What If Axis Acquired Genetec?

Author: John Honovich, Published on Jul 16, 2014

The shocking acquisition of Milestone by Canon and the rapid ascent of 'solution' provider Avigilon has increased questions about the viability of independent manufacturers.

The two best known and largest of these independents left are, on the camera side, Axis, and the VMS side, Genetec.

What if these two combined?

In this note, we break down the fit, benefits, risks and likelihood.

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Comments (22)

I am looking forward to those making the case AGAINST such an acquisition. Explain why you think Axis and Genetec would be better off financially by remaining independent.

The problem is that they are both very large companies relatively speaking. Both with entrenched ways of doing things, other strategic relationships and partnerships and so on. I think the risk here would be integrating the two organizations efficiently and without a lot of fallout and loss of momentum.

To my knowledge, neither company has done a lot of large acquisitions. There is a skillset and process approach that comes from experience there, especially when you are buying a company to maintain and enhance the product purchases, not just kill off the back office staff and squeeze whatever sales you can out of it.

At this point, there would be no use trying to maintain that both companies are planning to be idependent or conduct "business as usual". The message would be that they are forming a new product essentially. This would also tend to mean a lot of their dealers would want to wait and see what the outcome looks like before betting heavily on them. Lots of engineering work to make everything seemlessly integrated, lots of operations work to roll out new channel policies and so on.

Mileston/Canon did not suffer this risk since one (Milestone) was clearly more established in the security channel. In the event of a "do we do it the Milestone way or the Canon way" conflict, the logical choice would be to go with "Milestone way". I don't think that would be quite as easy for Axis/Genetec, they are both much more established in their policies and practices.

If Axis could snap their fingers and have Genetec acquired and fluidly integrated, it would be a good move in my opinion. The more likely outcome of an acquisition is that they get mired down in a tar pit for the next 2 years trying to work everything out and the rest of the industry passes them by.

Financially I think it would hurt Axis - whilst probably helping Genetec. Axis have numerous small VMS and solution partners that may be local to a regional market. The Axis cameras work well and usually are quite simple to integrate creating lots of unusual and bespoke ways of selling Axis cameras.These players will move away from Axis as they will feel that they are going to start to compete with Genetec for the 1st time.

Milestone - still have a lot of projects and activity with Axis cameras included. Milestone sales people will probably walk away from any Axis involvement because of the fear that Genetec will pick up business and sensative price information.

Many hardware solution providers - such as Indigo Vision for example, in an attempt to appear truly open platform have integrated Axis cameras into their possible solutions. They will view the newly formed giant as a competetive solution partner and so will probably move into a closer relationship with Sony. (who actually may benefit from this possible merge - theres a thought to consider).

Consultants love the open platform message. They like market leaders to work with. I have aleady had calls from consultants unsure of who to work with now because of what happened with Milestone and Canon. So I guess there is a great opportunity for a mid sized open platform VMS to make a name for themselves.

John,

I find it interesting that you propose this acquisition considering the near-unanimous negative stance of the IPVM community against the Canon-Milestone deal, including your own statements:

"It muddies the waters of Milestone being an open platform company (good for Genetec)"

"Even if Milestone remains 'independent' from Canon's IP cameras, certainly they will not be independent from a financial perspective."

"Large conglomerates like Canon do not buy companies as hobbies, they expect certain levels of revenue and profits to be met."

"I agree that Milestone now ultimately exists to achieve the objectives of Canon, whether or not they are promoting 'independence' now."

"The practical question is what Canon prioritizes. Do they push hard in bundling Canon with Milestone? Do they slow down support and new features for rival cameras?"

  • "My gut feel is that such things won't occur right away but will gradually increase over the next few years.

Winner and Losers of the Milestone Deal

Losers - Milestone Sales People

Losers - The Open Platform

Losers - Surveillance Users and Industry

Carl, good observations.

I don't think it's good for the industry. I do think it's good for Axis / Genetec.

Also, we've had a number of investors ask about this over the last year, so worthy of discussion / analysis.

Someone mentioned that he thought Sony would be more willing to acquire Genetec. I think that sounds reasonable. You might say the same for Panasonic and Samsung. All have limited recorder options but nothing enterprise / professional level close to Genetec.

So let's say Axis is not hot to acquire Genetec (which I believe is the case). However, one of Axis big competitors is likely very motivated to get Genetec.

