Subscriber Discussion

Axis Results: Is There Starting A Shift Away From Cost As The Main Factor, To More Reputable Brands And Value Add Technologies?

JB
Josh Bylsma
May 26, 2017
BLUEmark Technologies

While I never have been a strong proponent of Axis's channel strategy, I have been impressed with their strong position not to bend to the pressure of low price. I was also surprised to see how well they did this past quarter. I would have assumed that the low cost options (Hik and Dahua) would have eaten away at their market share and effected growth potential. 

Question:

Is there a starting shift away from cost as the main factor, to more reputable brands and value add technologies? 

If so...

Is this being driven by the end-user or are dealers shifting their own market/sales strategy? 

NOTICE: This comment was moved from an existing discussion: Most Respected Manufacturer Competitors

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JH
John Honovich
May 26, 2017
IPVM

Good question, I moved it to its own topic so it can be discussed.

A few things can explain this:

  • Hikvision is past the easy growth stage in North America. Most every dealer has been pitched / approached by Hikvision so it is not like 2014 or 2015 where they were they were starting from such a low base.
  • Hikvision's employee growth rate has definitely cooled off after very heavy hiring in 2015 and 2016 H1. Less new employees means less people / resources to win new deals.
  • Negativity against Hikvision has increased in the past year, with the cybersecurity issues and government ownership becoming increasing problems (and if you don't believe this, ask yourself why else would Hikvision waste the time / energy running an anti-IPVM marketing campaign?) This increased negativity makes it harder to win new dealers and more costly to retain existing ones.

You mentioned Dahua and they have definitely ramped up spending / employees in the last year. However, they do not seem to be doing so well and to the extent Dahua is winning in NA, they are likely taking it away from Hikvision or their own OEMs, not Axis, Avigilon, etc.

So net/net, I don't think buyers are becoming less cost conscious, I think the ones that are really cost conscious have mostly already made the shift and that further shifts are more difficult due to natural buyer preferences and increased negativity towards to H and D.

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Christopher Freeman
Jun 04, 2017

Great Response John , Keep up the good work. 

Strong Values, Thick Skin, Tough Stance , and Motivated response's

 

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Armando Perez
May 26, 2017
Hoosier Security and Security Owners Group • IPVMU Certified

Just as you see some flocking to the cost driven product selection approach in order to make a couple extra bucks now, you also see people running from it who understand the dynamics of that approach. Just because you can run higher margin today, does not mean you will have a healthy business in a year or two as the other metrics of the business shift because of the adjusted ratios. Axis and other high-end brands provide stability that is needed to grow a business. People with an eye on tomorrow get this in one way shape or form, and are thus rewarding them with revenue. I'm wondering if the same holds true for avigilon and if dropping prices a bit was a mistake. (as a partner Im happy for it, but as a shareholder, not so much)

UM
Undisclosed Manufacturer #1
May 30, 2017

I think one main factor is the growing trend of changing the traditional sales into service, where the customer pays a monthly fee which includes all hard- and software, service, installations etc. instead of buying it in a traditional way. Spreading the cost in e.g. 3 years, makes it possible to neutralize the price difference of hundreds of dollars to cents per month. It enables also the customer always to have the latest technology.

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JH
John Honovich
May 31, 2017
IPVM

growing trend of changing the traditional sales into service

I am sure technically it's growing but at what growth rate and at what percentage of the overall market? From what we can see, it still remains a distinct minority of the video surveillance market at a modest growth rate. Yes/no?

UM
Undisclosed Manufacturer #1
May 31, 2017

Yes and no. Depends on the country/region in question. In some countries the service sales is already ahead of traditional sales. And this is understandable as the reseller gets a higher margin without loosing any business. Please do not mix service sales with any cloud offering. They can be combined as an option. I am more addressing the market for leasing/rentals.

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JB
Josh Bylsma
Jun 05, 2017
BLUEmark Technologies

This has been a trend I have seen as well. While it is debatable as to how much of the market has shifted to this... I do believe that this is a solid strategy. It goes back to the old opex vs. capex discussion. For some end-users, it is easier to add opex than it is to justify a substantial capex outlays. 

Additionally, as we are seeing, there is greater long term value to integrators to build solid RMR. This helps integrators bridge the project-to-project sales cycles that can become very problematic, from a cash flow perspective. If an integrator looks to sell, the RMR is worth as much as 45X. Additionally, integrators could easily capture more bottom line profit dollars using a pure RMR structure that allows the end-user buy over time and the integrator to charge for the use of that money. 

However, the ability for the integrator to hold substantial lines of credits for 10-100s of customers would be very difficult. Personally, this has been a something I have been thinking a lot about myself. What is the market validity and how would one build a finical structure to support this type of business model. 

(Need a large investor or a lot of little investors) 

UM
Undisclosed Manufacturer #1
Jun 05, 2017

There is no need to finance the credit by yourself. There are a lot of financial services which have been offering this kind of service in the world of ICT, automotive, coffee machines etc. They are keen to help out in this as well.  

In other words the integrator sells his contract to a financial service, gets the payment after a successful installation and is free of any financial responsibilities afterwards. After the agreement period is over, the integrator can purchase back the contract for a very low percentage, e.g. 1% of the value. During the contract period the financial service owns the contract and its responsibilities. During the period the customer gets a monthly or quarterly invoice from the financial service. Simultaneously the integrator and the customer have an ongoing service agreement. 

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