Major changes forecasted for video surveillance manufacturers

Nov. 11, 2016
New Memoori report outlines three trends that are changing the face of the industry for vendors

As anyone who closely follows the security industry can attest, video surveillance manufacturers have been impacted by a variety of changing market dynamics in recent years, including increased competition from Asian-based suppliers as well as the growing commoditization of hardware and a need to develop products that will meet the needs of tomorrow’s Smart Cities.  According to our new annual report, The Physical Security Business 2016 to 2021: Access Control, Intruder Alarms & Video Surveillance, the total value of physical security products at factory gate prices is expected to grow at a compound annual growth rate (CAGR) of 5.65 percent over the five years to over $37 billion in 2021. Over the last five years, the total market has grown at a CAGR of 8.2 percent, but there has been a significant fall in growth over the past two years as the developed markets of North America and Europe have continued to lose market share to Asia and China, in particular. 

The video surveillance manufacturing business, with the exception of a minor blip in 2009, has delivered consistent profitable growth over the last decade. This is a great achievement considering the difficult trading conditions brought about by the financial crisis of 2007 and 2008.

Fortunately, latent demand was there to be exploited by an industry that managed to improve the performance of all components – particularly video cameras and the development of IP network cameras. So, is the industry now ready for the new challenges and opportunities in the next decade?

Our report identifies three major issues that will most influence the shape of the industry in the next decade and sets out the strategies to meet the needs of the new and very exacting challenges ahead.

1. The Chinese Influence

The first and most immediate challenge for Western-based manufacturers is the need to scale up volume, and they must do it quickly. These companies have within five years been completely out flanked by Chinese manufacturers Hikvision and Dahua. Formed relatively recently and not even regarded as serious competitors by most suppliers only six years ago, they now dominate the mainstream market.

Both companies specialize in video surveillance, and are now by far the largest two video surveillance companies in the world, with combined revenues of around $5 billion. Until more recently, they did not have products at the leading edge of technology in the high-growth IP network camera business, but that has obviously changed.

The last two years has seen a slowing down in revenue growth of the world’s video surveillance business, which is not attributable to a decline in demand, but instead due to aggressive pricing by Chinese manufacturers. They have adopted this strategy in order to win market share and scale up volume to take advantage of future commoditization.

The major concern of western manufacturers in the video surveillance industry today is how to counter the phenomenal growth of Chinese products rapidly winning market share in their local markets without reducing their prices to derisory margins, which would not be sufficient to properly recoup their R&D costs.

There is no indication that Chinese suppliers will change their pricing strategy, as it is clearly working for them. At the same time, they have almost total control of their home market, which is the largest single country market in the world – and is protected by the fact that more than 50 percent of the business comes from the country’s public sector. Imported equipment is not going to win this business.

A possible solution is for major western companies to merge or acquire video surveillance companies if they want to remain viable in the mainstream market. This would bring about major structural change in the industry. Even if that option is not taken, major structural change could be inevitable. In our new report, we have identified other solutions that could provide a profitable existence but they go down the specialization route, which ultimately could force companies into becoming system integrators.

2. 'Siliconization' of Video Cameras

The second and interlinked factor in all this is the commoditization of video cameras, which has an inextricable connection for the need to go for volume. Western manufacturers have sophisticated products and know-how that they have built into their cameras and software; however, over the next five years, much of this will be built into the silicon chipsets by manufacturers like Ambarella and Movidius.

"Siliconization" of video cameras has been taking place over the last few years, with the functionality of complex megapixel cameras becoming integrated onto chips. Chipset providers are already able to deliver sophisticated camera functionality in silicon today and you can expect them to move this forward.

Now, major chip manufacturers like Intel and Qualcomm are seeing the potential for video cameras to be the “king of sensors” in Smart Cities – prompting them to move into producing the next generation of video chips. In the case of Intel, they have also developed a software platform on which middleware for all the services that go into delivering a Building Internet of Things (BIoT) can reside.

3. Data Processing

This now brings us to the third major challenge: how to process all the data streams from millions of video cameras and make sense out of it all. This will not be achieved by humans watching screens and aided by relatively simple analytical software that can identify and pinpoint interesting and unusual activity. It will only be achieved by using computer algorithms and Big Data software to analyze and automatically take action.

Nothing short of this will fulfill the promise of IoT and take video surveillance into another realm. The returns for those that succeed will far exceed what has so far been achieved by successful video surveillance companies.

This article was taken from our new research report, The Physical Security Business 2016 to 2021, which can be purchased here.