HaaS / Hostage As A Service Explained In-Depth

By John Honovich and Gurami Jamaspishvili, Published Jun 10, 2021, 10:52am EDT

Watch the 5+ minute video explaining HaaS / Hostage as a Service in video surveillance:

Do you have the right to use the items that you buy? Seems pretty self-evident and uncontroversial. If Maytag remotely turned off your refrigerator, you’d protest. If Honda sent a command to kill your car, you’d rightfully be up in arms.

But this is the Silicon Valley ‘innovation’ that these "Hostage as a Service" providers have financially engineered.

You buy and own cameras, but they do not even stream video, the most basic function of a camera unless you pay them more every year.

And it is not like Netflix or the New York Times. Sure, if you cancel your Netflix or New York Times subscription, you no longer get Netflix or the New York Times but Netflix does not brick your TV nor does the New York Times remotely shutdown your phone.

Hostage As A Service providers disable the cameras you own.

It’s great for sellers and their investors.

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But a trap for end-users and the public.

Holding customers hostage maximizes profit-making.

Investors prefer subscriptions over one-time purchases because buyers will spend more money over time.

But the risk, for investors, with subscriptions, is customers canceling.

Hostage-taking solves this in 2 ways.

Investors and sellers measure this with the churn rate. A regular subscription business can have 10-20% of customers cancel each year. In 5 years, this means more than half of those customers are gone.

But when you take hostages, the churn rate is more typically 2%, which means in 5 years, the hostage taker keeps more than 90% of those customers.

Why the massive difference?

Well, consider if you are unhappy with your provider but he’s taken the equipment you bought hostage. If you stop paying, he remotely sends a command and bricks the devices you bought.

What then? One, you need to pay someone to go around and uninstall the bricked devices, even if they are mounted on roofs or light poles.

Plus, you need to buy all new devices and install all those new ones.

Altogether, that’s an extreme amount of money and ultimately most buyers will give up, rather than paying some more each year to get those hostages free.

These sellers know it and tout it, like Verkada’s Chairman:

And,

The chuckling in the background of that video is other Silicon Valley entrepreneurs in attendance laughing.

But it gets better (or worse if you are the buyer).

Another critical metric for investors and sellers is the NDR or net dollar retention, that is, do buyers buy more or less from the provider over time.

Hostage taking is excellent for maximizing net dollar retention.

Here is how a famous investor in Latch described it:

"Once installed it is more expensive for Latch clients to churn than remain a client driving massive NDR (net dollar retention)."

These are closed systems where you can only monitor the security products you buy on their platform so unless you want to risk fragmenting your security on multiple apps, end users are even more tightly held hostage.

This is the Stockholm syndrome of SaaS sales.

Once a provider has taken you hostage, the costs of getting out makes it easier, short term, to simply buy more hostage-taking products.

In the long run, buyers are trapped under the load of hundreds or thousands of devices they bought but do not effectively own, while sellers, and their investors, reap massive profits of users held hostage.

This is why the hostage takers can lavish money on acquiring new hostages / buyers.

100,000 Yetis that cost millions of dollars? No problem!

$25 gift cards just to attend a webinar? No problem!

Sending out free cameras? No problem!

Hiring legions of inside salespeople to call and email buyers over and over again? No problem!

From the hostage takers perspective, backed by Silicon Valley investors that brought the world the dysfunction of Facebook, this is an excellent investment.

Some counter: "Isn't this just essentially a lease?"

One, these companies sell them.

Indeed, leasing is uncommon and unpopular in video surveillance.

Having to uninstall various cameras on rooftops and poles is far more expensive than simply driving a car back to the dealer.

While leasing is unpopular, this Silicon Valley “innovation” of selling things buyers do not effectively own obscures the risks to buyers.

We want the risks to be made clear!

Hostage-taking is ultimately bad for buyers.

The sales pitch of these providers is that they will take care of everything and that the offering will get better and better.

