Ubiquiti is Killing the Wireless Networking Market
Most surveillance people think first of Firetide when considering wireless but Firetide is, in reality, a fairly small player that gets attention primarily from their relentless, VC fueled, PR campaigns. However, the true emerging gorilla is Ubiquiti, a company with a heretical approach to marketing, who is IPOing today at a valuation of more than $1 Billion dollars - the same valuation range as global IP market sales leader Axis. In this note, we examine how and why Ubiquiti has been so disruptive and what further impact they may have as they expand into the core video surveillance market.
Financial Performance Overviewed
Let's start with a review of Ubiquiti's S1 financial filing that shows just how fast they got so big:
- For the past year, Ubiquiti's revenue is ~$197 Million.
- The company only started in 2005 and growth has been a rocket including doubling between 2009 and 2010 and 50% in the past year.
- Sales, general and admistrative costs are less than 4% of revenue - a very low number (20%+ is more typical)
- Gross margins are ~40%
- Net margins (profitability) for the past 12 months are ~25% which is very good
- Sales of their own branded AirMax line have exploded and is now $113 Million, 57% of revenue, up from $37 Million and 27% of revenue a year earlier.
- The company has fairly even geographical distribution of sales with 31% in North America, 26% in South America, 35% in AMEA and 8% in Asia Pacific.
These results are all the more impressive given the relative challenges that the wireless market has experienced in the past few years.
Ubiquiti's big differentiator is that it is far cheaper than mainstream wireless offerings. In a market where devices routinely cost a $1,000 or more, Ubiqiuti's are typically closer to $100.
Killing the Wireless Market
We recently spoke to an executive at another wireless manufacturer who exclaimed that "Ubiquiti is killing the wireless equipment market". Interestingly, he did not say it as an insult or attack against a competitor. It was delivered with a mixture of awe and admiration. It's just so hard for incumbents to compete against that type of price differential. Yes, Ubiquiti is not as enterprise class as competitors and yes their support is far inferior but the cost savings are so significant, it is a net value for many many users of 'regular' deployments.
A Different Approach
What we find most interesting and what we think most incumbents should find scary is that Ubiquiti violates nearly all the rules of the old school marketing playbook. They are not big advertisers nor press releasers nor marketing ghostwriters nor show exhibitors. They have their own event but attendance is free (another 'crazy' practice for the old school).
It gets more interesting - They do not have their own sales team. As they proclaim in their S1, "We do not currently have a direct sales force, but instead rely on the Ubiquiti Community to drive market awareness and demand for our products and solutions. This community propagated viral marketing enables us to reach underserved and underpenetrated markets far more efficiently and cost effectively than is possible through traditional sales models."
They do well with a passionate base of installers and integrators who really like them. We hear about them a lot from integrators, much more than Firetide which is pretty shocking because Ubiquiti's never really spent any money marketing for surveillance applications while Firetide's spent millions.
We think this approach can work well in surveillance but has never really been tried before. While there are low cost providers (ACTi, Arecont, Vivotek), they all use a fairly traditional go to market approach (heavy marketing and PR, sales teams, etc.).
We think the traditional market approach is wasteful and of declining value as the Internet enables cheaper, more direct communication and sales channels. If Ubiquiti, who is now moving into IP camera manufacturing with alarmingly low pricing, or others take this type of approach in surveillance, we think it has significant potential to be disruptive.
[Update 2012: Hurt by massive counterfeiting problems, Ubiquiti's growth has cooled considerably. While no one is replacing them, they have come down to a roughly market average growth rate]