The $100 MP Era is Here
By John Honovich, Published May 13, 2015, 12:00am EDTThe video surveillance industry has entered a new era.
This era is disrupting the biggest players in the industry and changing long-held industry dynamics.
The Old Era - 2009 to 2013
Megapixel surveillance first broke through in 2009. Though they had been available for many years before, going from MJPEG to H.264 plus the entrance of major manufacturers into megapixel, empowered megapixel to go from niche to everywhere.
Today, megapixel is not only expected, 720p and even 1080p are commonplace, if not increasingly commodities.
~$100 MP Era
In the past year, a new era has emerged.
In the previous era, megapixel was 'novel' and relatively expensive. 'Cheap' megapixel cameras were $400, $500. Most megapixel cameras were $700 or more.
Price has certainly declined year by year, but the drop in 2014 / 2015 has been extraordinary.
Now, ~$100 MP cameras are increasingly ordinary. HD analog cameras are often even less than $100 (see HD Analog vs IP Tutorial and HD Analog Usage and Rejection Statistics). Even MP IP cameras are routinely $100, driven by 'China' - The #1 Threat / Force in the industry.
Drop in Premium Side Too
Those "$100" megapixel cameras are typically fixed focal length, short range integrated IR offerings.
But even the 'high-end' of megapixel cameras has dropped down in price dramatically. Where just a few years ago, true WDR, smart IR, auto-focus, etc. where the province of ~$1,000 cameras, now you can routinely find them in $500 ones.
Manufacturers Hammered
For manufacturers, especially the established Western brands, the impact has been severe. A big part of the problem has been that the 'Chinese' historically only OEMed, allowing Western brands heavy markups. Now, the 'Chinese' are building their own direct branded businesses (see Top Manufacturers Gaining and Losing Ground), which is punishing revenue and margins for manufacturers. Another key issue is improved components (sensors and chips), that let 'anyone' deliver quality video.
There is no easy way out for Western manufacturers. 'Solutions' are certainly one attempt, with camera manufacturers buying VMSes (e.g., Tyco/Exacq, Panasonic/VideoInsight, Canon/Axis/Milestone). Even the most successful recent solution provider, Avigilon is clearly feeling the market pressure.
Ultimately, developing new, innovative features and offerings that the 'Chinese' cannot replicate might be the best path but most Western manufacturers likely lack the resources or engineering to truly withstand.
Integrator Challenges
For integrators, the impact is mixed but the change is problematic.
Since so many integrators rely on the profits of marking up cameras, the price drop is a challenge. Lower product prices with the same markup percentages means less total dollar profits. Combined with product pricing widely available on the Internet, there is clearly a lot of price pressure.
We think embracing "$100 MP" is important, because the reality is integrator competitors are already doing so. You might as well be early, make some more profits than be late and lose out to the earlier adopters.
Golden Time for End Users
For end users, it is good times.
Cameras have gotten a lot better and they have gotten a lot cheaper. Video coverage and quality that was a dream 5 or 10 years ago is now easy to achieve.
The main practical barrier is incumbent manufacturers fear mongering about lower cost solutions. Certainly not everything low cost is good (beware of Chinse spammers with $39 cameras) but there is now a vast array of low cost, MP products even from bigger manufacturers (e.g., from our recent testing Honeywell HQA HD-CVI, testing Samsung Lite, etc.). Use caution always but do not be suckered into paying 2x or 3x more than what the emerging market norms are becoming.
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Comments (32)
Hi John,
So you're saying you make your money off your services and possibly margins on the systems themselves rather than on the cameras? Or are you still able to mark up these cheaper cameras considerably? Or are you just thankful you have a relatively low cost add-on to upsell, even if the margin's not great?
Great question Steve.
Our margins on these low cost cameras are better than they have ever been with Bosch and Axis. Intrusion installs are typically “marginless” and we make our money on RMR, with video we’re making more upfront (usually 100% markup) when we use these low cost cameras vs. Axis and Bosch (15% if we were lucky).
