Subscriber Discussion

Hikvision - Destruction Vs Lack Of Innovation; How The Security Industry Is Like The Music Industry

UI
Undisclosed Integrator #1
Feb 02, 2017

I keep reading the hikvisions and dahuas are driving the prices down and ruining the market and can't help think how this reminds me of the music industry blaming illegal downloads and $1 songs for their revenues shrinking yet they ignore what the customer has been asking for and have pushed out crappy albums that people don't value enough to pay full price for any more.

At the end of the day, it's all about value and what the market wants. Companies like Dahua and Hikvision offer great bang for the buck because there is a lack of options that offer enough value to justify the higher prices. I hear here and other places that professional brands are expensive because of their sales force and local presence, well maybe that's not as valuable as it once was compared to making a product that is more technically advanced. Maybe companies can spend more of their money on developing more advanced features that actually work and help them stand out without just nickel and diming it's customers for those added features. 

I keep hearing over and over from end users asking the question, why is the camera so expensive, it's just a camera. They're right, cameras, in general, are cheap because the technology is now cheap. Yet the industry wants to keep pushing the idea that my camera is better than theirs yet everyone knows the cameras are good enough. Then I hear customers always complaining about the poor motion detection, 100s of notifications in a day, false alarms, poor user experiences etc etc. It sounds like to me camera manufacturers should be focusing more on accurate analytics and notifications. The camera image technology has reached a point where the cheapest brands can make a picture "good enough" for most end users and businesses. This should tell the industry that innovation should be pushed beyond the image itself and more to the user experience of the products if they want to stay valuable and relevant. Great proof of this is to simply look at the new consumer DIY security camera market. The products flying off the shelves don't have the best picture quality or highest resolution, they have great user experiences throughout the life of the product. The professional industry doesn't always provide that kind of experience yet we expect end user to pay a premium for the professional products.  

As people in the industry, we are allowing the Hikvisions and Dahuas to drive the market down by not demanding better products that offer more value to our end users, not to us, but our end users. If manufacturers keep simply competing on the image and price then, of course, they'll lose to the China manufacturers of the world. Instead, Manufactures should be competing beyond the cameras. Manufacturers should be focusing on better user interfaces, better tech support, better smarter analytics, a better experience. I'd be glad to support a company that practices those things above all else. I use Hikvision as one option and frankly it's not that great to use, other brands don't provide a much better experience at least not worth the higher prices they expect people to pay.

As I live in this industry more, I see an industry that has become complacent with their old business models and has created a huge disconnect between themselves and the end user. So I am starting to truly believe that the industry is being destroyed not by the HIkvisions and Dahuas, but by it's complacency and lack of innovation that should add value for the end user who actually lives with these systems once installed. The industry appears to be more concerned with protecting it's old business models than adapting and providing true value to its customers.  

The music industry forced musicians to crank out albums faster-expecting consumers to continue paying full price for an album that had one good song to increase the music industries profits. They did this without providing value to the end customer and then acted surprised when their market was disrupted by the idea of purchasing only one song. I can argue the security camera industry is doing nearly the same thing by expecting the market to continue to pay high prices for something that is just a camera. Have we become a bloated industry demanding high prices without realizing the value proposition is no longer in sync with the customer?

I personally don't want to sell just a camera that records. I want to sell an experience that makes life easier for my customer and provides true value that they experience and enjoy to use. The startups building DIY solutions appear to be doing this and end users are going nuts for it, why can't the professional industry do the same and beyond with the experience and knowledge it has?

So I ask, is Hikvision and Dahua destroying the industry or is it really the lack of innovation and the lack of true value provided to the end customer that is destroying the market and allowing Hikvision to take over?  

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JH
John Honovich
Feb 02, 2017
IPVM

this reminds me of the music industry blaming illegal downloads and $1 songs for their revenues shrinking yet they ignore what the customer has been asking for and have pushed out crappy albums that people don't value enough to pay full price for any more.

With music, it was the shift from physical media to digital distribution, which was a fundamental disruption. What equivalent technology shift are you proposing Hikvision has made with surveillance cameras?

UI
Undisclosed Integrator #1
Feb 02, 2017

Good point, my response is that hikvision isn't providing that fundamental disruption/change, it's just taking advantage of the current industry and model in place.

I would suggest other manufacturers should focus on that fundamental disruption/change the industry needs to stay valuable. We're already seeing that movement with all the startups that are entering the market. 

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MM
Michael Miller
Feb 02, 2017

I want to sell an experience that makes life easier for my customer and provides true value that they experience and enjoy to use.

Started doing this a couple years ago and business has since exploded.  Everyone else is fighting each other over $100 cameras and eating each other's margins and we are growing so fast we can't find enough qualified techs to keep up with the pace. 

 

 

UI
Undisclosed Integrator #1
Feb 02, 2017

Are you using existing solutions, like 3rd party software solutions, or putting together different products to create a unique solution, building your own solutions? 

JH
John Honovich
Feb 02, 2017
IPVM

I'll offer an alternative analogy.

Hikvision and the Chinese government are the equivalent to Web 1.0 startups and Silicon Valley VCs.

