Why The Market Has Already Tipped to IPBy John Honovich, Published Aug 07, 2011, 12:00am EDT
One of the most heated video surveillance debates is when the market will 'tip' to IP cameras, typically defined as the first year when IP camera revenue exceeds analog camera revenue. However, this debate and metric misses the more important shift that has occurred.
Already Tipped Right Under Our Noses
In the past year, the market has already tipped to IP cameras in the most relevant and important metric to integrators and end users - new project deployments in the most developed countries. This report will explain what is happening, why it is happening and why this tip is so important to today's video surveillance decisions.
The Surveillance System Sales Cycle
To appreciate why the 'real' tip has already occurred, we need to understand the sales cycle of surveillance systems. Most importantly, one needs to appreciate the role system compatibility has in shaping sales now and in the future.
Surveillance systems - combinations of recorders, cameras, monitors, etc. - are deployed and used over many years (typically 5 - 10) before wholesale replacements are done. The original architecture selected at the beginning of the cycle shapes what is purchased for nearly a decade.
Even up to a few years ago, 95%+ of new systems were based on a classic DVR architecture. Classic DVRs are only compatible with analog cameras - not USB cameras, not HDcctv cameras and not IP cameras. Once you selected a classic DVR, all you could use, without major structural changes, was analog cameras. As such, almost everyone only used analog cameras.
Often, critics of IP cameras would point to much higher sales of analog over IP and draw a conclusion that users were essentially 'voting' for analog cameras. In reality, users were 'voting' first and foremost for compatibility with their sizable existing investment into analog only DVRs.
Segmenting Surveillance Camera Sales
To recognize trends, it is important to break down surveillance camera sales into 2 distinct groups - (1) Extension Sales and (2) New Project sales.
Extension sales include:
- Multi-year roll-out of a large scale surveillance systems across sites
- Adding facilities for a user with an existing surveillance system
- Replacing broken equipment
New project sales have 2 types:
- Greenfield deployments where a user has no video surveillance (e.g., new construction)
- Major System Swapout - every 5-10 years, users will decide their architecture is simply too old and out of date and will look for a completely new platform
Today's Surveillance Camera Sales
Unsurprisingly, analog heavily outsells IP for extension sales. In these cases, the architecture (heavily analog) is already in place and the user simply gets more of the same (i.e., analog).
However, in the last year, for new projects in the US and Europe, it has become clear that IP camera sales are outpacing analog sales. Among enterprise projects, IP's predominance is almost shocking with more than 75% of new projects going with IP. [For background, see our IP Camera Sales report.]
Various independent evidence points to this critical shift in new project sales. We see this in surveys of integrators, in reviews of RFPs and in discussions with both incumbent analog and newer entrant IP providers.
Why New Project Sales are Key
Once a surveillance technology dominates new project sales, the rest of the market is a foregone conclusion. Just like users with analog only DVRs spent years buying more analog cameras, today's new projects deploying software only VMS systems will focus their extension purchases on IP cameras over the rest of the decade. This has a compounding or snowballing effect. The more people choose IP for new projects, the less analog platforms are in place, the lower both new and extension sales are for analog.
Why Have New Projects Tipped to IP?
New projects are tipping to IP now because IP cameras have made dramatic progress in the past 3 years. Remember, in 2008, the market had:
- Less than 10 megapixel camera manufacturers total
- A real debate if H.264 megapixel would actually work
- Very limited form factors for megapixel
- Expensive pricing for megapixel cameras (typically $700+)
Today, just 3 years later,
- Nearly 100 manufacturers are offering Megapixel IP
- H.264 Megapixel is ubiquitous
- Various form factors, size and product options are available for megapixel IP
- $300 - $500 pricing for MP IP is common
H.264 megapixel cameras tipped the market to IP. The advantages over analog were obvious and compelling. This was certainly not the only advantage that IP cameras / VMS software offered but was the most powerful and recent one. As we examined in a report, justifying megapixel vs SD has become fairly easy.
The Many Definitions of Tipping
We focus on new project sales because this has the most practical impact on real world decisions. However, there is no absolute 'right' metric for defining a market's tipping. For example, if the metric selected was the year when more cameras deployed in the field were IP than analog, the tipping point might not be until 2020 or 2025 as it will take years to cycle out all the existing legacy analog cameras. You could then argue that IP will not be a significant force for more than a decade. However, that would be ridiculous as it completely misses the shift in new buying and selling decisions.
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