While there are still mixed messages on the macro-economic front, we are definitely seeing stabilization in our customers and prospects businesses.  Most companies we are dealing with acted very aggressively in the 4Q08/1Q09 timeframe to cut costs, people etc. in anticipation of a bleak 2009.  Some closed stores, some deferred capital spend and others had large or small layoffs.  Most of that appears to be behind them.

Now, with almost 3 quarters done in what has definitely turned out to be a challenging retail environment, many companies are focusing on the future, albeit with a lot fewer resources and lower growth expectations.  We are seeing a couple of common themes from companies as they shape their strategies for 2010. One, many companies are focused 100% on improving profitability and operations in their existing stores rather than pursuing growth through store expansion.  Two, they are not projecting increases in resources or headcount that would return them to their pre-downturn levels, even if they get back on a growth trajectory.  Three, they are applying a tremendous amount of scrutiny to every dollar that they spend to ensure it has a proven ROI before they make a commitment.

All of this works well for Envysion given our focus on  expanding the users of video by orders of magnitude to extend the impact of key people.  We are also spending a tremendous amount of time and effort helping our customers measure and understand the impact they are having with the service and have been able to demonstrate some very material improvements in profitability, which helps us in the tighter budget approval processes.  I’m very encouraged by how this is materializing and am very excited about the direction things are heading as we work through 2H09.

John Honovich posted an article on the Top 5 Problems of Managed Video Surveillance / SaaS last week that has some good points in it on the challenges that these models face as they look to grow share.

While I agree with a number of John’s assertions, I think that the article in some cases blurs the lines between three very different concepts SaaS, managed video, and hosted video.  While there are some similarities and overlap between these models, the main challenges that are laid out in the article don’t all apply to each of these in the same way, if at all.  For the sake of consistency, I’ll start with John’s definitions of the models, but add a little clarification of my own:

Managed Video - Video recorded on-site, but 3rd party provider manages access and administration of this video.  Managed Video can be provided using enterprise software model (install a centralized software application in a datacenter to manage distributed video – this is what you get with Milestone + a local recorder) or using a SaaS software model (see defn below – Envysion is one of the only providers that has really implemented the SaaS/MVaaS model at scale)

Hosted Video - Video recorded off-site by streaming cameras over IP network to remote data center.  Implies that 3rd party manages the storage.

SaaS -  Everyone reading this blog should be familiar with this concept of the intelligence/software being provided in the network in a multi-tenant architecture instead of being deployed at the site on the DVR (PC-based DVR model) or on multiple servers on the customers network (enterprise software model)

Now that we’ve got the basic models outlined, we can address the top 5 (okay John really had 6) challenges to see if/how they apply.

Last mile bandwidth limitations

First I have to say that I fundamentally disagree with the premise that the future of Video Surveillance as a Service is eliminating on-site recording.  I’ve said numerous times in the past that it is wildly inefficient to stream all of your cameras all of the time to a central location when you are unlikely to need 90%+ of the video.  You are trading the maintenance/cost of the on-site recorder for the on-going cost of dedicated bandwidth and the risk that if the network goes down – you lose the video, and you are still paying for the storage on the other end.

Having said that, I completely agree with John’s assertion that Hosted Video suffers from the last mile problem and that this will limit its growth.  I’m continually surprised at how IP camera manufacturers and software providers gloss over the fact that most customers don’t have enough bandwidth to stream even a fraction of their cameras over the network.  Yes, I know that bandwidth costs will drop and people will get more bandwidth.  Problem is that as bandwidth improves, so does camera technology and users expectations of video quality, which means the bandwidth required per camera will keep rising as well .  Ever try streaming a megapixel camera constantly to an offsite recorder over a DSL connection?

I don’t agree, however, that bandwidth limitations are an issue for Managed Video (whether enterprise model or MVaaS).  I’ll focus on Envysion’s MVaaS to make my point.  With Envysion, video is recorded on site and only viewed or streamed across the network when someone wants to watch the video remotely.  If no one is viewing the video, it is not consuming the network.  If someone views the video from within the store, the video stays on the LAN and it doesn’t consume the network.  When you do stream the video remotely, our service is intelligent enough that it dynamically throttles the bandwidth that is required based on the size of the pipe available end to end (out of store, across network, down to laptop over wireless card for example)  It will scale back the bandwidth if it senses any congestion so it won’t clog the network while customer is doing credit card processing for example.  As a proof of my point, we are able to stream a high quality megapixel camera at 10 FPS over a consumer grade DSL connection in the store, across the network, and down to my laptop using a Verizon Wireless card and the video looks great (although its not at the full megapixel quality that is still being recorded at the site) .  Bandwidth is not a constraint for MVaaS.

