EMC Dumps Axis VSaaS

Nelly's Security

i too cant understand why these large surveillance companies cant innovate like dropcam. dropcam is scary easy and the more the company progresses, the better the products are going to continue to be. hey manufacturers, adapt or die.

John Honovich

IPVM

In reply to Sean Nelson

This is classic innovator's dilemma stuff. Axis obviously can do any of this technology. The problem is a business model issue. Axis gets enough grief from partners about their current practices. If they sold online on their own website direct, cutting out everyone, big incumbents integrators would cry foul.

Now, they both can lose the low end together as companies like Dropcam meet the customer need that the incumbents refuse to do.

Undisclosed Manufacturer #1

I don't think it is just a question of business model, but also has to do with the mindset or culture of the organization. It seems that Axis' value proposition is that you get very flexible and very advanced platform; you can write you own little apps in c++ that you can install on the cameras, the camera itself seems to run a miniature linux kernel, VAPIX is a very simple and easy to use protocol, so it's easy to write a driver for the cameras. All of that is very cool, and awesome.

If you are a developer.

As an end user, in the market that DropCam is targeting, no-one cares about the potential of the camera. They care about the package they get, and at what cost.

According to DropCam, DropCam started with Axis' cameras, bought them on Amazon and eBay and re-labeled them. Axis offered a choice : partner, or face charges (IANAL, so I don't know if it would stick). DropCam partnered, but didn't need all the functionality of the Axis cams. Instead, they needed a lower price. Axis didn't want to lower the price. DropCam went elsewhere, and now Axis sells 0 cameras to DropCam.

But DropCam should be aware that a) Axis has the technical chops to offer something awesome too and b) DropCam will face steep competition from a myriad of other companies.

The bigger threat to Axis is not coming from these home systems. I think the bigger issue is that the higer-end market will also start demanding cheap/simple over expensive/flexible. Naturally, reliability, image quality and form factor will be factors that set vendor A apart from vendor B. But the bulk of the market just don't care about the firmware or that you can set up a cron table on the camera running a curl command every 10 minutes. Once you can get decent "no-name" cameras that "just work" with a cheap NVR (that has a usable interface), then Axis will need to adjust.

John Honovich

In reply to Undisclosed Manufacturer #1

IPVM

"But DropCam should be aware that a) Axis has the technical chops to offer something awesome too"

Absolutely. But it's their business model that is stopping them.

They don't want to offend their re-sellers, so they sell it through them even though it makes it harder and more expensive for the customers to get it.
They don't want to offend their VMS partners, so they keep AVHS features basic and limited.

"The bigger threat to Axis is not coming from these home systems. I think the bigger issue is that the higher-end market will also start demanding cheap/simple over expensive/flexible."

Certainly. But what company can deliver cheap/simple solutions to the high end market? Dropcam is an obvious choice. They have the capability and drive to move up market. Is it really that hard for them to add a few more form factors? Some 'enterprise' type video management features? Not at all.

I do not know what Dropcam will do, but it's fairly typical for new entrants to start low and move up market. And when Dropcam, or another well funded startup with their business model, goes head to head against Axis, Axis will be at a severe disadvantage if they cripple their offering to protect their partners.

Come on, what's Axis going to do now? EMC failed. Now it's up to iViewNow and Secure-I?

Undisclosed Manufacturer #1

I don't know DropCams roadmap, but their current (software) offering doesn't strike me as viable for larger installations with hundreds of cameras, access control and LPR integration and so on. And I don't see Genetec or Milestone offering support for DropCam HW any time soon. In terms of HW, DropCam is not offering anything special as far as I can tell.

To enter the high end market requires a lot more than just adding a few "enterprise" features and a couple of form factors. Just as it seems hard/impossible for the incumbents in the high-end segments to capture the lower end market (although some laughable attempts have been made to target that market simply by lowering the price and limiting the number of cameras - as if that's all it takes), I think that DropCam will find that entering enterprise is a whole different ballgame.

For smaller, commercial systems, running on one server (offices, stores, that sort of thing), I think DropCam is going to enter a very crowded market, with very slim margins. I just don't see them going in that direction at all. The market may have massive volume, but not a lot of profit. Getting 10 million private users to pay a recurring fee every month seems like a much richer target.

