Hello and welcome to Volume 8 of the Access Control Executive Brief titled A View of the Access Control & Smart Lock Industry in North America and Europe. Volume 8 is all about synthesizing trends, observations, and conversations. PlaceTech, a leading online smart building tech publication, asked me to write about what I am seeing in the North American and European markets regarding the access control and smart lock industry. So instead of waiting for it to be published, I thought I’d bring it to you with a bit more color and discussion in Slack (reminder: join the other 130+ people from around the globe in the Access Control Executive Brief).

Overall, the access control and smart lock industries are in a period of growth, but not all growth is the same. Sure, the market continues to expand:

• The global market grows as we move from analog (mechanical or connected systems and devices) to digital (smart, cloud, and mobile). But I fear for the consumer smart lock industry incumbents. Why? Because this evolution is happening to them, not by them. The traditional smart lock companies are in trouble.

• As we are in a mobile revolution, this shift will spark new globally. New companies, new messages, new opportunities for the old that choose to go all in…new all over. But I am both excited and worried. I am excited about all the new. But I am worried about the old. With a change like this, you can not just “put a mobile on it,” do everything else the same, and hope for different results. For a reference point: look at the “put a cloud on it” history. Those that don’t go full-throat don’t reap the true benefit of what new value creation cloud can unlock. The same will happen for mobile. The incumbent access control manufacturers are in less trouble than the consumer smart lock manufacturers, but they are still in trouble. The trouble is a missed opportunity that eats away significant growth and allows new entrants to take hold.

As an industry, we live in two worlds. One world has a false sense of success and lacks the imagination of what good can actually look like. For many, the industry was pulled forward due to large jobs during the pandemic. As society continues to go back to spaces, I believe the boom will slow down for incumbents who do not prioritize change and do it aggressively. Conversely, there is a long list of global new entrants and a growing list of legacy incumbents making moves. They are moving mobile and cloud-first, putting resources towards end users, and rethinking or challenging their and others business models.

That is the group I am most interested in and I believe is the long tail of success. 

Let me know what you think, and if you see things differently, fire away!

A couple of other reminders:

• MIPIM: If you are going to MIPIM, “the worlds largest real estate event,” please let me know. I am hosting a breakfast on March 15th with Brivo and Salto Systems and would love to have you join us. 

• ISC West: The Lounge is back - bigger and better than in past years. You are all invited to use the lounge as members of the Access Control Executive Brief on March 29th and 30th. Keep an eye out to register. We will send digital credentials and plastic VIP cards to everyone who signs up (thank you, Soloinsight and HID Global). You will also be able to use the space for meetings and networking. We have a bunch of activation happening in the lounge, such as happy hours daily supporting Moms in Security and SIA Rise, Proptech Advisory Board Meeting, Capas, and more. I am grateful for the support shown by the sponsors of The Lounge. Thank you for sponsoring, Field Hub Inc, Brivo, Chamberlain Group, Torus, Kiwkset, Active Witness, Soloinsight, HID Global, and Moms in Security!

Alright, back to the Brief Volume 8! 

Thank you,

PS: I am sure some of you may forward this on but please do so sparingly and encourage others to sign up here. Thank you!

A View of the Access Control & Smart Lock Industry in North America and Europe

Access control is part of the security industry, and so, in turn, it is a global industry. Every country, city, and building has some access control. But like many industries, access control has been a fragmented industry that had limited global players or influences from one market into the other. See, the access control industry has gone from mechanical to motorized to connected to now considered smart. The historical dominance of mechanical, also known as hardware, has given credence to our industry's conventional wisdom, what I call old truths, that this fragmentation was a feature that would never change. It allowed artificial walls and moats to be built, making it economically impossible to scale outside the market you were located primarily in.

But that has all changed with introduction of software as a product versus a hardware feature. Software is what is giving the industry to transition from connected mechanical products to smart products. This transition goes beyond the technical changes in the product. This transition is impacting the business and market dynamics. But unlike past periods, something is different about 2023, especially in North America and Europe. Sure, "it" has been building, but 2023 is the first time we have seen a change like this. We did not see this level of change in the early 2000s, 1990s, or 1980s. The last time we had this inflection in the access control industry was at its birth in 1973. Yes, there have been moments of progress, but historically, the progress has been incremental and consistent with the high-security market. But in 2023, we are seeing an exponential change in two of the largest market opportunities and where most companies worldwide are focusing and exercising resources to capitalize on the opportunities. 

You can summarize what's happening in the North American and European access control and smart lock markets in two words, one phrase: digital transformation. Since digital transformation means a lot and nothing simultaneously, it is sometimes hard to put it all in context. Because of that, I wanted to give you a high-level and regional glimpse into what is happening right now and the resulting outcomes as I see it.

