The Future of Video Surveillance Distribution

By: John Honovich, Published on Dec 22, 2016

40+ video surveillance distributors around the world told us what they see as the present and future of distribution.

The key positive: solutions. Just like their manufacturer partners, distributors are looking at solutions.

The key negatives: China direct cutting them out.

Inside this report, we examine these two key drivers.

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*** *** ********: *********. Just **** ***** ************ partners, ************ *** ******* at *********.

*** *** *********: ***** direct ******* **** ***.

****** **** ******, ** examine ***** *** *** drivers.

[***************]

Solution *****

************ **** ** **** up ****** ** ******** sales:

  • "*** ****** ***** **: - ********* **** ******* to ******** - ***-**-*** complex ******** *******."
  • "*********** *** *****-********** ******* security *********. ***** **** to ****** ** ***** with ****** ******* *** CCTV ***** ************ *** ability ** **** ***** offer * ***** ** difference ****** ********, ******* and *******."
  • "******* ********* ******* ****** designs, ************* ******* ***."
  • "**** ******** ******* ********* which **** * ******** need. *** *********** ******** based, *** **** ******* and ******* ******* *** safety *****."
  • "*********. ********* ***** *** going ***** *** *****. Less *** ****** ****** margin. **** ** ** into ******** ***** **** security / ************ *** be ********** *** *******."
  • "***** ** ********* *** integrations *** ** ****"
  • "********** ****** ** **** like * ********, ******** with ***'*/********, *** *******."

****:

***********

*** **** ** ************ see * *** ****** on ***** ********, **** see it ******* **** *********** in *** ******:

  • "******* **** **** ******** to ********* *** ****** distribution."
  • "*** *** (*******) **** direct ***** ** *** final ********"
  • "*** ******* **** ****** they *** ****** ** minuscule *******. ********** *** biggest ********* **** ** acquired ** ***** ************* which **** *** ** end ** *** ******* distributors."
  • "*********** **** ***** ****** more ******** ******** **** vendors/China."

****:

Outlook / ********

***** ****** ******* ********* is ************** ***** *** pressure ************ ****, ** are *** **** *** many ************ *** ** successful ** ******** *******. To *** ****** **** are, ** ***** ********* their ********** ********* *** traditionally **** **** *** 'solution' *********. *******, ** more *** ***** ** it **********, ************ ***** become *** ******** ********* to **** ********. *** distributors *********** ********* ******** sales / ****** / support ***** ***** **** deliver ****. *** ******* of * *********** / re-seller ************* **** ******* ***** is ********* *********************.***, *** *** ***** itself ** * ******** first ********.

*** ***** ****** ******* is ***** ********. ***** and ********* **** ****** at **** ****** ****** of *****, ********* ************, and **** ***** ** qualms ***** ********* ******* their *** ******** ****** the *****. *** ***** ***** focus ** ***** ***********, *** next **** ** ** cut *** *** ********* ** much ** ********, **** distributors *** ***********.

*******, ** ** **** to **** **** **** happen ** ************ *******, as *** ** **** other ******** ** *** video ************ ********, ** depends ** *** *** game ** *** **** to *** ******.

Comments (25)

Unfortunately, whereas video was (and still remains) a large volume category for distributors they could count on for decent margins, that is obviously a big challenge now. Akin to the intrusion category where a distributor would accept lower margins in exchange for a dealer that would historically buy his other needs at better margins, video has become that necessary evil also. Meaning, distributors are being forced to accept minimal margin on video while they attempt to capture other elements of that dealers needs (think wire, cross training for Access, Commercial AV, etc, categories that haven't suffered the same scorched Earth price invasion tactics... yet).

Agree on all points.

In an Amazon-driven world, the answer has to be that distributors will be hurt by what is more and more a commodity industry. When IPVS was new and not widely understood, distributors could serve a function by closing the knowledge gap. And distributors also helped vendors with the tedious task of taking orders and delivering product.

So in 2006 it made a lot of sense. But fast forward ten years, and most of us reading IPVM have turned the crank by deploying dozens if not hundreds of "solutions" of our own -- and our idea of a solution will NEVER match a distributor's vision; none of their quotes above rang desirable to me.

