How the Recession Impacts Video Surveillance

The video surveillance market will take a beating regardless of the hope that security is recession-proof. This report reviews the key reasons and impacts of the recession with concluding recommendations

• This recession is different from the last one
• The debt market collapse will make users delay new purchases
• Megapixel cameras will fare the best
• DVRs will continue to decline slowly
• A shakeout of NVR/IP Video software companies will occur
• Video analytics will fare the worst

Different from Last Recession

In the last recession, the video surveillance market was held up by (1) the introduction of DVRs and (2) the global war on terrorism.

At the beginning of the decade, most users had no video recording and the ones that did mostly had VCRs. The value generation of going from nothing or a VCR to a DVR was very high, especially because it eliminated many manual tasks required for a VCR. The move from DVR to NVR does not provide the same value as that of nothing/VCR to DVRs. As such, you should not reasonably expect the same motivation by customers to move to NVRs in this recession.

Secondly, the global war on terrorism boosted the last recession but cannot be expected to repeat now. For the past 7 years, both government and private sectors (think utilities, shipping companies, etc.) have funded an incredible amount of projects for homeland security. The US will to fund and fight a war on terrorism clearly seems on the way down. It is more likely that funding for video surveillance goes down than it goes up, especially given the bailouts the government will be engaged in for the next few years.

Delaying Purchases

In recessions, people delay buying new high priced items. Given that so many people already have video systems, it is easy for them to keep them a little longer. Yes, that DVR or analog camera is not the latest or greatest but it works for the most part. It is entirely sensible for organizations to delay.

The drive to delay will be enhanced by the tightening of the debt market. Stricter standards will make it harder for companies to obtain debt funding. Companies will rationally respond by eliminating or delaying new capital projects like video surveillance systems.

Megapixel Cameras will Fare the Best

Megapixel cameras work in the field. There prices continue to fall. They provide substantial increase in value over analog cameras and are offered by a small number of suppliers. All of this makes megapixel cameras likely to weather the recession well.

DVRs Decline Slowly

The recession should actually help DVRs somewhat. To the extent that it delays new projects to switch to NVRs, DVRs should benefit from service or replacement business. This is not to say that DVRs will continue to decline. Only that the decline should be slowed somewhat by the constrains a recession places on extensive change.

Shakeout for NVR/IP Video Surveillance Software

Way too many NVR/IP Video Surveillance Software companies exist. Easily 25 to 50 companies have developed and are marketing such solutions. Not enough differentiation exists between their products. Most of these companies are young and are not cash-flow positive. All of these factors indicate that many of these companies will fail. For the leaders in this space, this will actually be beneficial. However, customers need to be concerned about what systems they purchased because you may very well be left with an unsupported product from an out of business provider.

Video Analytics Will Fare the Worst

Video analytics demonstrates all the characteristics of a segment that will crash.

• Most of the products work poorly in production use.
• The products require buyers to find new budget
• Most of the manufacturers basically offer the same solution
• The companies are young and generally not cash-flow positive

I talk to industry leaders every day and the most common theme I hear is how disappointing video analytics have been. Underachieving products always far the worst during a recession. It is essenitally a “corporate Darwinism.”

Recommendations

For end users, be very careful about what NVRs or video analytics you choose. A poor choice here could result in you having a discontinued product in a very short time. The safe choice here is to select market leaders even if you pay modest premiums for them.

For manufacturers, be very cost conscious and get focused on the specific verticals you are strongest. If you run low on money in the next one or two years, the consequences could be dire. Although the signs in the field are just starting now, they will certainly get much worse before they get better. Better to get a head start than be caught when it's too late.

This all being said, the industry will come out of this recession stronger because bad companies will get flushed out of the market.

What do you think?