Online Surveillance Market 2011
Online sales of video surveillance products is already a sizable market growing at a robust rate. We estimate the global market size is over $200 Million USD, growing at an annual rate of over 25%. In this first ever study of video surveillance ecommerce, we provide an in-depth analysis of the players, issues and trends in selling surveillance products online.
Online sales is a topic that every segment of the industry already has an opinion about - and often a strong one:
- Channel manufacturers often refer to it as the ‘Grey Market’. While some are relatively silent on this practice, those that do speak out against this practice claim they actively try and prevent unauthorized online sellers from marketing their products.
- Distributors generally have a negative view of online sellers that sell directly to end users (though some clearly do the very same thing themselves).
- Integrators see online sellers as a huge threat to their historically high margins.
- End users, armed with information readily available on the Internet, sometimes see no need to pay integrator mark-ups for services that they do not feel add significant value.
But are all online sellers the same? Is the commoditization of surveillance equipment the real driving force in the breaking down of the channel, or is it the easy access to information that the internet provides? Or both?
In this report we examine the many facets of online surveillance sales and the impact this 'outside the channel' practice is having on manufacturers, distributors, integrators and end users alike. Who benefits? Whom does it hurt? To get a broader understanding of this 'shades of grey' market, we sought to find out who was selling what to whom, what quantities were being sold online, and more importantly - how?
How could so-called 'channel' brands like Pelco, Bosch, GE, etc - brands allegedly available only through traditional channel sources - be so readily available for purchase by anyone with a broadband connection and a credit card? And what about online sites that sell everything from spy pens to PTZs to access control? Where do they fit in?
An enormous number of websites offer video surveillance products for sale. As part of our research we conducted in-depth analysis on a number of companies to better understand the varying practices and approaches of sellers. These companies include:
- B&H Photo
- BrickHouse Security
- CCTV Outlet
- Network Webcams
- Super Circuits/SC Black
We estimate the overall global 2010 size for video surveillance product sold online to be between $200 and $300 Million USD. This is based on consensus estimates of a few 'large' online retailers in surveillance generating $10 - $20 Million annual revenue, dozens of retailers generating between $2 and $10 Million annual revenue and hundreds of other retailers generating less than $2 Million. Since almost every company is private and most are very small companies, exact market sizing is not possible. However, we have no doubt that hundreds of millions of dollars worth of surveillance products were sold online in 2010.
In context to the overall surveillance market, about 2% of surveillance sales overall were made online (assuming overall surveillance market size [end user value] was $10 - $15 Billion USD). This is actually far lower than the average percentage for all retail. For instance, the US Census reports over 4% of all 2010 retail sales were ecommerce.
On the one hand, real surveillance business is being conducted online, however, it is still much lower than the overall average and even less than the average for electronic goods generally. While online pricing may hurt margins and integrator sales, actual purchases online remains very small.
Types of Stores
In addition to the dedicated surveillance stores profiled below, we also found an endless supply of what can only be described as online trunk slammers - sites that appeared to be no more than catalogues of equipment with no support, no company backgrounds, etc.
Types of Buyers
Our research indicates that integrators make up only a small portion of online buyers, with end users buying the bulk of surveillance products sold online. Because integrators have access to products and services from traditional sales channels, the motivation to move online is relatively low. On the other hand, while the average online end user buyer was an SMB or consumer, the number of cases cited to us of large organizations buying online were surprisingly high. For these organizations, it appeared the use was for small projects or simpler expansions where DIY was feasible and the lower cost / complexity of buying online was appealing.
Types of Products Sold
While there is no shortage of sites offering channel brands, the vast majority of the online sites we found (not including our featured companies) appear to be selling non-channel brands; most likely because of easier access to distribution. With no restrictions on those they sell to (MAP agreements, technical certifications, etc), non-channel manufacturers seem more focused on moving product than in helping resellers maintain higher margins.
Nonetheless, reviewing ebay.com, amazon.com, nextag.com [link no longer available], yahoo and msn [link no longer available] stores, manufacturers 'unauthorized sellers' lists, etc, we found that there were very few brands we could not locate somewhere for sale online.