Distros are suffering for the same reason why we don't have as many IPVS vendors/marketing reps (or Circuit City and Good Guys for that matter) around anymore; we just don't need as much advice on what technology to buy thanks to on-the-job experience and IPVM (and Consumer Reports on the personal electronics side).

Distributors needs to show more value than providing something as as vague as "Solutions". What they really need is a hot new and less understood industry innovation. And that's a rare nugget! Selling to consumers would add volume, but the average sale will be tiny by comparison, increasing the overall cost of sales.

Now the only question is: When and what vendor will cut the distributor cord and go direct? Don't just pick on China...any vendor could (should?) do it at any time to cut out the middleman and lower their prices to the integrator market.

I think it would be interesting to see how many integrators would take the opportunity to do so if freely given the choice to buy off Amazon, from the vendor, with free shipping, lower costs, and full RMA support?

Now the only question is: When and what vendor will cut the distributor cord and go direct? Don't just pick on China...any vendor could (should?) do it at any time to cut out the middleman and lower their prices to the integrator market.

There already companies like Avigilon that sell direct to integrators without using a distributor, and others that offer both distribution and direct-to-integrator sales options.

I do not think cutting out the distribution channel would really be a disruptive thing.

Cutting out the integrator and selling direct end users WOULD be hugely disruptive, and I believe will happen at some point by at least 1 or 2 major(ish) manufacturers (maybe as a last-ditch effort to stay afloat).

Also, I am not sure that cutting out distributors would lower prices massively, though it might lower then somewhat.

If a manufacturer stopped using distributors, they would need to warehouse a lot more stuff (warehouse space can be expensive), and possibly in multiple locations and/or countries (more expense). They would also need more pick/pack/ship logistics people, which adds cost. Additionally they would also be dealing with a lot more credit issues, late payments, etc. That is going to both add some accounts receivable people to chase integrators for payment, and some bad debt write offs.

I have always felt that distributors are great at being a bank (extending credit to integrators), and a logistics company. The problem for them is that these are not glamorous roles and it prevents them from being "sticky" with their customers (the credit line part less so, the logistics part entirely). These functions also tend to be lower margin. To counter all of this, distributors try to be more, acting as marketing outlets, pre-sales/design help and such. 

What would be interesting would to see a distributor try to truly disrupt the market on their core functions. Can they offer better credit options? (micro loans or similar for smaller integrators, more financing options for large projects, some form of credit union style services?) On the logistics side, things like same-day delivery (Distributor Offers Local Job Site Delivery), or enhanced ordering and estimating tools? What about fleet vehicle services or options? Help integrators with the "back end" of their business, not the "front end".

100% agree, also take into account a products range, no-one manufacturers offers enogh range, so middle man does this job, and for small and even large integrators, a range from one place with competitive price and service is very important. no-one manufacturer offers a service which is not based in their only products… so...not only logistic, not only credits issues... a bit more is distribution 

Distributors already suck at advice, I would never trust a Counter persons advice on installing a 200+ door access system and then integrating a few IP cameras, NO WAY...

They are not technical savvy enough to even program an Ademco # 101 Panel (which by the way never needed programming)

The distributor margins are not as high as many may suspect, so the points of what a manufacturer would need to invest in to be successful- Staffing to field calls/accounting/finance/RMA (the ability to return equipment hassle free) that distribution in varying fashions provide would neutralize any perceived big savings of buying "direct". The fact is for non-project business, distributors have conditioned a JIT (Just In Time) service expectation that many manufacturers would struggle to emulate. It is that analogy why no clear Pelco-of-Lore successors have surfaced.

That being said, the Chinese lead invaders could care less about a conditioned market. It is why they are stirring so much dust. Sticking with low technical service products that have low failure rates PLUS offering direct credit would be a disrupter of an even larger scale.

I'm of the opinion that distributors are more greatly affected by the race to the bottom than integrators.  I don't know what distributor margins look like but I imagine they are rather low.  A 200 camera project consisting of Panasonic/Axis projects is substantially more revenue than a 200 camera Hikvision project.  5% margin on $200k is always better than 5% margin on $40k.  At least the integrators revenue remains untouched on everything beside the cameras/NVRs.

