NAID Briefing

As we close the door on 2004, it is only natural to consider what awaits our industry in the year ahead. Some developments are fairly certain, while others are anyone’s guess.

First, let’s look at some of the surer bets. Competition will continue to be intense in crowded markets. While start-ups decreased slightly in 2004 compared to 2003, capacity has increased faster than demand in most markets.

That is not to say that demand will not increase in 2005. It will. However, in many markets, capacity has overshot demand to the point where it will take some time to balance. In fact, demand will increase more in 2005 than it did this year.

Most, if not all, medium and large-sized medical and financial institutions had addressed HIPAA and GLB prior to 2004.

That rush to compliance drove the increase in demand for our services from 2001 to 2003; less so, however, in 2004.

In 2005 FACTA–and smaller HIPAA- and GLB-covered entities seeking compliance–is likely to cause a significant upward tick in demand for secure destruction services.

This will help, but it will not be enough to totally relieve the pricing pressure currently in the marketplace. Why? Because it will be a longer, slower demand cycle than that which HIPAA and GLB originally caused among the larger covered entities.

The good news is that it will be a much bigger and more easily defended market. Also, with the addition of FACTA to the legislative pressures on the business community, rural markets will be better able to support dedicated information destruction companies.

Another sure bet is that distinction and differentiation will be increasingly important. Let’s face it: Pricing can only go so low. Many would say the market has already reached that point. More than a few would say it has exceeded that point.

In a market with pricing about as low as it can go, the perceived differences among competitors are accentuated. In other words, when all else is equal, the client will choose the more secure, more professional option.

This is good news from the long-term perspective. The increased attention to the distinctions among competitors will actually lead the trend away from pricing as the primary decision maker for buyers. Features such as employee screening, insurance, certification, monitoring, access control and video monitoring will weigh more heavily in prospects’ buying decisions as the issue gains visibility. It will actually lead to client’s reevaluating the services they currently use in favor of those with the features they feel better protect them.

What will the national firms do? There are fewer and fewer mature firms for them to acquire, and the few that remain have related businesses that would be of no interest to the national firms. On the other hand, these firms are successful and have plenty of resources to grow under their own steam.

The best advice to anyone looking at making the most of the continued growth in demand for information destruction services is to keep their operation as efficient as possible, while finding those things that can separate them from the competition in a meaningful way.

No one needs a crystal ball to see that. n