Video Surveillance will become a warzone How to compete
Christian Sandström holds a PhD from ChalmersUniversity of Technology, Sweden. He writes and speaks about disruptive innovation and technological change.
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 marketopportunity and did not face much competition in the first years of this decade.
However,competition has increasedover the last years.
As more actors enter the field, price competitiontends to set in as an unpleasant consequence for most manufacturers.
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.
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 questionis: will pricecompetitionset in, and if so – when?
First of all:Yes, I believe pricecompetition 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 beenapplicable 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 andmuch less expensive.”
“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.”
“Progress since then has been astonishing, even tothose of us who have been intimately engaged in the evolving technology.”
“The most strikingcharacteristic of the microelectronic industry has been the persistent and rapid decline in the cost of anyelectronic function.”
As Intel and other semiconductor firms developedcheaper 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 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.
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!
With such an amazing pace ofdevelopment, 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 mainreason 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-basedvideo surveillance be an exception to such a consistent pattern?
It won’t be an exception. Price competition will set in, sooner or later.