Experience shows most providers, good or bad, suffer serious problems over time: They can be breached. Caught with sexual harassment. Raises prices. Slows down development. Technology changes. Gets acquired. Go out of business....

The problem with hostage providers is the buyer is trapped.

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With open systems, the buyer can switch but the hostage providers know they have you caught.

And this is ultimately bad for the public. These hostage systems are being most heavily marketed to government customers such as public schools.

The sellers and the investors are going to make massive returns but at the expense of taxpayers.

It is bad for security overall, as making the right security decisions is undermined by being held hostage to a specific security provider.

The right to use the items one buys is critical.

Don't be held hostage.

Comments (37)

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This is a great and amazing article. Keep up the great work.

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A good follow up article would be what cloud solutions are HaaS and which ones aren't. This would include any product that has a monthly/annual cloud fee to access the products.

For example Lenel has their new Elements cloud service. If you quit paying for the service then at least all of your equipment is still usable on a different software platform other than their gateway.

If you have openpath and you quit paying then you lose the ability to access the user interface to add/delete users and make modifications. Problem is their controllers and readers are proprietary so those would have to be replaced. At least you wouldn't have to replace the other generic door devices.

I am a fan of both of these systems but the HaaS really makes one think about what products to sell in regards to selling my customers a good and quality solution. What gets me is a customer ripping out all of their existing cameras just to replace with Verkada and then locked in to those cameras only to become bricks if they decide they don't want or like the product in the future. This is really bad business in my opinion.

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Thank you John, excellent article. I anticipate your readers know that Cloudvue offers cloud cameras with no lock-in - our customers are free to reset the camera to a standard IP ONVIF camera at anytime and stop using our services if we are not meeting their expectations. Full disclosure that I work for Johnson Controls.

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Solid breakdown all, well done.

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The hostage model has its disadvantages and borders unethicality but... from my experience, working in and out of the model; customer care and service quality goes way up through these VSaaS hostage models. It might lock a customer in but it also locks an integrator in which from what I've witnessed throughout my career is one biggest issues/concerns an end users faces. The most common model is sell and forget and these VSaaS/Hostage models force the integrator to service their customers!

I think the VSaaS model paired with the openness of Onvif is the way to go!

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these VSaaS/Hostage models force the integrator to service their customers!

How? why? are you saying that SaaS generally does this or specifically HaaS?

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The most common model is sell and forget

Really? Not from any integrator I have worked with in the past 20 years. Everyone is out for that recurring service cash.

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An amazing video that succinctly summarizes the ethical and risk issues.

I can only hope that this makes waves into mass media that further points out the millions of dollars of tax money that is put at risk.

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I'd be fascinated to know how many Verkada / Rhombus / Meraki / etc. customers would change VMS if there was (magically) a painless firmware conversion that turned the cameras into ONVIF-compliant devices, keeping their core functionality. How many would would change to another VMS if there was little-to-no friction in doing so?

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I love this article, seriously. Nice work, team.

Here are some thoughts.

Like many security firms, one of our core values is "Peace of Mind" we use the Traction approach to core values and benchmark all employees and business activities against these core values every day.

In my opinion, HaaS does not measure up to our "Peace of Mind" core value; this is why we do not sell equipment exclusively used with certain software platforms. We believe that our clients should have the ability to walk away from us peacefully if they chose, and we make them aware of that upfront.

We've looked at several companies that sell HaaS platforms and while some of them look outstanding, we have always made the decision to pass on them.

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This video was very well made, and very interesting. I hope that someone forwards a link to the national association of City Managers.

I have a word that I have used for many years to describe this kind of scam: MONORAIL. From the Simpsons episode where the smarmy guy sells the people of Springfield on the idea of installing a monorail. "You know, a town with money is a little bit like a mule with spinning wheel, no one knows how he got it and darned if he knows how to use it."

They are doing this same thing in the solar market. Solar as a service. Yeah, somebody is getting serviced alright. The customer. Again, in this case, once they install their property onto your roof, it is hard to get out from under it.

