Why Analog is Gaining Ground Against IP VideoBy: John Honovich, Published on Feb 16, 2009
Those who think the recession is speeding up IP convergence are likely ignorant or hopeful. Indeed, the recession is dramatically slowing convergence and allowing analog companies to catch up. This is already happening and will continue for at least the next few quarters, if not years. This is a major shift in video surveillance trends that must be properly understood.
Contrasting Analog and IP Numbers
While sales across the board are declining, sales are declining significantly faster in IP video than they are for analog. While IP may still be growing faster than analog, the gap between them has shrank dramatically.
Look at the difference between Axis and Vicon. Axis growth has dropped from 40% in 2007 to under 10% in Q4 2008. By contrast, growth for Vicon, the oldest of the old guard analog providers, remained in the single digits in Q4 2008 [link no longer available].
Private numbers provided to me show a similar pattern. IP video growth is still higher than analog but the decrease in the growth rate has been far steeper in IP.
I do not believe that this makes IP bad. It is simply that the characteristics of a recession hit IP harder than it does analog.
Why is this Happening?
To understand why this is happening, we need to understand why customers buy IP vs. analog.
IP does best in new construction, greenfield opportunities and over wide geographical areas. Analog does best in small camera counts, replacements and servicing.
The recession is putting the most pressure on construction and large new projects (the core markets for IP). Servicing broken equipment and replacing equipment at the end of life costs much less and is less resistant to major budget cuts (the sweet spot of analog).
Replacement and Service
While IP represents 1 out of 5 current sales, IP likely only represents 1 out of 20 deployments that need servicing or replacement. This is a simple outcome of the fact that most equipment needing servicing or replacement is 3 to 7 years old. Older equipment is far more likely to be analog than IP.
Servicing business continues to go heavily to analog providers. Most customers, at any given time, are not ready to migrate to IP and need to maintain their existing deployment. Because customers need their systems to continue to work, servicing is far less impacted than new installations. And because the overwhelming majority of equipment that needs servicing is analog, analog sales are less likely to decrease.
In strong economic conditions, system replacement was a significant driver of IP growth and migration from analog to IP. In the current economic conditions, most organizations have far greater difficulty obtaining the funds necessary for major changes and also have significantly fewer internal resources to manage such a major project. This makes organizations be more risk adverse and encourages the replacement of existing equipment with the same manufacturer (of course, overwhelmingly analog).
How this Benefits Analog
Until the economy strengthens, these forces will depress IP sales and foster the upkeep of existing analog sales. Compounding matters, it is common for organizations to delay major capital intensive technology improvements until a year or later into a recovery. This is because organizations are concerned about the strength of the recovery and do not want to make large commitments until they are sure of economic strength.
This slowing of convergence gives analog providers more time and plays to analog company strengths. The more customers are open to keeping their existing systems, the stronger the likelihood analog companies will win deals. The longer analog companies have to make the transition, the more time they have to mature their IP support. For instance, this will be a boon to hybrid DVR providers and a constraint on the software only companies like Genetec and Milestone. For more analysis on hybrid DVR systems, see my overview of hybrid benefits and my recent report on how hybrid is helping DVRs make a comeback.
How this Hurts IP Momentum
One of the most impressive elements in IP convergence is how convinced everyone became of IP's inevitability and power in the last 2 years. This emotional reinforcement was a boon to convincing people to go to IP. Even if people were not convinced of the financial benefits, the prevailing mindset helped convinced people to go IP.
The slowdown in IP growth plus economic challenges will encourage the community and buyers to more carefully consider if IP really provides immediate benefits. This will further constrain the drive towards IP, especially among dealers and end users who have remained cautious throughout.
Where to Go
IP is still the future. IP is still where growth and innovation will be strongest.
However, the convergence will take years longer and the analog providers will be provided with a second stronger chance to compete.
If you are selling video surveillance, you should appreciate the stronger position analog servicing and replacement now provides. Integrators should be less driven to drop analog while manufacturers should be more cautious about IP growth rates.
Everyone should be more focused on how to build products and develop systems that maximize the use of analog products.
It's not simply a slowdown - competitiveness and trends in the industry are fundamentally shifting.