The epicentre of entrepreneurship in the physical security industry is currently firmly established in the IP Video business. Memoori’s database of manufacturers of intelligent analytical software, digital cameras, encoders and digital storage list some 143 companies across the globe who are significant manufacturer suppliers. We have identified a further 20 companies, that have yet to be fully verified, that have annual sales of less than $1 million and this is unlikely to be the full complement of players to the IP video market. However it is a very substantial sample and includes all the major players to the world market. The analysis of this sample of the 143 companies shows:
The USA is home to approximately 45% of these companies and Fig 1 shows the distribution by number of companies based in the other major developed markets.
Fig2 shows the distribution by country for companies having annual sales of less than $100 million. In the USA they account for 47% of the companies manufacturing digital video products. Of these companies 36 (73%) had sales between $1 and $10 million in 2007. Forty three percent (43%) of these companies were founded since 2000. This is an astonishingly high percentage of new start companies and it is not evidenced in any other country that we have reviewed.
The US leads in entrepreneurship because the technology to produce the new digital video solutions comes from the Electronics and IT industries and the US leads in these technologies. The second is that all the support needed for setting up new ventures is well established both the financial investment and management skills. Both of these are well practised and encouraged in the USA particularly in Silicon Valley and the environs of Boston. We estimate that more than 50% of the new start companies in this business in the USA are clustered in these two regions. And finally American culture encourages risk taking and failure does not necessarily have stigma attached to it.
Has US business seen something that the rest of the world has not, or are they getting in late. If neither of these assumptions are correct is it that the other countries have fewer entrepreneurs and that therefore the application of digital technologies has to come from within established businesses.
The fact that the skills and capital investment have been readily available provides the ability to set up new companies but it still requires entrepreneurs to take the risk and turn the opportunity into a profitable business. A quick check on these new start companies shows that they are managed by professional teams with proven success in developing and operating companies in the security industry. In some cases the owner managers are serial entrepreneurs in this business so they have got to be taken very seriously by their larger and older peers.
The new solutions need to open up new markets not just fill existing ones if growth in demand is to be sufficient for new start companies to develop into the top tier of successful profitable businesses. That must be happening for some of the newly established suppliers because for the last few years they have recorded annual growth of 30 / 40% in the IP Video market and have established their businesses across the globe. However our discussions with both specialist new start and most older established major companies suggests a growth of no more than 10% per annum over the next two years. Most claim that their customers are delaying rather than cancelling projects, but whatever the security market has tended to do quite well during other downturns in the economy. However experts are saying that this recession will be worse than others previously experienced and that the major players will undoubtedly see more acquisition opportunities as smaller companies struggle to get access to investment.
IndigoVision is a good example of how a young, dynamic and well managed company can take on the world’s major suppliers and deliver complete end to end IP Video solutions. Oliver Vellacott CEO in an interview with Memoori advised; “We are continuing to expand the business by extending our offering to become a complete security solution provider by encompassing alarm management and access control as well as video. We already integrate with 17 3rd party systems, which gives us integration with the majority of the market and have a global presence with people in 18 countries. At the same time we are continuing developing our video products with a fantastic new range of domes, a strong set of HD cameras and also new high density NVRs suitable for centralised mass storage applications.”
The IP Video market has been dominated by specialist suppliers such as Axis, Milestone and IndigoVision, but they will be taking on much more serious competition in the future as the traditional video surveillance suppliers that arrived late for the party, such as Pelco, increase their share of the IP Video market as they implement their new strategies.
Jean-Marc Zola V.P Fire and Security Strategy Schneider Electric TAC shared with us Pelco’s plans for the IP Video market. They initiated their programme in 2006 with the hiring of a dedicated team to develop a full IP Video offer. The products developed by this team are already sold in the market, as Pelco currently commercializes an IP Video line, including cameras/domes to Video Management Systems. Pelco is now focused on complementing the IP Offer with in-house image processing technology which will introduce a new Industry standard in image quality. Launch date is planned to be on March 2009. In addition they are educating the end-user market about the benefits of IP Video in the different applications and developing the right channel to market for those products. Zola commented that the high majority of current Pelco customers have invested in the IP segment, and Pelco is committed to serve them with IP Video products at the same legendary level of quality. But new comers like IT distributors represent an opportunity for incremental sales. A strong heritage market will be an immense benefit to Pelco and their likes during the recession.
Scandinavia has spawned two very successful leaders in this business, Axis and Milestone and Henrik Friborg Jacobsen VP Strategic Alliances & Co-Founder of Milestone believes that this is partly because Scandinavia has a very high level of IP adoption and an open mindset when it comes to new technologies. The IT industry is also very strong in many parts of Scandinavia, and this IP friendly climate has meant good growth conditions for the successful market leadership from both Axis and Milestone Systems, who are long-time alliance partners, as well.
It is Milestone’s intension to continue to drive and push for an open platform that allows easy integration with best-of-breed solutions. An open platform will give our customers more flexibility says Jacobsen and a better return on investment. With an external investment in Milestone by Index Ventures in the middle of 2008, a strong financial foundation has been bolstered for future growth and development of new solutions in open platform IP video surveillance. Jacobsen is firm in his opinion that “the combination of our solid market position, a profitable business and solid financial foundation gives us strong confidence in our future potential despite a world recession. Historically we have seen that the security industry is much less exposed to macro economic conditions than others, and we believe the IP video industry will continue its expansion at somewhat reduced, but healthy growth rates in the range of 20-25% annual growth during the next one or two years.”
He further comments “The credit crunch is impacting the IP video market in many different ways. Structural changes in global investment portfolios have driven a rise in the Japanese Yen, which makes Japanese IP video vendors less competitive in the international markets. On the other hand, many Japanese companies are cash rich and better positioned for mergers and acquisitions than their European and American peers.”
Whilst life for the new ventures companies in this industry will become more difficult in the next two years because of the economic recession, provided the investors don’t get impatient and exit early there is no reason to assume that they will be disadvantaged because of their youth. However the impact will be certainly different depending on which sub-segments you look at. For instance, the video analytics sub-segment could be significantly impacted as the number of start-up companies has multiplied within the last couple of years, as Memoori’s Executive Brief has shown. At the same time the major companies have invested in in-house technology in parallel and the ramp-up of this sub-market has not reached the optimistic forecasts made by the market research companies.