For every customer who admits to not knowing the meaning of security systems integration, there seems to be one who says it means "everything." Some customers admit to being "behind in this area," which makes them even more anxious to "get on board with updated technology." Many feel the urgency to stay ahead of the curve; all are looking for effective solutions for specific needs. In the broadest sense, security systems integration is most successful when it meets users' expectations. The technology is most valuable when it does the job. INTEGRATION "GLASS:" HALF EMPTY When 34.7% of respondents to a survey say their organizations' security systems are currently integrated, one can only interpret the number while keeping in mind that it includes respondents whose ideas of what constitutes integration vary widely. But even considering the variables, it is clear that the integration glass is far less than half full; the industry has a ways to go to meet all its customers' needs in this area. Expectations also vary according to industry segment, as do the numbers. Responses from utility organizations suggest they have the highest rate of integration at 41.7%. Educational institutions have the lowest rate at 18.8%. These numbers are from the 1998 Security Systems Integration Trends study, which Access Control & Security Systems Integration magazine undertook to profile the state of security systems integration and to shed light on how endusers are putting technology to work to achieve their security goals. Conducted by PRIMEDIA Intertec Planning and Research department, the study is based on responses to a mail survey of security personnel at companies and institutions. Of the 34.7% of respondents who say their organizations' security systems are currently integrated, more than half - 65.7% - say they are also integrated with other systems. Some 48.9% are integrated with fire/emergency management systems; 28.5% are integrated with communication/telecommunication systems; 15.7% are integrated with HVAC; and 15.7% are integrated with time and attendance. Integration with other company locations is another widespread trend among the 34.7% of respondents who say their systems are integrated. Of that portion, some 40% say their systems are integrated with other locations. The highest incidence of multi-location integration can be seen among banks (64.3%) and utility (64.0%)

21

respondents, a likely product of the multiple units and smaller sizes of these types of organizations. Verbatim comments from respondents again emphasize the variety of integration scenarios. Here are some typical responses: "All devices are integrated through my computer with three remote site locations." "Card access and alarm monitor points report to a central station." "Card use in some areas triggers a camera to record immediately." "(We have a) single system for alarms/access control. Certain alarms cause actions, i.e., lobby lockdown upon intrusion/panic." "Access control system incorporates identification badges which are used to access buildings, parking lots, and to record time and attendance." "Software and hardware alarms and intercom activation call up cameras and initiate alarms on the electronic access control system." WHAT COMES NEXT? The technology is not standing still, and neither are the users who responded to our survey. Inspired by technological advances - but rooted firmly in the goal of making their systems perform more effectively in the context of their business environments - more than a quarter of respondents (26.2%) say they plan to redesign their security systems in 1999. Other plans for the coming year include integration of the security systems (15.6%), integration with other systems (14.3%), and integration with other locations (13.7%). Looking further ahead, 25.6% of respondents plan to redesign their security system in the next five years; 22.9% will integrate their systems with other systems; 18.4% plan to integrate their security system, and 14.6% plan to integrate their systems with other sites. Only 29.6% have no plans to integrate in the next five years. Some 50% of respondents indicate that their organizations are moving toward systems integration. The top 10 components targeted for inclusion in an integrated system, led by alarms (66.3%), are cameras (61.2%), CCTV equipment (59.9%) and cards and readers (55.1%). WHO DECIDES? Our survey asked about who is involved in the decision-making process for security systems and separately about decision-making for "integrated systems." Only 18.1% of respondents indicate the MIS director/network administrator is involved in decisions relating to integrated systems, and only 13.3% say MIS directors are involved in decisions about security systems. The security manager/director is more likely to be involved in both instances: 66.8% for security systems; 49.9% for integrated systems, according to respondents. The chart on page SS-5 illustrates the survey responses about the involvement of other players in a company or institution in making these decisions. Why do companies install security systems? Several factors rank high as involved in the decision-making process with "need for security," not surprisingly, topping the list at 5.01 (on a six-point scale). Of more specific influencing factors, employee confidence was rated top (4.84), followed by liability/costs (4.73), customer demands (4.61), and price of systems (4.54). Rated less important among respondents was reduced staffing (3.7). Some 37.5% of respondents say it

22

is less difficult to convince management to spend money on security systems compared to five years ago. Another 39.1% say it is about the same, while 18.9% say it is more difficult. BUDGETS UP OR DOWN? Money is plentiful among security budgets, according to respondents, 41.5% of whom say their security budgets have increased in 1998 versus last year. Another 40.1% say their budgets have remained constant; only 13.4% say they have decreased. Companies watch carefully where the money is spent, and many look to costjustify security expenditures. Among survey respondents, 38.1% say their companies "always" seek to cost-justify investments in security hardware and systems; 28.2% "often" do, another 21.1% "sometimes" do. Costs are most often justified by lower incidence of crime/violence (61.5%); employee confidence level (52.2%), or less loss/shrinkage (41.0%). Verbatim comments touched on other cost justifiers, including "compliance with regulations," "human factors," "public perception" and "state mandate." Respondents indicate that a four-year time period would be considered acceptable for a security system to "pay for itself." HOW IMPORTANT IS SECURITY? Respondents indicated that the executive management of their organizations place a relatively high importance on all types of security. Rated on a 6-point scale, "people security" scored a 5.26 and "facility security" scored 5.25; somewhat lower scores can be seen for "asset security" (4.78) and "information security" (4.84). WHO ARE THE RESPONDENTS? Of the 790 respondents to the survey, 20.5% are directors of security/safety; 18.9% are managers of security/safety. Also surveyed were 18.6% company management; 10.8% facilities managers; and 8.7% "other security personnel." Titles are not always easy to compartmentalize - respondents gave varied titles from "security investigator" to "crime prevention specialist" to "regional loss prevention" to "railroad police." Areas of responsibility also ran a gamut from "fraud issues" to "nuclear site access" to "counter-terrorism." Clearly, survey respondents were a varied group. The respondents work for all types of employers likely to use security systems. The largest group is educational institutions (14.2%), followed by hospital/health care (11.5%) and non-military government organizations (10.4%). Survey respondents are responsible for security functions from access control (84.2% of respondents) to perimeter security (70.1%) to electronic surveillance (65.8%). Likewise, survey respondents choose from a truckload of equipment options, with 87.5% using alarms; 81.0% using cameras; and 69.6% using cards and readers. Component choices were sometimes determined by which industry the respondent works in: 83.3% of utility respondents indicated they used perimeter security versus 61.8% of the overall respondents.

23