If the end game is that Genetec becomes part of Sony, Panasonic or Samsung, how bad is that for Axis? Who does Axis turn to next?

I guess Axis just hopes that Genetec stands firm for their oft-stated declaration that they prefer being independent and that none of their rivals make too sweet an offer.

So, if I'm reading your post correctly, you're saying that Axis needs Genetec? Why? I'm sure they sell plenty of products to non-Genetec users.

I think you're overreacting.

I am saying that camera manufacturers maximize total revenue and profits by owning their own VMS / recorders.

To that end, Axis already implicitly agrees with this on the low to mid end side, given that they promote at least 3 of their own VMS / recorders (ACS, ACC, AVHS).

I am simply extending Axis' existing VMS strategy to the high / enterprise side of the market.

As for Genetec, my point is that Axis could target the enterprise VMS market by (1) building their own or (2) buying any one of a number of independent VMSes. Genetec is the best option out of them because they are clearly the strongest independent VMS left and it would take years and years for Axis to develop their own enterprise VMS to compete with top offerings.

I think given Axis' history and their support for openness, it may go against their grain a little by becoming say an Avigilon or a Pelco. Such an acquisition will surely have them focus more on the integration of their cameras with their newly acquired platform, be it Genetec or whichever else.

However; times change and sometimes businesses and models need to change with it so you never know. If Axis could acquire Genetec and both parties of the spectrum treat all other manufacturers equally it could be a great combination.

If Genetec want to remain independent and Axis want to sell cameras regardless then it's a bit of a tricky match. The two will have to come to some agreement.

Acquisitions can hurt prospering companies and apart from getting a good deal the synergy in the months and years directly following an acquisition is an art that not all get right.

If another competitor to Axis bought Genetec then the world won't change quickly. Genetec will do the same as Milestone and say that business is as usual and they still want to be seen as an open platform working with multiple vendors.

So in the couple of years or so that it would take for the new owners to mess things up, I would allow the Axis Camera Station software to work with ONVIF drivers and so open up the camera choice instanly for the Axis VMS. Hire some disgruntled developers from Milestone (who are just over the bridge). Get them to add in the best features missing from ACS. Then open up ACS to as many camera vendors that are interested. (I guess there would be loads).

Then Axis will have a VMS to start to compete with Milestone and Genetec and also have a good idea of the best resellers to talk to.

Thats what I would do if I was at Axis.

Anyhow - I must stop dreaming and get back to feeding the chickens....

More on-point to this discussion (and as a nod to JH), I believe that the business case for independent omnipotent VMS' like Genetec and Milestone is ever-shrinking.

DVRs and NVRs are nibbling away at the lower end of their customer base by offering many of the features and capabilities once reserved to VMS'. Higher end clients are, I believe finding that focused products are a better fit for their needs than be-all, end-all products (Jack of All Trades, Master of None).

It also used to be that if users wanted to replace a camera with a newer one, they found that they had to upgrade their VMS to accomodate the new camera. ONVIF progress, though thought of as glacially slow, is nonetheless progress. More and more, cameras can be replaced without having to upgrade the VMS.

In the same vein, I believe that a substantial percentage of end users don't participate in what has been traditionally the VMS manufacturers' source of continuing revenue: upgrades. I believe a substantial percentage of users buy the VMS with whatever support term is included in the initial purchase and see little need to pay for continuing support.

Companies like Avigilon can sell their VMS at a lower profit point because they make money on their cameras.

Focused VMS' that concentrate on specific verticals are better-suited to meet the needs of those verticals whereas omnipotent VMS' typically either don't offer the same fit or worse yet, have too many features that specific verticals find useless and make the VMS more complicated than it needs to be.

For those reasons, I think independent VMS manufacturers will have an ever-tougher time increasing their revenue and especially their bottom line.

Carl, I agree that the world is getting tougher for VMS independents.

I do suspect that Genetec is better positioned to face this than most independents VMS as they have a strong base in the highest end of the market which is more resistant to incursions.

That said, even in the best case scenario, the super growth that all of these VMSes experienced in the past decade is likely unfeasible going forward, which will increase the willingness to consider an acquisition.

Here I have to agree. Simple economics really. A market always reverts to its historical averages. A boom is usually followed by a recession to pan things out. In those times the uneducated sell shares below book value and the informed prosper in the years to follow.

I believe it is only logical that a similar trend is applicable to companies buying and selling. It does not necessarily work out that well because integrating the two is not as simple as buying shares.

