Is there security in security?

Video surveillance will remain a boom market for the next several years, but as Tim Kridel explains, the opportunities vary dramatically by region and technology.

In Southern China, the government will spend the next six years and roughly 2 trillion yuan to merge nine cities into a single municipality that’s 26 times larger than metropolitan London in terms of geography. Meanwhile, South Korea is spending about $20 billion to build a city from scratch to alleviate congestion in Seoul, 150 km to the north.

Those ambitious projects are just two reasons why the Asia-Pacific (APAC) region will remain a hotbed for video surveillance over the next several years.

“2010 was a really nice year in the sense that all [world] regions had very good growth,” says Bodil Sonesson, Axis’ vice president of global sales. “But if you look at the strongest growth, it’s Asia.” 

The good news for AV integrators that specialise in video surveillance is that world-wide sales – Analog and IP – will remain strong through at least 2014, according to a 2010 IMS Research report. In 2009, the global market was worth nearly $8.3 billion, the firm says. By 2014, it will be about $14.4 billion. A rival research firm, In-Stat, forecasts a $15 billion market by 2014.

But even as the pie gets bigger, some slices will get thinner. For example, IMS predicts that between 2009 and 2014, the EMEA portion of the global market will shrink from 25 to 23 percent, while APAC will grow from 40 to 46 percent.

Why? One obvious reason is the sheer amount and size of APAC construction projects, including airports, high-speed rail and highways. All of those typically have a major video surveillance component for reasons ranging from security to traffic management. But the recession also is a reason why APAC is the leader in metrics such as camera shipments.

“Things have been more stagnant due to the economy in the North America and European regions,” says Michelle Abraham, In-Stat principal analyst. “A lot of new construction projects that might have been on the drawing board before 2008 are not going forward.”

Maturity is yet another reason for the disparity: Many Western European countries already have extensive surveillance systems, all of which adds up to an enormous installed base that won’t need replacing anytime soon.

“It will take a few years for that to become obsolete,” says Matia Grossi, research manager for the commercial security group at Frost & Sullivan, an analyst firm. “Western Europe has very low growth. There’s some limited growth in Russia, and there is some decent growth in the Middle East, mainly because they’re building so much there.”

And when the analogue gear does become obsolete, IP equipment won’t necessarily take its place every time. 

“IP penetration is very low,” Grossi says. “In countries like the U.K., it’s less than 10 percent in terms of shipments [today]. The installed base is lower than that. It will be a few years before you get any real migration.

“Even when they get replaced, by no means will all of them be replaced by IP cameras. The majority will remain analogue for a very long time: at least 10 years.” 

In Greenfield deployments, system size frequently determines the technology.

“Larger systems of 32-plus camera systems tend to be IP-based solutions, driven by the flexibility of software and analytic analysis,” says Lee Elliot, European product manager for security at JVC Professional Europe. “Education, airports and multi-location industries have been first to embrace IP technology in EMEA. As costs continue to drop and features like analytics and full HD resolution continue to develop, more and more verticals will begin adopting IP-based video surveillance.”
 
In the public eye

Regardless of the particular country, permanent infrastructure projects aren’t the only places where there’s a lot of spending on surveillance.

“Major sporting events have proven to be a significant opportunity for the installations of video surveillance systems,” says Paul Smith, executive vice president at DVTel, whose recent projects include the Commonwealth Games in India and the World Cup in South Africa. “The bigger the events, the bigger the investments.” 

One reason is because big sporting events put a city or country in the global spotlight, and the last thing they want is it turn into a tragedy, such as a terrorist attack. That concern often pushes video surveillance up in the budgetary pecking order. 

“When you have these kinds of games, there’s always extra money being spent on so many aspects, but certainly security is one of them,” Smith says. “Large events require security and usually get a significant investment and usually get the latest technology.” 

Cutting the cord

Flexibility is another trend in video surveillance, both from a business and a technological standpoint.

For example, many municipalities want the flexibility to move cameras, such as part of a crack-down in high-crime areas, or to supplement security during large, high-profile sporting events. Sometimes that includes trailer-mounted cameras. Either way, extending fibre or copper to the new camera location often isn’t a viable option, and that’s helping create a market for wireless backhaul. Wireless also is a natural fit for the growing number of surveillance systems aboard trains and buses.

