Fredrik Wallberg, Marketing Program Manager at Milestone Systems, recently had a phone conversation with Simon Harris, Senior Research Director at IMS Research. The following is a loose transcript of what they talked about.
Q (Milestone): IMS Research is considered one of the leaders in market research for the last decade in the electronics market and specifically in the security market. Milestone was founded around the same time as IMS Research — both sharing a global footprint and industry recognition as leaders with integrity. Explain to me how your company is able to provide unbiased reports even with client-specific relationships?
A (IMS Research): The annual report is based on over 1,500 analyst hours of research. We collect data from over 100 different manufacturers and software developers. Due to all this research and due diligence, the annual report is the most detailed report of its kind.
At the outset of our research, we work closely with the industry so we can understand the specific market research requirements that we should be addressing in our reports. Our relationships with manufacturers and software developers are strictly for reporting purposes and they understand that we will report what we find. The report is used as a business planning tool to understand the short and long term developments of the market.
Q: Explain the benefit of IMS Research and talk about your most recent report.
A: The main benefit of an IMS Research report is that we are able to provide unbiased and objective views of what is happening in the market. As an independent market research company, we are able to interface with all of the different players in video surveillance and use that as a source of information in our reports. For our video surveillance research we interview over 100 different manufacturers each year on a global level. Many of those we interview face-to-face.
We collect data from all of the major manufacturers and that is hard reported data in terms of revenues and shipment. This gives us quantifiable measurements of what is happening in the marketplace. One of the key things that we have been working on over the years is tracking the movement of analog equipment sales towards IP. By collecting the data from the manufacturers, we are able to provide a measurement point each year in terms of how that trend is progressing.
Q: In speaking to our customers we know that companies are currently competing on feature sets; their feedback is that it is more important to have a reliable product with the economic situation — what is your opinion?
A: We would really expect world class suppliers to excel in both areas of features and reliability. A rich feature set is good, but at the end of the day the more important aspect is the product has to be reliable. Bells and whistles are no good if the system goes down in that critical moment of a potential security breach.
We have done a lot of research with system integrators to find out what influences their decisions when they are choosing vendors and the two most important care about are price and reliability. Those are the key things integrators are looking for when selecting their vendors and typically reliability is the number one factor.
Q: Over the years (in the security reports) IMS Research has refined the scope of its research to reflect a more accurate depiction of the security industry — specifically the software-only VMS category. When was this changed and why?
A: Each year we strive to make the reports more detailed and accurate, with an increased focus on the IP video market. For example, now we have data for both the analog and IP markets segmented by vertical and by country so that we can assess which markets are converging to IP fastest.
Last year we introduced a breakdown of the VMS (Video Management Software) market into software-only versus bundled hardware and software solutions. From the software side we have been tracking the migration from proprietary software solutions to open platform solutions for quite some time now. More recently one of the trends we started to notice is that within the open platform category the vendors can be split into two distinct camps. One camp is providing a bundled single-vendor solution. In the other camp we have the software-only vendors, in which Milestone is the revenue leader.
Q: What do you see as the main business driver between 2009 and 2010?
A: There are a few things that we see in the market place right now. Video technology seems to be evolving at a faster pace than ever before. There are a number of new technologies that are coming into place in 2009 that is going to have a strong impact on the market.
One in particular is the increased use of megapixel cameras. In 2009 a really important trend is HD, and we see a number of the camera manufacturers starting to promote HD rather than just megapixel. I think that this is really important, because it is the picture quality that counts, not just the number of pixels. With HD you actually get a measure of picture quality. HD is going to be an important trend -perhaps one of the most important trends we will see this year.
H.264 is going to be another key trend for 2009 because it has more tangible benefits to the end-users and the integrators both in terms of bandwidth and storage savings.
Video analytics has been the talking point for a few years now, and is also going to be an important trend for 2009. Megapixels and H.264 are more important than analytics. However, analytics is a trend that is not going to go away.
I think a further trend for 2009 is going to be introduction of standards for network video, such as ONVIF and PSIA. Standards will accelerate the uptake of IP video and benefit the industry in general by enabling integrators to reduce installation costs.
No doubt the big thing from the business aspect is the economy and how that's influencing the video surveillance market. The market is going to stay soft for the first half of 2009, but one thing that should help the market as the year progresses is the stimulus package. All that money that is being pumped into infrastructure projects should really start to provide a boost to the market towards the end of the year. That could take a while before it starts to influence the video surveillance market; obviously the infrastructure has to be built before cameras can be put in. Though the economy impact is different depending on the market you look at. The education, health care, city center and transportation-related markets are still performing well. There are still quite a few projects coming into the pipeline.
Q: On the technology side, Milestone has been keen on developing a reliable core technology. On the business side, we have actively gone out and built a strong following that we call our eco-system. Your reports reference the next five years. What do you see as the business value for our partners of the ecosystem within that time span and beyond?
A: I think the whole open platform approach is totally consistent with the IP video market. It brings a number of different benefits to customers. First and foremost the customer, the end user, and the integrator have the freedom of choice when it comes to selecting cameras. Customers can select the best-of-breed cameras from a wide variety of different manufacturers to get the camera that is best for the application.
You can also select from a wide array of applications as well. A particular example of that is analytics, and a trend we see is that users will select the best-of-breed analytics that they can run on a common open platform video management system. Typically, analytics vendors have certain strengths in applications and certain algorithms — companies that are strong in license plate recognition might not be strong in object tracking.
The open platform in the ecosystem environment also encourages innovation. With an open platform approach the cost of the hardware is much more glaring because it is not bundled with software. I think it gives the customer more visibility of the cost of the hardware and it gives the choice to select the best value option for the particular application.
Another advantage is the use of commercial-off-the-shelf (COTS) hardware, which can provide storage and performance advantages, compared to a proprietary solution.
Q: You have been following the industry closely for quite a while now — what do you see as the best strategy for long-term sustainable growth (not only in the next couple of years but well into the future)?
A: One of the key things is: do not forget the basics. Companies must be able to provide outstanding service, support and training alike. There is a lot of education to be done. Often it is service, support and training that can differentiate between the different companies.
Clearly the modern trend is toward IP and we expect the analog market will get overtaken by IP in the United States by 2013, in terms of equipment sales. In terms of sustainable growth, IP presents a clear opportunity. We advise companies to go towards the open platform approach and ecosystem business model that we talked about today. It enables partnership to be developed between hardware and software vendors, which is ultimately a step in the right direction for the surveillance business.