Cisco Admits Failure, Partners with Pelco (v2)

Author: John Honovich, Published on Sep 20, 2009

Less than 3 years ago, Cisco threatened the physical security industry with disruption and innovation. Spending more than $100 Million USD, Cisco bought companies manufacturing video management systems and encoders as well as developing their own IP/HD camera line. Pundits predicted Cisco would crush the dumb security dinosarours.

Today, Cisco announces a partnership with incumbent CCTV leader Pelco. The Press Release frames it as a "co-branding" of Pelco's Sarix cameras with future potential for incorporating Cisco's "networking functionality" which seems to be basically an OEM of Pelco's Sarix line. This follows Cisco's partnership with behemoth security integrator/installer ADT earlier this year.

Here's the video of the announcement at ASIS:

Of course, Cisco did not admit failure - this is only my interpretation. Giant conglomerates do not admit failure but when you start off with plans to dominate an 'antiquated' industry and then a few years later decide to partner with the leaders of that industry, well then, you failed.

Earlier this year, we examined Cisco's struggles. Since then, Cisco has undergone an internal reorganization plus the CEO of 1 of their 2 video surveillance acquisitions, Pete Jankowski, left Cisco and has started a new video surveillance company.

While Pelco's partnering is a part of a coherent long term strategy of broad base partnering, Cisco's recent tactics are harder to understand. They obviously have a lot of money but they still seem to be trying to figure out how to be successful in video surveillance.

Update #1: IT analyst claims Cisco may buy Pelco (premium)

Update #2: Official response from Cisco below in the comments

Update #3: Examining Cisco's Defense of their Video Surveillance Strategy (premium)

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Impact on Cisco

This is further proof of Cisco's struggles - both on a technical and marketing level. If Cisco had the product or the sales strength to grow quickly in video surveillance, there's no way they would have resorted to co-branding with a legacy incumbent. Indeed, when they first entered the market, they obviously rejected this approach pushing ahead with their own VMS and cameras.

3 months ago, I conducted a partial test of the Cisco 4300 which revealed 2 problems that put the test of an indefinite hold:

  • The camera had significant problems dealing with anything but perfect bandwidth availability. Rather than dynamically adjusting the quality or frame of the stream (like every major IP camera manufacture), Cisco's camera would immediately display green film overlay rendering the image unusable. This was confirmed as a design issue with Cisco's camera.
  • Secondly, the camera was only supported by Cisco's VMS. We discussed setting up Cisco's VMS but I abandoned that when I learned that Cisco's VMS only runs on one distribution of Linux (SUSE). This is certainly in stark comparison to mainstream VMSes that almost all run on Windows. Even the ones that run on Linux generally are supported on a variety of distributions.

These types of problems were part of fundamental issues Cisco faced. While adopting Sarix's cameras should help rectify these issues, it does so at a significant cost in Cisco's overall competitiveness and value proposition. Secondly, the Sarix line is fairly limited, only consisting of a fixed and dome series up to 3 MP. Pelco's IP camera portfolio is still far behind Axis.

Such a partnership also implies that Cisco is unwilling to acquire an IP camera provider, which would be a much cleaner and stronger way to compete directly in the market. If Cisco truly wants to win in video surveillance, they need to buy an IP camera manufacturer.

Additionally, Cisco continues to have challenges with their VMS product which has difficulty competing with the breadth of features offered by direct competitors like Milestone and Genetec (who of course keep on releasing new advances - e.g., ASIS announcements of SecurityCenter by Genetec and release 7.0 by Milestone). 

Meaning for IT/Security Convergence

Since Cisco is the standard bearer for IT convergence, such actions speak negatively to the force of IT convergence. However, this is likely more of a result of Cisco's approach rather than the failings of IT convergence.

It now should be clear that pushing inferior products at higher prices does not work even if you 'own' the IT department. By contrast, companies like Milestone and Genetec, with much more mature products and sensible approaches to the market, continue to grow.

Impact on Pelco

For Pelco, this is likely to have some upside and little downside. First, Pelco essentially gains an OEM re-seller who should be able to sell cameras into a channel where they do not traditionally focus. Secondly, it provides some validation to IT organizations for Pelco sales in general. If Cisco can eventually add some additional network functionality, that may be a bonus. However, it's unlikely that Cisco can add dramatically better networking capabilities. The most realistic option is that Cisco incorporates their MediaNet protocol into Sarix cameras. This would help drive Cisco-centric solutions.

Impact on Axis

Axis is the big winner here. First, many saw Cisco as this powerful threat to Axis. Clearly this confirms they have not been. Plus, it is going to take a year or so for the Cisco/Pelco partnership to ramp up. In the meantime, Axis has a big head start and continues to release more IP cameras and innovative offerings, increasing the gap with Cisco/Pelco. Furthermore, "strategic technology "partnerships that require co-development of products between two huge companies face major organizational risks.

Cisco/Pelco needs to win the high end/premium market/sophisticated buyer segment of the market. Even with them coming together, unless and until they develop substantially more and better products, they remain at a clear technical disadvantage to Axis.

Impact on Genetec / Milestone/ Large Scale VMS

Genetec and Milestone also benefit these actions. Cisco is struggling just as much with their VMS system as their cameras. With Cisco distracted with this partnership, it is hard to see how they are going to advance their VMS system. Perhaps Cisco will eventually complete a similar agreement with one of the mainstream VMS companies. However, this essentially reduces Cisco to a very large systems integrator, adding questionable value beyond brand.

 

When Cisco pulled out of ISC West, Steve Hunt hoped that "Cisco is buckling down and coming up with some excellent innovations for us and will unveil them later this year." It's painfully obvious this has not happened.

Good news for everyone else in the industry - bad news for Cisco.

6 reports cite this report:

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Cisco MediaNet for IP Video Surveillance Examined on Nov 14, 2010
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Surveillance Manufacturer Trends 2010 on Oct 24, 2010
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Sales Progress Report on Dec 01, 2009
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What Video Surveillance Company Should Cisco Buy? on Oct 14, 2009
Buying companies is at the core of Cisco's growth strategy. While Cisco has made two video surveillance purchases a few years ago, both were small...
New Producs Directory ASIS 2009 Finalized on Sep 24, 2009
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