Google Acquires Dropcam For $555 Million

Author: John Honovich, Published on Jun 20, 2014

Google, via its Nest Labs subsidiary, has acquired home security specialist Dropcam for $555 million USD.

Revenue

IPVM estimates Dropcam's 2014 revenue to be on pace for $30 to $60 million USD. Industry sources cite a few hundred thousand cameras sold annually. At ~$100 average selling price (factoring in channel discounts), that would be in the low tens of millions. Include recurring revenue, that Dropcam claims 40% pay for, and that adds another low tens of millions.

Valuation Comparison

Relative to other home oriented camera companies or surveillance manufacturers, the valuation is extraordinary. For example, Lorex, a common brand available at big box retailers, had revenue of ~$75 million when they sold to FLIR in 2012 for just $59 million. Additionally, leading VMS developer Milestone was acquired by Canon for (reportedly) less than 3x their revenue of ~$72 million USD.

However, 10x revenue multiples are fairly common for Silicon Valley acquisitions. Indeed, Nest, the subsidiary of Google who acquired Dropcam was itself acquired for ~10x revenue (estimated ~$300 million, acquisition price $3.2 billion).

Why Sell?

Dropcam has touted its hypergrowth frequently. If the company is still growing at integer multiples, it would be a little surprising that they sold now considering in the Valley today, billion dollar valuations and acquisitions are increasingly expected.

Dropcam's Market Share

Get Video Surveillance News In Your Inbox
Get Video Surveillance News In Your Inbox

Dropcam's market share of IP cameras by units is likely ~2%, given the roughly 10 million IP cameras shipping annually. Dropcam only targets and is competitive in a very narrow segment of the overall IP camera. Of course, by revenue, Dropcam's market share is far less than 1% as the average IP camera sold costs 3 to 4x higher than Dropcam's.

By contrast, in the home market, Dropcam's share is far higher, though that is skewed because the home market is heavily analog, and a comprehensive picture would require factoring in those cameras as well.

Nonetheless, where Dropcam had a dominating lead was in the mindshare of the tech community, where it was clearly the camera of choice for Silicon Valley and its publications.

Dropcam's Product Positioning

Dropcam's strongest competitive advantage on the product side was ease of setup / use. Though this is slowly changing, most IP camera's remote viewing require manual setup including technical steps complicated / beyond the comprehension of the average consumer.

Otherwise, Dropcam's technology and product portfolio was relatively simplistic, with only one form factor (cube), limited maximum streaming resolution (720p) and no outdoor option. By contrast, even mid tier IP camera companies routinely offer domes, bullets, panoramics, PTZs and resolution options including 1080p, 3MP, 5MP and more.

Google Scared of Bad Publicity?

In all the publicity around the acquisition, the Google brand has been conspicuously absent. When rumors of this deal first emerged, many criticized the privacy implications of Google essentially getting a video feed into homes.

We suspect this played a role both in the positioning and the timing of the announcement (Friday end of business) to minimize the immediate backlash.

Future of Dropcam?

Google is clearly targeting the home market, starting with Nest and their thermostat, flaky fire detector and now Dropcam's cameras. However, the effort is still in its infancy with Google having little track record or history of selling hardware successfully at large scale.

The most optimistic scenario is that Google / Nest / Dropcam builds their own a complete suite of home services, including intrusion / alarm monitoring, using their scale to drive a large percentage of the market from incumbents.

On the other hand, the home experiment could fail or Google could lose focus / interest in it, given its core advertising businesses.

IP Camera Industry Impacts

How this impacts other IP camera providers depends on how Nest shifts Dropcam's marketing strategy. Dropcam has been spending on marketing at incredible rates and with expert precision compared to the lackadaisical efforts of traditional surveillance providers. Undoubtedly, this advantage has been critical to Dropcam's fast growth.

IP cameras benefit from little network effects so it is unlikely that anyone, including Google, can become a dominant player in the space. However, it still depends how well the slower moving incumbents and less well funded startups respond to the opportunity of Dropcam being assimilated into Google.

Dropcam Test Results

For our unique in-depth testing of Dropcam, see:

Comments (13): PRO Members only. Login. or Join.