The flood of infused cash and incredible ambitions have made them ignore fundamental business economics, selling products at a loss with the hope to 'make it up on volume'.

Ultimately, things correct (as the VC bubble burst, the China investment / loan bubble will too) and eventually, over time, a return to sanity.

UI
Undisclosed Integrator #1
Feb 02, 2017

How much does it cost to manufacture the camera? This comes to mind when you say selling products at a loss. I would like to see if it becomes a loss because of the overhead built out in the industry. 

I see the analogy accept here we're only talking about one company and one source of income. Hikvision's products may be cheap but they're not great. So others can try to fight with them in which they'll lose because they don't have as much cash or they can change their own strategy. 

Hikvision has proven with cash they can enter a market and get their name out there but they haven't proven they can make a great product and experience. So I'm suggesting manufacturers make great products instead. 

JH
John Honovich
Feb 02, 2017
IPVM

#1, you still have not explained what innovation allows Hikvision to sell cameras for (including this week's kit launch) for 75% less than incumbent firms like Axis. What technology or trend have they taken advantage of that enables them to do this profit?

Your implication seems to be that the other companies are lazy and are price gouging.

My counter is that Hikvision's funding lets them temporary sell cameras at uneconomically sustainable prices.

How much does it cost to manufacture the camera?

Just look at the kits as a perfect example of Hikvision's practices. They are 100% losing money on such pricing.

Even with 'economies of scale' in production, this does not support their pricing. Remember, all the other costs - in country distribution, sales, marketing, support, etc. are the same as Axis. So even if you think Hikvision's cost of manufacturing is far lower, these other effectively fixed costs, would bar them from making profits at the prices they are setting.

Remember in your music analogy, the cost of manufacturing went to zero AND the cost of distribution became effectively zero as it could all be sold online. Surveillance cameras are not that way. That's why Hikvision has ~300 local employees, goes to vast arrays of local trade shows, pays ADI to ensure they are well stocked at every branch, etc.

And Dahua is even worse. It is no secret that Dahua's branded business in North America is hemorrhaging money. Dahua USA reminds me of the worst type of web 1.0 startup, wildly spending money without any clear plan.

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UI
Undisclosed Integrator #1
Feb 03, 2017

#1) That's not really the point, the point is that the music industry lost sight of what their customers valued which allowed new companies to disrupt the market. as you say, cost of manufacturing went to zero AND the cost of distribution became effectively zero so why didn't their revenue and profits sore?

I'm not arguing that Hikvision's agressive pricing is not destructive, or sustainable. I've heard multiple times though that "hikvision is destroying the industry". I'm simply saying that it seems many manufacturers are simply trying to compete on price and I think that's what will destroy the industry. Other manufacturers can focus on other aspects that drive more value to the end user. Axis likes to focus on customer support. Some people value that enough to use it. Others don't. 

Your implication seems to be that the other companies are lazy and are price gouging. 

Nope, just that companies may be applying their resources in the wrong areas and things that were more valuable in the past may not be as valuable as they once were. For example, as you pointed out Hikvision along with other companies spend an enormous amount of money on local employees, expensive trade shows, pays ADI and other distributors and yet very little of those efforts benefit the end user. It's become the normal business practice. What if end users don't value all that effort anymore? I'm sure many do, but can you say all do? 

Just look at the kits as a perfect example of Hikvision's practices. They are 100% losing money on such pricing.

You don't know that if you don't know their margins. I can buy 4MP Hikvision cameras on Amazon for less than 100. With that, it wouldn't surprise me if Hikvision can make these 2MP cameras for around $30 and that NVR for less than $75. which means that kit might cost them around $300 (probably less). 

your also right, that doesn't support the US hikvision branch, but lets not forget that hikvision could decide to close shop in the US if it doesn't work for them and just sell on Amazon. Talk about disruptive.

 

Overall, Hikvision is throwing a lot of money away to make themselves relevant in the industry but I don't think their technology and user experience is all that good. People continue to buy it because others haven't presented a better value proposition. I think the manufacturers that will stay relevant will be the ones that make great products and provide a great user experience (which is valuable to users today) and because of that they won't have to compete on price. Based on what a read here on IPVM it seems many companies are just trying to compete on price and are losing that battle. Not all of course. When I talk to a lot of manufacturers in this industry I get sales pitches that just don't provide a great value proposition that translates to what end users want or care about. I see that destroying the industry more than Hikvision's price strategies. 

 

 

JH
John Honovich
Feb 03, 2017
IPVM

That's not really the point, the point is that the music industry lost sight of what their customers valued

No, a new technology shifted the economics fundamentally in music. There is no equivalent new technology that shifted the market in video surveillance. In music, that technological shift made the business shift viable and sustainable.

Other manufacturers can focus on other aspects that drive more value to the end user.

I do agree with you here. More innovation would definitely help. And I agree with you specifically about your example on video analytics.

The problem is that Hikvision's price cutting is making innovation harder to justify. $50 Hikvision IP cameras make $500 Western analytic IP cameras harder to justify because many people will say the premium is not worth it. And the innovators will then say "it's not worth innovating if I have to sell each camera at $100 etc."