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I'm really surprised at the lack of comments on this. It would be great to hear from end-users on this subject.

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I’m shocked folks are so surprised by this lock-in method. Yes, it’s a new trend in the security industry but it’s been around in many other industries for quite a while.

In Canada, you buy a PVR ($600) for your TV. This PVR will only work with Bell and becomes a paperweight when you cancel your TV service. (https://www.bell.ca/fibe-tv/hd-pvr-receivers)

For years Sirius sold hardware that only worked with their subscription (looks like they still do - SiriusXM Commander Touch™ - Shop SiriusXM).

Whoop ($1b+ valuation) is basically a fitness smartwatch that only works with a subscription.

Gaming has been this way for a while. You buy a video game that will only work if you’re paying the monthly subscription.

To a lesser extent, we could talk about the business model of Nespresso, Juul, Gillette and Oral B. They offer a product that requires you to continue purchasing from them to use your originally purchased item.

I also find the Maytag and Honda examples to be a bit exaggerated. Of course if Honda turned off my 2016 Civic tomorrow, I would be upset. But if I bought a Honda next week and was told it would be $10 per month for the car to operate, my expectations would be set.

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Those are consumer products, not enterprise.

Also, Whoop does not sell hardware / you don't own it:

You can’t buy a WHOOP Strap outright because it comes free with a subscription.

If the HaaS companies want to do that, great. They don't do that.

Gaming has been this way for a while. You buy a video game that will only work if you’re paying the monthly subscription.

Gaming hardware or gaming games? Does the hardware not work at all if you don't pay?

Yes, it’s a new trend in the security industry

You are wrong about this. This is not a new trend in the security industry. It's a new trend in enterprise video surveillance (consumer, like Ring is common, though still at least get streaming video for free, unlike these HaaS providers). The particular problem in enterprise vs consumer is that it's much easier to move away from one item you bought than having hundreds or thousands of items that are hostaged.

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Whoop ($1b+ valuation) is basically a fitness smartwatch that only works with a subscription.

Funny you mention Whoop, I have a whoop band, awesome by the way. Like John mentioned I did not buy the band, I paid for the subscription and the band came for free. The subscription is a relatively low cost and the band itself probably doesn't cost too much to manufacture. It's very simply compared to my Apple Watch in terms of technology sitting on the hardware.

I think there are some interesting comparisons to make between enterprise video surveillance and the Whoop band.

The advantage of a Whoop band is its platform and data feedback. It's incredibly powerful. They're always making changes and updates to their platform that help people improve their health. I'm a nutrition and fitness junky so I love that stuff. If I'm ever no longer interested in their services, the band can be thrown out as it didn't cost me anything.

When it comes to HaaS these SaaS companies do provide some valuable services, especially companies who are working to sell machine learning services that provide much better notifications than traditional video surveillance. The difference is in the cost to manufacture and install the hardware. A client will spend considerable money just on the installation of a camera system. Maybe ten's of thousands of dollars, maybe more. If they no longer want to use the software, they have to spend thousands of dollars to replace the hardware, and throwing it in the trash really isn't a good option considering the extraordinary cost of that hardware. It can take some time to discover if a particular platform is right for a client. I've installed VMS systems before where the client decided they did not like it after six months. We went in and replaced the software for them in no time at all. Now they're happy. Getting locked into HaaS platforms does not allow us to do that. For that reason, we will never sell it.

John H gave a talk a few years ago, I watched it on youtube I think. It's what brought me to IPVM in the first place. He talked about how important it was to have open platforms. That was a few years ago and I still believe that today no matter how good the software is there will always be something that comes out that's better. What if the HaaS company goes under, or sells to a competitor, or gets bought by the Chinese government and is banned? We need to be flexible to provide the best security for our clients.

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I'm ever no longer interested in their services, the band can be thrown out as it didn't cost me anything.

It looks like Whoop requires an initial purchase of $30*6 months minimum. So technically it didn't cost you anything but Whoop knew they would get a minimum of $180.

He talked about how important it was to have open platforms.

