Google Acquires Dropcam For $555 Million

By: 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 Notified of Video Surveillance Breaking News
Get Notified of Video Surveillance Breaking News

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 (12) : PRO Members only. Login. or Join.

Related Reports on Acquisition

90+ Companies Profile Directory on Nov 05, 2019
While IPVM covers the largest companies in the industry regularly (like Axis, Dahua, Hikvision, etc.), IPVM strives to do a profile post on each...
Alarm.com Acquires OpenEye on Oct 21, 2019
Alarm.com is targeting commercial expansion and now they have a commercial cloud VMS with the acquisition of OpenEye. In this note, based on...
Dahua, Hikvision, Huawei US Ban Rules Released on Aug 08, 2019
The US government has released rules on how the 2018 NDAA ban of Dahua, Hikvision, and Huawei will be implemented when it takes effect in 5...
Motorola Acquires Watchguard, Adds to Vigilant And Avigilon on Jul 15, 2019
2 years ago, Motorola had no position nor relevancy to video surveillance. Now, they own major video surveillance, LPR and body camera providers...
ADT Eliminating Acquired Brands, Unifying Under 'Commercial' Brand on Jun 14, 2019
ADT is eliminating the brands of the many integrators it has acquired over the past few years, including Red Hawk, Aronson Security Group (ASG),...
OpenALPR Doubles Prices on Jun 06, 2019
There is no 'race to the bottom' in cloud / AI video surveillance. In May, Verkada increased their prices. Now, OpenALPR is doing the same with a...
"New" Arecont Fixes Failures "Without A Fight" on Jun 05, 2019
The "old" Arecont was infamous not only for its camera failures but for making their "partners" fight to get them fixed. IPVM drew the ire of...
Panasonic Sells Off / Spins Out Security Business on Jun 02, 2019
Panasonic has sold off its security systems business to a private equity firm, after suffering years of challenges. The new company, which will...
Pelco Sold Off, Now Independent on May 28, 2019
Pelco has been sold off by Schneider Electric, completing Schneider's terrible tenure, but giving Pelco a chance at life. IPVM spoke with...
San Francisco Face Recognition Ban And Surveillance Regulation Details Examined on May 14, 2019
San Francisco passed the legislation 8-1 today. While the face recognition 'ban' has already received significant attention over the past few...

Most Recent Industry Reports

Camera Field of View (FoV) Guide on Nov 13, 2019
Field of View (FoV) and Angle of View (AoV), are deceptively complex. At their most basic, they simply describe what the camera can "see" and seem...
UK Big Brother Watch: Hikvision Is 'Morally Bankrupt' on Nov 13, 2019
UK civil liberties advocate Big Brother Watch has condemned Hikvision as being 'morally bankrupt' following IPVM exposing Hikvision marketing...
Color Low Light Mega Camera Shootout - Avigilon, Axis, Bosch, Dahua, Hanwha, Hikvision, Panasonic, Speco, Sony, Vivotek on Nov 12, 2019
This is the biggest color low light shootout ever, testing 20+ super low light models from 10 manufacturers: Increasingly, each manufacturer...
Wireless / WiFi Access Lock Guide on Nov 12, 2019
For some access openings, running wires can add thousands in cost, and wireless alternatives that avoid it becomes appealing. But using wireless...
Open vs End-to-End Systems: Integrator Statistics 2019 on Nov 11, 2019
Preference for open systems is on the decline, according to new IPVM statistics. We asked integrators: For video surveillance systems, do you...
Biggest Low Light Problems 2019 on Nov 08, 2019
Over 150 integrators responded to our survey question: "What are the biggest problems you face getting good low-light images?" Inside, we share...
US Issues Criminal Charges For Fraudulently Selling Hikvision And Other China Products on Nov 07, 2019
The US government has made an unprecedented move on the video surveillance supply chain, charging a US company, Aventura for "having conspired with...
The Access Control Codes Guide: IBC, NFPA 72, 80 & 101 on Nov 07, 2019
For access, there is one basic maxim: Life safety above all else. But how do you know if all applicable codes are being followed? While the...
Rhombus Cameras, VMS and Analytics Tested on Nov 06, 2019
Rhombus boasts they have created "the new standard in Enterprise, cloud-managed video security" and told IPVM in January 2019 they offer twice the...