IP CCTV Why new firms dominate the new technology

Over the last ten years, a technological shift has come into motion in the video surveillance industry…

Analogue CCTV is increasingly substituted…

… by digital cameras, that are connected over the internet.

Starting off at very small volumes, Digital CCTV has grown at an annual pace of 30-40 percent over the last years…

It is striking to what extent this shift has so far been driven by companies that have no previous experience in the CCTV industry.

While several analogue players have entered the realm of digital CCTV now, they have continued to lose market share to entrant firms such as Axis, Mobotix, D-Link, Acti, Indigo Vision etc.

Market shares for Market shares for security cameras digital cameras 1. Panasonic 1. Axis 2. Pelco 2. Sony 3. Bosch 3. Panasonic 4. Axis 4. Mobotix 5. Sony 5. D-Link This is for 2006 (Source: IMS Research).

Why has this happened?

I would like to point out a couple of reasons.

1. Big companies look for big markets.

Basically – if your company has a turnover of 1 Bn USD you need to find a new market worth 100 million USD in order to grow at rate of 10 percent.

But if you have a turnover of 100 million USD, you only need to find a new market worth 10 million USD if you want to grow 10 percent.

But hey, digital CCTV is a huge market now?!

True. But it wasn’t. It started off as a small market, much smaller than the annual growth of the analogue CCTV market in the early 2000s.

The analogue players had a very high opportunity cost that made it irrational for them to invest at an early point. And if you don’t enter at an early point, you may be left behind once you offer the new technology.

2. Competence = Incompetence

The argument is basically that the knowledge base of the industry is shifting.

Digital CCTV is all about electronics, network technology and programming.

The old technology was more about mechanics.

Hence, the old competence is losing its value.

This competence is not only related to R&D. It goes for manufacturing, supplier relations, and well, most the resource base of these companies.

The Swedish company Facit used to produce mechanical calculators and collapsed in the early 1970s with the shift to electronics.

One of the best explanations for this decline was formulated as follows:

”The coggwheels in the mechanical calculators were the soul of the company” // Gert Persson, used to work at Facit Electronics

The soul of analogue CCTV companies is about to be rendered obsolete.

The fact that entrant firms like Axis have a background as an IT company would also suggest that the entire competence base of the industry is changing.

3. Analogue companies do not master the new sales channel.

With the shift to digital cameras, a shift is also taking place inside the customer’s organization where IT departments play an increasingly important role in purchasing a security system.

The new technology is sold to a new actor, and with a new value proposition that differs largely from what the analogue players offered previously.

The analogue companies sold their products to security departments and they have little experience of approaching IT departments.

Business is after all to a large extent about relations. It seems that yet another competitive advantage of the established firms is being lost here.

Does all this mean that the game is lost for analogue companies?

Not at all. Rather, it would indicate that companies like Pelco, Bosch, Siemens etc. have to renew their competence base, and that this is urgent.

There are some examples of how companies have broken out of their box and mastered technological revolutions.

But it is a huge challenge we’re talking about.

Some of the analogue players have made losses and laid off people recently…

Which means that they have even less resources and focus to invest in the new technology.

Well, we’ll see what happens in the future, but history does not speak in favour of the analogue companies…

Image attributions

Christian Sandström is a PhD student at Chalmers University of Technology in Gothenburg, Sweden. He writes and speaks about disruptive innovation and technological change. www.christiansandstrom.org christian.sandstrom at chalmers.se

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IP CCTV Why new firms dominate the new technology

by Chris Sandström on Sep 20, 2009

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IP CCTV Why new firms dominate the new technology — Presentation Transcript