VSaaS Market Size and State 2011

JH
John Honovich
•Published Feb 02, 2011 00:00 AM
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VSaaS has high hopes, small adoption so far and important questions to consider. In this report, we project, analyze and examine the key issues impacting the VSaaS market.

Let's start with our estimates of the VSaaS market:

  • $50 - $100 Million: Total Global Hosted VSaaS Subscription Revenue 2010
  • 75,000 - 125,000: New Cameras Added to Hosted VSaaS 2010
  • 200,00 - 300,000: Total Cameras Hosted VSaaS 2010
  • 0.1% - 0.5%: New 2010 Surveillance Cameras using Hosted VSaaS

VSaaS Flavors and Entrants

As an early market, VSaaS means many things to different people. Most importantly, how you categorize VSaaS offerings has a BIG impact on the size of the market. Here are 3 commonly cited options:

  • Plug n Play Live Video Access: No video is recorded off-site but users can remotely access their cameras without performing network setup
  • Hosted Video/VSaaS: Video is recorded 'in the cloud' and not on-site (the traditional way).
  • Managed Video/VSaaS: Video is recorded on-site (the traditional way) but plug n play remote access to video is provided.

Note: If you are new to VSaaS, review our VSaaS Training including 60 minutes of video screencasts.

In our analysis, we are focusing on Hosted Video/VSaaS as (1) it is the most significant break from traditional surveillance and (2) it is the 'purest' version of cloud services. This does not mean we believe it is the best or the most likely to succeed. Indeed, we believe managed video is even more compelling for most traditional surveillance users for the foreseeable future.

Dozens of entrants already exist in the VSaaS market. A good approximation is about 25 providers who develop their own solution. However, this can become confusing as many providers allow re-selling / re-branding making it appear that there are hundreds of 'unique' offerings. 

From private conversations with leading providers of hosted VSaaS, we hear 3 common ranges of adoption:

  • Few hundred cameras for providers just getting started
  • Few thousand cameras for providers with a few years experience
  • Low tens of thousands of cameras for fairly established providers

The VSaaS market is quite young and while some pioneers existed before 2008, most of the development has occurred in the last 3 years. Because of this, it is very hard to see the total number reaching even a million (as a point of reference, some 40 to 70 million surveillance cameras are likely in use world-wide). If the hosted VSaaS number exceeds the 500,000 we estimate, we suspect that would be from telecommunication providers using non-traditional channels. That noted, signals indicate most telcos still trying to figure out this offering.

Cost ranges significantly with end user pricing as low as $5 and as high as $40 per camera per month. The variance is driven by differences in resolution (e.g., CIF vs 4CIF), storage type (continuous vs motion based) and storage duration (3 days, 7 days, 1 month, etc.) offered.

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The $50 - $100 Million 2010 subscription revenue estimate results from multiplying an average monthly price (e.g. $15 USD) times total number of cameras (e.g., 250,000). Of course, this depends on estimating end user price or provider price. Some VSaaS providers use dealers (e.g., Axis AVHS to providers to dealers) while others sell direct (Viaas, Dropcam, Archerfish). Our VSaaS Competitive Comparison breaks down channel strategy and pricing levels for various providers.

Additionally, you could factor in the revenue from associated camera sales. Most VSaaS cameras are relatively simple, SD resolution, cube cameras with an end user price of $75 to $150. Camera sales could increase the overall market size by another $10 Million (assuming $100 camera price and 100,000 new cameras sold in 2010 for hosted VSaaS). While most VSaaS providers require to use their cameras (with special firmware loaded on), some VSaaS providers allow for 'open' connectivity.

Ultimately, given that the global video surveillance market is roughly $10 to $20 Billion in annual sales, VSaaS is a very tiny subsegment today (certainly understandable given its relative newness).

What is Axis's Role?

