Market void: Technology and demand await next development in hosted video

Although hosted video has not yet dominated the security scene as some predicted a few years ago, the hype may eventually be justified. Integrators who have made the switch from selling analog to digital cameras and other industry experts say the future is now for hosted video surveillance.

The technology has been available for a while. The demand has been emerging. One of the remaining hurdles is the training of reluctant salespeople, technicians and installers, says Art Miller, vice president of marketing at Vector Security, based in Pittsburgh, which has been working with Axis Communications for several months to get its hosted video program off the ground. Vector offers security solutions to residential and businesses customers in 18 U.S. states as well as Canada.

“We need to change the mindset of our people,” said Miller. “We're transitioning to service solutions from hardware installation. We're talking about cloud storage. We're talking about taking (a lot of) equipment out of the equation.”

Industry insiders make the contrast between hosted video surveillance and physical security systems sound as stark as the difference between a television world of three networks in the 1970s and watching TV via satellite and the Internet in 2013. Getting companies to change their business models and salespeople to change their bread-and-butter pitches is easier said than done—but it's happening.

Bob Ryan, SVP of sales and marketing at ASG Security, a new leader in the hosted video field, is preparing to lead a training session in Charlotte, N.C. that will conclude his own personal marathon of 20 training seminars for ASG satellite offices. ASG, a super-regional based in Beltsville, Md., is the ninth largest privately owned security systems company in the U.S.

“You need to be really serious about training” to make a serious run at hosted video and the changeover from one-time sales of cameras to services that generate recurring revenue, Ryan said.

“It's not done with documents, not through webinars, not through outsourcing,” he said of his training approach. “It's roll your sleeves up, one-on-one, belly-to-belly speaking. And you know what? They [salespeople] get it.

“It's like golf,” Ryan said. “I can reinvent your swing or take someone who has never golfed and teach them from scratch. One of the hardest challenges is breaking down the analog junkies and getting them to switch to IP. You've got to break them, or train someone who has never installed a security system before.”

If anyone among the salespeople, technicians or installers retains an attachment to analog, that person is simply not listening to the customers.

“You need to really understand what the customers wants and needs, and provide them with honest solutions,” said Art Miller. “They may have something already in place (to make the transition easier) and leverage what they have.”

So what does the market look like right now? And what does it take for an integrator to run a successful hosted video program?

According to Matt Krebs, business development manager for network video provider Axis Communications, the mid commercial market, with small- to medium-sized businesses deploying one to 10 cameras, has significant potential for growing hosted video sales. University campuses, which have a need for some security products and services, are not the ideal customers for hosted video providers, said Krebs.

“We look at camera numbers, rather than the size of the company,” Krebs said. “One to 10 cameras is our sweet spot.” That level of security, he said, represents 58 to 60 percent of the available market for integrators. Ryan says his customers run 10 to 12 cameras or fewer, and “four to six is our sweet spot.”

Security system integrators need adaptability to work with a wide array of partners to get the job done for the end user. Axis has 55,000 partners worldwide, according to Krebs. “You have to select the right partners,” Krebs noted.

Krebs' message for his salespeople is direct. “I teach them to answer three questions: What is this? How is it done? And why would we sell this?”

“The main thing I like to train on is the why,” Krebs said. “There's 100-percent uptime [with hosted video]. It is consumed as a service anywhere you have access to the Internet. You don't have to worry about service updates. The fact that it's Web-based is critical.”

Ryan, as a vice president for a super-regional, sees numerous advantages for smaller competitors to break into the hosted video market.

“[Those companies] can make turns quickly,” Ryan said. “They don't have to convince a bureaucracy that they're doing the right thing. They can make decisions quicker. They can turn on a dime.”

On the other hand, he said, it is difficult for a smaller company to accept the reality of its new business model as it transitions to hosted video. There is less revenue up front because you're not selling cameras and other hardware, but there is promise of recurring revenue through monthly service charges. “We're not asking someone to buy a machine,” he said.

Ryan, Krebs and Miller are preparing their teams to compete in the hosted video arena against the backdrop of a more cautious outlook from analysts at IMS Research. IMS is putting the finishing touches on a third edition of report on the state of the hosted video surveillance market.

“We have been able to see how the industry has evolved,” said Aaron Dale, a market analyst at IMS. “There had been a strong period of growth on the backs of the hype in cloud computing. There has been a little bit of disillusionment since then. The hype has worn out.”

Since 2010, Dale said, hosted video “has fallen into niche applications, (but) there's definitely a future.”

Hosted video, Dale said, is best viewed through the framework of “value added services,” combining it with other services, including alarm services and home management services.

“For integrators, the challenge is their ability to manage hosted software,” Dale said. “It's a different skill set, dealing with third-party software.”

One of the limiting factors, Dale said, is the bandwidth issue. Potential customers may fear that they don't have the capacity for hosted video. However, as Bob Ryan points out, H.264 technology can compress video images to accommodate smaller bandwidth.

While the U.S. market for hosted video now stands at visible but not yet developed or expanding, hosted video has taken off elsewhere in the world. China has 68 percent of the world market in hosted video, according to Dale. However, “they are very different in the way they operate,” he said. “Most of the demand is from the Chinese government.”

Integrators who have tested the water and hosted video providers like Axis believe the demand for hosted video is out there in America, waiting for the supply.

“Analog has run its course,” says Ryan. “Our competition is still selling analog solutions to small- and medium-sized businesses, which is exactly a great spot for them to be in (from ASG's perspective]. It gives us a platform that we otherwise wouldn't have. This head start we've enjoyed has lasted 12 to 24 months.”