How Strong is VSaaS ROI Really?

Author: John Honovich, Published on Nov 16, 2010

The physical security industry has gone cloud crazy. The cloud is now viewed as a panacea for both declining dealer margins and the cost of managing on-site security. Are we on the verge of a new world where RMR surges and security floats to the cloud?

Key to this is the return of investment (ROI) that cloud based physical security delivers. For security users, is the cloud cheaper, better or otherwise financially more attractive?

In the video surveillance market, cloud based solutions, generally referred to as Video Surveillance as a Service (VSaaS) are getting significant attention. Indeed, we are tracking over 25 VSaaS providers already.

As these providers step up their marketing pushes, claims of great advances are being made. Recently, Axis made an ROI pitch for their AVHS service and Cernium pitched the business case of their Archerfish offering. We are quite familiar with both offerings as we have completed and published in-depth test reports on each - see our Axis AVHS test results and Archerfish test results.

What Do You Think?

 

Our Skepticism

We are skeptical about the overall ROI and the specific business cases made by vendors. Two key reasons:

  • Monthly subscription fees add up quickly and can easily be far more expensive than 'regular' surveillance systems.
  • Bandwidth constraints limit VSaaS systems and drive up costs

The business cases made by vendors often assume poor or inferior alternatives that artificially improve their case. For instance, one vendor claims up to a 50% ROI while we calculate a -70% ROI. Inside the Pro section, we break down vendor ROIs and examine what financial drivers are helping and hindering the adoption of VSaaS.

Critiquing the Axis AVHS ROI Claims

Axis is claiming their cloud solution generates a 10-50% ROI over a 4 year period for a 3 camera AVHS solution. Here's the graph that shows the relative cost savings comparing a DVR to Axis VSaaS:

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The green bar indicates the relative savings for hosted video. At the end of year 4, Axis shows hosted video saving slightly more money. Notice that in Year 1, hosted video saves a lot because the full system does not need to be bought. However, in Years 2 and 3, the hosted video system costs more because of the ongoing subscription fees.

Choice of Time Frame

The first interesting (or tricky) choice is the time frame to measure the financial return. Axis chooses 4 years and in the fourth year they assume that the DVR needs to be replaced (the reason behind the big red bar in Year 4).

If Axis would have chosen 3, 5 or 6 years, the hosted video solution would have cost more. The savings are artificial, reflecting a one year spike in costs for the traditional system from replacing the DVR on site.

Timing of DVR Replacement

Axis assumes that the DVR needs to be replaced after just 3 years of service. We've debated dying DVRs extensively in our LinkedIn group. The consensus is that 5+ years lifecycle is easy to achieve with periodic maintenance of hard drives, power supplies, etc.

Axis also assumes fairly significant ongoing maintenance for the DVRs ($400 per year for "cleaning twice per year, quarterly hard drive defrag, full backup and anti-virus/anti-spyware inoculation").

With regular maintenance, the DVR should last at least 1-2 years longer than Axis assumes. Adjusting this assumption would weaken the Axis case further.

DVR Cost Assumption

Axis assumes $2,000 cost for a 4 channel DVR, which in this day and age is quite high, even if that cost includes installation fees. If you are paying more than $1,000 for a 4 channel DVR, it's way too much. Indeed, 4 channel units are as low as $300. Even a 'name brand' 4 channel unit from Pelco (like the DX4104-500) should cost less than $1,000.

Reducing the DVR cost assumption in half breaks the Axis business case.

It's not just DVRs. You could easily use VMS software or NAS based NVRs and achieve similar sub $1,000 system costs. For instance, a COTS PC and $150 for 3 channels of Milestone Essential or a 2 bay QNAP or Synology unit.

The fundamental challenge for VSaaS is that on-site surveillance is quite inexpensive.

Number of Cameras Used

Axis's analysis assumes 3 cameras. If it assumes 4 cameras the case would be much worse. Why? Because Axis AVHS partners charge monthly subscription fees per camera. In this scenario, it averages to $35 per camera per month (we confirmed this directly with Axis).

On the positive side for AVHS, if we assumed only 1 or 2 cameras, the cost savings would be greatly as it's harder or more expensive to do a 1 channel DVR system.

