NICE Acquires Orsus - Confirms Weak PSIM Market

•Published Nov 23, 2009 00:00 AM

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NICE Systems has acquired Orsus for $22 Million. While this looks to be a good deal for NICE, it raises many important questions for the state of the PSIM market.

Background

On November 23, 2009, NICE confirmed that it is acquiring Orsus [link no longer available]. NICE, one of the leading video surveillance manufacturers, plans to integrate Orsus's PSIM offering (called Situator [link no longer available]) with NICE's portfolio of video and security product offerings [link no longer available].

Earlier reports indicate that Orsus raised over $70 Million in funding. However, over half of that funding was raised during the dot.com bubble prior to switching to and developing a security product.

NICE disclosed that Orsus's revenue will contribute "several millions of dollars in 2010."

The Good

We see two good and positive signs from this acquisition:

Given NICE's strength, size and complimentary market position to Orsus's product, NICE should successfully expand the sales and deployments of Orsus's products.
Given NICE's relatively conservative acquisition history, this acquisition signals that a major player believes that PSIM products can be financially profitable.

The Bad

At the same time, the acquisition raises some troubling concerns:

Orsus is one of the leading PSIM providers with the most publicly announced wins yet has low revenue.
If PSIM is the next 'big thing' as many convergence proponents advocate, a $22 Million acquisition does little to validate this.
The other PSIM companies (including CNL, Proximex and Vidsys) now have a fairly low benchmark for their own valuations.

We have been bearish on PSIM over-hype for a long time. See our original examination of PSIM's problems.

Examining NICE and Orsus

In the premium section of this report, we examine NICE and Orsus's products, how their joint offering is likely to be positioned and the potential impact on the PSIM market.

NICE Systems generated $624 Million USD in 2008 revenue and has a market capitalization of about $1.8 Billion USD (see NICE stock quote).

Only about 25% of NICE's total revenues come from the public safety and security sector. The majority of revenue is from NICE's enterprise interaction solutions [link no longer available].

NICE's "Public Safety and Security Sector" reports $148 Million USD revenue in 2008, up from $122 Million USD revenue in 2007 (see page 55 of their 2008 annual report [link no longer available]). Q2 2009 revenue was down 10% year over year ($35 M USD Q2 2009 vs $39 M USD Q2 2008).

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While the easiest fit for Orsus may in NICE's existing $100-$150 Million annual security market, NICE may also consider leveraging Orsus' Situator as a component for its Enterprise market, using Situator as a management tool.

NICE's Products and Positioning

In the security market, NICE offers a broad portfolio of video surveillance products ranging from encoders, DVRs, NVRs, IP video management software. The most important common theme is that the products are targeted to the high end of the market that seeks advanced features.

Control Center [link no longer available] is NICE's top-level client interfaces that allows users to manage and review video from NICE's various recorders and products. ControlCenter includes event management and virtual matrix - two important features for high end / enterprise deployments.

NiceVision NET [link no longer available] is NICE's IP Video Management offering that includes both NVR appliances and software only licenses.

NiceVision Digital [link no longer available] is NICE's traditional DVR line including 3 series - the high end PRO that supports up to 96 analog channels per appliance, the mid end ALTO that supports up to 32 channels and the NVSAT appliance for up to 8 channels.

NiceVision Analytics [link no longer available] is NICE's in-house video analytics offerings. Unlike most other VMS providers, NICE develops and promotes their own internal video analytics that can run on their own appliances or on servers using NICE's NET IP video software.

NiceVision eXpress [link no longer available] is NICE's entry level IP video offering available as software only or as an NVR appliance. This is the only non-enterprise positioned product. However, even this is designed to be fully integrated and upgradeable to NICE's enterprise systems.

Pricing: While NICE does not disclose pricing publicly, it is well known that their pricing is premium and generally matches or exceeds other enterprise level products such as Verint, Milestone, Genetec, etc.

Orsus's PSIM Offering

Orsus offers a single product - Situator [link no longer available] - a software solution that (1) integrates with various 3rd party systems and (2) enhances situational or operational management through improved workflow and interaction with integrated sub-systems.