I agree with this. However, if a customer understands the risks of a closed platform, I don't see a big issue. I think the issue is the transparency in the sales process of a closed platform (although I've never been on the buying end of Verkada or Rhombus.)

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Those are consumer products, not enterprise.

Agreed but the comparison in the video are consumer products. Honda, Maytag, Netflix, NYT?

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We mentioned Netflix and the NYTimes because the most common counterargument was "Yeah but Ve-rhomb-aki is just like Netflix" so we wanted to make it clear that it is not since those 2 do not impact anyone's hardware, unlike the HaaS companies.

As for Maytag or Honda, to expand, you could imagine at some point in the near future, they add cloud analytic capabilities, and that they would reasonably charge for that. But if they shut off your refrigerator or wouldn't let you start your car, most people (evidently not you) would object.

The issue with the HaaS companies is not that they charge a subscription it's that they won't let people stream video. A subscription for analytics and video management is understandable, having to pay a subscription to stream video (which is the most fundamental capability of a camera) is not.

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As for Maytag or Honda, to expand, you could imagine at some point in the near future, they add cloud analytic capabilities, and that they would reasonably charge for that. But if they shut off your refrigerator wouldn't let you start your car, most people (evidently not you) would object.

If I was looking at a Maytag fridge and the salesperson said "this fridge is $500 and requires a $10 month fee to run but we give you all these features" then the decision is in the hands of the buyer. Personally, I would probably not buy that fridge.

I would not be surprised to see Tesla charging a mandatory monthly or annual fee sometime in the near future (maybe on select new models). Would this surprise you?

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I would not be surprised to see Tesla charging a mandatory monthly or annual fee sometime in the near future (maybe on select new models). Would this surprise you?

As in, otherwise, the Tesla vehicle would not drive at all? I would be stunned if they took that approach. By contrast, if Tesla added some premium software / features package and charged a subscription for that, leaving basic features like manual driving for 'free', that would make sense.

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Check out NIO's (Chinese Tesla) Battery-as-a-Service.

Chinese Electric Vehicle Startup NIO is Offering a Battery Subscription Plan for its Vehicles - FutureCar.com - via @FutureCar_Media

NIO - NIO Battery as a Service

I realize it's not mandatory to subscribe to their BaaS so this is not a valid comparison but maybe a glimpse at the future?

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Isn't that the opposite of HaaS? As that link describes:

Here's how it works. If a customer purchases a NIO electric vehicle and subscribes to the 70kWh battery pack under the BaaS model, they can enjoy a steep discount with a 70,000 yuan (US$10,114) deduction off the original sticker price. Then the buyer pays a monthly fee, which starts at 980 yuan ($142) for the 70 kWh battery pack.

BaaS gives people the option of not buying the hardware, i.e., battery park.

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Agreed, it isn't HaaS. My point is cars are getting into the 'as-a-service' market and presumably if you didn't pay your BaaS bill, your car would not work.

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if you didn't pay your BaaS bill, your car would not work.

The fundamental difference is NIO offers the option to buy the batteries and not to have to pay any 'aaS' for batteries. Consumers have choice - buy the batteries upfront or pay for the 'aaS'. With HaaS, you buy and then must pay a subscription or the thing you bought does not work.

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Customers *currently* have the choice. For me, it wouldn't be surprising if NIO (or Tesla) moved to a mandatory fee/BaaS model, but this is where you and I differ.

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Yes, we live in the current reality. If or when such a change happens, we can then discuss it. If you have some evidence that these companies are planning to move to 'mandatory fees', please share. Otherwise, it's not productive to speculate.

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"Yes, we live in the current reality. If or when such a change happens, we can then discuss it. If you have some evidence that these companies are planning to move to 'mandatory fees', please share. Otherwise, it's not productive to speculate."

Luckily many of us simply disregard what you think is productive or not.

Although, good attempt at pompous pleasantry.

The article is informative. I would definitely invest-in the development of as opposed to consume this technology.