The quality or category of the non-channel brands overwhelmingly fell under budget, consumer or SMB. Not surprisingly, high end products were relatively scarce in online sales.
Analog vs IP
Although the respondents we polled provide a good mix of analog and IP (though some are IP-only), we found analog product sales were the clear majority of the online market. Nevertheless, substantial IP camera sales existed. We estimate IP cameras accounted for between 25 - 35% of online sales. While this range is consistent with overall market sizing for IP vs Analog, this is disproportionately strong relative to the low end of the surveillance market overall. We believe that online sales are a net plus for increasing IP camera penetration in the low end of the market.
Analyzing Online Seller Attributes
While the companies we reviewed differ in many ways (some sell only to dealers, others sell only IP; at least one installs equipment locally), we also found numerous similarities. Not coincidentally, these similarities are generally universal practices you would expect from any successful equipment provider (online or not).
- They base their product warranties on manufacturers policies
- All offer both pre-sales and after the sale phone support
- Each utilizes remote log-in capabilities as a key tool to assist with configuration and troubleshooting
- When considering new offerings, all seek products that fill existing gaps or provide better functionality
- All see quality support as the key to repeat business and customer loyalty
Wholesale- The wholesale providers we interviewed were very clear: they do not sell products online. Because of this stance, they consider themselves no different than traditional channel distributors. While both maintain a significant online presence, to protect their dealers they do not list pricing. It is not surprising then that both report strong relationships with the manufacturers of the products they carry. Also, as distributors their reliance on internet search is primarily to recruit dealers and integrators and not to sell product.
Retail– It is interesting to note that the retail providers we interviewed buy directly from manufacturers, observe MAP agreements and do not appear on any of the manufacturers unauthorized sellers lists (that we could find). While their websites include pricing, they all indicated that competing on price alone is not their business model. Traditional sellers (both distributors and integrators) may deride all online retailers as grey market providers, but the retail sites we reviewed do not view themselves as such since they comply with MAP policies and buy directly from manufacturers. Although the internet allows the retail companies we reviewed to operate without the geographic limitations of traditional suppliers, they claim their business models are based on solutions – in much the same way traditional providers seek to position themselves . The only obvious differences are installation capabilities and how they reach potential customers using internet search vs. traditional offline marketing.
Retail & Wholesale – Selling both retail and wholesale would seem to be difficult to accomplish, yet the 2 companies with this business model that we reviewed (both very large volume sellers) are able to do this by separating their product lines. One provides name brand channel products to dealers while offering different, privately branded products at the retail level, and the other uses pricing to differentiate their lines (certified dealers get wholesale prices, end users pay retail). By separating their offerings, these players are able to market to larger numbers of potential customers while avoiding the ‘grey market’ label.
In the companies we analyzed, we found the business model varied:
Retail – These companies sell to anyone:
Wholesale – These companies market only to integrators
Both Wholesale & Retail – These companies sell separate wholesale and retail lines
The Grey Market
This is a controversial arena with many, many players. As we noted at the beginning of this report, it is not difficult to find most channel brands available online (try entering a brand in the search field of this ebay product locator website [link no longer available]).
Manufacturers claim that customers who buy from these grey market providers are at risk and that warranties will not be honored, nor will they provide any support for items purchased from these entities. So where is all this equipment coming from? Since it is relatively easy to shield website ownership, figuring out who these players are is next to impossible. However, distributors and integrators with access to volume discounts are the likeliest suspects. For instance, North American Video operates cctvproducts.com which appears on some manufacturers unauthorized sellers lists. When equipment sold on cctvproducts.com fails while still under manufacturers’ warranty, the customer gets an RMA from cctvproducts, and the manufacturer then gets an RMA from NAV – effectively eliminating the grey market ban publicly adhered to by the manufacturer.