My takeaway is that Axis - right now - is making good money on simply making advanced cameras. But I believe that in time, a few years down the line, people will refuse to pay a premium for advanced features they are never going to use. The camera needs to deliver good image quality, not fail, and deliver alerts on a reliable basis. Once the no-name manufacturers gets this right (and they will), it will be a matter of price, and not much else. And that's the threat I would be concerned about if I was Axis.

If you are correct that DropCam is going to enter the enterprise market, then Milestone and Genetec really ought be be scared - not just Axis.

John Honovich

In reply to Undisclosed Manufacturer #1

IPVM

You've totally missed why Dropcam is a threat.

"Their current (software) offering doesn't strike me as viable for larger installations with hundreds of cameras, access control and LPR integration and so on."

Of course, but the market is not simply hundred camera installations and homes. There's a huge part of the market between ~4 and ~24 cameras per site. Dropcam is not there yet, but it won't be hard for them to get there if they choose to.

"And I don't see Genetec or Milestone offering support for DropCam HW any time soon."

I bet the people at Dropcam hardly know who Genetec and Milestone is, nor care for that matter. Dropcam could technically offer ONVIF support, but I am sure they have no interest. They are creating their own end to end system (think Apple). A company like Dropcam wants to avoid 3rd parties, security dealers, etc. It's an advantage for them and to many customers - buy direct over the Internet, simplify setup, etc.

"In terms of HW, DropCam is not offering anything special as far as I can tell."

For sure, the camera is not 'special'. Worse, Dropcam's camera last year was fairly crappy, but the new one now rivals professional IP cameras.

Here is a quick comparison from our tests between the two, same time, same place:

The new camera has a significantly larger FoV yet better details and color. Here's a zoomed in area to show the improvement:

On top of that, their VMS is easy to use and works seamlessly with their cameras.

Does that remind anyone of any video surveillance company that has stormed the surveillance industry?

Like Avigilon did to the mid tier professional market with a tightly integrated quality end to end offering, Dropcam is poised to do the same thing in the lower end of the market, the one that Axis keeps on talking about in their financials as the key to their future growth.

Undisclosed Manufacturer #1

I didn't miss anything, I just don't agree that DropCam can, should or even want to enter the 4-24 camaeras market.

You said,

"There's a huge part of the market between 4 and 24 cameras per site. Dropcam is not there yet, but it won't be hard for them to get there if they choose to."

But, as I stated previously

"For smaller, commercial systems, running on one server (offices, stores, that sort of thing), I think DropCam is going to enter a very crowded market, with very slim margins"

Almost all of the VMS vendors out there, are salivating over that segment (who cares about profits when companies are sold on revenue). This crowding will push down margins across the board. So I just don't see DropCam as a disruptor in this segment. I'm much more inclined to see Avigilon dominating that size system, than DropCam. And I don't see the threat being directed squarely at Axis.

John Honovich

In reply to Undisclosed Manufacturer #1

IPVM

Actually, Avigilon is less likely to 'dominate' the smaller market side. Their dealer only, no Internet sales model, really hurts them for smaller systems where people are buying direct, self installing etc. Moreover, Avigilon has been quite clear their sights are more focused in expanding into the enterprise / mega markets, not the small side.

And, yes, lots of companies want the small scale market but Dropcam has unique capabilities of making it very easy to get and setup. Indeed, you could make the same argument for the home surveillance market (crowded market, slim margins) but a truly better product with easier use will capture a significant share.

Dropcam will need to add more but they are showing a very rapid ability to roll out new important features, which is something that most of these companies who want the market are not.

Sean Nelson

Nelly's Security

"But DropCam should be aware that a) Axis has the technical chops to offer something awesome too and b) DropCam will face steep competition from a myriad of other companies."

My whole point is, they better come out with something sooner than later. Its a shame that a startup had to do something like this before the large experienced manufacturers.

Heck, they can still keep their "wholesale only" business model. I am just saying they need to come out with something simple and cheap to hit the small install market.