Appreciating Axis's role is important to hosted VSaaS. Axis is not only a gorilla in IP cameras, they have been the most aggressive developer of hosted video offerings. Indeed, if you aggregated all the cameras hosted by their partners, Axis would certainly be the market leader. On the other hand, the market is very early and Axis faces some strange obstacles. While the technology is sound (see our Axis AVHS test results), Axis must worry about offending/upsetting partners in the much more established and lucrative traditional surveillance applications (resulting in an inefficient double indirect business model). As such, the offering remains relatively simplistic yet expensive. (Read our critique on Axis's VSaaS business case for more).

Who is Using Hosted VSaaS?

Here are the most common uses of hosted VSaaS we see:

  • Residential use for one or two cameras
  • Small business use for a few cameras
  • Multi-site businesses with a few cameras per site

More than 75% of the market fits in this 3 use cases. Hosted VSaaS has made almost no dent in the traditional 8 or 16 camera market and is far far away from being a player in the 'enterprise' video surveillance market.

What are Hosted VSaaS's Issues and Obstacles?

Upstream bandwidth availability and the relative cost of centralized storage are the two most important issues that VSaaS faces. Unlike most cloud offerings where bandwidth consumption is relatively small (think e-mail or CRM), video's bandwidth consumption is relatively massive, resulting in insufficient upstream bandwidth and the cost of centralized storage. For more on why these are issues, review our VSaaS Fundamentals training.

Directly related to these technical issues is the resulting high price of VSaaS compared to traditional surveillance. As we demonstrated in our VSaaS ROI critique, with $10-$20 monthly pricing, almost all end users would save on choosing traditional surveillance (e.g., DVR/NVR or VMS). Indeed, with entry level VMS software prices falling, this obstacle will get worse.

What's the Future for VSaaS?

With the low starting point and broad level of provider growth, VSaaS adoption will grow across many dimensions. As such, it is easy to forecast 30-50% CAGR over the next 5 years.

Equally important, the core value proposition of all VSaaSes - easy remote access to surveillance video - is a highly desirable feature to almost all users (from homeowners at the office to the police in their vehicles). As such, we expect to see the adoption of the 'plug n play' remote aspect of VSaaS to expand into traditional markets.

The two most interesting strategic question for the future of VSaaS are:

  1. Can VSaaS cross the chasm into the 8-16 camera market?
  2. Will monthly service fees replace DVRs/PCs/VMS purchases?

The 8 - 16 camera market is a major surveillance segment representing the majority of surveillance users (though not revenue). At VSaaS's current 1 - 3 camera niche, it can help expand surveillance into the home but it does little for business users.

As for service fees, if the market moved away from appliance sales, PC sales and VMS licenses, it would result in a dramatic disruption against most of the established manufacturers and a sea change in how users deployed surveillance.

Our answer to both of these questions, for the next 3 - 5 years is No and No due to structural cost/technological barriers. As such, we believe hosted VSaaS will remain a niche.

However, we do believe managed VSaaS and adding 'phone home' capabilities to existing DVRs, NVRs and VMS will become an important feature for incumbents, adding value to existing customers and hurting the pure hosted providers.

How does VSaaS Impact You?

Right now, how VSaaS impacts you depends on where you are in the market. Here are recommendations for different groups:

  • Residential / Consumer: This could be an interesting option, especially if are offered it as a low cost add on to a phone or cable package. However, you can avoid these monthly fees. See iCam as a good option for iPhone users or Lorex  for general use.
  • Small to Medium Business: Hosted VSaaS is unlikely to be a fit as it's just too much money for your 8 - 16 camera deployments. However, managed VSaaS could be interesting and useful.
  • Enterprise / Corporate / Government: VSaaS is so far away meeting your functionality needs that it is not worth considering outside of future trend tracking.
  • Dealers Small to Medium: I know you are all supposed to pray at the altar of recurring monthly revenue and as such Hosted VSaaS should be your savior. We are skeptical of the uptake though in the professional market as it's a bad deal for most of your customers.
  • Large Systems Integrators: VSaaS does not meet your large customer's needs and has little practical use. However, at this level, testing and being well informed of future developments is important.