2010 IP Camera Sales Surge, 2011 Even StrongerBy: John Honovich, Published on Nov 28, 2010
2010 has been a landmark year for IP camera adoption, with surging sales and widespread mainstream adoption. We forecast 2011 growth will be even stronger. The key driver has and will continue to be the maturation of megapixel IP cameras.
Throttled by global recession, IP camera sales bottomed out in 2009 with a relatively slow growth rate. However, dozens of new IP camera releases during 2009 and an improved economy in 2010 drove the growth rate significantly higher. In 2011, we forecast even higher year over year growth as more new IP products come to market and IP camera standards are adopted.
At the end of 2009, we projected a sharp rebound in IP camera sales and 200% growth between 2010 and 2012. This year's results put us on target for this forecast.
2010 IP camera sales are being driven by 3 segments: (1) strong growth by larger incumbent manufacturers, (2) extremely strong growth by smaller manufacturers and (3) new entrants.
Let's start with a review of the 2010 pace for 3 of the 10 top IP camera manufacturers (all based on public financial results):
The three of these vendors combine for close to $500 Million in 2010 sales, so even by themselves it represents a significant portion of the market (roughly 30-35%).
The second segment is smaller, non public IP camera manufacturers. From our private discussions with many of these manufacturers, growth rate of 50% or higher this year is very common. Two good examples are Avigilon whose growth is skyrocketing and Arecont Vision who claimed in a recent comment on our site of 50%+ growth (and over 100,000 annual unit sales).
The third segment is analog incumbents moving into IP. While their overall revenue contribution is likely not huge, their growth rates are likely to be 100%+. This is a simple result of going from 0 (or close to zero IP sales) to a few million or few tens of millions.
Combine these 3 segments together and it's clear that 2010 IP camera sales, compared to 2009, are easily over 30% and probably close to 50%.
For sake of comparison, let's take a look at some of the best known analog focused vendors releasing public financial results:
For all of them, 2010 revenue decline is actually lower than 2009 revenue declines (where -20% was common). However, where IP camera growth bounced back strongly, analog sales continue to struggle (despite the improvement in the economy).
What we are seeing, both in interviews and in our ongoing RFP reviews is that IP is being adopted in projects that just a few years ago we doubt IP would be deployed. The two themes we see is (1) incumbent manufacturers now pushing IP hard and (2) megapixel cameras being used. Indeed, one important emerging trend is new projects 'standardizing' on 1MP/720P as the new minimum resolution. We do not believe this is widespread yet but it's clearly accelerating and something that in the next few years will become commonplace.
Megapixel vs Analog Competitiveness Comparison
In less than 3 years, the competitive positioning of megapixel IP vs analog cameras has changed dramatically. The value of megapixel is surging due to declining product and system costs plus improved offerings.
Let's start with 2008 where megapixel, beyond niche applications, was hard to justify. In our July 2008 article on the Top 5 Problems of IP Cameras, we noted how even SD IP cameras were twice as expensive as analog and how megapixel storage was a significant problem (only MJPEG at that time). With MJPEG, storage costs could easily run $300-$500 more per camera. Equally concerning, megapixel cameras at that time where even more expensive with a price range of $700 - $900 or higher (online pricing). Finally, with only a dozen or so manufacturers, megapixel camera supply was quite constrained.
In 2008, the megapixel premium over analog was about $600 - $1000 per camera. That's a huge amount of money that is hard to justify unless you (a) really needed to replace multiple cameras in a single location or (b) were extremely demanding on your image quality needs. Both of these were niche applications. This was reflected in a relatively small global market size of about $100 Million USD.
Now, in 2010, the market is likely 400% larger than it was in 2008 - doubling each of the past two years.
Megapixel's improved competitiveness in less than 3 years is nothing short of staggering:
- H.264 is the norm now (with MJPEG only cameras becoming rare)
- $300 - $500 online pricing for megapixel cameras is becoming quite common. There are now 50 megapixel cameras listed for under $500 in our Camera Finder.