If the distributors choose to be solutions providers they should accept the responsibility for failed designs, oversights, poor product selection, etc.  In that case the short term revenue (and margin?)  increase is likely to be trumped by the long term costs of those failures.  As integrators we assume those risks daily.  Pushing boxes for low margin may be better than having higher risk, higher margin "solutions".

At least the integrators revenue remains untouched on everything beside the cameras/NVRs.

People expect cheaper labor to go with their cheaper parts.

Fair enough, but labor can only go so cheap.  I would wager that in some segments such as gas stations, other small businesses, and residential that low wage point was reached long ago.  It is more likely to continue to become self perform work in some of those environments.

I've yet to see any negative pressure on labor rates. In fact, I have only seen increases in the years I have been in this industry. Is this anecdotal, or do you have a specific story behind your post?

I've yet to see any negative pressure on labor rates.

I didn't say rates; I meant people expect installs of cheaper equipment to be cheaper.

$10,000 parts and $1,000 labor, who would complain, but

$1,000 parts and $1,000 labor...

You don't see this effect?

It's very common for our installs to be 50/50 as far as parts/labor. Not always, but it's really close for most projects. 

Does that mean that what you charge for an install has dropped with the cost of parts?

TBH, we are selling branded products now instead of OEM, so the cost of our products are going up, which is against the norm for most. 

Which makes me wonder if we are charging too much for parts or not enough for labor.

A 200 camera project consisting of Panasonic/Axis projects is substantially more revenue than a 200 camera Hikvision project.  5% margin on $200k is always better than 5% margin on $40k.

One counter to that: Hikvision's Largest European Distributor Making Huge Profits

Another: Axis, Avigilon and Hikvision Markups Revealed

I am curious how margins on Hikvision products will evolve but at least in the beginning because Hikvision was so aggressive in pricing, it let both distributors and integrators make far greater margin percentages offsetting the lower price.

What you say is somewhat true, yet still somewhat tunnel visioned IMO. Sure, selling Axis at $200k per project would be nice, but how many projects have that size budget? However, if I can get the same results from selling a $40k solution, I can surely sell more projects, which will net more volume. The additional volume may or may not make up the difference. But to assume that we all make more if we stick to Axis is a flawed theory IMO.

There is undoubtedly the capability to sell more projects at the $40k value but to equal the $200k project the the following headaches are added:

1. Five projects of similar $40k value instead of one.

2. Five customers to invoice / collect from.

3.  Five customers to justify a Chinese subsidized product to.

4. Five customers to convince that a homogenous low cost product line is better than a competitors homogenous product line, which is likely the same product line under another label.

Axis is not my lead brand, due to low margins, they were just an example of higher cost product.

Five customers to justify a Chinese subsidized product to.

Five Customers: "Why does this camera cost half of that one?"

One Integrator: "These come with a limited-time, factory-direct-to-you subsidy."

Five Customers: "I'll take all you got!"

Beware the trunk slammers(TS).

 

TS Foreman: TS Tech #1, I need you to go over to the Amazon Locker and pick up the parts for this job in the morning.

TS Tech #1: Which locker did you send this to?

TS Foreman: The one by your house, here's the bar code. There should be 2 Hikvision 4mp domes and one Genetec SV-16, also make sure the customer signs the cybersecurity waiver.

TS Tech #1: Why do we need that? Its a stand alone camera system with no internet connection? Only 2 cameras!

TS Foreman: IDK...someone could probably fly their drone over the site and perform a MITM attack over blue tooth with some raspberry pi and beagle bone devices running some really cool python code, that's why. 

TS Tech#1: Roger that! Hey, what do I do with these Mercury panels?

TS Foreman: Give them to TS Tech #2, he just bought a Lenel server at a pc recycle place.

...someone could probably fly their drone over the site and perform a MITM attack over blue tooth with some raspberry pi and beagle bone devices running some really cool python code, that's why. 

Ironic since Hik may be the only camera manufacturer with an appilcable countermeasure to that attack.

If distributors switched to "solutions" would that mean they become INTEGRATORS?

I define "Integrators" as entities that handle installation/setup. But to your point they could become "Consultants" in some ways.

Ok, who is the customer's "trusted advisor" if they do not want to invest in a consultant?   As an integrator it is always my goal to be that person.

Poll results - interesting but not surprising divergence: 89% of distributors think it is a good idea for them to sell solutions but a far lower 39% of integrators agree.

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