By now, the news of Canon Europe acquiring Milestone Systems has made its way into every nook and cranny of the security industry. While the acquisition itself may not have come as such a surprise, the fact that Canon Europe, a small fish in the video surveillance game, was the acquirer proved to be much more of a shocker. Now, the question of what this means for other video surveillance and video management software (VMS) companies is weighing heavily on the industry’s mind.
By now, the news of Canon Europe acquiring Milestone Systems has made its way into every nook and cranny of the security industry. While the acquisition itself may not have come as such a surprise, the fact that Canon Europe, a small fish in the video surveillance game, was the acquirer proved to be much more of a shocker. Now, the question of what this means for other video surveillance and video management software (VMS) companies is weighing heavily on the industry's mind.
In a recent report by IHS Research, Milestone Systems was named the number one VMS company globally in terms of market share in 2013, with a year-over-year revenue growth of 32 percent. Despite being at the top, Milestone still has a market share of less than 10 percent, making the fragmentation of the VMS market quite apparent.
When the announcement came in June that the global leader in VMS was acquired by Canon Europe, many were stunned. The fact that Milestone was acquired wasn't the surprise; it was the acquirer, a relative nobody in the IP video surveillance industry that was the shocker. However, beyond the shock and surprise, the acquisition of a software company by a hardware company, regardless of brand, makes complete sense in an increasingly competitive industry.
Hardware and software: The perfect match
The convergence of IP video with the larger information technology (IT) world is no surprise. “IP video will converge with IT,” asserted Stephan Rasp, CEO of SeeTec.
“Traditional security systems are just the first step. Buzzwords like ‘Internet 4.0' and ‘Internet of Things' attempt to capture the dynamics of processing a diverse set of sensors and actors on the same IT infrastructure as management systems.” To that effect, the fact that software on its own is a non-starter should make the acquisition of a software company by a hardware company unsurprising. In the case of Canon Europe and Milestone, it was simply the names that made this otherwise natural marriage surprising.
“What Canon's acquisition of Milestone tells is basically emphasizing the importance of the synergy brought by the integration of software and hardware,” said Steve Ma, EVP of VIVOTEK. “The integration of hardware and software platforms not only can generate a powerful synergy for customers, but also can be critical to keep products and services at the forefront of innovation, with the latest cutting-edge applications to meet a variety of customers' needs. Therefore, since the company's establishment, VIVOTEK has collaborated closely with international and regional VMS programmers to seamlessly integrate camera functionalities onto different platforms.”
According to James Wang, Product Director at Dahua Technology, “the integration of hardware and software will become more common due to the development of new technology, such as cloud, big data, going mobile, etc., which speeds up the consolidation in IP video surveillance.” In particular for VMS vendors, Wang pointed out, “As the number of VMS vendors are on the rise, it is natural for the market to have a reshuffle and make the strong ones stay and become even stronger.”
Implications for small VMS vendors
So, what does this mean for smaller VMS vendors? “In general, the challenge for smaller brands is not really a consequence of the Milestone deal but the sign of a market, which turns from a growthdominated market to a more mature, competitive market,” said Rasp. “For smaller players it will be crucial to find ‘blue oceans,' which are less competitive, and not to attack the major players in their core business.” Blue oceans (untapped market space) may make survival in an increasingly competitive market possible for smaller VMS vendors that may better be able to fill niche segments and more specialized demands or markets beyond the traditional security sector, explained Rasp.
On the other hand, Keen Yao, International Marketing Director for Hikvision Digital Technology, highlighted one of the major challenges currently facing smaller, more traditional VMS companies. “The traditional VMS, their position is being replaced by hardware manufacturers,” pointed out Yao. This is all due to a changing VMS market, particularly for small-sized projects, where a VMS can be replaced with an IP camera/NVR solution. “IP cameras with an embedded standalone NVR can be provided to small projects, like 10 to 30 cameras. It's very easy for them to get this kind of solution.” Not only is it easier for smaller projects to get these solutions, it is also more cost effective.
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New strategies for companies
With such changes occurring in the security industry, companies are thinking of ways to adjust their strategies in order to grow with the changing industry. “With the burgeoning of Chinese manufacturers and the M&As in the security industry, the competition is undoubtedly getting fiercer,” pointed out VIVOTEK's Ma. In order to sustain market competitiveness, Ma outlined three key strategies of VIVOTEK to better create added value and return on investment for customers — customizable, flexible, and reliable. Furthermore, by adding intelligent functionality to its products, companies like VIVOTEK are doing what they can to make their products standout.
Companies such as Dahua and Hikvision have taken a customized approach to VMS in order to better cater to end-user needs. In order to best accommodate certain verticals, Hivision has dedicated separate teams to seven verticals in their home market of China, which includes safe city, transport, finance, etc. Similarly, Wang from Dahua noted of his company's plan, “We will be more ‘vertical' in what we sell according to market segmentation. For example, the retail market is no way the same as others, so we will refine the solution oriented to the demands of the retailers.”
Single-product Survival
In regard to companies that specialize in one specific type of product, market consolidation and the push to provide full solutions may be driving these companies to change their strategy, but that does not mean there is no place for them in the market. “Pure software or pure hardware suppliers must have their added value,” said Yao, in regard to the future of singleproduct vendors. “The chance to survive is no problem, but if you want to develop very fast you need much more contribution and investments,” he continued.
According to Ryunosuke Kawashima, Strategic Marketing Manager for Video Security at Sony Europe, “Customer expectations are continuing to rise as more functionality becomes prevalent, and it is difficult to maintain a competitive edge by singularly selling IP cameras.” Despite this, Kawashima revealed, “a number of customer challenges remain in terms of image quality, identification, and post-incident analysis; we [Sony] believe that 4K ultra high definition will be the answer to these. As a result of this, Sony has shifted the core of its business strategy to focus on our 4K security solutions by offering a complete solution in both 4K cameras and recording software.”
Another way to deal with this challenge is with unique features, as suggested by Wang. “As for companies that focus on one specific type [of product], I think it is also a good approach as long as they are really into it and keep innovation to provide products beyond ordinary, make themselves differentiate from others on the market, which means, hard to replace,” he said. Along the same idea, Rasp opined, “Adding value through interoperability will be the way forward as the number of applications and combinations increases.” Rasp continued, “VMS are more and more becoming a part of ecosystems, containing amongst other components access control, PSIM, and intrusion detection.”
Future of consolidation
What it comes down to is market consolidation, which is unescapable; however, Niall Jenkins, Research Manager for Video Surveillance and Security Services at IHS Research, says it won't be because of the Canon-Milestone acquisition. “Canon's acquisition of Milestone is unlikely to change the market dynamics for consolidation in the short term,” said Jenkins. “A more likely driver of consolidation is the new pricing pressure exerted from Chinese vendors recently. From network cameras to HDCCTV cameras, prices have declined sharply in the last year.” This, according to Jenkins, “could result in some vendors looking to leave the market or be acquired.”
Furthermore, as the market continues to consolidate, the openness of the market is another thing that the industry may fear is in jeopardy. Rasp believes that the acquisition will influence some IP camera manufacturers to provide their own VMS. However, “A market going from open to closed would be a new phenomenon,” said Rasp. Based on this, questions about who would want such a phenomenon to occur are raised. Furthermore, would this move then require every camera vendor to supply a VMS for each of the different sizes and complexities of each installation, posited Rasp. “The ultimate decision maker is the customer. Whoever provides better value will prevail.”