Related Reports on Acquisition

Vivotek Acquisition Offer From Delta on Aug 10, 2017
One of the largest remaining independent video surveillance manufacturers has received an offer to become majority owned by Delta Group, a Taiwan...
Competing Against Convergint on Jul 24, 2017
No integrator is more aggressively expanding than Convergint Technologies. Owned and funded by private equity firm KRG, Convergint has acquired...
March Networks Company Profile on Jul 17, 2017
March Networks was one of the most well-known video surveillance manufacturers of the 2000s. In 2012, March was acquired by Chinese / American...
Resolver Raises $20M For Acquisitions on Jun 29, 2017
Resolver has closed a $20M funding round, and has several acquisition targets lined up already. Industry people might better now Resolver from PPM...
Panasonic Sells VSaaS Company To Eagle Eye (Cameramanager) on Jun 15, 2017
While many VSaaS companies might hope for one acquisition, Cameramanager has managed to get acquired twice. First they were acquired by Panasonic,...
Ex-ADT President And PE Firm Pay $200M+ For Alarm Dealer Guardian on May 31, 2017
Private equity firms are on the hunt for security companies with strong RMR numbers. One such security company, Guardian Alarm, was recently...
Dell EMC Surveillance Division Profile on Apr 20, 2017
With revenue growth from traditional IT customers slowing, Dell has set a focus on the security industry as a market where the company can offer...
ObjectVideo Acquired by Alarm.com on Mar 14, 2017
Once potentially the most recognized name in video analytics, ObjectVideo has effectively been sold for pieces. Alarm.com has now acquired what...
Electric Guard Dog - Hot RMR Company Profile on Feb 21, 2017
The financiers at the Barnes Buchanan conference praised a company named 'Electric Guard Dog'. While the name sounds fairly low tech, the money and...
$18.7M PSIM Acquisition Examined (IDV / Everbridge) on Feb 06, 2017
This may be the biggest deal for a PSIM developer ever. In a segment that has disappointed for more than a decade, a recent IPOed company has...

Most Recent Industry Reports

Final Day Save $50 - IP Networking Course September 2017 on Aug 17, 2017
Today, Thursday, August 17th is the last day to save $50 on the September IP Networking Course. This is the only networking course designed...
Knightscope Raises $10 Million With $3,320 Average Per Investor on Aug 17, 2017
Congrats to Knightscope. And condolences to their legion of little investors. Knightscope has disclosed they have raised $10+ million from their...
Axis and Arecont Legal Conflict Over Multi-Imager Cameras on Aug 17, 2017
Arecont threatened Axis. Axis has responded by moving to invalidate an Arecont patent. It is an important contest. Multi-imagers are Arecont's...
Directory Of Consumer Security Cameras on Aug 16, 2017
The consumer camera segment continues to grow, with new startups and models from existing players released seemingly every month. In this report we...
Cat 5e vs Cat 6 vs Cat 6a Network Cable Usage Statistics on Aug 16, 2017
Cat 5e? Cat 6? Cat 6a? What do integrators use in practice, today? 140+ integrators told IPVM. Here are the results: For those who want to...
Hikvision Responds To Cracked Security Codes on Aug 15, 2017
Hikvision has responded to IPVM's report on Hikvision's security code being cracked, both with a 2 page update to dealers and communication...
Stolen Video NVR / DVR Statistics on Aug 15, 2017
"But what happens if someone steals my recorder?" Anyone who has done more than a handful of jobs has probably heard this question several times....
Hikvision Europe Cutting Out Unauthorized End User Sales on Aug 15, 2017
The days of anyone buying Hikvision from anywhere off the Internet are numbered, at least in Europe, if Hikvision's plan comes to fruition. In...
Axis Laser Focus PTZ Tested on Aug 14, 2017
Axis has been touting its new Q6155-E laser focus PTZ as 'always in focus' and 'always in color'. Does it really deliver? We bought and tested...
Vulnerability Directory For Access Control Cards on Aug 14, 2017
Knowing which access credentials are insecure can be unclear, especially because most look and feel the same. Even the most insecure 125 kHz types...

The world's leading video surveillance information source, IPVM provides the best reporting, testing and training for 10,000+ members globally. Dedicated to independent and objective information, we uniquely refuse any and all advertisements, sponsorship and consulting from manufacturers.

About | FAQ | Contact