What Differentiates Video Surveillance Products?

By: John Honovich, Published on Apr 28, 2009

Figuring out how video surveillance products are different is a challenging task. While some products are literally the same, most of them are actually different. The tough questions are (1) how are they different? and (2) how important are those differences?

These may be the hardest questions in the video surveillance business. In last month's poll of over 100 premium subscribers (many of who are among the most experienced people in the industry), 96% requested more product comparisons and 91% requested product testing. In my own analysis, I continuously find this to be a difficult aspect of manufacturer reviews. This is one of the reasons I have decided to run and release product tests on an ongoing basis (see the Axis Q1755 test for the first one).

Goal

This report lays out the key elements in assessing differentiation of video surveillance products. In the public section, we examine the key issues for buyers and in the premium section, we examine the specific types and aspects of differentiation that integrators and manufacturers need to consider and provide.

For Video Surveillance Buyers

If you are buying video surveillance and do not have significant background in the field, evaluation can be tough. Look for these 3 things:

  • Ask manufacturers about why they are different. However, expect that they either (a) do not really know or (b) do know but will not tell you. The most important differentiation for most of them is that they have a meeting with you and their competitor does not.
  • Be careful about vendor supplied competitive evaluations. Manufacturers typically create a list of their features and their implementations and use that as the criteria. This almost always unrealistically skews the evaluation in their favor. If you know you want the product, great, use it to get management or financial approval. Otherwise, be skeptical of these documents.
  • Be careful about buying a full solution from a single manufacturer. Besides the risk of lock-in, the individual features tend not to be as strong as best-in-class products. Packaged solutions can make it simpler in the short run but worse for you in the long term.

Beyond that obviously look to online video surveillance reviews or ask questions at CCTVForum

For Integrators and Manufacturers

The reality is that most professionals do not believe video surveillance product differentiation is very important. While many may say they do, their actions show that product differentiation is of secondary importance.

'Sales' Differentiation the Most Important

The most important goal for video surveillance companies is to strengthen their sales and marketing program. Though rarely would companies acknowledge this, the reality is that very large companies inevitably have world-class, powerful sales channels (even if the products are mediocre). Those sales channels provide a strong, durable competitive advantage that allows them to routinely win deals in their accounts and to expand the breadth of products sold to those accounts.

Large Companies are Correct in Focusing on Sales 'Differentiation'

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Historically, this was absolutely the right strategy. Information was so hard to obtain, especially in such niche technical fields, that the best way to win and profit in them was to control the flow of information. Strong sales and marketing programs were the very best way to accomplish this. Product development can be extremely expensive and only provide a fraction of the return of sales development. (Note: see an analysis of this phenomenon [link no longer available] by Umair Haque)

Note: there's a reason sales people usually make the most money and become CEOs. It's not because sales people are better than engineers at being charismatic and convincing others (they generally are but that's not the key point). The reality is that sales is the most critical element of most mature technology businesses so sales should rationally be in charge.

The Importance of Product Differentiation is Rising

Even if you (correctly) ignored product differentiation in the past, it will increasingly become more important in the future. The Internet is undermining the power of brands and the role of the sales channel. As people use the Internet more, they can quickly find alternatives globally for better functionalities and lower prices. (Note: this is a 10 year old theory that is playing out in many theories - see the classic text Blown to Bits for details).

The video surveillance industry is already experiencing this with the pricing of IP cameras. Many in the business have felt the pain and discomfort of this as customers simply find lower prices and demand companies to match or beat.

This is simply the tip of the iceberg, the very beginning of a series of massive changes that will occur. As customers can find more information about other products, the power of local channel partnerships and existing relationships will be undermined. This does not mean that it will go away completely but it is likely that sales channels will become increasingly less profitable, forcing significant changes in business practices.

As this develops, product differentiation will become more important as customers will be able to 'see' why a certain product delivers more value from the matching of the product's features to the customer's needs.

Product Differentiation is Not Simply About Features

Features are an important aspect of product differentiation but a list of features does not make differentiation.

Unfortunately, the majority of video surveillance manufacturers I speak with respond with a list of features when asked about their product differentiation.

The Importance of Competitors in Product Differentiation

The problem with listing features is that those features cannot be possessed by all of your competitors if they are to differentiate you. If you describe an advantage of your IP camera as the 'ability to remotely review video', you describe every IP camera and, at best, indicate a benefit of the entire product segment. It's the same thing with describing video analytics as a 'tool to reduce operator overload' or video management systems as software that 'helps you solve investigations.' All true - all possessed by every competitor in your space.

All of these statements are reasonable in educating those new to video surveillance but their ability to drive business will continue to decrease as buyers can become increasingly sophisticated through finding information on their own.

