Recession Starts to Impact Video SurveillanceBy John Honovich, Published on Aug 27, 2008
Companies are starting to downsize and reorganize. Reports from a variety of companies indicate this growing trend. The impact seems hardest amongst traditional DVR companies and video analytic startups and least for IP camera and IP video software companies. Expect this trend to accelerate throughout the winter.
- March Networks today announced an 8% workforce reduction and a net loss [link no longer available] for the quarter.
- A prominent startup has started a search for a new CEO.
- Multiple well known companies are significantly cutting costs.
- D3Data, an IP Video software company, shut down.
This is the type of information that companies want to keep quiet. The main reason March is so 'open' is that they are the only publicly traded North American company dedicated to video surveillance. All other companies can either obscure or choose not to release such negative information.
Why Is It Happening Now?
The impact of recessions generally take time to spread. Companies want to give their plans a chance to work. Startups have cash in the bank. However, over a few quarters, confidence and cash drain down. Now, with a year in to the contraction, companies across the board are being forced to start tighetening. Investors are no longer doubting or wondering when or if it will happen. The order of the day now becomes how to best contract.
Why is the Impact Different Across Segments?
Basically, the products that work well and are early in their adoption lifecycle (IP cameras especially) are doing well. Their growth rates will contract but still generally be positive.
However, the products that are saturated (DVRs) or the products that have operational challenges (video analytics) are in a tough position. They neither have the revenue growth nor profit margins to provide insulation against a recession.
Expect this to get worse despite the excuses that companies will inevitably make. Companies will generally frame this as a transition to enhance growth. However, it is basically a restructuring to reconcile strategic errors in their business plans.
What about the IP video software startups?
While the demand for these products is healthy, the problem is that too many of them exists. D3Data is the first company I know to close but do not expect them to be the last. In the long term, software markets cannot support dozens of providers. Essentially, because the marginal cost of software is so slow, a huge incentive exists for scale. Winners scale and the losers go out of business.
Why Should Security Managers or End Users Care?