IP Video Surveillance and Price Competition

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Will IP video surveillance be subject to price competition, and if so, when?

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IP Video Surveillance and Price Competition

  1. 1. Video Surveillance will become a warzone How to compete
  2. 2. Christian Sandström holds a PhD from ChalmersUniversity of Technology, Sweden. He writes and speaks about disruptive innovation and technological change.
  3. 3. IP-based, digital video surveillance has grown at stunning rates over the last years.
  4. 4. This technology enables an increased image quality, better reliability and easier maintenance among other things.
  5. 5. Needless to say, many companies have tried to capitalize upon this opportunity.
  6. 6. Some of them have done really well, and managed to sustain their gross margins.
  7. 7. Axis was the first firm to exploit this marketopportunity and did not face much competition in the first years of this decade.
  8. 8. However,competition has increasedover the last years.
  9. 9. As more actors enter the field, price competitiontends to set in as an unpleasant consequence for most manufacturers.
  10. 10. So far, this has not really happened. The mainreason seems to be that competition is not fierceenough yet and that analogue CCTV has been the main benchmark when it comes to pricing.
  11. 11. 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.
  12. 12. The questionis: will pricecompetitionset in, and if so – when?
  13. 13. First of all:Yes, I believe pricecompetition will set in.
  14. 14. It has done so in most industries as they mature…
  15. 15. … And this has turned out to be particularly true for industries that become digital.
  16. 16. 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 beenapplicable to virtually everything that has been related to digital technology:
  17. 17. “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 andmuch less expensive.”
  18. 18. “With each technical development costs havedecreased 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.”
  19. 19. “Progress since then has been astonishing, even tothose of us who have been intimately engaged in the evolving technology.”
  20. 20. “The most strikingcharacteristic of the microelectronic industry has been the persistent and rapid decline in the cost of anyelectronic function.”
  21. 21. Gordon Moore was also a co-founder of Intel…
  22. 22. As Intel and other semiconductor firms developedcheaper and better transistors, putting them together into Integrated Circuits and Mikroprocessors, Moore recognized a fascinating pattern….
  23. 23. Over time, the amount of transistors that could be puton 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.
  24. 24. 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!
  25. 25. Source: intel.com
  26. 26. With such an amazing pace ofdevelopment, it would be strange if price competition did not become an integral part of any microelectronic industry.
  27. 27. 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.
  28. 28. In the watch industry, prices went down about 99 percent in the period 1972-76.
  29. 29. Declining prices has been one mainreason why many industries have shifted from mechanics to electronics.
  30. 30. A brief look around you at digital products is really enough to confirm this…
  31. 31. The question is, why would IP-basedvideo surveillance be an exception to such a consistent pattern?
  32. 32. It won’t be an exception. Price competition will set in, sooner or later.
  33. 33. But when?
  34. 34. Price competition tends to set in when it is no longer possible to sustain high prices by launching better products that customers demand.
  35. 35. As technologies mature, they eventually overshoot the demands that customers have…
  36. 36. How many megapixels do you really need in a camera? 4 Mpixels is probably enough for mostusers. You have ten nowadays in a compact camera.
  37. 37. How thin and small do you need your camera to be…?
  38. 38. At some point the market for increasingly advanced products becomes smaller and smaller, while cheap, ’good enough’products now start to dominate the market.
  39. 39. A price war breaks out and the market startsto grow rapidly, but it happens at the expense of the gross margins.
  40. 40. Basically, firms have to compete on price the day when there’s nothing else to compete with.
  41. 41. IP Video Surveillance has become a lot better over the last years.
  42. 42. The introduction of HDTV, Megapixel cameras, improved optics, video analytics and easierinstallation – all these improvements have been made in a short period of time.
  43. 43. Many of those features have not been absorbed yet by the market and there are still technological problems that need to be solved.
  44. 44. Many cameras have a much weaker performance in darkness.
  45. 45. Installation can still be made simpler...
  46. 46. … Video analytics has been hyped over the lastyears but often failed to meet these expectations.
  47. 47. In terms ofimage quality, the technology has reached sufficient quality for most applications.
  48. 48. 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.
  49. 49. The future price competition will be reallytough on those companies which overshoot the needs of the market.
  50. 50. Until then, IP firms will be able to defend their margins if they keep launching better and better products – that don’tovershoot the needs of their customers.
  51. 51. While price wars have an impact on those who are into the new technology, it will be devastating to the manufacturers of analogue CCTV.
  52. 52. 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.
  53. 53. Image attributions
  54. 54. Find out more:www.christiansandstrom.org

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