- The number of suppliers has at least quadrupled with literally every camera manufacturer around the world now offering megapixel
- Storage prices dropped in half or more; Though expected, still a benefit to megapixel
Because of these changes, the premium of megapixel over analog is now about $150 - $200 per camera. Here's a straightforward example:
Sony's recently introduced 1.3MP box camera (the SNC-CH120) has an online price of about $460 (including lens). The equivalent form factor/imaging from Sony's analog lineup is the SSCE453 which has an online price of about $150 (add a lens for $50) - total price about $200. With analog, encoding must be done separately. Using the most cost effective option, a DVR, the cost will be about $125 per camera (the premium of a DVR with an analog encoder card over an NVR appliance). 1.3MP runs $460 vs SD analog at $325, a premium for megapixel of $135. Add in the additional cost of storage (about $50 given H.264 and lower hard drive costs today) and the total premium is under $200.
Optionally, if you choose to use a NAS like QNAP or Synology or Milestone Essential at $50 per channel plus a COTS PC, the premium of megapixel over analog would drop further (under $100 per camera).
The economics will work similarly with many of the other sub $500 megapixel cameras. The competitiveness is accelerating as many of the Fall 2010 releases feature low cost cameras - such as the Arecont H.264 compact cameras, the Avigilon H.264 ONVIF cameras [link no longer available], HD domes from Grandstream, GVI and Vivotek, etc.
We've gone from a $600+ MP over analog premium in 2008 to a sub $200 premium of MP over analog in 2010.
First, this should make it easy to understand why megapixel adoption has surged. It is not primarily better education or more informed end users -- the products are simply much more competitive.
Second, we are reaching the point where justifying HD over analog gets pretty easy. When the total cost of a project nearly doubles (as it did in 2008), the market is fairly limited. When the total cost goes up only 20%, that's much easier especially when the visual benefits are dramatic in the overwhelming majority of applications. In a 16 camera job, if you eliminate 2 or 3 cameras, megapixel pays for itself. Even if you eliminate no cameras, the significantly higher captured details are likely to help solve a number of cases that analog quality would have missed (clearer images of suspect faces, license plates, etc.).
Undoubtedly, analog will be around in significant quantities for many years, primarily driven by the long lifecycles of CCTV systems (repairs, small expansions, etc.). However, for new deployments, the competitiveness of analog CCTV is collapsing due to the surge in low cost, widely available megapixel cameras.
Going into 2011
In 2009, we identified 5 key drivers for migrating to IP over the next few years:
- Mainstream megapixel cameras
- Mainstream hybrid DVRs
- Managed/Hosted video
- Panoramic cameras
- Maturing IP camera standards
In 2010, of these 5, the most progress was made in megapixel camera development (as commented above). We actually found development to be faster and stronger than we anticipated. IP camera standards development also made excellent progress (though its practical impact in 2010 sales was negligible). While dozens of new managed/hosted companies entered the market, we think the value proposition is still weak and the market impact minimal.
Hybrid DVR new product development was modest. However, most 'professional' or 'enterprise' DVR providers now lead with hybrid DVRs. Only entry or 'budget' level systems are now not hybrid (i.e., analog only DVRs). One trend we continue to see is increased preference for software only offerings as more and more DVR appliance users move away from appliances as they upgrade to their next generation systems.
Of the 5, Panoramic camera development was poorest. Panoramic cameras remain a niche with very few vendors and poor interoperability (especially when panoramic cameras require special integration to handle dewarping of video - examples include Mobotix, Grandeye and Sentry360). While, Mobotix reports strong sales of uptake of their Q24 panoramic models, this is still small relative to the overall market and a proprietary solution. The most interesting new panoramic announcement is Arecont's 8MP D/N series. We think this will be an attractive offering for them but since its only a single vendor, it is unlikely to have a major impact on the broader market.
2011 Financial Forecast
The major theme for the 2011 video surveillance industry will be mainstream Megapixel camera adoption. This is a continuation and acceleration of a theme developing for the last few years. What it now benefits now is ubiquitous supply and decreasing costs (as well as much better awareness).
Going into 2011, IP has a lot of room to grow. Depending on whether you measure the market by units sold or sales amount, IP is somewhere between 20 - 35% of the global market (the lower number for unit sales, the higher number for sales amount).
In 2011, analog (and traditional suppliers) will have no response for megapixel and will lose deals continuously in the mid-market as new installs choose to upgrade to megapixel for relatively minor premiums over analog cost.