Wireless can be particularly attractive if the cameras can piggyback on a wide-area Wi-Fi network that the municipality already owns or has access to. A growing number of APAC and EMEA countries also have cellular networks that use HSPA+, LTE or WiMAX, all of which can provide the multi-megabit speeds that high-quality video requires.

“The growing ubiquity of wireless connection and easy availability of wireless infrastructure in some countries will create a substantial market for wireless video surveillance in Asia Pacific,” says Parul Oswal, industry manager for Frost & Sullivan’s APAC industrial practice.

Some vendors say there’s already strong demand for wireless, although in many cases it works in conjunction with fibre or copper.

“Wireless in city surveillance systems is huge,” says DVTel’s Smith. “Many of our city surveillance systems are installed using wireless. It’s usually wireless from the camera back to some type of a node that aggregates three, six or 10 cameras and then brings it back via fibre to a headend. That’s another thing we’re seeing: Many cities are being wired for fibre.” 

One-stop shop

The second type of flexibility involves business models. Municipalities and other users wouldn’t be spending money on video surveillance if they didn’t see a need for it. But that’s not the same as saying they’ll do so at any price.

For example, Greenfield users often get sticker shock from the initial bids, prompting threats to scale back the project or scuttle it altogether. In other cases, the client might be comfortable with the up front hardware and software cost but is concerned about the operational costs, particularly the additional staff required to monitor so many video feeds. And still other users are put off by the prospect of dealing with the complexity that comes with more sophisticated surveillance systems.

To overcome these kinds of concerns, some vendors and integrators are offering video surveillance as a managed service. One example is the London borough of Belly, where Simmons Building Technologies provided a turkey package that spans the system’s design through its day-to-day operations. 

“Many integrators have found that some clients wish to outsource the entire package, including the full-time staff to operate these systems,” says Neville Bounds, sales manager at Feltech, a U.K.-based integrator. “The benefits are that the staff are not actually on the payroll of the client, and this might assist them when it comes to having a reduced headcount – important in the current financial climate.” 

For some clients, managed services can be appealing because they can have a multi-vendor system but a single neck to wring when something goes wrong. 

“They then have one point of contact and accountability, rather than a fragmented solution,” Bounds says. “From a capital expenditure point of view, it also means that the equipment can be ‘off balance sheet,’ and there are usually tax advantages in most countries that take this into consideration. This also offers future proofing and an upgrade path if it is build in to any leasing arrangement.”

There are a couple of ways that managed services benefit the vendor or integrator providing them, including a recurring revenue stream and a long-term customer relationship that could provide opportunities to up sell the client on other products and services. All of that can last five or 10 years, or even longer, depending on the contract terms.

More competition and price pressure

Any industry with strong growth typically attracts plenty of newcomers looking for a piece of the action, and video surveillance is no exception. Semiconductor vendors often grease the skids for new camera or DVR entrants. 

“Part of what the semiconductor manufacturer does is put together a reference design and in some cases even a manufacturing kit,” says In-Stat’s Abraham. “They make it very easy for a company that doesn’t have a lot of R&D expertise to start building products. It does lead to a lot of providers. It lowers the barrier.” 

Ironically enough, incumbent vendors can respond to pricing pressure by turning to the APAC countries where their new competitors often come from. There they can find low-cost manufacturers to reduce their overhead and preserve their margins. 

“I bet that if I look at the last three years, we’ve seen our cameras come down by 35 percent, or 10 to 15 percent a year – and by the way, so did our costs,” says DVTel’s Smith. 

Low prices are key for selling into some of the highest growth markets.

“There is greater demand for cheaper products in most developing countries in APAC,” says Frost & Sullivan’s Oswal. “That leads to expanding customer base for China and Taiwan products.”

But some sectors have higher barriers to entry, such as the software and management platforms capable of handling hundreds or thousands of cameras simultaneously. 

“It will take you five years and $50 million to a build a comparable software package,” Smith says of DVTel’s solutions.

There are also often significant variations on the prices that integrators offer.

“This may be due to a number of factors; not least of which is the cross-border approach –  particularly in the EMEA region – that is taken by many integrators who, because of the high contract value, find themselves on tender lists that are outside of their home market,” says Feltech’s Bounds. 

“On the vendor side of things, we are not seeing such differences in terms of pure equipment costs. In fact, many manufacturers have attempted to offer a global pricing structure so that the differences are evened out somewhat and the variations are down to currency fluctuations. There are still far too many integrators out there who will settle for single-figure margins in order to win the business, and this may well explain some of the regional variations.”

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