Cost/complexity of deploying/integrating cameras/recorders on-site

This challenge is certainly real, but it is a challenge that is the same for Hosted Video or Managed Video and for traditional video solutions that customers want to access remotely.  Traditional video solutions require the same network configuration, port forwarding, static IP addresses, NAT traveral etc that are necessary to access the video from outside the store.  I would argue that providers of Hosted Video and Managed Video that have automatic remote connection capabilities (like Envysion) simplify this process more than a traditional video solution.  The challenge here applies to any system you want to access remotely – it isn’t a different obstacle for SaaS or Managed Video.

Advantages are not as compelling as they are in other applications

This challenge seems focused on SaaS itself and not Hosted Video or Managed Video per se.  I don’t agree at all with this one.  There are a variety of reasons that the SaaS model has appeal in this market.  Two of the most obvious reasons are the scalability of the solution and the ability to continually update and enhance the service.  Both of these apply very strongly to the SaaS-based Managed Video/MVaaS model.  If you want to provide access to video broadly within an organization, to 100s of store operators, marketing people, executives, etc you need to have a very easy centralized access management capability, which is a key element of SaaS.  Adding a new user involves adding a username and password to the system, it doesn’t require having a person load software on their computer and then figure out how to configure access to the sites that they want to access.  From a feature standpoint, SaaS enables us to enhance the service on a weekly and monthly basis and automatically roll out those improvements to everyone on the service.  This is a huge advantage over the static software applications that reside on DVRs.  Try upgrading 1000 DVRs of various versions and 1000+ remote clients that have been installed and configured for your users.  You won’t do that very often and so the DVR applications will lag behind in functionality. 

Generally weak business case compared to traditional solution

If you are talking about Hosted Video, which the article focuses on with this objection, I can see the point.  Doesn’t make pure economic sense at all to stream your video to a central location.  Having said that, some customers have reasons other than economics to stream video offsite – they may want a copy of the video that is protected and not at risk of tampering or loss at the site.  They are willing to pay a higher price for this added value.  If you are talking about SaaS and Managed Video, I couldn’t disagree more.  Again I’ll use Envysion MVaaS to make the point.  We’ve completed changed how video is used within our customer base, increasing the number of users within our customers by 40X.  We’ve seen customers drive 10-15% improvements in bottom line profitability by using our service extensively as part of their standard operating practices.  Most traditional video solutions are used by a handful of people in loss prevention and security for a relatively narrow purpose.   I’d put our less than 6 month cash payback up against any traditional video solution.  Point here is that if you are talking about SaaS versus traditional software on DVR model, you have to look at the application itself and its impact, you can’t generalize on the strength of the business case based only on the software delivery model.

Vendor promotion is driving the hype

Not going to spend a lot of time on this as it is a statement of the stage of these segments’ development, not a barrier to their growth.  All early stage innovations are first hyped by the vendors in the early days – the ones with staying power move beyond this phase and are eventually backed more by actual customer feedback.

Free offerings will limit growth

Again this is one that I don’t see as a barrier to growth.  I don’t see free software that enables simple live viewing of a handful of cameras as a competitive threat for Hosted Video or Managed Video.  There are very hard dollar costs associated with Hosted Video (storage and dedicated bandwidth) – show me someone that is offering that for free and please let me short their stock.  With respect to Managed Video, there is certainly a low end of the market that may be able to get by with a simple live view of a couple cameras.  I would certainly think that the residential market would be see appeal in a free solution.  In the business market, the requirements are much more significant and customers are demanding capabilities and integrations that you can’t get with free services.  If as a vendor you are losing business in this space to free solutions, perhaps you should look hard at the value that your service delivers, bc if a customer isn’t willing to pay for it, it probably isn’t worth that much.

Over at IP Video Market Info John Honovich has a good discussion going regarding megapixel without IP.  The topic might also be labeled: “What’s the best way to retrofit an existing analog system for megapixel video?”

Currently megapixel requires IP cameras which can be a costly upgrade if you are all analog today.  IP is very different from an install perspective and requires new cabling and complex configuration of IP addresses, cameras and NVR’s.  Or does it?

IP cameras can be auto configured with a good vms system. we at Envysion implemented auto-discovery and configuration in less than 30 days for Axis IP cameras. Using zeroconf and a simple http api we can now do it in just a couple days and push the software update into production automatically.

Ethernet can run over coax (IEEE 10Base2 is based on rg58 (50ohm), but with tweaks can run on rg59 (75ohm). There are a number of products that do this now, but they are currently a bit clunky and perhap too expensive. But that can be fixed. Just need some IP cameras with an integrated Ethernet over rg59 interface to get the cost down and provide a clean install.

I was pondering Matt’s recent post about manufacturer’s claims when I came upon this article on Cheerios.  Check out the warning letter from the Food and Drug Administration.  This is not something I would like to find on my desk on a Monday morning.

Caveat emptor, to be sure.

