Video Surveillance will become a
warzone
How to compete

IP-based, digital video surveillance has grown at
stunning rates over the last years.

This technology enables an increased image
quality, better reliability and easier
maintenance among other things.

Needless to say, many companies have tried to
capitalize upon this opportunity.

Some of them have done really well, and managed to
sustain very high gross margins.

Axis was the first firm to exploit this market
opportunity and did not face much competition in
the first years of this decade.

However,
competition
has
increased
over the last
years.

As more actors enter the field, price competition
tends to set in as an unpleasant consequence for
most manufacturers.

So far, this has not really happened. The main
reason seems to be that competition is not fierce
enough yet and that analogue CCTV has been the
main benchmark when it comes to pricing.

Another reason may be that the technology has not
reached its point of saturation yet and that firms
which keep develop it can sustain higher margins
by offering something no one else can provide.

The question
is: will price
competition
set in, and if
so – when?

First of all:
Yes, I believe
price
competition
will set in.

It has done so in most industries as they mature…

… And this has turned out to be particularly
true for industries that become digital.

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 been
applicable to virtually everything that has
been related to digital technology:

“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 and
much less
expensive.”

“With each technical development costs have
decreased 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.”

“Progress since then has been astonishing, even to
those of us who have been intimately engaged in the
evolving technology.”

“The most striking
characteristic of the
microelectronic
industry has been
the persistent and
rapid decline in the
cost of any
electronic function.”

Gordon Moore was also a co-founder of Intel…

As Intel and other semiconductor firms developed
cheaper and better transistors, putting them together
into Integrated Circuits and Mikroprocessors,
Moore recognized a fascinating pattern….

Over time, the amount of transistors that could be put
on 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.

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!

Source: intel.com

With such an amazing pace of
development, it would be strange it price
competition did not become an integral
part of any microelectronic industry.

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.

In the watch industry, prices went down about
99 percent in the period 1972-76.

Declining prices has been one main
reason why many industries have shifted
from mechanics to electronics.

A brief look around you at digital products
is really enough to confirm this…

The question is, why would IP-based
video surveillance be an exception to
such a consistent pattern?

It won’t be an exception. Price competition
will set in, sooner or later.

But when?

Price competition tends to set in when it is no
longer possible to sustain high prices
through launching better products that
customers demand.

As technologies mature, they eventually overshoot
the demands that customers have…

How many megapixels do you really need in a
camera? 4 Mpixels is probably enough for most
users. You have ten nowadays in a compact camera.

How thin and small do you need
your camera to be…?

At some point the market for increasingly
advanced products becomes smaller and
smaller, while cheap, ’good enough’
products now start to dominate the market.

A price war breaks out and the market starts
to grow rapidly, but it happens at the expense
of the gross margins.

Basically, firms have to compete
on price the day when there’s
nothing else to compete with.

IP Video Surveillance has become a lot better
over the last years.

The introduction of HDTV, Megapixel cameras,
improved optics, video analytics and easier
installation – all these improvements have been
made in a short period of time.

Many of those features have not been absorbed yet
by the market and there are still technological
problems that need to be solved.

Many cameras have a much weaker
performance in darkness.

Installation can still be made simpler...

… Video analytics has been hyped over the last
years but failed to meet these expectations.

In terms of
image quality,
the
technology
has reached
sufficient
quality for
most
applications.

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.

The future price competition will be really
tough on those companies which overshoot
the needs of the market.

Until then, IP firms will be able to defend
their high margins if they keep launching
better and better products – that don’t
overshoot the needs of their customers.

While price wars have an impact on those who are
into the new technology, it will be devastating to
the manufacturers of analogue CCTV.

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.

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