The main thing that I really like about dropcam is its simplicity. I bang my head against the wall trying to understand why the large manufacturers cant get the simpllicity thing figured out like Drop Cam did. Making things simple is actually genius and will make you more money. Granted, there will always be a time for heavy features and such, but rarely is that the case for the small installs. End users and installers alike in this part of the market are looking for something incredibly easy and fast to setup and maintain. I can tell you that the installers that are installing 16 cams or less are not working on as large profits so the less amount of time it takes them to install and the least amount of call backs for tech support, the better for them. Making things quick to install and easy to maintain is a huge benefit to this part of the market.

"Once the no-name manufacturers gets this right (and they will), it will be a matter of price, and not much else. And that's the threat I would be concerned about if I was Axis."

I totally agree. It happened to the analog market. It will and is starting to happen with IP

John Honovich

IPVM

In reply to Sean Nelson

"They can still keep their "wholesale only" business model. I am just saying they need to come out with something simple and cheap to hit the small install market."

And I am saying that the wholesale only model is directly hurting their ability do something simple and cheap.

Let's look at simple. You have the OAK and the registration process. Why? Because it's a wholesale play and Axis needs to coordinate connections to various partners. That does not exist with Dropcam. You plug the Dropcam into your PC, 1 - 2 -3, and the camera is connected to Dropcam's cloud service.

And then cheap. How can it possibly be cheap when you have so many fingers in the pie? Is it any surprise that a model where Axis sells to EMC, EMC sells to big integrator, big integrator sells to local dealer would fail? Everybody needs to get a cut but what do all these players bring?

Plus it makes it harder to get. If I want AVHS, how do I get? Where do I go? Do I call someone up? Do I pick from Axis's service provider list? (Side note: they still have Navco's VideoMetrixs listed even though it failed more than a year ago.) Even if I wanted AVHS, it's a pain to figure out where to get and who to choose. That's directly a problem of the wholesale model. With Dropcam, it's easy - Dropcam.com. One company, one website, one brand.

There are real structural barriers that are blocking Axis from delivering a simple and low cost offering with a wholesale business model.

Undisclosed Manufacturer #1

In reply to Sean Nelson

They've grown large by adding feature after feature to their NVR. They did what everyone else was doing, and when everyone else was doing it too, how could it be the wrong strategy? Who cares if you need to download a 2 GB installer, wait for half an hour while the software installs, spend hours and hours setting the IP address of the camera, adding the cameras to the NVR and so on - you know the drill.

Now you are proposing that they axe their #1 selling mantra : "we support N cameras" (N being a large number). This has been repeated as a selling point so many times, it has seared itself into the very core of the company.

So, in the boardroom the rationale being tossed around is that making "fast and cheap" will probably kill the "expensive and difficult" solution, so they won't build it out of fear. And so, they go back and add some more features, support a few more cameras ("strategic alliance press release"), and wait for someone else to build "fast and cheap". Perhaps they will handicap their solution and offer a "cheap and difficult" solution to no avail.

I think they know what to do, it's just against their nature to make the changes needed.

Undisclosed

•Nov 27, 2013

What do you guys think will happen to Axis' margins and who is their biggest threat on the high-end customer market?

John Honovich

•Nov 27, 2013

IPVM

Henri, Overall, I think Axis has a ton more threats for the low end market than high end. That said, Samsung is likely the biggest threat to the high end. Not necessarily because Samsung is 'better' than Axis other high end competitors (like Bosch, Panasonic, Sony) but because (1) Samsung has demonstrated an ability to sell at incredibly low prices (relative to this tier) with similar feature sets and because (2) Samsung has a hot brand name now, leveraged from its success in consumer electronics. See our recent Samsung IP camera test.

As for margins, that's a little trickier, mainly because it depends on how Axis prioritizes between maximizing gross profit percentage and overall revenue. There's no doubt margin pressure exists but I am not sure how aggressively Axis will cut prices to keep growth up or be content with lower growth / more gross margins (the Mobotix model).

Undisclosed

Thank you for the quick and well thought out reply John.

Judging from the comments of the management, about their intentions to "drive the shift from analog to digital on small installations markets" and emphasis on global growth, it seems like that would be an suboptimal strategy (in terms of profitability) that is not in alignment with the increased competitive forces. Also by focusing on those factors, instead of possibly being more concentrated geographically and in product space, they are probably compromising their home turf/high-end market defense. But for the potentially overconfident management, it is so much more attractive to try to grow, grow, grow, instead of breaking that historical consistency and becoming more focused into their competitive advantages on a niche market. Their management seem to have the former attitude.

