Dropcam Raises $30 Million - Why?

Dropcam has raised $30 million and a total of $47.8 million. In this discussion, we examine why.


(1) They are growing really fast and killing it on Amazon.

(2) They are being valued and funded on a Silicon Valley scale, rather than a security / surveillance industry one. $30 million is not outrageous by those standards.

Techcrunch has some interesting comments from Dropcam about what they will use this for, in particular:

"One of the things that we decided to invest a lot in, which has been a big project for us, is the computer vision side of things"

"Dropcam has been working on their computer vision system for just about a year now, and they plan to start releasing features around it and hiring more engineers to develop on top of it, and they can do both much sooner now than if they’d not taken more money."

That said, the conversion rate to paid monthly subscriptions is still under 40% (they report 39%).

At this point, they will execute well and that $30 million will either give them a huge advantage over almost anyone or they will flame out and become a cautionary tale.

Okay so they are getting into video analytics. But with no outdoor cameras what is their end game strategy - try and get every corner store to put two up? Any large home/medium business+ customer will consider this solution a toy.

Its like the Smart ForTwo ultra mini cars - great for commuting to work but thats it - can't fit the shopping and can't take even a second passenger...

They just got $30 million. It doesn't take even a tenth of that for them to roll out a few other form factors.

If I was a VSaaS competitor, this funding would scare the shit out of me. I still think there is a very real possibility they blow but this funding empowers them to develop real analytics, to roll out more form factors, to improve their VMS capabilities, to add in SD storage, etc.

I would consider it a validation of the VSaaS model, and I am sure there are other "me-too VC's" out there with money to place that would consider investing in other VSaaS-providers.

Yep, Kleiner Perkins invested in 3VR, validating video analytics and face recognition. Now, Kleiner invests in VSaaS and validates that :)

That said, I agree that VSaaS suppliers will use this for validation (regardless of whether it truly validates it as a business).

Two important issues remain:

  • Dropcam getting $30 million is clearly a function of them being a Valley company (certainly it's not the only thing but a similar company in Iowa or Ireland ain't getting $30 million).
  • How can Dropcam withstand the tide of hardware manufacturers offering monthly recording for free with recording to on board SD cards? The Lorexs of the world are doing this already and it will only grow as consumer focused providers get into the game.

"How can Dropcam withstand the tide of hardware manufacturers offering monthly recording for free with recording to on board SD cards? The Lorexs of the world are doing this already and it will only grow as consumer focused providers get into the game."

they will either make more products or like I said be bought when they have a viable low income option on the table that can be integrated with a basic home security option.

for the basic user these are nice the mothly fee is almost the same a a low end security system without camera's.

there is a lot of issues with them and not being Vandal or Enviorment proof but for the shop owner getting ripped off daily getting proofs cost just went down.

It just shows you that when you have a billion dollars you can toss 30 mill at a camera company in the same town and not blink and it will go on for at least a while.....

in the end it will be bought by a larger company with a need for a cheap reliable camera option and steady monthly income. which is how most of them stay afloat.

I'll tell you why Dropcam is a multi-million dollar idea: ease of use. A homeowner/small business owner does not have an IT department to figure out all the complications of installing and maintaining a video surveillance system. You just plug this in and you get live streaming over the web to any browser or mobile device. They are not trying to compete with enterprise solutions here. You just go to Amazon, plunk down your $150 and you're in business.

Yes we can probably do a little research and find a better and more cost effective solution, but IP video geeks are not the intended customers. Dropcam is the "#1 bestseller in security and security and surveillance equipment" on Amazon. That means they have a huge lead in name recognition and if that 40% subscription rate is correct then they have significant RMR as well.

"I'll tell you why Dropcam is a multi-million dollar idea: ease of use. A homeowner/small business owner does not have an IT department to figure out all the complications of installing and maintaining a video surveillance system. You just plug this in and you get live streaming over the web to any browser or mobile device. They are not trying to compete with enterprise solutions here. You just go to Amazon, plunk down your $150 and you're in business."

I can second this. Ease of use is why people buy these and then recommend them to their friends. In general, user interfaces in our industry pretty much suck across the board.

Jim, certainly Dropcam is a 'multi-million dollar idea'. However, raising $30 million from VCs implies that they think it is a multi-hundred-million dollar idea.

I found another reference that says 30% of their revenue is from subscriptions / 70% from hardware. Obviously time will tell. I am curious how significant churn will be. What percentage of people will find it not essential to record and elect not to renew over time?