John Honovich has a great post on whether you can believe manufacturers’ claims or not. While I am a service provider and my comments will fall under this same scrutiny, I definitely think the answer to this is generally “not without some proof or evidence”.

Take a couple of recent press releases in the industry as an example. I won’t name names to protect the “innocent”, but if you read the major trade magazines or follow the press releases some of the players in the market issue, you’ll have seen these (or a dozen just like them).

The first announces the acquisition by Company A (a medium sized video provider with decent traction in a specific retail segment) of Company B (a tiny, struggling video provider with a small customer base) and declares the result “a combination that dominates the specific retail segment”. Last time I checked, taking a company with few meaningful customers and adding it to one with decent traction but that is no where near the leader in a space doesn’t yield a dominate anything. Unless a potential prospect knew both of these companies in detail, they would not have a way to judge the validity of the claim.

The second announcement was a partnership announcement between a video provider and a security company. The video provider (whose press release announced the deal) declared that part of the rationale was the provider’s most advanced industry leading point of sale integration capabilities. In this case the industry leading capability apparently comes from a resold text overlay solution that just about everyone in the industry can do.  Again, unless a prospect knew enough about POS integration in general, and what this company offers specifically, they could not effectively evaluate the claim.

Is any of this illegal or unethical or even a little bit wrong? I don’t think so – marketers will spin and position and make statements that create a positive view of a company and its capabilities, even if they are sometimes a little bit ahead of the company’s ability to deliver. Having said that, it makes it very difficult for end-users to understand what a company can really offer and how it differentiates itself from the competition.

It also makes it difficult for service providers to create awareness and educate the market on real advantages, as they have to cut through a lot of the noise that other vendors create with claims that aren’t really substantiated.

The answer to all of this is to look for and demand evidence to support a vendor’s claim (and awards don’t count, as John mentions) If a vendor says it has the most advanced POS integration, have them show you it in production with a major customer and explain why it is different. If a vendor says that they dominate a specific market, have them tell you how many customers they have relative to the competition and give you individual references that you can check. If a vendor says that their solution has a powerful return on investment, have them explain who got it and how it was derived.

It’s easy to sound great when they get to write their own bios – it’s a little more challenging when they have to back it up with facts.

A new report from Retail Systems Research states:

while retailers that use IT strategically have the opportunity to turn technological advantage into real long term market gains, most survey respondents report a growing backlog of demand for IT services driven by lack of governance, tangled obsolete application portfolios, and siloed departments each clamoring for their own solutions. 

MVaaS can help alleviate these issues because it is a managed solution, requiring little more than permission from the IT department to deploy.  With no servers or software to manage on desktops and managed DVR’s, the solution is simple to deploy.  This helps address limited resources and managing of many tangled applications.  When an IT solution is very easy to deploy and requires little involvement from IT, many of details of getting the job done become non-issues.

In a prior post, I asked for suggestions on what the Unintended Consequences would be when MVaaS is introduced into an environment.  Based on the underwhelming response, one may be tempted to conclude that there aren’t any.  Just upside opportunity, right?

In an attempt to start a dialogue on this, let me share one that I’ve heard.  This is not a direct quote, but the sentiments expressed are genuine:

“I need my store managers to be in the stores.  If they have this type of tool, they may spend more time away from their stores, and they will be less effective.”

Point taken, and I’m in agreement that direct line store managers need to be on the scene to be most effective. 

However, allow me the opportunity for a rebuttal.  Even if they are on-site (as they should be), isn’t it fair to assume that they are missing important events?  Wouldn’t it be useful for them to review significant events during off hours to improve their locations go-forward performance?

And what about the others within the organization – CEO, owner, regional manager, etc?  They obviously can’t be multiple places at once.  Wouldn’t they benefit greatly from seeing how their operations are performing? 

Do you have other examples?

I haven’t seen or heard of a lot of folks beyond some of the dollar stores and McDonalds that are growing revenue these days. Seems like everyone is doing some sort of aggressive discounting/promotions to try to get people into their restaurants and stores to combat lower visits, but this is killing their per visit revenue and % profits and isn’t increasing their cash by as much. Subway is a great example with their 5 dollar footlong blitz, which is definitely driving up revenue (although profit is another story). With all of the layoffs and everything I don’t see how this changes anytime soon as it seems like you’ve got the 8-10% unemployed that are going to conserve spending out of necessity and you’ve got the 70-80% employed but not set for life folks that have seen their portfolios drop 40% (not everyone saw it coming like John did and moved to cash 1 yr + ago) so aren’t spending as much either out of caution. I have no unique or insightful thoughts here really, I just don’t see anything that improves retail revenue in the next 2-3 quarters.