Another positive for Axis is that they offer an on-site NAS that integrates with their system allowing them to store video on site and overcome bandwidth restrictions that would be prohibitive for sites with more than 4 or 8 cameras (or for megapixel cameras).

Remote Access Charges

Axis assumes that with a traditional surveillance system that multiple public static IP addresses will need to be obtained. Telcos generally charge on a per monthly, per IP basis for these addresses so those charges can add up significantly.

However, such addresses are not necessarily. Most customers will use a private IP address and port forwarding for the DVR/video recorder. It's definitely a pain and it can incur expense but it's not going to cost hundreds of dollars each year for all these IP addresses.

On the positive side for AVHS, the solution's pure plug n play setup does have value and eliminates a common problem. It's probably worth $100 to $200 to avoid a tech visit but it's hard to justify greater value than that.

Summing Up the Axis Hosted Video Business Case

Once you factor in the 'real' costs of on-site recorders, the timing of replacements, remote access costs charges and the time frames to measure, the business case for hosted video is quite weak.

By no means is this a lost cause. The key factor 'out of whack' is the high monthly subscription costs. With lower ongoing costs, the business case can work.

Turning to Cernium's Archerfish Business Case

Cernium provides an interesting contrast to Axis as the financial structure of their offering is much different. With Archerfish, most of the cost is upfront from the sale of their Archerfish Solo (about $300) or Quattro devices (about $1,000). The recurring costs are nil or quite low (remote video monitoring only is free, video analytic alerts are $5-$10 per month).

In Cernium's business case, they set out to "build a decent quality, four-camera, remote video monitoring system with video analytics for event detection."

Video Analytics Assumption

First weird thing about Cernium's assumption is the inclusion of video analytics for event detection. How many home or small business owners want this?

Secondly, how well is this going to work? As we showed in our test, the system was very sensitive to setup and still exhibited ongoing false alerts. As one Amazon reviewer noted, "The last two weeks i get at least 20 false events a day saying people or vehicles show up. I check the event that was on the video and not a person or vehicle in sight. I would not mind a few a day but 20 is a bit much. I don't want to get to the point i do not pay attention when i get an event sent to my email and my iphone."

Because of this, we are skeptical that consumers will use this as a video analytics event system. While we agree that it would provide significant additional value, we expect most users to evaluate/use this as remote video monitoring system. As such, there are a number of low cost alternatives.

Cost of the Product

Both the Solo camera (about $300) and Quattro DVR (about $1000, external hard drive purchased separately) are expensive relative to comparable products. Alternative products for half the price are available (e.g. Lorex, see our Lorex test results).

Remote Accessibility

Archerfish depends on UPnP for remote access, a protocol that often does not work, causing problems and forcing the same on-site setup as traditional video surveillance systems.

Positives of the Archerfish Offering

Excepting the price premium from including analytics, we think the Archerfish units have a number of positive aspects that point to the future of VSaaS:

  • Storage is on-site (with clips stored in the cloud). The camera supports a SD card (comes with 2GB). The 4 channel recorder supports external USB hard drives. Both storage types are accessible over on the web. Having the primary storage all local reduces cost and eliminates bandwidth problems. Integrating on-board camera storage with a VSaaS offering is rare, if not unique today. In the future, we expect this to become increasingly common.
  • Recurring cost is low. Even with analytics enabled, recurring costs are very low (under $10 even for multiple cameras. Without analytics, just live and recorded video, there are no charges. Compared to Axis, this dramatically reduces the cost and barrier of VSaaS.

Summing UP VSaaS ROI

For VSaaS to be a real force, the monthly subscriptions fees need to be low or nil. To achieve this, you need to store the video locally (just like with traditional video surveillance systems).

Today, most VSaaS providers charge expensive per camera fees and many offer only off-site storage.

For VSaaS to expand beyond niche use, the ROI needs to be bolstered. We believe this comes primarily from monthly subscription price reductions and local storage.

VSaaS is likely to increase the use and availability of surveillance video but we are skeptical of the RMR generation nor the customer cost savings it can deliver.

4 reports cite this report:

Surveillance Trends at Milestone Conference 2012 on Feb 15, 2012
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