The money is riding a new highly scalable possibility. The mix is right for dropcam. Early mover advantage, big funding from none other than Kleiner Perkin, large opportunity with global impact, and a good team. This is what a success story brews from.

Btw, I wouldn't put much credibility in Kleiner Perkins funding. They are the Cisco or Pelco of VC funding - Used to be great but now trading more on brand than market success. See: Kleiner Perkin Acknowledges Weak Results and a Humbled Kleiner Perkins Adjusts Its Strategy.

That does not mean Dropcam won't succeed. It's just that KP is not that successful anymore.

In our Dropcam test, we broke down and explained the key ease of use elements that differentiated it.

One big issue is how sustainable is 'ease of use' as a competitive advantage? There are some companies, like Axis, who have screwed themselves, because of their broken VSaaS channel strategy (i.e., they have sacrified ease of use to appease their partners). Will other entrants mimic the Dropcam business model and implement the ease of use elements (which is technologically straightforward)?

I don't know how valid the comparison to Axis is (for all that they get dismissed contemptuously by Wired magazine as "some company from Sweden"). Dropcam isn't competing with Axis. Dropcam is competing- crushing, I should say- Foscam and Lorex and Swann. And in that segment, reliability and ease of use is a huge differentiator.

Crushing Lorex? Lorex sold over 500,000 cameras last year (disclosed during the FLIR acquisition). I doubt Dropcam did a tenth of that.

When I compare Axis to Dropcam it is because Axis does want that space (small systems are a key focus for them) and Axis has spent years now trying to put together a winning VSaaS strategy.

Sure, Lorex sold, and continues to sell, a ton of cameras. How many of those are IP cameras, and not analog CCTV cameras?

Axis can focus on the small space but the small space isn't focused on Axis. Unless Axis wants to do the kind of marketing Dropcam does, not even fixing their VSaaS is going to help.

The problem is that Axis is afraid of pursuing Dropcam's business model of selling off their website, charging the customer directly, etc. That's why Axis has this crazy multi-level reseller strategy, AVHS software to someone like EMC, EMC sells is to mega integrator, mega integrator resells it to regional dealer, regional dealer sells it to homeowner / small business, etc.

Their VSaaS product (on the tech side) is fine. It's their business model that's fucked. This is a classic case of low end disruption where the upstart pursues a business model that the incumbent refuses to match because of loyalty to their existing core business.

As for Lorex, I don't get the IP / analog thing. Lorex and Drocam are selling to the same market segment. Lorex sells analog, HD SDI and IP. Dropcam sells IP only. Lorex sells 10x more total cameras. Maybe Dropcam sells more IP but still far less than Lorex overall to the same customer base.

John,

I think Lorex and Dropcam are selling to different consumer subsegments, of which the segments that favor ease of use and modern network design outpaces the others.
It'd be interesting to see where things stand in a couple of years. And who makes money.

Dropcam has designed their own cameras and cloud software in-house. Lorex business model to my knowledge is more based on lowest cost and branding ODM products from Asia and may be slower to react.

Apart from KPCB, Accel partners is also a pretty good name to back up. With Panasonic grabbing camera manager recently things are certainly looking up for VSaaS companies. Key for dropcam and others to succeed is to ensure that bandwidth pricing keep going down so that customer base can be higher. As such it's still the most usable solution out there. I'm sure drop is not too far from an outdoor camera. If I were an investor with money and looking for VSaaS as an option to bet on, I would not look beyond dropcam. i guess that's where they've attracted KPCB and Accel. Dropcam is yet to reach large part of international markets, I'm sure that would make it a worthwhile bet.

Jim - you summed it up. There are too many geeks on this site to "get it".

Undisclosed, your comment adds nothing to the discussion and simply attacks others. If you have nothing informative to say, don't say anything. Also, consider disclosing your identity so others can understand your business relationships involved.

Slower to react? Lorex has had plug n play remote access for years - via Yoics years ago and now via Stratus.

We tested Lorex's LNC IP camera last year and it's pretty good - Plug n play works and is nearly as simple as Dropcam. Better than Dropcam, you could use an SD card and access recordings without any monthly fees. Worse than Dropcam, is the UI for accessing recorded video. But that's not something too hard to fix.

If Lorex continues to give away recorded video access for free while Dropcam charges, it gives Lorex a key advantage.

Btw, you should disclose that Dropcam is a prominent customer of your company, e.g., mentioned in Ambarella's recent investor's call.