Pivot3 Raises $23 million / Refocuses

Author: John Honovich, Published on Feb 07, 2012

Last year, we raised concerns that Pivot3 was pivoting away from the surveillance business. Now, Pivot3 has raised a major fundraising round of $23 million lead by Samsung. In this note, we examine how this impacts Pivot3's positioning and why Pivot3 says this show renewed committment and improved focus on the surveillance market.

Let's start with a review of key points:

  • This $23 million brings total Pivot3 fund raising to ~$100 million. The previous round was $25 million raised 2 years ago.
  • As part of the funding, Pivot3 is executing a partnership with Samsung Techwin, a traditional incubment CCTV/security provider.
  • Pivot3 is refocusing on the high end of the video surveillance market rather than the broader approach of the past few years.

We asked Pivot3 about their plans for the surveillance market. They provided this detailed statement:

"The size of this $23M funding round, the participation by Samsung, and our promotion of Mark Modica to VP, Business Development Surveillance are clear indicators of our commitment to the surveillance market. In 2011, we probably cast the net a bit too wide in both surveillance and IT. Now, with the leadership of our new chief executive officer, Rich Bravman, we have returned to the laser focus that made us the top supplier of IP SANs to the market. Here are some indicators of how we will play our hand in 2012.

We are heading "North" in the surveillance market, focusing on larger, centralized surveillance installations that are typical in the transportation, government, gaming and city surveillance vertical markets. These markets clearly benefit from the scalability, simplicity and savings inherent in our Serverless Computing technology. And our investment in a world-class support team is most needed for these complex mission-critical systems.   

We see the implosion of proprietary system companies creating a huge opportunity across the globe as customers and integrators race to evaluate open systems alternatives. From New York to Macao, integrators are running pilot programs to manage their risks as customers become more savvy on what choices are available and the influence of IT grows. We've added staff in the UK, Spain, Netherlands, Singapore, Japan, Mexico, and Hong Kong to capitalize on this unique market window.

Our engineering team still makes up more than half the company and we will continue to invest in this creative engine to make our products unique. Most recently our development team found a cost-effective way to introduce flash technology performance into the surveillance market without exploding the price of our appliances. So this year we will make flash memory ubiquitous across our products as we move upward into the highest performance segments competing with proprietary products from the market leader EMC." 

Our Analysis

Here's our main thoughts:

  • Funding Size: The large round gives Pivot3 resources to dedicate on surveillance which improves their capabilities relative to last year.
  • Focus on the High End: This is likely a necessary and positive action as it as very hard to differentiate on small to mid sized projects (16, 32, cameras, etc.), especially with the VMS vendors increasingly releasing their own boxes/appliances.
  • Competing Against Incumbents for Large Projects: Incumbent CCTV companies are not strong at providing large scale storage, typically OEMing general purpose storage offerings. There are few specialists targeting this market segment (e.g., Intransa, DDN).
  • Samsung Relationship: We are not sure what value the Samsung relationship will bring specifically in security. Samsung is a traditional strong CCTV player but we do not see their core user base of small to mid size projects overlapping well with Pivot3's core strengths.
  • Long Term Future: While raising more money gives a greater runway, it also increases the expectations of future revenue/profitability that investors have. Now at $100 million+ in funding, it will be interesting to see how it can justify its valuation. Certainly, Pivot3's expansion last year to the general IT market is a needed step in accomplishing this. On the other hand, while focusing on the high end of the surveillance market is likely more efficient, it does narrow the overall market opportunity.

Product Positioning

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One notable development on the product side in the past year is the introduction of the VSTAC Watch, which is essentially the next generation of their CloudBank series. Like the CloudBank, it incorporates an embedded virtual server. However, the VSTAC Watch uses VMWare and supports flash while CloudBank uses Xen for virtualization and does not include flash.

VMware

We asked Pivot3 about why they are now using VMWare:

"The most important decision factor was that IT departments inside our surveillance customers and the development teams at our VMS partners had already standardized on VMware.  We were going against the grain with Xen and not tapping into their growing Vmware expertise.  

The VMS community, for example, is using VMware throughout their software test and dev environments, so our move Vmware has been really well received there."

It is also our experience that VMS companies most often support VMware. Plus, since troubleshooting virtual machine / VMS issues can be a real pain (see our multiple discussions on this), using VMware makes sense.

Flash

We asked Pivot3 about why they are now supporting flash:

"We are seeing an 8x improvement in latency for intensive write operations. How this translates to the number of cameras per VMS archiver is not yet a sound bite. What we know is that late generation VMS applications benefit more from latency improvements because video metadata, such as motion, timestamps, and GPS, is treated more like a traditional database. At the same time, some VMS applications are much better at buffering than others and aren't as dependent on the flash memory.  

We felt that the latency improvement from flash cache was likely to benefit the open systems VMS partners we work most closely with and, as a result, we now include scalable flash cache in all of our appliances."

We do not know either how this will translate into specific performance increases. The one case we recall a VMS manufacturer explicitly advocating using SSD was a few years ago with Milestone for their Enteprise VMS version. However, their architecture with two tier archives is atypical.

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