Avigilon Tightens Channel

By John Honovich, Published Oct 03, 2014, 12:00am EDT

Avigilon is tightening their channel structure, according to multiple independent sources discussing this at ASIS 2014.

In the note, we examine what is happening, what it means for integrators, end users, Avigilon and their stockholders, who have suffered the company's stock dropping more than 50% from its peak this year.

Tightening

Avigilon has been bringing in larger dealers and cutting out those that do not focus on selling Avigilon. This is causing significant concerns for dealers and integrators caught in this.

Benefits of Tightening

Restricted access to re-sell products is extremely attractive to integrators. Not having to compete against rivals buying on the Internet or setting up accounts with the manufacturer to steal their deals is a huge financial benefit. Not only does it deliver much higher profit margins, it increases the odds of winning any individual deal.

A tightly restricted channel, rare in the video surveillance market, has been one of Avigilon's key (and underappreciated) 'secrets' to their success. Recall the Avigilon CEO Charging that the Axis Model is Win - Lose.

Scaling Up

Small manufacturers can easily restrict access as their bigger problem is simply getting enough people to buy their product.

And even growing manufacturers can handle this fairly easily simply by moving into new territories - different parts of the world or less well served parts of existing countries.

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Avigilon's Getting Big

The challenge, now, for Avigilon, is that they are, for surveillance companies, quite large. Their current annual run rate is ~$260 million, which is less than only a handful of the biggest surveillance manufacturers in the world, whom all allow much more open models.

For example, Avigilon is on pace for ~$140 million annual revenue just in the United States. The company reports over 2,000 partners globally.

How Do You Grow?

Most manufacturers simply take on more dealers / allow more companies to re-sell their products to grow further. For example, Axis reports 33x more 'partners' than Avigilon, at a staggering 65,000.

Of course, the problem is that this makes it harder for dealers to make money and win jobs because they are competing against, almost literally, everyone. The counterargument is that larger dealers get greater discounts (5, 10, 15 points) but that is nowhere as powerful as simply blocking rivals from accessing the product.

Avigilon's Approach

Instead of adding more dealers, Avigilon is attempting to maximize revenue per dealer, by pushing for larger dealers or dealers who can drive the most revenue to Avigilon.

Impact on Integrators and Users

For the integrators who make the 'cut', they get a valuable 'franchise' with limited competition. On the other hand, they too risk being kicked out for rivals who can drive more revenue.

This may be helpful to end users as the Avigilon dealers have more experience with Avigilon products. However, it strongly incents the integrator to push Avigilon even if an alternative offering would be better / less expensive for their needs.

Avigilon Growth and Stock

Avigilon's growth and stock performance are intimately tied.

The big question becomes how fast can Avigilon grow, and for how long, by maximizing a tightly controlled channel. Many argued that they could not even make it this far, but they have. Will they be able to maintain it? This is hard to tell as the scale of their approach is unprecedented in the surveillance industry.

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