Here is my global view of what is happening and the resulting outcomes:

• There is a shift from a cottage industry focused on high security only to include the broader mainstream market. Since 1973 the industry's sole responsibility and market expectations have been keeping bad people out and locking and unlocking. As long as the industry delivered on its promise, everything was good. Coming out of the pandemic, the expectations have morphed to include letting the right people in and value creation beyond locking and unlocking. Entry into global markets has shifted from doing large installations and multinationals to include now specific use cases and verticalization solutions created by software for sectors like commercial real estate, tenants and enterprises, multifamily, and life sciences. Resulting outcome:

  • The barrier to entry into other markets has been reduced.

  • Expectations of how systems work and the value they deliver have fundamentally changed.

  • The access control industry is now seen as a major opportunity and has attracted external threats such as Big Tech companies.

• Shift from a hardware-dominated industry to a software industry. With cloud and mobile computing, the industry is being refactored beyond products to include metrics, channels, definitions, and business. Resulting outcome:

  • There is an introduction of a new stakeholder: the end user. As an industry, we have never interacted with the end user. They were a card or fob. Now with mobile, we have direct interaction with end users. This relationship reshapes how and why we build products and solutions. This relationship also highlights the need to focus on the user experience. Until now, inconveniences have been a form of security practice, and conveniences were seen as bad for business. Not anymore.

  • There is a new channel: Systems Integrator. A Systems Integrator is different from a Security Integrator, and the expectations of what they do, how they work, and the value they create is also different. This new channel is an Enterprise Software integrator. This new channel includes BraXos, Silverpine, SwiftConnect, Doordeck, Soloinsight, Z9 Security, Trecerdo, and more.

  • With the introduction of the end user as a stakeholder, so come to their expectations on how the systems and products work for them. This expectation is summed up as the need for Convenience AND Security versus the historical view that you cannot have Conveniences in Security. As an industry, anything convenient was seen as insecure. Moving forward, there is an expectation that the end-user experience delivers safety and delight. The access control and smart lock industry companies that will lead this market opportunity understand and implement this as a core tenant. This is the access control and smart lock industry opportunity to lose, as being seated in security is a clear advantage.

• The industry has shifted from known internal threats to unpredictable external threats. The increased opportunity sparked by mainstream markets means a fresh set of eyes on a typically dull utility of an industry. Resulting outcome:

  • Big Tech attention with the likes of Apple and their Apple Wallet focus on putting keys in your phone, Microsoft introducing Microsoft Places, which converges your virtual office and physical office, and Amazon and their Amazon Key for Business product simplifying the delivery of goods to spaces such as multifamily and residential dwellings. The same events will likely happen now that Apple, Microsoft, and Amazon have shown interest - the rest will follow. This will challenge all aspects of the access control and smart lock business as the Big Tech companies typically do not care about legacy old truths as a governor on growth.

  • Venture and PE firms are (still) investing and acquiring companies in and around the access control and smart lock industry. Whether it is Andressen Horowitz (A16) investing in companies like Ambient.ai or Thoma Bravo and Insight Partners acquiring Proxyclick and Sign In Enterprise (formerly known as Traction Guest), respectively, there is a new pipe of resources. Historically, we know who the innovators are and where the capital resources come from within the industry. They are still there, but this "new money" brings a new level of resources that did not exist 3-5 years ago.

• There is a shift in how we go to market. We are no longer only channel dominated. With customers discovering online, new blood coming into the market, new money causing a desire for a faster return on investment, and new business models where enterprise software is typically bought direct, old truths on who "owns" the customer have changed. Manufacturers are being forced to change how they go to market. The traditional channel is starting to open up to teaming and getting clear on where the value they bring is differentiated. It is no longer just a given that business must go through the channel.

• There is an expected change in the overall value proposition delivered by the access control and smart lock industry. Our systems are expected to go beyond the core utility in the mainstream enterprise market. These systems must solve a more significant value proposition beyond keeping bad people out and locking and unlocking.

Specific to the North American market, here are some nuances and a glimpse into what we see there:

• For Access Control:

  • We see, especially in areas of high density, a verticalization to deliver additional value beyond security in multifamily, commercial real estate, and enterprise (tenant spaces). It is as though overnight, they are all hospitality industries, and the legacy product offerings no longer fit customer needs. This is forcing legacy systems that do not respond to either leave those verticals, become commoditized, or focus on a more profound feature set offering through software to meet the customer's needs.

  • We are in the early stages of consolidation. We see many legacy companies at a crossroads considering their next steps. Do they abandon specific markets and verticals that want a product and feature set that was never intended for the system they provide? Do manufacturers build the technology, or do they acquire talent and technology? It will be fascinating to watch, especially as those verticals and markets demand localization, niche solutions, and quick responses to demands. Fundamentally legacy providers are set up to be nimble, and new companies need more resources to grow as fast as they need. Something is going to happen as the demand is too high.

