Genetec: Gutting of Mid and Low End Players Coming

Author: Brian Karas, Published on Nov 01, 2016

Things are getting ugly.

Genetec is predicting that mid-tier VMSes have limited days ahead, and that they will lose their market share to low-cost NVRs.

In this report we analyze Genetec's prediction and the likelihood it will come true.

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Comments (38)

I voted "no" because it has already happened.

So you're saying we've already hit bottom?

Very close to it.

I disagree. There are still a bunch of small and mid-sized players out there who haven't taken the hint yet.

Aimetis, Salient, ipConfigure, Wavestore, Lensec...those are just off the top of my head and don't include the overly-specialized ones.

I think this will indeed be the case. How much of Milestones Essential users are using features that can not be found on low cost NVR's?

The features are there but are they being used? And if you don't use them, why pay for it? On top of that you 'need' to pay a yearly fee and if that's not enough they'll make it free in the end after you've spend money on it.

Disclosure - I work for Genetec

I agree with both Andrew and UI1 - The industry has barely begun to see the bloodletting.

Many of the small and mid tier players are running on VC money since their growth has been nil (or negative) over the past couple years. In some cases that's all they've ever run on.

I'm personally aware of one which just released the majority of their sales team, less than 2 years after a new sales leadership was installed. This particular company is (and has been) on VC funding since inception and actually touts any new infusion of cash in their sales presentations.

Those VC plugs will eventually be pulled as sales continue to drop. The VC investors will hope to recoup pennies on the dollar on the sale of intellectual property, assuming there actually is intellectual property worth acquiring

Strategically you're already seeing bundling by some of the E2E cam providers. VMS /camera licenses are being included at NC if cams / NVRs are purchased. This will continue to put downward pressure on those mid - low tier VMS / NVR providers.

That's a short term fix for the E2E providers though. Unless their HW growth rate can accelerate past the declining prices brought on by commoditization, they'll be playing a zero sum game as the the feature sets of the Chinese products will continue to improve as they attempt to grab share up market.

Is this a trolling article? Our growth is great, zero debt, and no VC.

I wasn't referring to IP Configure in my comments about a specific manufacturer having just rolled over their sales team

It's interesting though, that you assumed I was

"Many of the small and mid tier players are running on VC money since their growth has been nil (or negative) over the past couple years. In some cases that's all they've ever run on."

While I generally agree with your points regarding those who took VC, we didn't and is why we are agile enough to beat the larger/lethargic VMS companies.

If Genetec had a competitive product in the mid-market space this article would have never been written.

If Genetec had a competitive product in the mid-market space this article would have never been written.

In all seriousness, how can one have a competitive product in the mid-market space today? The closest I see of the Western companies that do not compete on price is from Exacq but that's because they have specialized in appliances for a long time, unlike Genetec, Milestone, yourself, etc.

"In all seriousness, how can one have a competitive product in the mid-market space today?"

IPConfigure's Orchid VMS is winning against Asia and Canada on a few key points...

1. Linux option - drives out OS cost.

2. ARM processor option - drives down HW cost.

3. Browser based user interface - reduces training needed for partners and customers.

4. Encrypted SRTP video and STIGS based appliance hardening.

5. Secure enterprise wide unification via a reverse proxy.

Thanks John.

1. Linux option - drives out OS cost.

2. ARM processor option - drives down HW cost.

Hikvision and Dahua are selling NVRs with software for $100 - $300. You are not driving down anything relative to them.

3. Browser based user interface - reduces training needed for partners and customers.

Not a major factor and the Chinese have mobile apps.

Encrypted SRTP video and STIGS based appliance hardening.

The SMB neither knows nor cares about those points.

5. Secure enterprise wide unification via a reverse proxy.

By definition, not feature nor need for the SMB.

1/2/3. Our target audience is any organization who has a formal IT process. Coincidentally, not a hospitable place for the Hik/Dahua's of the world.

4/5. Security and IT simplicity are the crux of the sales conversation today.

Our target audience is any organization who has a formal IT process.

Which is a fraction of the SMB market.

Security and IT simplicity are the crux of the sales conversation today.