John Honovich

IPVM

I disagree that they are compromising their home turf/high-end market defense. If anything, their product releases this year have overwhelmingly been about defending and strengthening their high end - e.g., Axis Q1765 Long Range Integrated IR Camera and Axis Bells and Whistles Box Camera (Q1614). From what we have learned about their upcoming releases, it seems to be more of the same (focusing on the high end).

Undisclosed

I understand your point. Good answer! Then a follow up question would be that if you think that Axis can defend against the increasing competition, for example when players as Samsung and others begin to be interested in those high-end margins? Could Axis benefit from being geographically more focused?

For example. Someone in these discussions pointed out that this industry could be experiencing a similar cycle as when TV's went to flat-screen i.e. there is no sustainable competitive advantages (like customer captivity or economies of scale etc.) that protect from new entrants jumping in and putting pressure on those margins. Also there was some discussion about Axis' strategy to go to the small installations market not being a good idea.

John Honovich

IPVM

Regarding competitive advantage, the problem for the high end manufacturers is that megapixel is quickly being eliminated as a differentiator. Equally important, advances in low light and WDR are being closed out quickly (e.g., Axsi Lightfinder was a breakthrough ~2 years ago but in the last 6 months, lots of manufacturers - even low end ones - are catching up or beating it).

This raises the question - what do high end manufacturers like Axis compete on next? I think Axis knows the answer is analytics / apps (recall this was part of a fierce debate last year - Axis Declares Megapixel Race Over!). The problem for Axis is that its analytics / apps offerings are still fairly minimal / uncritical. For instance, their recent VMD2.1 is excellent but they rarely promote it and it has weak third party support.

Finally, as for small installations being a good or bad idea, the issue is execution. AVHS / hosted video is a bad idea (at least how they went to market, i.e., see above). By contrast, Axis Camera Companion is a good one. The problem is that Axis needs to keep price close on their cameras to all these low end providers who are now offering sub $200 MP / integrated IR cameras with NVRs that are basically being thrown in for free. That's a challenge.

Undisclosed

•Nov 30, 2013

I think that is a really sound analysis of the competitive situation. Sounds like the pattern is similar to other high innovation technology industries i.e. perfect competition with many firms, minimal to no barriers to entry, homogeneous products and perfect information flow. I am going to take a closer look into their recent product releases though.

The company with the most efficient operations and a quite focused product portfolio maybe (e.g. Intel) is be able to maintain above average profitability and stay ahead of the competition for a long time period. Management seems to emphasize more growth than efficiency/costs.

If interested...

Undisclosed

What is your take on Axis' wholesale model and if Samsung, Hikvision, Dahua, Mobotix and the other competition are using something similar? Is that kind of indirect sales model standard practice for these manufacturers?

John Honovich

IPVM

Fundamentally, Axis channel model is fairly similar to most big manufacturers, save for Dahua and Avigilon, where there are huge differences.

While there are tactical differences between Axis, Samsung, Bosch, Sony, Panasonic, Pelco, etc., they all primarily sell through dealers and are widely available for sale on the Internet.

Dahua is a lot different because, for example in North America (and I believe Europe), Dahua does not sell directly under its own brand. You need to buy via an assortment of OEM/re-branders. I think this is good for the home / DIY / low end market, but ultimately larger projects typically want to buy (and get support) directly from the manufacturer (not a small re-brander).

Avigilon is the opposite channel model of Axis and useful to study / compare. While anyone can get Axis, Avigilon product sales are tightly controlled and nearly impossible to buy on the Internet. This is a huge advantage for dealers as the #1 complaint about Axis is margin pressure / availability everywhere. On the other hand, Axis has orders of magnitude more people selling their cameras because they make it easy to buy. The big issue historically with the Avigilon model is scaling up revenue (because you run out of dealers - very fragmented market). This will be very interesting to see over the next 2 years.

Undisclosed

That's a very informative reply to the question about the business models. Thank's John.

How do you then see the increasing competition in the distribution business, coming from IT distributors, influencing the manufacturer's business, if it will have any influence at all? Here referring to the article from IMS.

John Honovich

IPVM