Carl and John,

Its all about market share. Time to market is crucial. Thus integration and colabration is paramount.

But I would worry over good companies. Ones that have a plan and know what they want to do and do it with out eating thier young.

Again until we get some killer apps, you know the game changing ones. Everyone will go around wringing thier hand but really nothing will change.

I would worry over the integrator first. If some body does a true plug and play system and they are big enough, money and size wise, to force a standard, much like Cisco, Nortel and Avaya did in the voice over IP, Then IT guys, Electrical Contractors that have cable/network integration and the big platum level network integrators will dominate the market and put most of the interator out of business.

Do the name GOOGLE ring a bell?

Yeah, it is inevitable I think. Cisco's main focus is unified communications. Their VMS and Access Control work very well together in addition to many of their other systems such as their telephony to radio and VOIP etc. (They have a particular term for these range of products which has escaped my mind now).

They are probably not as strong in the VMS market for now but you'd think with a few more years they could make it all sync.

The security market is merging with the IT market everywhere you look. What makes the IT market such a nice field to play in is that people truely value certifications. Cisco is a frontrunner here, no selling of their product unless you have a certain number of members within your company skilled to the required proficiency. This accounts for their security products as well.

This can only be good for the guys who ACTUALLY benefit from the product they buy, namely the end user.

With 110+ votes already, members are split down the middle whether Axis should acquire Genetec.

Interestingly, though, manufacturers and integrators have opposing positions here.

A clear majority of manufacturers are opposed to such a deal (54 to 38) but an equal majority of integrators (56 to 35) are in favor of it.

The whole point of a VMS is the broad support of many cameras and independence of any integrators or camera manufacturers.

Tyco killed Exaq and Cannon killed Milestone and possibly ONSSI. The only untainted major open platform VMS right now is Genetec and I don’t think they will sell.

What would be the advantage of Axis purchasing Genetec? Take this concept to extreme and evaluate what will be accomplished if every camera manufacturer will have their own VMS? We will end up with free VMS with their cameras and reduced integration to the competitive products, the open platform concept will be history.

As an integrator, I will not pay a license fee for a VMS that is tainted by either other Integrators or Camera manufacture and there is plenty of that going around.

Genetec, Please don't sell out!

[IPVM Editor's Note: Lamarca is an OnSSI executive.]

The purchase of Milestone by Canon has no negative impact on OnSSI. If anything, quite the opposite is true. Camera manufacturers, distributors and integrators are more engaged than ever with us due to the purchase.

Ken, care to comment on these open comments from another thread?

Do ONSSI's ties to Milestone/Canon end up painting them with the same brush? Specifically, ONSSI's driver packs, which are stable and extremely comprehensive and essential, do those .dll's come directly from Milestone or are they in-house? What would ONSSI's recourse be if Milestone dropped support for say Avigilon?

Admittedly speculative, and prior to the acquisition, inconceivable, yet now certainly a possibility that a well-stewarded firm would want to consider, just to be prepared.

Have there been any direct assurances given to ONSSI meant to assuage them?

fine with me as long as the 100% onvif (or something) compliant components from milestone, canon, axis, and genetec are painlessly interchangable and we don't have childish marketing departments forcing me to use single vendor combinations through holding features hostage.

Rodney,

You truly hit the nail on its head. ONVIF is, or at least should be, the true equalizer. I seriously think it will be the only saving grace for our industry and believe it is imperative that we in the industry collectively make it our battle cry.

Inter-compatibility between brands can only be ensured with a standard. Analog had NTSC/PAL and IP absolutely needs a suitable standard. If both VMS and device manufacturers would just keep up with, and adhere to ONVIF, and not just pay lip service to it, there would be no reason for concern as to who owns whom.

I am against any such acquisition.

The market needs a good VMS player that remains unattached from a camera company and agnostic about the type of cameras it uses.

If they have that much cash floating around, Camera companies should avoid trying to buy VMS companies and develop any VMS on their own. However, that is a time consuming, risky venture and may not suit smaller camera companies.

Mergers and acquisitions are ONLY for shareholder benefit, rarely the customers.

There are more VMS sales opportunities for Genetec by being open to all camera companies and/or developing products for them.

Any time you take sides in this crazy business, you tend to lose (as a manufacturer) potential customers. As an integrator you have to take sides to survive but you can still lose significant opportunities.

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