Ah, so you have not been to an ADI expo recently. In all seriousness, most SMB buyers care little about security and as for 'IT simplicity' most SMB buyers only care about being able to watch it on their phone.

"In all seriousness, how can one have a competitive product in the mid-market space today?"

Our claim is "mid-market" (not SMB) which represents 1/3 of all businesses in the US and $10 trillion annually.

According to figures collected by the U.S. Census Bureau,... Each of these companies earns an annual revenue of between $100 million and $3 billion

Those are fairly large business with complex needs, I am skeptical that Orchid has the feature set depth to compete with Exacq, Genetec and Milestone there.

"Dun & Bradstreet’s proprietary database of commercially-active U.S. firms[8] define middle market businesses as those companies with revenues between $10 million and $1 billion per year." Wiki

As a security industry pundit I expect nothing less from you. I can only share where IPConfigure is being successful.

There are different definitions of mid-market.

However, your first claim

Our claim is "mid-market" (not SMB) which represents 1/3 of all businesses in the US and $10 trillion annual

and your last

Dun & Bradstreet’s proprietary database of commercially-active U.S. firms define middle market businesses as those companies with revenues between $10 million and $1 billion per year.

are incompatible with each other.

Pick one.

How are those incompatible? One describes the totaled size of all the companies in the market and the other describes the revenues of a single company in that market.

Don't get cocky if you can't keep up.

How are those incompatible?

Simple.

The companies that are between 10 million and 1 billion in yearly revenue do not even come close to totalling 10 trillion dollars.

However the companies between 100 million and 3 billion do total, as Christopher first said, 10 trillion, and as the link he supplied stated.

Then John quoted Christopher's link, and was skeptical that he was selling mainly into companies with between $100 million and $3 billion.

Christopher then returned with a figure from a different definition, further down on the same page, which said that the $10 million to $1 billion range defined the mid-market.

So is he mainly selling into the $10 trillion dollar mid-market as first claimed, or the much smaller one comprised of businesses between $10 million and 1 billion, (which totals a little over half of the $10 trillion dollar one)?

While I generally agree with your points regarding those who took VC, we didn't

Then why did you assume I was talking about your company? And why so defensive in your response? To quote an old guy named Bill "Me think thou dost protest too much"

"If Genetec had a competitive product in the mid-market space this article would have never been written.

Genetec has several competitive products for mid market / SMB. Perhaps you should spend some time learning about your competitors before you attempt to bash them

Genetec has several competitive products for mid market / SMB.

Such as? In what way competitive?

Our survey results consistently show Genetec is strong in large scale applications but weak in the small to mid market, e.g., Favorite SMB Video Surveillance Manufacturers, Favorite Large Scale VMSes 2015

Genetec product offerings for the SMB market include:

They are competitively priced vs. peers*, offer good feature sets, are simple to deploy and are easy for end users

For customers needing a more robust feature set, under 50 cameras, we also offer the Omnicast Standard Edition which is also competitively priced

* Peers ≠ Chinese NVR / HVR

* Peers ≠ Chinese NVR / HVR

Customers determine what is peers, not manufacturers.

Let me share an interesting related story. About 7 years ago someone at Pelco said that Exacq was not a peer because Exacq's overhead was too low and the price they sold at was too low. Obviously, the market disagreed.

Likewise, like it or not, customers will compare SV32 to Chinese NVR / HVRs and for the true SMB market (not branches of Fortune 1000 companies), it's tough for the SV32 to be competitive.

Customers determine what is peers, not manufacturers

Porsche and Kia both make cars, but they're certainly not peers.

If the customer's final buying criteria is price, then that's business none of us will win vs. China Manufacturers.

IMO many of the SMB opportunities out there are searching for solutions and value, not just another DVR to replace their previous DVR. It's our partners job to identify that solution and present our value proposition

I'm also of the opinion that longer term, as bandwidth costs continue to drop, you're going to see SaaS and Cloud recording grow exponentially.

Porsche and Kia both make cars, but they're certainly not peers.

I am not sure you're Porsche and Hikvision's Kia but the key issue is that the mass market (e.g., the SMB) wants Kias (and Hondas) far more than they want Porsches or Rolls Royces, etc.