Since most (if not all) surveillance components sold are labeled with a serial number (and network components, a MAC address) as a unique identifier, we find manufacturers claims that it is too difficult to police grey market sales to be spurious at best. If they were indeed interested in stopping the expansion of grey market providers, it seems a relatively simple task to trace these identifiers to the original distributor (or integrator) these products were sold to. One thing is clear – gray market providers are not eating the costs of defective equipment under warranty; they simply could not stay in business with competitive prices if they had to absorb these costs on their own.
Upstarts vs Incumbents
The explosion of low-priced Asian products is another important factor in the changing landscape of surveillance sales. When traditional channel manufacturers were the only players, they could much more easily control both distribution and pricing – helping to keep margins high and alleviating most concerns regarding the commoditization of surveillance products. Those days are gone. As end users become more tech-savvy and products become easier to use (plug and play, wireless, etc) the need for outside integration diminishes significantly – especially in smaller camera count applications.
One of the key reasons for the rapid expansion of these new players is at least partly the fact that channel manufacturers have historically employed a top-down strategy focusing on new features vs. developing products for underserved markets. The channel structure in place for decades meant end users had limited choices. Those that could afford to pay the hefty margins enjoyed by integrators were able to install surveillance – those that couldn’t were ignored. Asian manufacturers began exploiting this weakness with simple, easy to use non-branded equipment developed to serve those customers the channel didn’t. Soon after, major retail and electronic outlets like Sams Club, Walmart, Best Buy [link no longer available], etc jumped into the surveillance business by partnering with these new entrants to provide mass market sales channels. Building on that success, Asian manufacturers began improving their offerings to push into higher-end markets. Companies like Hikvision. ACTi and others – unheard of only a few short years ago - are now competing right alongside channel manufacturers, further diminishing their margins as they try and stay competitive.
We find manufacturer complicity to be the key enabler of the expanding grey market. If they were truly interested in stopping this practice, they could do so (try finding Avigilon products online – you can’t). So why don’t they?
The answer to this important question appears to be grounded more in simple market dynamics than in any malicious intent toward traditional integrators. Manufacturers need to sell more products to continue to grow. With an ever-expanding number of new manufacturers and sellers entering the surveillance space, channel manufacturers are basically turning a blind eye to grey market enforcement in order to compete. Although manufacturers continue to maintain that they are doing what they can to combat the grey market (to keep their existing customers in the fold), the evidence indicates otherwise.
The online sales space shows no signs of abating. On the contrary, it is growing and expanding daily.
Profiles of Online Video Surveillance Sites / Companies
Amazon - The world's largest online retailer with over $25 Billion in overall online sales, by its standards, only 'dabbles' in surveillance video with a small lineup of mostly consumer surveillance products. Nonetheless, because Amazon sells so many units of what it does offer, we estimate that they are one of the largest online surveillance sellers in the world with perhaps $10 - $30 Million in annual surveillance sales.
B&H Photo – A New York City based company founded in 1973, B&H Photo is the largest non-chain camera and video store in the US with an estimated total online revenue of approximately $100 Million USD. However, since B&H only added surveillance as a dedicated division less than 5 years ago, total surveillance revenue is likely to be a very minor portion of their overall business. That noted, B&H offers a broad spectrum of analog and IP branded surveillance equipment. Unlike the others we included, B&H operates a brick & mortar retail store in NYC, though approximately 70% of their revenue comes from internet sales.
BrickHouse Security -Based in New York City, BrickHouse launched to the public in January 2005 to offer GPS Trackers and other covert surveillance gear. Since then, they have expanded their technology offerings to include a full spectrum of security products, from spy pens and GPS locators to both privately branded OEM and traditional channel brand surveillance products. While primarily a retail seller online, BrickHouse management relies on experience and contacts in the law enforcement, corrections and government security agency vertical to leverage and grow their channel surveillance distribution. Unlike Super Circuits/SC Black, the division of roles (retail/wholesale) at BrickHouse is more defined, as their OEMed surveillance products appear widely on their website, whereas channel products are not featured. By separating their retail products from wholesale channel products, BrickHouse 'protects' their dealers and are able to operate as both wholesaler and retailer of a wider array of products than some of the others we interviewed.
