IP Video Surveillance and Price Competition

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 their 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 their margins by offering something no one else can provide.

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

First f ll Fi t of all: Yes, I be e e es, believe price competition titi 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 “Th small size of ll i f microelectronic devices has been important in many applications but the pp major impact of this new technology has been to make electronic functions more reproducible, reproducible more reliable and much less expensive. 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 y q y 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 ” technology.”

“The most striking The characteristic of the microelectronic industry has been the persistent and rapid decline in the id d li i th cost of any electronic function ” 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, i I d Ci i d Mik Moore recognized a fascinating pattern….

Over time, the amount of transistors that could be put time on a circuit for the same price doubled every 18th month! So for the same price y can buy something which p you y g 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 A d th d bl again i 18 months… i in th And then doubles again in 18 months… Then the price/performance is 8 times higher in only 4,5 years! g y , y 16 times higher in 6 years!

Source: intel.com

With such an amazing pace of development, it would be strange if 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 electronics.

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

The question is, why would IP-based is 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 P i competition t d t set i when it is no titi tends to t in h i longer possible to sustain high prices by launching b tt products th t customers l hi better d t that t 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. Y h You have ten nowadays in a compact camera. d i

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

At some point the market for increasingly advanced products becomes smaller and p smaller, while cheap, ’good enough’ p 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 g y of the gross margins.

Basically, firms have to compete on price the day when there s 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 p p , y installation – all these improvements have been made in a short period of time.

Many of those features have not been absorbed y y 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 often failed to meet these expectations.

In terms of image quality, the th technologygy has reached sufficient quality for most applications. 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 g p the needs of the market.

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

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

They will be left with and outdated technology, that y gy, is not only worse, but also more expensive. Seems hard to find a good sales pitch for such products.

Image attributions I tt ib ti

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

http://www.christiansandstrom.org	134
http://christiansandstrom.org	20
http://www.slideshare.net	18

IP Video Surveillance and Price Competition

by Chris Sandström on Sep 30, 2009

Accessibility

Categories

Tags

Upload Details

Usage Rights

3 Embeds 172

Statistics

IP Video Surveillance and Price Competition — Presentation Transcript