The Problem of Buying from Big Companies

By John Honovich, Published Sep 21, 2008, 05:17pm EDT

Big companies like GE, Tyco, Bosch, Cisco and Honeywell make a broad range of mostly mediocre, overpriced video surveillance products that take advantage of customer's lack of information. While they are powerful today, the rise of the Internet is slowly but surely eliminating their main advantage.

Their historic success is based on the difficulty customers had in determining the best products.  Big companies 'solved' this problem by building large channel sales systems that 'educated' customers on why their products were best.  In practice, they mainly leveraged expensive sales force to wine, dine and mislead customers.  In the absence of better information sources, these companies slugged it out against one another, all using similar tactics.  The results were high prices to cover expensive direct sales costs and minimal incentive to build high quality products.

Innovative startups would emerge but eventually would have to sell to the big conglomerates. The innovative startup, despite superior products, lacked the sales channel to reach and convince customers of their superior products.  This was the most efficient outcome but only because the costs of customers finding the superior new product was too high -- a truly unfortunate circumstance for customers and society.


The Internet is Destroying the Traditional Sales Channel

As customers find more information and more objective information on-line, the value of the traditional sales channel declines.  10 years ago, the amout of information on products was pitiful.  There is far more today, including reviews and online purchasing options.  Over the next 10 years, the quality and amount of information will continue to rise as the costs of distributing information falls and the usage of the Internet expands.

As customers can learn directly and easily determine the best products and the best pricing, the value of sales channels decreases.  This is a powerful and general trend not unique to video surveillance products.  As this alternative matures, the 'educational' value of large companies engaging in self-promotion will decrease.  Unfortunately for those companies sales costs will actually increase as it will be harder to overcome this trend.  The resulting combination undermines the core value of the big conglomerates, placing them at high risk for failure.


Two Practical Examples

Axis: Axis' business model scares incumbents far more than Axis' technology. While big companies can easily buy out technology, they are not sure how to respond to Axis mass distribution sales model.  It's the most common concern I hear from big manufacturers and integrators.  The ease of buying Axis' products over the Internet radically expands the reach of their products. However, it severly undermines the profits and the structure of traditional distribution.

These big conglomerates depend on controlling sales through their channels.  Axis' explosive growth, done by violating this structure, makes acquisition by the big conglomerates far less attractive to Axis. Simulaneously, Axis' cost structure is far more efficient than their larger competitors.

Axis business model is a template for future video surveillance companies to increase customer value, cut costs and escape the grasp of traditional conglomerates.

IP Video Market Info: Imagine if you could research and identify the best products for your needs without being dependent on sales people and manufacturers.  Historically, this was impossible.  It's not ready today but it's clear that this is the future.

IP video Market Info started as a personal endeavor to help myself better understand the best products.  However, I am realizing that there is a deep need for such help.  Take a recent note I received: "Trying to weed through all of the different manufacturers out there to figure out what each company has to offer and who the market leaders are is a daunting task and your site has drastically shortened the learning curve in relation to IP video."

The site needs to get far better and I am not claiming that this site be the one to solve it.  Nonetheless, it is abundantly clear to me that honest problem solving information over the Internet is the future.  This future will cripple the sales channels that drive the success of big conglomerates.

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