Winner and Losers of the Milestone Deal

Author: John Honovich, Published on Jun 16, 2014

An industry changing event.

Canon's acquisition of Milestone will impact the industry for years to come.

But who fared the best and worst from the deal?

Here are our picks:

Winners

  • Canon
  • Milestone's Share Holders
  • Milestone's VMS Competitors

Losers

  • Milestone's Employees
  • Axis
  • The Open Platform
  • Surveillance Users

The Paradox

Milestone's financial performance has always lagged its sizeable strategic importance within the video surveillance market. This paradox helps explain the Canon deal and why Milestone's future is likely to be anything but independent.

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Winners - *****

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Comments (27)

They can boost their camera name recognition and sales by offering license free connection to Milestone. That's not uncommon with other VMS makers that have camera lines. But keeping it open to other camera lines and charging licenses would be a way to cover the costs of software updates and continued development, so it'd still be beneficial in that respect.

Where it's a win or loose for customers is how far Canon thinks they can push the pain point to find the balance between "Screw it, the license cost is too high, but I want Milestone software, so I'll just use Canon cameras to avoid license costs" vs. "Screw it, the license cost is too high, but I don't want to use Canon cameras and using Milestone is not that important to me, so I'll switch to another VMS".

Luis, good feedback.

For what it's worth, I agree that giving free VMS licenses for buying one's cameras is common. However, I think that would cause major protests from Milestone's existing camera partners as it is a very obvious and prominent discount.

Free SUP / software upgrades would be a less contentious tactic as it is an optional, future cost.

It will be interesting to see where they find the balance.

I think Canon are unlikely to interfere too much with Milestone as this would not be in their own interest. I think the more interesting question is how will Canon develop in the IP Video market over the next few years ?

What is their next move ?

Alastair,

Why do you believe that it is not in Canon's interest to interfere with Milestone? You did not offer a reason / theory.

Our theory above is that incremental camera profits from bundling / cross-selling with VMS software is far too significant for Canon to avoid 'interfering'.

I've always had a soft spot for Canon cameras. Their image quality was always incredible, especially in low light, as they used photography-grade lenses and, I believe, imagers.

The problem was always 1) speed and pace of product development and 2) balky and intransigent software. If Canon wants to invest in some R&D and bring out world class cameras to match their new VMS company, they could be a real force in the industry.

You wouldn't believe how often I've had customers say "Axis? Never heard of it. How about this Samsung?". Canon is a known brand that should help influence end users without much surveillance industry knowledge.

Ari, in fairness, though, your customers are not entirely reflective of the typical major surveillance buyer, who does have 'surveillance industry knowledge.'

Well done analysis. Thanks

Ok, maybe now cover other VMS systems. NUUO gets little coverage even though they appear to have won at ISC West and my distributor speaks highly of them. Cameras wear out. Software does too.

ISC West awards are bullshit.

We cover Milestone a lot because far more members want to hear about them than others. It's just the reality of the situation.

Agreed with the ISC West awards And.. also note that NUUO's revenue is much smaller compared to milestone... they are on the 1.2~ to 1.6 million dollars sales monthly as of this year... (although they have appliances (standalone NVRs) as well as software...

NUUO monthly can be checked monthly after about the 10th of each month... they are obliged to post it for the public given they are listed in the stock market in Taiwan...

Here's NUUO's financial numbers - $18.5 million in 2013.

I think it's worth covering different VMS manufacturers over time, but this is a huge industry even right now so it's going to be the focus this month.

Interesting topic. My opinions only, but based on experience. Companies merge or go through a buy out for any number of reasons, but almost all of them have a few things in common. The first is growth. The buyer has access to markets, be they geographic or economic, they did not have before. This is most certainly the case. The second is synergy, the purchased company adds to the buyers portfolio in a significant manner. Again, this acquisition fits that need. Lastly, less significantly, competition. You either want to be a player in a new market or get rid of a competitor. This actually accomplishes both at the same time.

One poster remarks that he has always had a soft spot for their cameras. He should. They do make a good product. But their chief market is not surveillance. It is (in no particular order) medical, industrial and professional; all markets where VMS has virtually no impact. Now Cannon can offer that. They also by default have a much larger presence in the security industry. Two birds with one stone.

Cannon now has immediate access to markets and revenues they did not have the day before. In the financial industry (our primary market) we have seen this time and again. The buyer always says "no changes" in an effort to calm the nerves of existing employees, customers and partners. And generally, they are true to their word. But to John's point, in the mid to long term, of course they will make changes. They own it and they have every right to. They bought it for a reason.

Cannon will obviously use the Milestone product, dealer base and customer base to promote thier cameras. Will the software code for Cannon cameras be included in the Milestone software, you bet. Will there be bundled deals? Of course there will be. Why else would you buy them? Will the licensing scheme change? Count on it.

To my point on competition, there have been many articles written about how Milestone is the "king of the mountain" in the VMS industry. I disagree. While they lead in revenue, and that is certainly not to be dismissed, they represent only a little over 8% of the market share, A virtual tie with Genetec. That really means the VMS industry is very fragmented and in my opinion there is no real, substantial leader - yet. I also believe that in the short run, there probably will not be one.

