Driven by the latent demand for innovative and better performing products growth in Video Surveillance increased in 2017. The competitive environment has been challenging for Western and Asian manufacturers as the two major Chinese manufacturers Dahua and Hikvision continued to drive down prices in order to rapidly gain market share and volume and pulled in many much smaller competitors to enter the ‘race to the bottom”. There are now encouraging signs to show that the race is over for at least for the time being.
According to our New Report the world market for Video Surveillance products was $15.87 billion in 2017 and will grow at a CAGR of approximately 7.5% to 2022 when it will reach $22.78 billion. Product prices have fallen dramatically in the last 24 months and this has been a major factor in restricting revenue growth.
This is not to say that a business strategy to create volume to meet the needs of commoditization is not appropriate but it needs to be accompanied by also satisfying the customers value propositions which today must deliver the highest level of cyber security and the lowest Total Cost of Ownership (TCO). It is difficult to do this and almost impossible for western manufacturers when cutting their margins to the bone, leaving insufficient funds for R&D.
Dahua and Hikvision alone shared over $5 billion of product sales in 2016. This puts them in a very different league compared with even the largest western manufacturers and combined with a protected home market gives them the strength to disrupt the video surveillance industry by undercutting profit margins, increasing market share and expanding coverage. In the USA particularly they have rapidly gained market share through this strategy.
Most western manufactures cannot compete on price because they don’t have sufficient volume to recoup their R&D expenditure. However there is some indication in the market that the two leading Chinese players growth is slowing down which has more to do with their relatively poor cyber security performance than customers lack of appetite for low cost cameras. However scale will become more critical as silicon technology and AI advance for the major camera manufacturers will leverage this advantage.
So western manufacturers will still have to work hard on strategies that can counter the threat. The first is building on their brand targeted at the enterprise market and for some, a focus on a limited number of vertical markets. An alternative is acquiring and merging with other major suppliers so that they can get sufficient scale to challenge the validity that “race to the bottom’ will work for the Chinese suppliers.
This may not be an attractive strategy when you consider today the major difference in scale between them and the leading Chinese manufacturers, but it is one that they are forced to consider. The fact that scale is a critical factor in the video camera market cannot be denied and it will become even more important over the next five years.
As our New Report shows the next five years will deliver a stable demand for video surveillance but also a challenging competitive landscape in which to trade. Against this background there are some important applications where price is not king and innovative products sold at reasonable margins can deliver a better TCO. Axis Communications has shown this year that they can improve on the average growth and remain profitable, without joining the “race to the bottom” and there are a handful of other leading manufacturers that have turned in a better financial performance this year.
Even if the “race to the bottom” is slowing, the next five years is going to be difficult for many small manufacturers to survive particularly those that are not focused on developing brand recognition in some market verticals. The opportunity to shine here is going to be provided by the next wave of Video Analytics.
In the last 12 months we have seen many more startups heralding a new wave of video analytics. Video analytics entered the market more than ten years ago, has sadly disappointed, but for the last three years has been voted the “Next Big Thing” by most commentators.
The traditional video surveillance companies naturally see Deep Learning and AI as a feature to work on the edge offering a way to differentiate themselves. Unfortunately this method has limited the processing capacity that could be delivered. However ARM has recently unveiled several silicon intellectual property (IP) products, or the building blocks of systems on chips (SoCs), which they expect to work on the edge.
Cameras with embedded video analytics, such as motion, face and object detection, analyze image data at the point of capture and can effectively eliminate the need to transmit video and data to a central server. Their belief is that this would be the most convenient solution for existing customers delivering a fully integrated solution at a lower cost. It’s certainly good news that progress at last is being made on analytics. Usage Statistics show that demand is increasing and product costs are falling.
The demand drivers for Video Surveillance Systems have changed little over the last 5 years. The need to monitor safety, security and terrorist’s activities, both within buildings and public places and reduce shrinkage is still paramount. However end users have over this time taken much more interest in making video work with the business enterprise to increase productivity and add value to the system.
With IP Network Cameras they have been able reduce the TCO and justify the cost of additional features. The focus for end users at the enterprise level is now firmly on TCO metrics along with scalability and for most users this can only be achieved through IP. AI will not just enhance this but magnify its potential.
Our Physical Security report shows that in the next 5 years as the Building Internet of Things (BIoT) becomes a reality, IP network cameras will be integrated within these systems. It is our belief that by then IP network cameras will become a very important sensor in buildings, transport and smart cities.