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