The best market segment for analog in 2011 will be the budget market. For users buying $250 - $1000 DVRs for simple applications covering small areas, megapixel will be viewed as an expensive luxury that is hard to justify. This will also continue to block wider spread use of hosted video (for similar economic reasons).
HDcctv will not have a significant sales impact on the overall market in 2011. At the end of 2010, only a small number of HDcctv cameras are shipping and even fewer HDcctv recorders. Plus, the pricing is equal or higher to megapixel IP. While HDcctv sales will certainly grow sharply in 2011 (up from basically 0 in 2010) and HDcctv may have a significant impact in years to come, 2011 will be more about expanding product options and building market awareness rather than taking a significant share of the market.
For 2011, a defining factor for vendor success is relative positioning of their megapixel camera offering. While all IP camera manufacturers are likely to grow sales ('a rising tide lifts all ships'), the companies with the most attractive product offerings are likely to see the best growth. To this end, consider the positioning of the following vendors:
- ACTi: With limited new product introductions in the last year and their new 4MP product not scheduled for an April 2011 release, we think ACTi will struggle relative to their rivals with newer products (compare to Arecont and Vivotek).
- Arecont Vision: With one of the most aggressive product release schedules, Arecont will benefit from a broad megapixel camera portfolio with new H.264 products and niche offerings like built in IR bullet cameras and multi-imager panoramics. We would be cautious about the maturity/QA of their new products but we doubt that will hinder them from having very strong growth in 2011.
- Axis: It will be interesting to see if Axis can match its 2010 growth in 2011 if only because Axis is already so big (relative to the surveillance market). In 2010, simply from organic growth, they expanded the size equivalent of Dedicated Micros or March Networks. Axis will benefit from its rapid product growth in 2009 and H1 2010 so growth should be solid but will it match this year's 30% pace?
- Pelco: We think Pelco's IP cameras will have a lot of challenges in 2011. Looking at Pelco's IP cameras, they have two groups: expensive and really expensive. Their main competitive advantage is their analytics enabled cameras which unfortunately for them addresses a weak segment of the market. Many of their competitors did a good job of adding more affordable megapixel cameras (the Axis M series, the Arecont compact series, the Sony X series). Pelco has not. We assume Pelco will do a major release in Sprint 2011 but that will be late to significantly impact 2011 competitive dynamics.
- Sony: We think Sony may have the strongest year of the major IP camera suppliers. In 2010, Sony aggressively expanded its IP camera portfolio. In particular, we believe their mid-level E series and entry level X series will be very competitive (review our Sony IP camera guide for details). For instance, the E series is significantly lower cost than the Axis P series but with the same day/night capabilities, interchangeable lens (and auto back focus). Additionally, the X series offers some of the least expensive megapixel cameras in the market. Certainly, Sony benefits from having released these cameras in the last 6 months. We definitely expect other manufacturers to respond (and some to match). When that happens, the advantage will diminish. Until then, Sony looks to be in strong competitive shape.
- Vivotek: Vivotek launched a broad number of H.264 cameras in 2010 and has another new line of products coming in Spring 2011. When we compare their camera's cost in our Camera Finder, Vivotek consistently offers products in the lowest price tier of various product segments. We think Vivotek will continue to do very well for users looking for the 'low cost' option for IP cameras. Vivotek's new/upcoming 'Supreme' series are likely to be much more expensive (and higher functionality). Until we learn more details, we are not sure how well they will do.
While we've commented on a few well known IP camera suppliers, in 2011, growth will be driven by a broad number of manufacturers -- from analog incumbents marketing their recently released IP cameras to new entrants moving into the market.
2012 and Beyond Projections
Most agree that IP camera sales will continue to grow strongly for the foreseeable future. What's most interesting and important is to understand what factors will drive or constrain the growth of IP cameras. Here are the key ones we recommend you consider:
- Limits on the overall growth of the video surveillance market
- Price reductions for IP cameras
- Acceptance of Software Only offerings
- Maturation of HDcctv
Overall Growth of the Market
The global market for video surveillance products is unlikely to grow more than 10% per year in the foreseeable future. This is simply because video surveillance is broadly adopted already and many markets are already 'saturated' with cameras.