I'm also of the opinion that longer term, as bandwidth costs continue to drop, you're going to see SaaS and Cloud recording grow exponentially.

Given it's low starting point, exponential growth is a given. And, yes, it may one day become the norm, but given current pricing, still a niche today (which is what is important for the current market).

UM2 wasn't the one who mentioned ipConfigure. I was. Apologies for going undisclosed in this way, but it was the only way I could be honest in a public forum like this. I said:

There are still a bunch of small and mid-sized players out there who haven't taken the hint yet.

Aimetis, Salient, ipConfigure, Wavestore, Lensec...those are just off the top of my head and don't include the overly-specialized ones.

Remember the old saying "No one ever got fired for buying IBM" ? The security industry is 3X more conservative.

The first problem we're probably having in understanding each other is scale. Survival is good, but it's not success. I'm glad you're staying alive for now...no debt, no VC, good growth slope. But let's be honest, the Chinese are going to not going to avoid the software business. When they arrive, they are going to follow the same playbook. Competitive product quality, much lower cost structure than traditional vendors, additional competitive pressure through the intentional destruction of competitors through subsidization, etc etc.

The only play left for the companies on this list - yours included - is to offer something truly compelling. Especially if you can do it before China figures out surveillance software. This would let you acquire the outgoing players before the bloodbath starts - but the consolidation will still happen. The list of ways to accomplish this is pretty short.

  • Be a lot easier to use than everyone else
  • Be a lot cheaper than everyone else
  • Offer feature(s) that no one else has - protected by intellectual property - addressing pain points that truly inconvenience the buyer.

One last point: you're pretty earnest. Let's assume you're in this industry for the long haul. Can you say the same about the leaders of the other companies in the mid-market space? Are they really going to trench in and fight? Or are they going to sell and look for a higher margin opportunity elsewhere?

I'm a buy when it comes to software developers in N. America, Genetec & Avigilon included. A free society is the breeding ground for creativity.

Lastly... everyone is a sellout

You seem quite upset.

For someome whose company was ridiculed as "still not taking the hint", he's doing as well as can be expected :)

Agreed. My comment may have been unbefitting.

What gets me is why did the market give in to these cheap and low end DVRs if they would have kept their price the same that market would have stayed low and and competition shouldn't have changed much

What gets me is why did the market give in to these cheap and low end DVRs

1. Because the cheap ones got good enough for most entry level needs.

2. Because there was sufficient number of manufacturers that were willing to sell it that cheap.

Now, my question is whether those manufacturers selling cheap DVRs are ever going to be significant profits doing so. The game has been volume so far but eventually companies will adjust to reality, e.g., the new shift in focus in China to intelligent video.

John:

You hit on a key point, profits. The Chinese are currently executing a play for market share and spending a lot of money to do so. At some point profits will have to become their priority. It is going to be interesting to see how they manage that transition.

Hello,

I wanted to take a moment to clarify my comments mentioned in this article:

The comments I made were in response to a journalist’s questions about very broad industry trends. They were meant to describe, at a macro level, changes that I see taking place in our industry. Trying to draw a straight line between such broad observations and specific activities of individual companies, their management, or investors, greatly oversimplifies a very complex market dynamic.

I doubt very much that anyone would argue against the fact that our market is going through a major period of change. And, that part of this change is the commoditization effect that is being felt in mid- and lower-end segments by both software and hardware companies. But this is not to say that other segments, including enterprise, are not seeing/feeling the impact of these broader market dynamics; it’s just that the challenges associated with this one, specific trend are likely to be felt more acutely by manufacturers who position their offering in this space. Will it mean that every manufacturer in this space will be eliminated because of this trend, no. Will it force a change in how these companies design, deliver, and position their offerings, I think it will.

So, while I could have been a bit more diplomatic in my characterization of this trend, I do feel broadly that this will be an industry shaping force in the months and years to come.

I wanted to take a moment to clarify my comments mentioned in this article:

Are you Bachelor #1 or #2?

With 200+ votes, 88% agree, so evidently, and sadly, not a very controversial proposition.

They all will fail except Christoper and ipconfigure of course, because they're doing......

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