One of the areas we haven’t talked a lot about yet on this blog is pricing.  Pricing is an aspect of the video market that will undergo a pretty dramatic shift over the coming years as IP video and MVaaS solutions gain more share of the market.

I’ll use the next couple of posts to give you my thoughts on some of the complexities of pricing in this new world, but let me first explain why traditional pricing models are going to be less relevant going forward.

Until recently, video solutions had very simple pricing models.  Customers purchased equipment and installation services from their provider and typically paid for all of this upfront.  In some cases there might be an on-going maintenance or support fee, which is pretty typical in the hardward industry.  At that point the customer owned the equipment and could use it for as long as the equipment worked.

Over the past several years, pricing options became a little more complicated in that video providers began to offer monthly pricing options, or subscriptions, as a method of paying for video.  This happened as providers began to embrace the idea of recurring services and customers started to like the idea of converting a big upfront capital expense to a manageable monthly operating expense.  Truth be told, this wasn’t really anything new – any customer could have financed their purchase through a leasing organization of their choice long before video providers offered this option themselves, but it definitely become more commonplace.

So now you’ve got a market that has two primary pricing models: charge for equipment and services upfront or charge for the same exact products and services over time.  Still pretty simple.  So how are IP video and MVaaS changing this new pricing paradigm?

The short answer to this is that these two new technical platforms change the fundamental building blocks of how video is provided so providers have to change the way they charge for their services.  Let’s focus on the DVR functionality and ignore everything else at first.  In a traditional video solution the DVR has all of the functionality that makes up the video service.  If you buy the box (DVR) you get the functionality.  There is no real distinction in this case between the hardware and the software as they are both contained in the same device and you need this device in every single site.  Pricing is then clearly done on a per DVR basis.

With IP Video and with MVaaS solutions, these rules are broken.  First, the software or intelligence is no longer resident on the recording device, which creates the opportunity to price these two building blocks separately.  Second, with IP based video, you don’t even need a box (DVR) at every site, so that becomes less relevant as a pricing unit.

I originally started the last two paragraphs with “the simple answer” but then realized I couldn’t explain it simply in just two paragraphs – I’ll explain what more on this in a subsequent post.