Avigilon Says Surveillance Market is 95% Analog

Wow.

Avigilon's CEO said the market for video surveillance is actually still 95% analog in a new article.

If that does not make any sense to you, good. It shouldn't.

No one thinks this. The anti IP king does not think this (his number is 80 - 85%, i.e., IP 15 - 20%).

The Real Market

There's 2 metrics commonly used for measuring the market - by units (e.g., how many cameras) and by sales (e.g., how many dollars). The sales percentage for IP is going to be higher than units because IP is favored by higher priced, higher end customers. The lowest number for IP is 15 - 20% units. However, if it's by revenue, the lowest number is ~40% for IP. For more, see: The Crazy IP Tipping Point Has Returned.

This, of course, is impacted by country income levels. The percentages are very high in North America and Western Europe but far lower in less developed countries, most heavily skewed by China.

The only other interpretation possible for the 95% analog is that it is the installed base, not the 'market', i.e., what's being sold. That's probably still low but closer since it accounts for things installed years ago.

Why Advocating This

It would seem weird that Avigilon would advocate that the market is still so heavily analog. For sure, no Avigilon rep would go into an end user and talk about how everyone still uses analog. It would undermine their position.

What's happening is that this presentation was made to investors who want to hear the bullish growth case of why Avigilon's expansion can continue at its current rate. The less the market has adopted HD / IP yet, the more upside there is, the easier it is to continue to grow and the better they can justify a higher stock price.

The Reality

However, the market is far more mature and saturated in Avigilon key's regions (North America and EMEA which represent 80% of Avigilon's revenue). In those regions, the market (by dollar volume, which is what counts for investors) is easily 60% or 70% IP. The market is very quickly approaching complete saturation. This means it becomes harder for all competitors to gain ground, because they are fighting each other, not taking share from the legacy players.

The good news for Avigilon is that they are pretty clearly pummeling Pelco and American Dynamics and hurting both Genetec and Milestone's hope for expansion in the mid market. They continue to look strongly positioned to do that. However, that combat, is far harder than sweeping through a market where only 5% are currently choosing one's product category.

Oh, One More Thing

The article also reports Avigilon CEO saying that:

"Avigilon’s solution, meanwhile, was built from the ground up to be high-def, and the company has built, among other things, its own custom lenses because standard lenses, its own cameras, and its own compression algorithms."