Megapixel may have a modestly positive effect on the overall market but with some offsetting factors. On the one hand, some will use megapixel to reduce camera count and potentially reduce the overall expenditure on surveillance. On the other, the higher visual details that megapixel delivers may spur greater adoption of surveillance cameras as users solve more incidents with these cameras. Whatever the net outcome is, it's likely not to be a huge factor.
Given limited overall market growth, IP camera sales cannot grow 50% year over year indefinitely. This is simple mathematics. If something that is 30% of a fixed area increases by 50% each year, in year 1, it will be 45%, year 2, it will be 67.5%, year 3 it will be 100%+, etc. Obviously, it can't be more than 100% and as IP camera's overall share of the market increases, growth rates will naturally decline.
In practical terms, we believe declining year over year growth will occur in 2012 (and continue), even if IP cameras face no strong new barriers or competition. While the percentage rate will decline (maybe 30% growth), the absolute dollar value will be still quite large (as it is a smaller growth rate on a much larger base size).
Price Reductions on IP Cameras
A second factor in projecting future IP camera growth is how far their pricing will decline. We believe the moderate price declines are likely driven by 3 factors:
- Increasing scale / sales
- New entrants / competition
- Current healthy profits
Today, IP camera manufacturers generally enjoy healthy profits (with gross margins of 60%+ and net margins of 10% common). This is not a market where pricing has yet to be squeezed.
Over the next few years, both production size of IP cameras and new entrants will increase significantly. The former will provide decreased cost structure, enabling lower costs. The later will provide more pressure to decrease costs.
By 2012, we expect IP camera prices to be 10-20% lower for the same feature sets.
Acceptance of Software Only
The more software only VMS systems are used (and required), the stronger IP camera sales will be. By contrast, analog (and HDcctv) offer the strongest economies when used with DVR appliances that bundle encoding. Over the last 5 years, quite a heated debate has existed over the future of software only with concerns about support and scalability problems being the most common cited. Given the continued strong growth of software only VMS providers and the ongoing improvements in COTS hardware, we believe the trend toward software only will continue in the foreseeable future.
Maturation of HDcctv
In any scenario, analog is likely to face a continuous decline. As is, the shift is going all to IP. We think the best bet for 'traditional CCTV' is HDcctv. Like analog CCTV, HDcctv uses coaxial cable 'standard' and encodes video in the recorder (DVR).
The most fundamental strength HDcctv offers is that encoding multiple cameras simultaneously (i.e., in a DVR) is significantly less costly than encoding cameras individually (i.e., in IP/MP cameras). This gives HDcctv the potential to offer high definition at significantly lower overall costs than Megapixel IP cameras. If HDcctv can deliver a similar cost structure to analog, it would have a significant impact.
As of December 2010, HDcctv is the biggest wild card in the industry. There are two important unknowns currently:
- How cheap can HDcctv get? Today, HDcctv cameras are about the same price as Megapixel IP cameras. The limited number of recorders are significantly more expensive than NVRs. Prices will decrease. It's not clear by how much and how long it will take.
- Can they build momentum? Right now, while they have a large number of (mainly Asian) manufacturers they are obscured (and frustrated) by the avalanche of support and coverage for IP. It appears that the major IP camera manufacturer's approach is to treat them like they do not exist. Can the HDcctv Alliance gain mainstream momentum?
Beyond that, there are some clear barriers that HDcctv will not easily circumvent:
- Requires all new recorders: If HDcctv was a firmware upgrade or a module add-on to existing DVRs, the attraction would be extremely high. Unfortunately, HDcctv has no backwards compatibility with existing analog DVRs. This is no different than IP cameras but the IP ecosystem has developed a broad range of recording options over the last decade (from hybrid recorders to software only VMS systems).
- Requires appliances in addition to the cameras: To make HDcctv feeds accessible via IP, the cameras need to be encoded either in encoders/streamers or in DVR appliance. To the extent that buyers prefer software only, HDcctv will be at a disadvantage.
- Requires different inputs for HDcctv feeds vs analog feeds: Even in new HDcctv enabled DVRs, a set number of inputs will be dedicated to HDcctv feeds and another set for analog. This is relatively inflexible and will make migrations more difficult. The HDcctv says it is technically possible to auto-detect inputs but a clear timetable for product availability and price impact is not known.
HDcctv will improve though how much remains to be seen. In the interim, it's unlikely that the market will wait. However, it's important that HDcctv development be tracked.