Orsus divides its functionality/benefits into 3 segments:

Called Act [link no longer available], this is their implementation of traditional live monitoring and response interface. This includes display of information from various subsystems including video, maps and GIS information integrated in real-time from various moving assets (like vehicles, people, etc.)
Called Plan [link no longer available], this aspect allows operations to analyze and improve their standard operating procedures by modeling various scenarios.
Called Improve [link no longer available], this is an investigation and analysis tool that helps operators understand incidents and determine what changes should be made to handle future incidents.

Orsus does not publicly disclose their 3rd party integrations (similar to almost all PSIM providers who are likely concerned to show how small a percentage of total systems are supported). That noted, from previous reviews, we did see that Orsus integrated with dozens of leading systems and likely had one of the most extensive list of 3rd party systems supported. [Update: NICE disclosed Orsus's product integrations, claiming a total of '150 different technologies'.]

Pricing: Orsus does not disclose pricing (similar to almost all PSIM providers). However, Orsus's projects tend to be very large scale. We estimate that most of those projects are at least $200,000 and that a number could exceed $1 Million USD. For an overview of Orsus projects, see Orsus's case study directory [link no longer available].

Orsus's most recent software release is version 6.0 (released Q3 2009). 6.0's features are positioned at the very high end of the market. Specifically, Orsus emphasized using this for not only security but large-scale general operational use.

Their 6.0 release features a variety of system optimizations including a dedicated access control management interface, forms/templates for handling incidents, changes in the rules engine to better support SCADA interfaces and a discovery tool to automatically synchronize with updates to access control systems.

Two video surveillance specific features added include: (1) a video pursuit features that simplifies tracking suspects from camera to camera (at a high level, it seems similar to features available from VidSys and Proximex) and (2) the ability to define different client UIs on each operator's workstation (allowing one operator, for instance, to use a 3D map and another one (say one a laptop) to use a 2D map).

In February 2009, Orsus bought Cinario [link no longer available]. Orsus reports that the acquisition was made primarily for Cinario's customer base (in retail) and that the technology was similar but not enhancing to their existing platform).

NICE - Orsus Future Positioning

While the 'dream of PSIM' for many is to provide an independent system that integrates various sub-systems, NICE is more likely to go in the opposite direction.

First, NICE says as much, stating the objective is to integrate Orsus enabling "NICE to provide a comprehensive pre-integrated portfolio of security management solutions."

Secondly, the Orsus product will be a small component in NICE's overall portfolio who's primary goal will be to strengthen the sale of NICE's existing products rather than to grow an 'independent' PSIM market.

Third, while NICE definitely supports third party systems, NICE has never positioned itself as a 'open platform' company that wants to integrate with hundreds of 3rd party systems (critical to an 'open' PSIM). Indeed, it is likely more profitable to use Orsus to enhance NICE's core products than to promote an 'open' PSIM.

A good historical parallel for the NICE/Orsus integration may be GE's Facility Commander [link no longer available] - a command and control system that supports 3rd party systems but is integrated with and focused on GE's products.

Impact on Other PSIM Providers

On the positive side for other PSIM manufacturers, this likely reduces competition. NICE will most likely focus on their existing customer base and bundling Orsus into new projects that they have a strong opportunity in winning with their overall product portfolio.

On the negative side, this publicly confirms the weak growth of the PSIM market. It is easy to hype early stage markets by focusing on potential and ignoring actual financial success. PSIM proponents may dismiss Orsus as unrepresentative but that would be hard to believe given Orsus's relatively high number of publicly announced project wins.

All the PSIM players suffer from the same core challenges that Orsus did - fractured market for security systems, high costs and difficulties to integrate dozens (or hundreds) of manufacturers, complex and costly deployments only justifiable for the largest operations.

On the other hand, Orsus perhaps more so than any other PSIM provider is focused on high end, complex, large scale solutions. The hope for PSIM is that one of the remaining independents can make PSIM simple and affordable enough to fosters it mass market acceptance. This may happen but with the obstacles they face, it looks to be a long slow battle.