CCTV.net - A Los Angeles based online wholesaler of surveillance products, CCTV.net is the only company we profiled that offers both analog and IP where sales of IP equipment dominates that of analog (85/15)%. From their beginning in 2005, CCTV.net has focused on IP, selling only to dealers and integrators, with distribution centers in both NY and LA. Like Videosurveillance.com, CCTV.net possesses a highly coveted URL for search rankings, though since they aren't selling products at the retail level, the owners rely more on web searches to recruit new dealers and not to sell products.
CCTV Outlet - A Florida, US based seller of security and surveillance products, CCTV Outlet carries everything from analog to IP and maglocks to access control solutions. Unlike some others in our study, the management at CCTV Outlet wanted to make it clear that they do not sell products online. While they certainly have an online presence - utilizing their main URL page, blogs, social media, etc - CCTV Outlet is an online distributor of security equipment, selling only to certified installers, dealers and security integrators. Their model is somewhat unique in that instead of just reselling popular brands, they've established a working relationship with an off shore manufacturer in Eclipse CCTV. CCTV Outlet is the sole representative for the the Eclipse Brand. This direct relationship with the manufacturer gives them the ability to be included in the development process - something that straight resellers are rarely able to influence.
Network Webcams - A UK based retail provider of IP surveillance cameras specifically, unlike some of the other companies we interviewed, Network Webcams does not seek to supply a full range of security products and instead focuses solely on their core strength. Network Webcams is easily the largest of the UK providers we interviewed and also one of the first of the larger providers of online IP surveillance cameras, offering a growing array of channel brands as far back as 2004. Unlike some of the other 'one stop' online security equipment providers, their tightly focused product offering would appear to make it easier to support their customer base (home owners to government agencies) by requiring primary expertise in only one area - IP Cameras.
SuperCircuits/SC Black - A Texas based company in business since 1989, Supercircuits has long been an online retail seller of a wide range of surveillance and security equipment. While the majority of historical sales have been analog, the company has experienced recent growth in IP sales driven by both end user and dealer demand. One of the more established and easily the largest online surveillance seller we interviewed, Supercircuits sells security products directly to end users via the internet. Shortly after being acquired by The Carlyle Group in 2006, Supercircuits created a complete line of products for the dealer channel, branded SC Black. Supercircuits works directly with both on- and off-shore manufacturers to design and develop surveillance equipment specifically for the SC Black line. Unlike others, SC Black branded equipment is readily available at their retail website supercircuits.com at MSRP prices. By offering a tiered pricing structure with dealer discounts off MSRP, Supercircuits 'protects' their dealers and are able to operate as both distributor and retailer of the same equipment.
Use-IP, Ltd - A UK based seller in business since only May 2008, the management at this company comes from a security background and see this as their largest competitive advantage over other online sellers. As the name would indicate, use-IP is focused exclusively on network-based surveillance solutions and does not carry analog product. They sell to the full spectrum of end users, from homeowners to UK government agencies to smaller integrators. Though they have expanded steadily (with a new office planned to open soon), the owner sees integrators as being his slowest growing market, primarily due to their general slowness to adapt to network-based security technologies.
VideoSurveillance.com – A Portland OR based online surveillance retailer with an emphasis on offering a diverse IP camera range, the VideoSurveillance.com online store was launched less than 2 years ago and offers the full spectrum of analog and IP surveillance products. Originally operating as a video surveillance information portal, (utilizing blogs, manufacturer links, ‘ask-the-expert’ forums, social media tools, etc), VideoSurveillance.com was able to develop a strong search-based presence well before they offered their first products online. This established presence – and the fact that their URL is a very common keyword search combination – gives them a huge advantage over other online surveillance sites. In addition to their online store, and unlike the other companies we interviewed, VideoSurveillance.com also installs systems in their geographic region. By offering volume discounts to dealers they partner with outside their own local market, VideoSurveillance.com effectively covers all the bases by operating as wholesaler, retailer and integrator.