Video Surveillance will become a warzone

How to compete

Christian Sandström holds a PhD from Chalmers University of Technology, Sweden. He writes and speaks about disruptive innovation and technological change.

IP-based, digital video surveillance has grown at stunning rates over the last years.

This technology enables an increased image quality, better reliability and easier maintenance among other things.

Needless to say, many companies have tried to capitalize upon this opportunity.

Some of them have done really well, and managed to sustain their gross margins.

Axis was the first firm to exploit this market opportunity and did not face much competition in

the first years of this decade.

However, competition

has increased

over the last years.

As more actors enter the field, price competition tends to set in as an unpleasant consequence for

most manufacturers.

So far, this has not really happened. The main reason seems to be that competition is not fierce enough yet and that analogue CCTV has been the

main benchmark when it comes to pricing.

Another reason may be that the technology has not reached its point of saturation yet and that firms

which keep develop it can sustain their margins by offering something no one else can provide.

The question is: will price competition set in, and if so – when?

First of all: Yes, I believe

price competition will set in.

It has done so in most industries as they mature…

… And this has turned out to be particularly true for industries that become digital.

Back in 1977, Robert Noyce, the co-founder of Intel wrote an article called

‘Microelectronics’ which was published in Scientific American.

What he wrote back then has been

applicable to virtually everything that has been related to digital technology:

“The small size of microelectronic

devices has been important in many

applications but the major impact of this new technology has

been to make electronic functions more reproducible, more reliable and

much less expensive.”

“With each technical development costs have decreased and the ever lower costs have promoted

a widening range of applications; the quest for technical advances has been widely required by

economic competition and compensated by economic reward.”

“Progress since then has been astonishing, even to those of us who have been intimately engaged in the

evolving technology.”

“The most striking characteristic of the

microelectronic industry has been the persistent and rapid decline in the

cost of any electronic function.”

Gordon Moore was also a co-founder of Intel…

As Intel and other semiconductor firms developed cheaper and better transistors, putting them together

into Integrated Circuits and Mikroprocessors, Moore recognized a fascinating pattern….

Over time, the amount of transistors that could be put on a circuit for the same price doubled every 18th month!

So for the same price you can buy something which can store twice as much information, every 18th month!

This is Moore’s Law.

The implications are enormous!

If the price/performance ratio

doubles in 18 months… And then doubles again in 18 months…

And then doubles again in 18 months…

Then the price/performance is 8 times higher in only 4,5 years!

16 times higher in 6 years!

Source: intel.com

With such an amazing pace of development, it would be strange if price competition did not become an integral

part of any microelectronic industry.

In the early 1970s, ’the great calculator war’ broke out. It was characterized by rapid technological

improvements, declining prices and a competitive climate which killed most of the entering firms.

In the watch industry, prices went down about 99 percent in the period 1972-76.

Declining prices has been one main reason why many industries have shifted

from mechanics to electronics.

A brief look around you at digital products is really enough to confirm this…

The question is, why would IP-based video surveillance be an exception to

such a consistent pattern?

It won’t be an exception. Price competition will set in, sooner or later.

But when?

Price competition tends to set in when it is no longer possible to sustain high prices by launching better products that customers

demand.

As technologies mature, they eventually overshoot the demands that customers have…

How many megapixels do you really need in a camera? 4 Mpixels is probably enough for most

users. You have ten nowadays in a compact camera.

How thin and small do you need your camera to be…?

At some point the market for increasingly advanced products becomes smaller and

smaller, while cheap, ’good enough’ products now start to dominate the market.

A price war breaks out and the market starts to grow rapidly, but it happens at the expense

of the gross margins.

Basically, firms have to compete on price the day when there’s nothing else to compete with.

IP Video Surveillance has become a lot better over the last years.

The introduction of HDTV, Megapixel cameras, improved optics, video analytics and easier

installation – all these improvements have been made in a short period of time.

Many of those features have not been absorbed yet by the market and there are still technological

problems that need to be solved.

Many cameras have a much weaker performance in darkness.

Installation can still be made simpler...

… Video analytics has been hyped over the last years but often failed to meet these expectations.

In terms of image quality,

the technology has reached

sufficient quality for

most applications.

Hence, while there are maybe a few more years of rapid development before a price war breaks out, IP video surveillance has already reached good

enough levels for some applications.

The future price competition will be really tough on those companies which overshoot

the needs of the market.

Until then, IP firms will be able to defend their margins if they keep launching

better and better products – that don’t overshoot the needs of their customers.

While price wars have an impact on those who are into the new technology, it will be devastating to

the manufacturers of analogue CCTV.

They will be left with and outdated technology, that is not only worse, but also more expensive. Seems hard to find a good sales pitch for such products.

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www.christiansandstrom.org