And as always I'm lobbying for an increase in compensation for your graphic artist. Amazing work on their part; many more GIF-pieces may be considered potential human rights abuses.

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I'm not sure you have enough GIFs!

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Great article that any end user can easily understand and help them to make their right decision for their organizations.

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While my experience is on the Access Control as a Service side, I think some of these questions also pertain to the video space. These are questions I talk to potential new integrators and customers about at Feenics.

  1. Is all the hardware non-proprietary?
  2. If so, can you point me to your competitors who support it? Obviously here Mercury makes it easy to switch and easy to point out other manufacturers. I also talk about Wiegand/OSDP (hopefully OSDP).
  3. Who owns the data?
  4. If you cancel your service, can you download all data including Audit Logs, Transaction History, People/Card Info into a usable format such as CSV, XLS, etc.? This should also apply to video.
  5. Will your hardware keep working if you cancel the service? Will readers, schedules, decision still execute?
  6. What happens in a non-payment scenario? What if it is because of the integrator and they stop responding, is customer outreach attempted?

I think it’s important to have a customer centric approach for long term success. We do our best to accomplish this at Feenics and we'll still have areas to improve each and every day. As this article points out, it seems that some investors think otherwise and it will be interesting to see if shining a light on this as you've done will affect messaging and buying behavior.

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This is an informative article like most others. However, calling it HaaS is cute but it's also loaded. While I like playing around with loaded language for fun as much as anyone, it's not objective.

Are we analyizing Verkada's biz model, or SaaS for video security here? Much of the information here is accurate and fact based but tracks with Verkada and it's culture and biz practices.

If we decouple Verkada from video SaaS I have some comments. I've supported Meraki networking gear since 2014. I design and commision systems with varying levels of Meraki because it is a premium solution. This is discussed with all my clients going in. 80% of my clients have some level of Meraki in our packages. I do not offer Meraki video.

The golden rule: Meraki is not hardware, it is software. You are buying software with a license term. Part of the cost of ownership is buying the Meraki hardware to run the Meraki software on. That license entitles you to other benefits besides being excellent networking software running on quality equipment; it is perpetually under warranty with UPS Red replacement; there is 24/7 tech support; all platform upgrades/improvements and FW updates are automatic and so far I've never had an FW update brick a system.

Other platforms offer these features as add ons and upgrades. The only difference is Meraki has a single price of admission to the full suite where others all you hardware only with software add ons and support. To the surprise of nobody once these add ons are applied it costs as much as Meraki. But if you quit paying for the extras, the features turn off and you have a working piece of hardware. OK.

If somebody asks me 'you mean to tell me if I don't pay their fees they turn it off' after I've explained in detail that value proposition then we have a fundamental misunderstanding and it's not likely to go much further. I really don't want go back and forth with it, I'm not selling anything to anybody here. But there are many services and platforms that charge recurring fees for various reasons. SaaS has been here a long time and it's not going away, it will increase.

If a client with Meraki wants to dump me and go somewhere else, they can. They own the assets which are the license and the hardware. They can re-license themself. If they want to dump Meraki they have to rip out the Meraki gear that will quit working at the end of the licensing term because the software license expired. As most tech is now on a 5-7 year average cycle this isn't necessarily a deal breaker. But all my clients know that going in. This is why I don't think open ONVIF is viable for a 'closed' platform like Meraki: if they 'own' the platform and performance and fully support it 24/7 they are not going to want to take tech support calls because your Hikvision camera isn't staying on the time lapse schedule you defined in Meraki. I can't speak for Verkada. Meraki will accept support calls even if there are other manufacturers on a network, but video security is open much wider. I don't think Meraki's platform is for 1000 cameras either: it's more for a smaller elite team managing all IT for medium size companies and video security would fall into that platform. But that's getting into the weeds.

I'm sure all are aware one of Verkada's key founders is a Meraki founder. That's where they likely got the idea for the tech foundation. As for the biz practices and culture, who knows, but at that level they are def two diff companies.