For example, as you pointed out Hikvision along with other companies spend an enormous amount of money on local employees, expensive trade shows, pays ADI and other distributors and yet very little of those efforts benefit the end user. It's become the normal business practice. What if end users don't value all that effort anymore?

But they do.

There is a real life company that rejects all of that and it is Ubiquiti but Ubiquiti has tried in surveillance but never become a major player, and despite rejecting all those traditional sales and marketing expenses, still cannot price compete with Hikvision.

You don't know that if you don't know their margins.

Hikvision gross margins are part of their financials. It's ~40% overall, ~50% for overseas. Let's say Hikvision NA has 50% margins currently. Cut the price by 40%, their gross margins go down to 16.6% (old price 100, COGS 50, new price cut 40% to 60, COGS 50, GM % = 10 / 60 = 16.6). There is no way they cover their overhead with that GM.

lets not forget that hikvision could decide to close shop in the US if it doesn't work for them and just sell on Amazon. Talk about disruptive.

That would definitely solve the overhead problem and it would likely generate more profits / less losses than their current approach.

However, just selling on Amazon has a big downside since many / most integrators do value their RSMs, the local SE, presence at trade shows, visits to their offices, etc.

Listen, net/net I am with you on innovation. It's impossible to win a starvation contest against Hikvision. You need to do something different and better for your customers to stand out.

U
Undisclosed #2
Feb 02, 2017

Any business that there are no differentiators and I.P., will eventually be competed away. Especially in technology that has become a commodity business.

U
Undisclosed #3
Feb 02, 2017

I was eating popcorn until I almost choked on the contradicting enigmatic conundrum of a question within its own answer at the end. The Hikvision business model is a spiral with no two points aligning up to the center equally. I do not know how most of the security industry's dinosaurs survived the comet, but they did. Thank you.

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UI
Undisclosed Integrator #1
Feb 02, 2017

I'm sorry I didn't write this better, maybe it could have been left shorter. I simply wanted to express my point of view on what I'm experiencing and I'm curious to see how others feel about the subject. 

I continue reading posts on IPVM about how it's a race to the bottom and other comments from other sources about how Hikvision and Dahua are destroying the market so it seemed like a valuable discussion.

I'm curious to know your take on the subject? 

UI
Undisclosed Integrator #5
Feb 03, 2017

Even looking 10-15 years out the road, the answer is that the camera market is going to be garbage. Cameras will be cheaper, storage will be cheaper, installs will be cheaper, especially when we get reliable wireless mesh cameras. Does it really matter? Not really except for the people that are selling the toasters rather than what the toaster can do for you and the solutions they provide. I totally see the integrators that treat our industry like Gateway treated selling computers to be washed away. I see the solutions companies staying around which will require them to move further into services to differentiate and stay afloat. Digital tours, video alarm etc. will be the next big push. We already are seeing some successful security as a service companies in our area excelling. There is no life raft coming to safe people that don't make the switch and access control will be the next market that will have the easy margins washed away.

 

It's not that the video market does not have IP. It has very little IP that translates into value to the customer that they are readily able to recognize and are willing to pay for. AI searching is great, but what price is my customer willing to pay for it versus the samsung cameras they can buy dirt cheap at Costco.

UI
Undisclosed Integrator #1
Feb 02, 2017

 why was the title changed? the focus or intention is not to compare the security industry to the music industry specifically but to look at ways the industry can better excel. 

JH
John Honovich
Feb 02, 2017
IPVM

why was the title changed?

The title was changed because the heart of your post is about the music industry comparison. It's at the very beginning and repeated at the end:

1st paragraph: I keep reading the hikvisions and dahuas are driving the prices down and ruining the market and can't help think how this reminds me of the music industry blaming illegal downloads and $1 songs for their revenues shrinking yet they ignore what the customer has been asking for and have pushed out crappy albums that people don't value enough to pay full price for any more....

3rd to last: The music industry forced musicians to crank out albums faster-expecting consumers to continue paying full price for an album that had one good song to increase the music industries profits. They did this without providing value to the end customer and then acted surprised when their market was disrupted by the idea of purchasing only one song. I can argue the security camera industry is doing nearly the same thing by expecting the market to continue to pay high prices for something that is just a camera. Have we become a bloated industry demanding high prices without realizing the value proposition is no longer in sync with the customer?

The title more accurately reflects your post.

 

UI
Undisclosed Integrator #1
Feb 03, 2017

The music industry was just used to help represent my point I see not the heart of the article. I'd be glad to remove it if that's what you think but it doesn't allow me to edit it anymore. 

U
Undisclosed #4
Feb 02, 2017
IPVMU Certified

why was the title changed?

You can take some solace in the fact that the original title is reflected in the URL:

https://ipvm.com/forums/video-surveillance/topics/is-hikvision-really-destroying-the-industry-or-is-it-lack-of-innovation

And in the case when a minor editorial adjustment is made tacitly, having this reference can keep you from thinking you are going crazy ;)

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