"with video we’re making more upfront (usually 100% markup) when we use these low cost cameras vs. Axis and Bosch (15% if we were lucky)."
In a nutshell, that is the opportunity for aggressive integrators and the threat to incumbent manufacturers.
Absolutely John, fortunately for me there is a new market of customers that are widely ignored by most integrators. This market is looking for affordable, simple, high quality video surveillance that works with an intrusion/access control system, that can be easily managed from the cloud.
Ultimately, developing new, innovative features and offerings that the 'Chinese' cannot replicate might be the best path but...
Maybe the West should consider replicating some of the new 'Chinese' offerings, like 200m IR and H.265? If they 'can', that is.
Well, let's see how well 'Chinese H.265' works before giving them credit. I am going to be surprised if it comes close, e.g., to Zipstrem.
And from what we have seen with 'Chinese Super long range IR' it does not focus too well.
Fair enough.
My the point is that the Chinese are no longer mere replicators, and so the shoe is on the other continent, so to speak. Even if their innovations need some time to get right, on the marketing side they already have the West preparing apologetics...
Agreed it could backfire if they misfire.
btw, did you notice the latest stick of Dahuan Dynamite thrown over the Great Wall?
This Axis anti-H.265 document is a fair technical breakdown of H.265 risks, so it's certainly negative but I don't think it's unfair, nor has any of the Chinese manufacturer touting H.265 for the past 6 months disproven it.
As for Chinese not being 'mere replicators', Axis has easily 6 new products in the last year that the 'Chinese' have nothing close (to name a few, the 33MP Multi-Imager Camera, the IP Horn, the suicide resistant camera, etc.)
The real problem for the 'West' is the mid-tier Western manufacturers. What do they do? The ones who do little more than sell the typical dome / box / bullet, 1MP, 2MP, 3MP variations. The service / support better be incredible to justify the competitive price premium.
nor has any of the Chinese manufacturer touting H.265 for the past 6 months disproven it.
They're certainly trying though, no?
Hikvision displayed their new 1080p H.265 model next to an existing H.264 camera, showing a nearly 50% reduction in bitrate. H.265 cameras at ISC
Let me clarify though. I'm not saying the East is now more innovative than the West overall. I'm just saying the East is clearly beginning to compete on innovation, in addition to just price. Which makes it even tougher.
Can't I add that in as an aspect of your 'New Era'? Please?
I don't think H265 or long range IR are examples of real innovation--they're simply advancing the feature set in a known direction.
When a particular IT component emerges as a commodity, the Chinese historically win the 'race to the bottom' that is often started by Western companies that establish the category in the first place. This happened for example in PC components, then later in PCs themselves (see Dell -> ASUS). Yes, when the Chinese manufactures get started they advance the performance/feature set of the technology quickly, but that's not the same thing as innovation.
John's example of Axis fighting back with 'innovation' through diversification around network attached video is pretty good. I'd also point out some interesting things Ubiquiti is doing.
But these will not change the fact that the IP camera component itself is very much a commodity and the Western manufactures will not win out on price nor (eventually) incremental features.
The Hikvision example is not compelling. As the H.265 Cameras at ISC West post showed, Hikvision was 'boasting' about 50% reduction to 4.3Mb/s for 1080p H.265. 4.3Mb/s is not exactly low, especially for a manufacturer marketing claim.
But really the 'innovation' is what? Being more aggressive to show demos of commercially available components like H.265 encoders?
To your discussion with Steve, innovation to me is solving problems that others cannot / do not, not trying to edge out (maybe) a 6 month lead in marketing a new third party component.
To your point about Axis suicide resistant camera, I bet that's a $3 to $5 million line this year for them, something that they rapidly become the 'standard' for that niche, and generate excellent (60%+) margins. No, it's not like the Chinese government awarded a company they partially own / control an $800 million contract, but short of that, if Axis can roll out a number of these niches, it is a fairly solid way of holding revenue up and more importantly being a profitable / viable business.