I think some folks are vapor locked on SaaS. Or is it Verkada? If you think you're doing your clients a disservice by offering SaaS for critical infrastructure like networks, OK. That's your choice. I think you're doing your clients a disservice by not offering them these platforms. Happy selling.

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Ryan, thanks for the thoughtful feedback!

To the surprise of nobody once these add ons are applied it costs as much as Meraki. But if you quit paying for the extras, the features turn off and you have a working piece of hardware. OK.

That is our point and probably where we disagree - i.e., what is the value of 'having a working piece of hardware'?

Your conclusion, if I understand correctly, is that there is little to none, i.e.:

If they want to dump Meraki they have to rip out the Meraki gear that will quit working at the end of the licensing term because the software license expired. As most tech is now on a 5-7 year average cycle this isn't necessarily a deal breaker.

It's our experience that ripping out surveillance cameras is expensive and complicated. By design, surveillance cameras are all over the place, inside and outside, and frequently mounted high and out of the way of people. Because of that, the cost of switching is really high and it naturally motivates people to stay, even if they are not happy.

Or as Meraki and Verkada's Founder so bluntly put it: "You like literally bolted the hardware to the ceiling so you are not taking it down."

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Your conclusion, if I understand correctly, is that there is little to none (value in hardware)

No, my conclusion is the value is in the platform in it's entirety which is the software running on it's hardware in addition to the support, warranty, automatic FW and feature set upgrades.

I agree there may be more work on replacing cameras than radios/switches/firewalls especially with larger deploys. But all will be eventually replaced anyway. We've all replaced network cameras in scissor lifts or knuckle booms or ladders. It's not cheap, but it's not exhorbinate either. If one is so concerned about liking it or feeling hostage, get free gear from Meraki and try it for 30 days. I believe Verkada does the same program. Of course the sales follow up experience may be much different.

I had a client who bought a $7m vacation home needing a network upgrade. He was absolutely against a $495 Meraki firewall with a 3yr $100 license. That $100 bugged him. I explained the difference between that and a router that's a one time cost with lesser cloud capabilities. He bought the much less superior router because he didn't trust the licensing model. That one time cost hardware also has software that is updated. You have to manually apply FW updates. It's a good value for the $. Of course, you get what you pay for: Meraki is far superior to it. It should be as it costs more.

It was his choice to not succumb to Stochholm Security Syndrome.

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Ryan, again, thanks for the thoughtful feedback!

But all will be eventually replaced anyway.

I obviously agree with this. The logistical challenge is having to do it all at once for cameras that can range from 1 to 7 years old. With normal open cameras, you can just move it to another VMS / NVR. With Hostage cameras, you either have to split cameras across multiple systems (some on the hostage, some on the new open one) or try to move them all at once, which is costly and complicated.

It's not cheap, but it's not exhorbinate either

It's arguably exorbitant relative to the cost of the camera. If I have to drive a $30,000 car back to the dealer, fine. It's an expensive device and it's easy to drive a car (and get an Uber back etc.) relative to the price of the car. But if I have to uninstall 100 $500 - $1,000 cameras and install new ones, that's a lot of money relative to the cost of each camera. Verkada/Meraki's founder understands this point (i.e., 'big sunk cost' / 'bolted to the ceiling').

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I don't think Meraki's platform is for 1000 cameras either: it's more for a smaller elite team managing all IT for medium size companies and video security would fall into that platform.

I have seen several RFPs for schools for thousands of Meraki cameras.

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Interesting. Meraki's camera lineup is 1/3rd of their AP lineup, no PTZ, single form factor.

Maybe they're in love with the SW or Meraki was willing to negotiate batch licensing discounts or both. They were willing to negotiate with a luxury condo high rise WiFi deployment. But I'm not in the large deployment EDU biz so I cannot add any more.

I don't know if I'd lead with Meraki if I was pitching or designing for that type of deployment, the hardware choices are a little limiting.

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I am sure it had more to do with discounting network hardware and cameras to get the whole solution.

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