The Romance and Realities of Recurring Revenue

By John Honovich, Published Aug 08, 2010, 08:00pm EDT

Our industry's recurring revenue romance obscures the reality that such efforts may not be viable competitively. We believe this significantly increases the risk that video surveillance based recurring business revenue models will dissapoint.

Viable recurring revenue business models require ongoing material costs. If such costs do not exist, competitors can charge a moderate up-front price with no ongoing fees (as ongoing costs are minimal). For such offerings, a provider charging ongoing fees will be disadvantaged to a one-time charge option. The recurring cost provider becomes an inefficient loan provider. Securing bank loans/financing will provide savings to most customers.

Managed video offerings have very low ongoing service costs, making no ongoing fees fit naturally. Despite this, we see many providers and integrators pursuing managed video offerings that charge $10, $20, even $30 per camera per month. While free offerings are minimal currently (see StarVedia and Lorex for early offerings), it is inevitable that incumbent VMS/DVR providers offer managed video as a free or very low cost add-on (especially if the monthly fee offerings can any tractions). At that point, recurring charges will be hard to command.

While hosted video has ongoing service costs (e.g., storage, bandwidth), we believe managed video provides the most important user benefit at a far lower cost than hosted video can provide. The key end user value is providing simple remote access anywhere the user is - both managed and hosted can provide this (though managed provides this at much lower cost). Hosted can eliminate the need for on-site storage which eliminates on-site service need (for the recorder) and eliminates risk of stolen on-site recorder. However, this adds significant costs and reduces the video quality/number of cameras that can be recorded.

Recurring revenue clearly offers providers acquisition and stability benefits. Nonetheless, if viable non-recurring revenue charging competitors likely arise, recurring revenue providers will be infeasible.

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