The State of the VMS Market 2010

Video Management Software is undergoing a violent transformation. Evolving from its niche beginnings, VMS has matured into a core component of video surveillance. However, the current shifts are stronger and faster than the market has ever experienced.

Indeed, VMS is the segment in most flux. The megapixel market is growing well and smoothly, with incremental innovation and increasing suppliers. The video analytics market is rather subdued (save for BRS Labs' BS).

By contrast, the VMS market is being hit by numerous forces. From:

• The growth of IP camera standards
• The growth of on-line distribution
• Milestone declaring war with its drastic price cuts and free software
• OnSSI lashing out against dime a dozen recorders
• New VSaaS providers starting up every week

Incumbents are attacking, new entrants are cutting into the low end of the market and standards are reducing traditional competitive differentiation.

On the other hand, the overall demand for Video Management Software is robust. The growth of IP cameras and the increasing cost effectiveness of Commercial Off the Shelf PCs and storage drives the overall market.

However, which individual solutions are best and what specific companies will thrive are very much open (and debatable) questions.

In the past year, we have conducted thousands of hours of testing and analysis on enterprise VMS systems, budget VMS systems, VSaaS offerings and more. Leveraging this, we examine the status and future of the market.

Inside this premium section, we answer the following 10 questions/issues:

1. What impact are IP camera 'standards' having on the market?
2. What is the future of NVR/DVR appliances?
3. How will Milestone's moves effect VMS competitors?
4. What threat do the VSaaS providers hold?
5. What impact will the growing use of mobile devices have on the VMS market?
6. Are video analytics changing the use or selection of VMS?
7. How will PSIM change the VMS market?
8. What will become the key foundations for success in the VMS market?
9. What VMS companies are most at risk?
10. What VMS companies are most likely to benefit?
11. Different business model for mobile developers
12. Incumbent deficiency in mobile applications

Unlike traditional VMS developers, mobile application developers have 'grown up' in a business environment where selling software at $2 to $10 to large number of users directly is the norm. As such their teams tend to be engineering dominated with minimal sales and marketing expenditures. We think such teams are a dangerous threat to the status quo.

Surveillance incumbents, for the most part part, cannot imagine a world where surveillance products are sold direct and over the Internet for very little money each. Their world is one of channel sales, sales managers and markups.

From the position of mobile developers, the VMS market should appear very attractive. Take a company such as iCam whose product we recently tested.  The product has over 3,000 reviews and we would suspect over 30,000 purchases in the last year. At $5 per license and subtracting Apple's 30% cut, the developer has probably made over $100,000 in the last year. Unsustainable for a traditional surveillance company but likely quite profitable for an independent developer with no sales, marketing or PR forces. [Note the developer of iCam only lists 2 employees [link no longer available] while developing numerous applications.]

We think not only can these companies survive but they can thrive against big VMS companies like Milestone offering handicapped version for applications designed for complex use case.

We believe more mobile VMS offerings will appear, they will incorporate 'standards' and improve their base capabilities. This will undoubtedly be enhanced by the rapid overall growth in the mobile market.

Are video analytics changing the use or selection of VMS?

Video analytics is not a driving force in VMS selection nor market competitiveness. While video analytics continues to be used and is important for certain applications, neither supporting nor bundling video analytics are significant factors for VMS providers.

With the slow pace of product innovation for video analytics in 2010 and little reason to anticipate a pickup in 2011 (due to poor/no profits and weak/no investment), we do not expect this trend to change for the near future.

How will PSIM change the VMS market?

We believe PSIM, or at least, advanced integration and monitoring, will become key elements for VMS providers that survive this sea change. With so many VMS providers, standards eliminating a conventional source of advantage and prices declining, VMS providers must offer increase value to grow revenue.

This general trend should not be a surprise as VMS providers have been moving 'up market' for years adding in enterprise management, security system integration, redundancy, video distribution over the last few years.

We think most VMS providers will continue to add in advanced integration and monitoring and that this will increasingly blur the line between PSIM focused providers and advanced VMS offerings.

On the other hand, we are skeptical that VMS providers will buy PSIM companies. The primary barrier is the significant amount of redundancy between today's advanced VMS offerings and PSIM software. While we certainly could see Cisco purchasing a PSIM offering to complete their relatively basic VMS package, we believe Genetec, Milestone, DVTel, etc. will likely continue to expand their own offerings.

What will become the key foundations for success in the VMS market?

We believe these approaches will be the most successful:

• Purpose built low end offerings developed by small teams and sold online for low prices
• Freemium business model for the middle of the market - broad adoption globally, solid products, free or cheap to start provides the basics for sustainable advantage for a few providers
• Advanced management functionalities that are best in class sold through the channel for a premium - a few very strong technological offerings that become the choice for large scale deployments
• Bundled solutions of cameras, storage, servers, software, analytics - strong but not the most advanced VMS software enhanced by turnkey solutions that reduce deployment risk for large users

'Losers' - What VMS companies are most at risk?

We think a number of approaches and VMS companies are specifically at risk:

• 'Cheap standalone VMS software' - example: NUUO. Milestone is making it impossible to sell on 'cheapness'. NUUO's VMS software is not sophisticated enough to compete at the higher end of the market. The same concerns exist for Luxriot (which we think is technologically better and more cost-effective than NUUO but still facing the same fundamental challenges).
• 'Budget VMS offerings' - example: our budget VMS series. It's hard to imagine a strong future for any of these companies. Perhaps they can cost? It seems too difficult for most of them to move upmarket without relatively massive investment.
• 'Companies stuck in the middle'- examples: Lensec, Salient, VideoInsight (and those are just the Texas companies). The challenge for most of the independent VMS software providers is that they cannot become cheap enough to become on-line VMS providers so they will have to compete up-market to deliver more advanced offerings. Perhaps some can but we think the majority will struggle.

'Winners' - What VMS companies are most likely to benefit?

Above, we noted 4 approaches or templates for success:

• Purpose built low end offerings developed by small teams and sold online for low prices. We believe will see companies like iCam (or companies better) enter the market, expand and dominate the home, SOHO and even some of the lower parts of the small business market. They will sell direct, at low cost and use the Internet as their main sales tool.
• Freemium business model for the middle of the market - broad adoption globally, solid products, free or cheap to start provides the basics for sustainable advantage for a few providers. Since Milestone is setting the agenda by forcing the issue and leveraging their existing strengths, we think they will most likely increase their share of the mid-market of a dozen to 100 camera deployments.
• Advanced management functionalities that are best in class sold through the channel for a premium - a few very strong technological offerings that become the choice for large scale deployments. We believe companies like Genetec and DVTel that have clearly demonstrated the commitment to developing dozens of very advanced capabilities have the edge here.
• Bundled solutions of cameras, storage, servers, software, analytics - strong but not the most advanced VMS software enhanced by turnkey solutions that reduce deployment risk for large users. In this segment, we believe the larger incumbents (such as NICE and Verint) have the greatest chance for success, catering to large, risk averse organizations who need stable, moderately complex systems but not the most advanced technologies.