ObjectVideo's Funding, Future and Challenges Examined

Much maligned video analytic vendor ObjectVideo received a massive investment earlier this year, raising questions about its positioning and future outlook. In this note, we share our findings from discussions with numerous ObjectVideo partners and ex-employees. [Update April 7, 2011: OV sues Bosch, Samsung and Sony.]

In January, an SEC document disclosed $27.75 Million investment into ObjectVideo. The round included a mixture of debt and equity from a total of 17 investors.

This was shocking to most people within the surveillance industry as ObjectVideo's performance has struggled and their market prominence has faded, with attention towards Agent Vi, BRS Labs and VideoIQ all surpassing OV. This is especially noteworthy because just a few years ago, ObjectVideo was by far the best known and most talked about company in the space. ObjectVideo does not even seem to be trying themselves - their last press release was more than 8 months ago. [Update: New Release from OV on adding ARM Support.]

ObjectVideo has not announced new products or versions in quite some time and even new partnerships are rare. Plus, in our discussions with a number of their large brand partners, sales of OV licenses are low. One noteworthy example is how Pelco has shifted from marketing OV's analytics to giving their own away for free. The biggest brand left pushing OV is Cisco, an equally struggling surveillance provider.

Why this huge round? First, it certainly is huge for surveillance standards. It dwarfs even 3VR's $17 Million round from December 2010 (though 3VR's round was all equity).

One easy but probably only partial explanation is the overall 'robustness' of the technology investment market with more and more observers believing that this is a tech bubble. Right now, it's relatively easy to get funding.

Beyond that, we spoke with a number of industry insiders and here are the leading theories / explanations about Object Video's funding:

• A significant portion of the funding was used to 'cash out' existing investors.
• OV sees a strong opportunity to license their fundamental trip wire / analytics patents (such as Patent 6696945) - this is distinct from licensing their software which has been their historical focus
• OV has unpaid contracts on previous license sales (e.g., up to 2009, OV disclosed the number of channels 'sold', maxing out in their press releases at 800,000 channels in Sept 2009). Previously, OV acknowledged to us that only some of the channels have actually been paid (they would not qualify as to the percentage). Those unpaid contracts could be worth a significant amount of money.

We provided ObjectVideo more than a month to respond, including 3 scheduled conference calls which they repeatedly cancelled. ObjectVideo did say there were "inaccuracies in each of our 3 topics" but declined to be more specific. They noted that they were going to provide a statement in the future. If and when they do, we will share it in full in this post.

On the patent licensing front, we confirmed with Axis that they are licensing two ObjectVideo patents for their Cross Line analytic. In the Axis analytic's EULA, it states that the, "SOFTWARE is licensed under U.S. Patent No. 6,696,945 and 6,970,083." Axis stated that they "decided to take a license for some patents in order to save their customers from uncertainties."

The question becomes: How many other manufacturer's analytics might fall under that patent? From a brief scan of these patents, it seems manual calibration is a key element of the claims. Many, if not most providers, include manual calibration. We do not know how OV's patent might impact other analytic provider's specifically. However, if a large company like Axis decided to license the patent, it seems to indicate some concern over the breadth of ObjectVideo's patent.

Update April 4, 2011: Our spider has picked up 2 additions to the ObjectVideo management team: 

• A Chief Intellectual Property Officer with experience in 'patent validity and infringement issues, negotiated inbound and outbound licenses'
• A VP of Litigation and Licensing with experience in 'protecting and enforcing intellectual property rights'

These additions indicate that OV is strengthening its effort to go after other industry players for patent issues.

Update April 7, 2011: OV sues Bosch, Samsung and Sony.

While we believe there is upside for OV in patent licensing and collecting on unpaid contracts, the overall strategic positioning of the company remains weak. Specifically, their approach of licensing analytics software to numerous third parties appears to have performed poorly. One of the key elements we discussed with their partners is the challenges with performance and support. Performance issues are obvious and well covered in overall analytic industry challenges.

However, the support problems seem to be unique to ObjectVideo. In the OV model, each of the partners need to provide support for OV analytics. For example, if I buy a Cisco camera with OV analytics on-board, I would call a Cisco rep and they would help me set up my perimeter detection, people counting, etc. The problem is the skill and experience needed for each partner/OEM to provide such support. Not only is it inefficient, since video analytics is a different field than cameras or recorders, it is hard to provide good support. We tried this with Pelco and could not find a single person to help us with OV's analytics on Pelco's cameras. Other partners also cited this as an ongoing problem.

Finally, we do suspect that a significant portion of the funding was used to buy out existing investors. We believe this because we have seen no signs of significant ramp up in hiring, expansion or new product releases. Companies receiving $27 Million in new cash, especially in our small market, generally respond with aggressive expansion.

Ultimately, the big challenge for OV is the quality of their analytics and their poor go to market strategy. Unless they make major changes to one or both of these elements, we expect their deteriorating market position to continue.