I used to believe that the industry was in it's infantcy. I now believe it will likely always be this fragmented. There are too many players, no meaningful standards (my apologies to OMVIF but there are at least 6 different versions of that supposed standard) and the IP industry changes almost at the speed of light. No one company has figured out how to keep up.

Will Cannon "see the light" and now continually invest in R&D in an effort to lead? Not likely. The best predictor of future behavior is past behaior. How will this effect Axis? I honestly don't think I care. Axis has dug a lot of holes for themselves and this acquistion won't change that.

Lastly, John raised a point that Cannon is not really a player on the level of Tyco. Well no they are not, and this acquistion will not put them on even par. But they are more of a player than they were this time last week, like it or not.

I think that's a pretty good summary, Mark.

Mark, thanks for the feedback.

One point I wanted to comment on:

"The buyer has access to markets, be they geographic or economic, they did not have before. This is most certainly the case."

I don't think this is a major factor here. Milestone already has excellent global penetration with a well established sales / channel plan in place.

Often, this is a major factor for acquisitions when the target is small or just focused on technology. This is not the case for Milestone.

I just don't see what markets Canon is going to make a major difference for Milestone. Most of the stuff Canon sells is irrelevant to Milestone's customers and the only geographic market that Canon is clearly strong than Milestone is Japan.

I don't think this is a major factor here. Milestone already has excellent global penetration with a well established sales / channel plan in place.

You are correct. Milestone does have global penetration with well established sales channels in place, something Cannon did not have and now they do, overnight.

Your second thought is also correct. Cannon will not make a major difference for Milestone. It is the other way around. Milestone will make a major difference for Cannon. They already have. Cannon is now the largest player in the VMS industry.

I think your generalized reasons for aquisition are correct, but I think the point is that the less synergy the less attractive the deal is. For instance, what if McDonalds had bought Milestone instead?

Surely the statement 'McDonalds is now the biggest player in the VMS industry.' would be equally true and nearly as meaningful. Because asking everyone who gets a Big Mac: 'Would you like some cross-a-line detection with that?" will certainly increase such sales to some degree if only by brute force, but that is not enough to justify doing it.

Canon is not McDonalds of course, but they might as well be if Canon is not going to use this in a major end to end solution play.

Another way to look at this would be if the acquirer was Canon Security as a subsidary, or another mfr. the same size. It would be ridiculous for them to sully the independent Milestone brand by merging with with a small security 'market trailer' without at least trying to create the next Avigilon... There would be no value proposition otherwise.

What do we think about the impact on ONSSI, is there a chance Canon/Milestone stops letting ONSSI use its recorder?

In the short run, no. Why would they? In the long run it will probably be ONSSI that makes a change, not Cannon. Competition makes people do things they would not normally do.

A couple years ago, Milestone announced they wanted to be the "Microsoft of VMS".

Fortunately, Microsoft did not get acquired by AMD.

Great article. Nice job.

Moreso than leveraging support, I can see Canon offer free Enterprise license for use with Canon IP Cameras.

I can see it now ... every Canon camera will have a Milestone VMS embedded in the camera, and each camera will upload either to a local Milestone server or a Milestone cloud server.

Ed, that makes a lot of sense.

Reference for others: Milestone Launches New VMS Platform Arcus

Winners - Canon Distributors

I believe Milestone Executives have been overly conservative in investing in growing markets and could be way further ahead as the leading VMS. It seems the last few years they have been concentrating more on setting themselves up for a big payday. I believe all VMS"s will need to be "open platform" to have long-term success, so I don’t think Milestone will ever not support the majority of the market cameras. Milestone is very good software that is developing products to cover every requirement in the VMS market and remains the benchmark.

So who wins and who loses? Big win for Milestone Executives and Canon agreed. I believe the biggest winners will be the End-users who will benefit with more innovation, better sales channel and better/more controlled pricing. End-users can’t go wrong and Milestone will always be a safe bet.

If I look at what has happen with Axis in the last 3 years. I am going to say the sales channel namely distributers and resellers are going to be the biggest losers. More distributors and lower margins (greater control) will also mean distributors may look at stocking other 2nd tier and more profitable VMS solutions. So some 2nd tier VMS growth is inevitable. Many distributors focus on percentage profit in sales rather than actual profit and reward sales people accordingly, so profit margins are important in distributor’s choice of products unless the numbers are extremely good.

Resellers or Integrators are continually going to battle to compete against each other with increasing sales channel and new entries into the market. The end result will drive down the skill level and profit for resellers. This will also force the Milestone to commoditize the VMS more in order to reduce the skill required to install and maintain the product.

The only way Milestone is going to maintain the skilled and loyal supporters as well as win the top projects is by strictly limiting the channel that has access to their top tier and multi-server products and ensure decent margins. They got to protect the long-time experienced loyalist against all the new entries (make them work for it). My personal opinion is that Milestone need to make sure they have skilled resellers implementing any multi-server installations, as this is where I see some of their biggest failures in the market. A strictly controlled channel is going to be important, this is apparent with all the top tier security manufacturers.

...is by strictly limiting the channel that has access to their top tier and multi-server products and ensure decent margins. They got to protect the long-time experienced loyalist against all the new entries (make them work for it) ...make sure they have skilled resellers...A strictly controlled channel is going to be important...

Is this a conclusion or suggestion or both?

Just one suggestion. They got to control their product at the top end and make sure it is installed properly.

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