Read the Anti-H.265 document again. You would think it ain't happening for years, the camera chips arent powerful enough, the clients can't handle the decoding, blah, blah, blah.
Axis didn't say they didnt want to do it. They said it's really hard.
Yet China did it. People noticed. You want to act like they were only integrating some pre-existing, off the shelf h.265 component?
Fine, but where in God's name do you think that third party component was designed and made?? Malmo? Lund?
Only a 6 month lead? You got something to share about a Axis H.265 announcement that we don't know?
Anyway, this was supposed to be settled by now, wasn't it? You know the great East-West Dome shootout. What happened to that?
I had no idea suicide cameras could sell $5,000,000 a year. I apologize for minimizing their impact.
Let's get the New era shootout going!
"Yet China did it."
China did what? Run a marketing campaign. Where are these H.265 cameras shipping? What VMSes do they run on?
Axis said it was really hard. Did 'China' solve this? I see no signs that China solved those technology problems. All 'China' did was run a marketing campaign so far.
It just occurred to me there is no point in arguing since it will be obvious to both of us before long whether:
The East continues to be mere technological imitators or have now become originators as well.
We'd love to test an H.265 IP camera from a name-brand Chinese manufacturer. If you know of one that is shipping, let me know.
It's simply not fair to give companies credit for innovating just for their marketing (that's what the trade show and mag awards are for).
It's simply not fair to give companies credit for innovating just for their marketing.
Take the test of the IR mentioned above, as IPVM notes
FLIR's integrated IR PTZ, the DNZ30TL2R claims a whopping 150m (~500') IR range and HD resolution. Distances like these have historically been possible only with expensive high-end positioning systems which required expensive illuminators and motorized lenses.
Arguably innovative, but was their claim justified?
IR range exceeds 150m (~492') specified range, reaching objects ~700' from the camera. At 0.3-0.5 lux, IR PTZ was easily able to provide recognition details of subjects at ~500'.
Also daytime performance beat Axis as well, at all distances:
At ~450' range, due to its longer zoom lens, the FLIR IR PTZ provides moderately better details than the Axis non-IR model, with 1-2 more lines of the chart clearly visible.
As for the overexposure and focusing short ranges and focusing problems, it's still better than Axis' black screen right?
Call it what you want, but this is clearly an example of where the East is outdoing the West in technological capabilities, which is not what copy-cats do.
Maybe it's a fluke, so we'll just wait to see if the East can back up their H.265 demos with deliveries.
We'd love to test an H.265 IP camera from a name-brand Chinese manufacturer. If you know of one that is shipping, let me know.
Is the West shipping a H.265 NVR yet?
Dahua looks like they are. I ordered this 32ch 4k h.265 model.
Don't know if the h.265 works on the camera side, but if it works on the WAN side that would be nice. Let you know.
Suicide resistant cameras may be new to the IP world but they have been around for years in the CCTV world. So no real innovation here that couldn't be copied by any far eastern manufacturer. Out here in the field the most prized feature of any Axis product was that instant - confidence reinforcing - enroll and configure with your chosen VMS - something I recently experienced with the latest Hikvision PTZ at 1/3 the cost. So on your toes Axis - here they come!
Maybe the key is to create direct relationships with a trustworthy and quality Chinese OEM manufacturer and cut the middle men to maintain margins. Easier said than done? Perhaps. But it's definitely a consideration here. There's only so much you'd want to pay for extended warranty and part-time tech support.
Alan, do you brand it yourself? ala AlanCam :)
It's certainly done a lot, I see it with local camera stores, etc. I can imagine it does well for smaller jobs but I suspect most bigger customers favor a bigger brand / direct manufacturer product.