On retailer spending…

Bad news for all people that target retailers in 2009. 2009 budgets were set during the worst market panic in 75 years.  While the resulting lower revenue targets are likely to be achievable and in some cases ridiculously low, the budgets/cash targets were pegged and approved at a time that was probably the most conservative in our lifetime. We saw this with both very healthy companies and with sick ones – budgets got whacked. Question now is what it would take to get them to change their budget, even if the top line went up unexpectedly. My guess is that 2009 is now somewhat predetermined to be low because only a few companies will have positive top-line surprises and of those not all of them will relax their budgets as a result.

On Envysion’s opportunity in Retail…

Good news for MVaaS providers.  We have a couple of rays of hope in this environment. One, we are a small company and it doesn’t take much to grow for us. For example, we talked to one major retailer with 3000+ sites and he said “I’m not spending anything, no money to spend, not buying. Oh, but I do expect to replace 10% of my sites this year as they end of life.” A 300 site opportunity is still interesting to me, but he thinks he’s got no money b/c he can’t make a 3000 site decision this year. Two, back to the ROI argument – if you can demonstrate a strong ROI and minimal capital and IT impact, you at least get a shot at the CFO to make the case. Retailers that aren’t in a panic (freezing all spending despite the obvious perils of doing so on customer retention, etc) will still make sound business decisions, even in a crappy market. If we can prove we have a quick payback and strong ROI, we’ll do fine. Our sales, our funnel and our pilots are strong for exactly these reasons, even though the aggregate market spending is down.

At least that’s what it looks like from here… 

Envysion is having so much growth that we’ve recently had to expand our database capacity to store the ever higher volume of event data flowing in.  (We still store video and the video database at the remote site)

Adding database capacity isn’t such a big deal if one just goes out and buys some “big iron” servers, a big storage area network system and pays a huge license fee for the latest Oracle enterprise database software.  This is the traditional enterprise way to grow a “data warehouse”.  This is sometimes called “Scaling Up” and it is extremely expensive, often taking up the a huge slice of any IT organization’s budget whenever there is truly a large amount of data stored in databases.

Instead, Envysion is using cutting edge, cost savings methods to grow our hosted service.  By “Scaling Out” our data across multiple commodity market server hardware and using the MySQL database, we’ve been able to keep costs low, keep performance high and still grow big, like 100’s of millions or even billions of rows big.  This is the way of highly scaled and efficient web applications.

Why does this matter?  Simple!  The costs of a scale out is at least an order of magnitude lower than the big general purpose data warehouse solutions out there.

But doing a “scale out” isn’t so easy.  While a “scale-up” design utilizes a small number or even just one, single, ever larger growing (in both size and dollars!) database.  The scale-up design is somewhat simple from an application perspective.  Conversly, doing a “scale out” really requires that one know how your users want to see your data.  You also need to know your application and data well enough to distribute the data across many low cost servers.  In other words, there’s not yet just one simple way to “shard” out your data across many database servers.  (although many innovative companies such as codeFutures dbShards and Dataupia are working on this as we speak)

One of the challenges in being an innovator in an industry that has a long established history is that the majority of people you deal with are by definition “Old School” relative to your solution.   If you define Old School without a negative connotation it means doing something the way you’ve always done things b/c you found that it works for you and you don’t see a need or the value to switching to something new b/c you aren’t feeling any pain with your current solution.  Add a little negative to that definition and you get someone that is not only sticking with the tried and true, but also is completely unwilling to even examine or contemplate a new solution, even if that new solution could add a tremendous amount of value to them personally.

I must admit I have fallen into the Old School mode a couple of times throughout my career.  I never fully grasped why anyone would use an instant messenger application versus email.  Given I’ve had a blackberry forever and have always had ready access to email, I just never figured out why I would switch to a different platform to communicate, despite the fact my development team uses instant messenging religiously.  I’ve got the same issue today with services like Twitter – I personally just don’t see how my life will be easier or more effective using those services when I get all the communication I need today.

In both of these personal examples, however, I didn’t fall into the latter Old School camp.  While I didn’t see the value of the new services right off the bat, I did keep an open enough mind that I listened to the arguments for the new services and tried using them both.  (I still have a Yahoo instant messenger account and if you want to follow my two posts a year on twitter (msteinfort) go ahead)  In some cases my mind has been changed (I get the difference now between SMS and emailing from your Blackberry) and in other cases I stuck with what worked for me.

When we pitch our service to folks in the industry that have generally been there for a long time, we get a mix of the Old School varieties.  For many, they have a method that works for them but they are open-minded in understanding what we do and learning whether it might help them.  For others, it is going to be a longer road – we need to demonstrate enough other customers that are realizing the benefits of our new approach before they will be ready to start opening up enough to try it.

The good news is that there are more than enough leading edge thinkers and open minded Old School people in the video market that MVaaS continues to gain momentum.  It helps that we are addressing problems that they are facing today in a very economic way and aren’t trying to get them to buy something bleeding edge that hasn’t proven to work in real customer environments.