The world market for Video Surveillance products was $14.98 billion in 2016 and will grow at a CAGR of approximately 6.5% to 2021, when it is forecast to reach $21.48 billion. Product prices have fallen dramatically in the last 18 months and this has reduced revenue growth in 2016 to 4.2% falling from 6.7% in the previous year.
This is despite the fact that demand in volume terms in 2016 was stronger than in 2015. These are some of the findings from our Annual Report - The Physical Security Business 2016 to 2021
If the two major Chinese manufacturers Dahua and Hikvision continue to drive down prices further in order to rapidly gain market share and volume our relatively modest forecast of annual growth in demand to 2021 of 6.5% is not going to be achieved.
The 2 Chinese manufactures alone shared some $5 billion of sales in 2015. This puts them in a very different league compared with even the largest western manufacturers and combined with a protected home market (the largest single market in the world) gives them the capability to “buy market share”. In particular they have rapidly gained market share in the US through pricing at levels that western manufactures can only meet at derisory margins and insufficient for many to recoup their R&D expenditure.
They already have the scale and financial backing to continue squeezing margins for some time and they intend to pursue this policy of building up volume in order to meet the prime objective of having the scale that will place them in an unassailable position to dominate the commoditization of video cameras.
We expect that further significant improvements in camera and software technology will be needed to achieve a CAGR of 6.5% and that will make it more difficult for western manufacturers to achieve if they have to cut their margins to meet the market price for mainstream products. Against this background there are some important applications where price is not King today and innovative products sold at reasonable margins can deliver a better TCO.
However during the next five years only the fittest will survive as competitive forces reach new heights. Therefore it is now critical that they concentrate their R&D expenditure on three major demand drivers whilst engaging with Pareto’s rule to maximize their investment.
Video Analytics has been voted the “Next Big Thing” for the last two years but it has yet to make the breakthrough despite the fact that end users are now less skeptical of video analytics because it has improved its performance and looks to have come of age in 2016.
Cameras with embedded video analytics, such as motion, face, and object detection, analyze image data at the point of capture and can effectively eliminate the need to transmit video and data to a central server. This enables very efficient use of both transmission and recording bandwidth.
Using analytics, some cameras can also be set to record video at a lower resolution and/or frame rate, and then automatically increase resolution and frame rate to capture higher-quality video when triggered by an event. However artificial intelligence software is more likely to run in the server.
IP Cameras & TCO Matrix
IP network cameras still provide the best opportunity for growth In the last 4 years there has been an accelerated move for end users to apply IP surveillance products to monitor business enterprise functions. The focus for end users is now on TCO metrics along with scalability and for most users this can only be achieved through IP. In the next 5 years as the Building Internet of Things (BIoT) becomes a reality only IP cameras will be connected to these systems.
However the migration from Analogue to IP cameras has slowed down in western Small & Medium Size Business (SMB) markets as Chinese manufacturers have brought out much improved analogue products at very low prices. They have spotted the fact that connectivity does not yet figure high in the TCO metrics equation in SMB but low price and easy installation does.
Emerging Techno / Commercial Trends in the Video Surveillance Business
There are many techno / commercial trends that are shaping this market and here are just five that have made an impact in 2016, with some following on a similar trend since 2015 and these include;
- Improvements in camera intelligence
- On-board Recording
- Wide Dynamic Range
- High Definition TV (HDTV)
It is inevitable that Video Surveillance manufacturers will have to operate on slimmer margins over the next five years but if this causes R&D programs to be reigned in it will endanger their longer term viability.
Manufacturers therefore need to take on board Paeto’s 80/20 rule and ensure that provided 20% of the important features are embodied in the camera it will meet 80% of the usage required and that to meet all the features it would not be economic in the mainstream market.
This will ensure getting maximum return on R&D expenditure and would also help reduce the proliferation of different models, reduce manufacturing costs and increase the volume through a smaller range of models.
We are not suggesting that one size fits all but fewer models should fit 80% of the customer needs. However the major western suppliers have pursued a policy of offering more specific solutions to particular problems, on the assumption that one-size does not fit all hardware / software.
This strategy is certainly appropriate for the enterprise level of the business at this time but if the Chinese manufacturers continue to build up volume in the mainstream market they will eventually be in a strong position as commoditization takes hold to also take a big slice of that business. The only thing to prevent that is a build up of rhetoric on unfair competition and ultimately political intervention.
This article was taken from our Annual Report - The Physical Security Business 2016 to 2021
[contact-form-7 id="3204" title="memoori-newsletter"]