No, I don't ^_^ . But you're right: it's all based on budget and who the client is. Large jobs have established budgets with mission critical systems where established manufacturers and top-level support is definitely in order.
Otherwise, on the lower end, go 50% margin (or more!) and even if it takes too long to get warranty replacements or adequate tech support, you're still OK if you just have to replace the defective product with a new one out-of-pocket.
This only makes sense if the product performs to expectations and if you can afford the time to get acquainted and master the quirks the first time around.
So instead of, say, making $6000 on a $20,000 system, maybe you'll make $6000 on a $12,000 or $15,000 system and win more bids along the way.
PS: I have used "local camera stores" as product source except they really act as a reseller/distributor for budget considerations already. Some offer very little in terms of tech support. They basically order from China and mark it up. Warranty is now US-based but other than that all they've done is create a relationship, order in bulk and rebrand, typically with a sticker.
It is an interesting dichotomy to be sure. Margins (thus profits) are going down. That forces the service-oriented companies to either sell more gross, find ways to be innovative in delivering service or cut back on service. Not necessarily service techs, but overall staff. Service is more than just a tech in a truck.
H.265 can be a game changer for an IT person and for customers, but right now it does not mean much. There are no recording options for it. What will the price be and how long before that bottoms out (race to the bottom). There is also the concern about it not being backwards-forwards compatible with existing equipment. Will customers that only recently purchased a good, inexpensive video system be willing to change it out at any expense just for the sake of bandwidth gain?
As a last note, I completely understand the rules of the board. It bothers me personally and somewhat professionally that there are so many "undisclosed" remarks in every thread (not just this one A). If you are going to say it, then sign it.
Because we are an end user, better tech at lower prices increases the chance that improvements make it into the next budget. Obviously price is not the only consideration. But it is a consideration alongside performance.
I think this is a huge opportunity for traditional manufacturers to broaden their horizons. The Chinese cameras are dirt cheap, but they all come preinstalled with the stink of slave labor. The Fair Trade Food movement has proven that people will pay a certain premium for products which check certain social boxes. Maybe the security industry could take a few pointers.
I'm trying to understand the down side to this issue. When the hardware is less expensive, doesn't it make the installed system affordable to a wider base of customers? Wouldn't a larger customer base lead to even more sales and installations? Plus, wouldn't some fraction of those customers want or need long term support?
I wonder what a price elasticity curve might look like for megapixel cameras? If everyone had half a dozen of them, just replacing normal failures could support a pretty decent market.
Horace, from the viewpoint of the overall market, you are right. If the price of meat is cut in half, more people will buy meat, etc. Meat will become more popular compared to other goods.
However, is that good for existing ranchers with lots of cattle? :) And if China has found a way to raise and sell cattle for much less, how much does that help Amercian ranchers?
This is roughly the pattern / problem the industry faces.
It is undeniably good for consumers, but for producers it can be highly disruptive.
I think the integrator business today is like the minicomputer business in the late 70's/early 80's, when people in that game had to learn to stop living on margin from hardware. Technology maturity progresses like this in patterns, I guess. Customers have to learn to buy the right stuff too of course.
This helps bring the low end of the market together with the high end and brings about a depression.
As cost go down every system out there looks the same, this will cause all of the walmart, costco system s to be more attractive to customers.
What this will cause is the NAFTA effect in the economy .
Lots of cheep systems and no or lower profits , bringing out the welfare ecomomy.
Just wait untill this saturates the marketplace.
Price Down, Profits Down, Cost Down, Professionalism Down
Just another Trunkslammer enviornment where you wont even pay the overhead to keep the doors open .
Chris, I have to respectfully disagree. Quality low cost video surveillance brings in a new market segment for professional installation companies. There are tons of DIYers who will always shop the Walmart special and do it themselves, and truck slammers who will cut corners and rip people off. We will never compete for these customers because no matter what, they’re going to go with the cheapest option.