  • Mobile wallets from Big Techs are impacting manufacturers' business, system expectations, and customer relationships. To show how deep the impacts of mobile wallets will have on our industry, CEOs alone demanding the ability to get into their offices with their phone will dramatically shift the adoption rate of technology like no other moment in the last 30 years. There have been very few features introduced into the access control industry that gets the attention of stakeholders that can unlock budgets because...they can.

• For Smart Locks:

  • What is the Matter impact? It is great to see the industry, especially the smart home industry, get together and align on what is best for the consumer. My only question is, how will this impact the hardware manufacturers, specifically smart locks? It is not going to be good. Matter is the fast lane to commoditization and the end of brand identity mattering for smart locks. I would suspect margins to decrease, an increase in competition, and a race to the bottom in pricing. Again, this is great for consumers but terrible for lock manufacturers.

  • ASSA ABLOYs bid to acquire Spectrum Brands (Kwikset) and the sale of Yale and August to Fortune Brands is still pending DOJ approval. Still, if we assume it will all go through (I do), this change's impacts will be massive and primarily positive for consumers, the industry, retailers, and every stakeholder. I am interested to see what ASSA ABLOY does with the Baldwin brand, as it is a juggernaut luxury brand that has been wildly underappreciated. More to come on this but something to watch.

  • There is a high level of complacency amongst the incumbents in smart locks where lack of innovation represents just how unsmart these locks are about to become very center stage due to the introduction of new players from outside of the North American market in the likes of iLOQ and Kaadas. Both companies are coming full-throat at the market and have a large appetite for technological and business innovation. I am most impressed by both companies' speed regarding technical developments and market traction. I expect to see some market norms break, and watching from the sidelines will be wild.

Specific to Europe, here are some nuances and a glimpse into what we see there:

• For Access Control:

  • A moat for legacy access control providers has been the fragmentation and specificity of European market hardware needs. With software, this has started to crumble. Start-ups show how a software-first, nimble, mobile-first, and deep understanding of the customer's specific problems is a clear and winning business plan. And it is being met by a customer base that is very open to it. It has become clear that not having a legacy business allows these start-ups to deliver value instantly. It is also clear that while some legacy access control and legacy lock companies see this as a threat and verticalizing, others see this as an opportunity to open up their products and services in partnership to enable these start-ups. Two countries with start-ups to watch: Norway and Sweden.

  • The introduction of formidable start-ups and software solutions is opening up the entire small to medium size customer market that has forever been underserved as the legacy industry primarily targeted the high-security and multinational markets. Our industry also served this segment with mechanical products. This market expansion is significant for all companies in the industry and supports the view that the potential market size is 6 to 7 times what is being reported.

  • Proptech and Worktech are a global focus, but the European markets are organizing and taking this opportunity to an entirely different level. Whether it is the formation of communities around Proptech and Worktech, thought leadership, or the birth of companies supporting them with specific products solving particular vertical problems, the world needs to look at what Europe is doing when it comes to Proptech and Worktech. Most of these companies are becoming the front-end user experience applications for the access control industry. I would suspect a good amount of M&A activity in this space as the general investment market starts to slow and legacy or tangential business flush with cash look to put it to good use.

• For Smart Locks

  • The consumer smart lock market is tough in Europe due to the different openings from country to country and language localization needs. Different from North America, these constraints make it nearly impossible to expand and get any exponential growth. Outside of a few examples of smart lock companies using an "add" approach to the existing locks at the door, we see moderate to slow growth. When it comes to the electronic adoption of locks in commercial spaces, that is a very different story. From everything I am hearing and seeing, small to medium-sized businesses are adopting electrified locks and adaptions (e.g., electronic cylinders and keyways) where the openings are a bit more standardized, cost pressures are lower, and the value propositions and ROI are higher.

The changes leave most of us with more questions than answers about the future. We have been an industry of predictability, but like what happens with most industries that are in an inflection point impacted by a digital transformation, old truths are being challenged, and new truths are being introduced. What I do know is, ultimately, all of this will deliver more benefits to those that embrace the change early.

So what should you do about it? Join the conversation on Slack, where I and the community plan to provide more insights and thoughts.

Nexus Labs partnership and discount

As mentioned in V4 Brief, I partnered with James Dice of Nexus Labs on a blog series discussing the intersection of access control and smart buildings. Please check out the article by clicking here or on the fantastic image Bert Hart created showing the difference between our $10B, $70B, and possible $100B+ opportunity as an industry. As part of the partnership with Nexus Labs, they offer Access Control Executive Brief subscribers a 10% discount on their membership. I am part of this amazing community and highly recommend you join. Use this link to sign up https://www.nexuslabs.online/odess.