Three Types of Product Differentiation

Ultimately, in a market where buyers can learn about differences, the only way to establish differences is to have features that only a few other companies possess.

Companies cannot optimize their products for all market segments and applications. Issues of rising cost and incompatabilities between various features set arise. For instance, the more functionalities you add, the worse the user experience tends to get and the more computing resources you need to execute it. (Note: These trade-offs are the basis of the well-accepted theory of competitive advantage.) When information was scarce, these drawbacks were less important than strong sales channels but as information become more available, the problems show more clearly.

As such, video surveillance companies will be compelled to increasingly pick a specific focus and stick with that. I recommend three ways of doing so:

  • Pick a general market segment
  • Pick a specific application / vertical
  • Use a new business model

These approaches can be combined together in different ways.

Differentiating by Market Segment

Consider 3 different market segments:

  • Residential / Small Office: very low cost, no setup complexity, limited features
  • Small and Medium Size Business: modest cost, simple setup, powerful functionalities but with limited scale
  • Corporate / Enterprise: high cost, complex setup ok, significant 3rd party integration, demands for reliability and scalability high

Let's use Milestone and Genetec as examples here of pursuing different market segments. Today, both win business in SMB and corporate/enterprise. However, I would argue their future is only in corporate / enterprise. It's not because they are bad companies but because their core advantages (scalability, third party integration, etc.) are only truly needed by corporations and governments. While they certainly win SMB deals today, there's no way that they can maintain this in the long run because too many competitors are willing to undercut them on price and can deliver a simpler but mostly good enough version for SMB. Milestone and Genetec are likely to continue to increase revenue (perhaps significantly) but this will be from a greater share of the corporate / enterprise segment.

Differentiating by Application / Vertical

A second, more precise way to establish differentiation is by choosing a specific application or business vertical (e.g., hospitals, prisons, mobile, banking, etc.). This is an especially useful approach for small businesses / start-ups. Without the financial or branding resources to win deals broadly, these companies need to establish a foothold. It is far easier to do so by narrowly focusing product development in a single vertical. (Note: this is a classic market entry strategy defined in Crossing the Chasm)

Many smaller companies (both integrators and manufacturers) would be far better served by picking verticals. Indeed, this is perhaps the biggest problem I see with new companies trying to grow their business.

I understand that companies feel a lot of pressure to take any deals that they can win - the attraction of immediate revenue is great. The problem is that such behaviors can cripple long term success by forcing the development of very average products. I would recommend young companies picking a niche and sticking with it.  Envysion is a good example of this. Though their marketing efforts have helped make Managed Video hot, you can tell by their sales focus and project wins that their focus is on the niche vertical of quick serve restaurants - an underserved segment that they can much more easily establish product differentiation.

Differentiation by Business Model

The last way that companies should consider differentiating is by picking a new business model. If you can find a new way to make money that is contrary to how existing companies make money, you can beat much larger companies. The simple reality is that incumbents are very very reluctant to give up current profits to prevent a challenger that may not be successful (consider how the newspaper business is crisis). What happens is that the incumbent delays too long, allowing the new entrant to mature. When the incumbent finally realizes the significant of the threat, it is already too late. (Note: this is a well established theory of disruptive innovation)

One example happening currently in video surveillance is the growth of software only video management software. The DVR companies easily could have developed and sold this software. The problem was that they were making easy money marking up  hardware and would have slashed their revenue by 50% or more (by giving up the appliance sales). The result is allowing in a new generation of companies (like Genetec, Milestone and many more) who are now formidable competitors who are taking market share from their established customer base.

Another example that is likely to occur (over the next 10 years) is the growth of managed video / software as a service. Unlike today where manufacturers charge thousands of US dollars per appliance or hundreds of US dollars for channel licenses, managed video providers will likely charge dollars per month per channel for managing surveillance video. Making this more difficult for established manufacturers, managed video is starting at the very bottom of the business with residential and quick serve restaurants as the key segments (the opposite of today's market leaders). What will inevitably happen is that these companies will move up market. The incumbents (both manufacturers and integrators) will likely refuse to match these actions because the market segments are uninteresting and the profits are too little.

I think managed video will ultimately end in the death of integrators as we know them today. Managed video will so simplify the traditional on-site role of integrators that they are unlikely to exist. Without servers or appliances to set up on site (and to maintain), the value of the integrator reduces substantially. New service companies who are cheaper (and less skillful) will undermine the business of integrators.

However, managed video will take years to get to this point (as there are technical and product barriers that remain). Nonetheless, it is a key trend and an important long term differentiator to consider.

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