Yikes.

It is a crazy time in the world when you see something like the current credit crisis reverberating around the world in such a dramatic and rapid manner.  Thomas Freidman wrote “The World is Flat” to highlight the growing global competitiveness and the fact that it is becoming a much more level international playing field.  Wonder if he ever thought about how inextricably tied global markets are becoming as result and how a major U.S. crisis would have a crippling effect on other economies as well.  While I watch my stock portfolio tank and listen to NPR about how banks are failing or being privatized in countries like Great Britain, Iceland, Russia and elsewhere I of course reflect on how the current economic conditions are going to effect our market – the market for MVaaS.

As I wrote in an earlier post, “Recessions – Bad for most, good for some”, a bad economy might not be the end of the world for video providers.  However, at the time I wrote that post, I had no idea the magnitude of the looming financial issues.  Given how significant it appears the issues are and how long experts are suggesting that the current crisis will last, I’ve had to re-assess my position to see if I still think it holds true.

My current thinking is this: while some potential customers may arbitrarily cease expenditures and others may disappear as bankruptcy related casualties, the current market conditions will accelerate the adoption of MVaaS versus traditional video solutions and the gap will widen between those that have already developed MVaaS solutions and those that have yet to demonstrate material customer traction and results.

Here’s my logic:  In retail and restaurant markets where top-line revenue growth will be off and underlying costs will continue to rise, businesses will look for ways to be more efficient with their existing resources and to increase their profitability.  Capital budgets will disappear or tighten, so any investment in new technology or programs will have to have a very quick payback and a very certain ROI – speculative or experimental technologies will suffer.  Layoffs will hit many of our customers and these layoffs will hit the management layers, the LP teams, and the IT staffs, leaving the organizations trying to do more with less across the board.

The value proposition of MVaaS is fairly compelling in light of these circumstances.  By incorporating MVaaS into their ongoing operational and loss prevention processes, businesses have shown that they can add 1-2% of revenue to their bottom lines as incremental profit.  This also enables businesses to increase the efficiency of their people from operators/managers to loss prevention and other corporate personnel.  The payback on this investment is often less than 6 months and has been proven by some of the leading operators in the industry, far from a speculative investment.  MVaaS does not require material capital expenditures, unlike a traditional video solution, and it also does not require a huge effort from a company’s IT organization, again very much unlike a traditional video solution.

Leaders in this space, like Envysion, will benefit disproportionally from this environment because we have already established ourselves in the market with a differentiated service that has been tested and scaled, we have major customers that are demonstrating the value, and we have plenty of runway because we don’t need to raise capital anytime soon.  Competitors that are small and starting up are going to find capital harder to come by and will face a customer base that is increasingly wary of betting on an unproven commodity.  Larger competitors are likely to be less willing to devote the substantial resources required to implement a new MVaaS solution when they are facing their own financial problems.

I believe that 2009 is going to be a difficult year across the board (says Captain Obvious) but that there will be a very few industries and companies that will thrive in the coming trying times.  I believe that MVaaS will be one of these industries and Envysion will be one of these companies.

In a tough economic environment, Walgreen posted an impressive 12% increase in Q4 profits.  Congratulations Walgreen!

Given the roller-coaster stock market, the cynic in us may attribute this to a surge in the sale of pain relievers and antidepressants.  But while revenues did increase, Walgreen executives attribute a portion of their improved results to cost-cutting. 

We’ve posited on these pages about the strategy of combating the economic slowdown with technology focused on improving operations.  It is unclear if this was part of Walgreen’s cost-cutting activities.  One thing is certain, however.  Success is possible in our current environment.  And investors will flock to companies who deliver outstanding results rather than offer excuses.

Andy Kessler, a former hedge fund manager and author of “How We Got Here” (Collins, 2005), wrote an interesting opinion piece in the Wall Street Journal’s on-line version about the current “bail out” bill being debated in Congress.

The amount ($700 Billion) is staggering, but Mr. Kessler rightly notes that the government is getting something for their investment – namely a portfolio of loans and collateralized debt obligations (CDO’s).  If the economy rebounds, and the housing market improves, Mr. Kessler argues that the portfolio could yield between $1 to $2.2 trillion to the U.S. Treasury, well in excess of the original investment.

The big “if” is how resilient the U.S. economy proves.  There is obviously uncertainty here, but I’m inclined to remain optimistic about our long-term prospects.  How about you?

The demise of Lehman and sale of Merrill Lynch have been the talk near the water cooler in our office.  For those who are interested I found a very simple and quick description of what happened.

What does it mean for the rest of us?  Wall Street may seem like a long way from Main Street (or in our case, Spruce Street), but major bank failures have an impact on all of us.  The extent of the impact is not yet known, but when capital is constrained, either purposefully (banks are unwilling to lend) or through failure, the overall economy is affected.  This is not just a problem for those who seek capital, since less capital means slower overall economic activity.

There may be a silver-lining for MVaaS providers (also see related post by Matt Steinfort).  As capital tightens, aggressive expansion plans may be shelved, at least temporarily.  Eager for improved results, operators may view MVaaS as an inexpensive and impactful way to drive improved results now.

A couple of quick thoughts upon reflection on my trip to ASIS this week…

The economy is definitely impacting the end-users (duh!) that normally attend these shows as I heard from several long-time vendor attendees that they were having trouble getting customer meetings and that customers were cancelling their trips to the show at all due to travel restrictions and cost cutting.

While these shows tend to be a platform for a lot of product announcements and the latest and greatest new thing, I didn’t see or hear anything earthshattering at the show – a lot of people issue press releases but not a lot of really new developments.

I was able to meet the esteemed John Honovich at the show which was great – he’s got a much more detailed and eloquent assessment of the show in his review.

We were able to talk to about a dozen different potential channel partners at the show and they all had the exact same position and objective.  Almost to a company they said “The market is tough right now, we are only looking for differentiated solutions that deliver value to our customers – we don’t need another box/dvr to offer to our customers as we already have a half a dozen”  The good news for us is that we have a great answer for them in this respect.

I should schedule more time to walk the floor – as I mentioned in my post last Saturday I had a lot more meetings lined up than I had in previous years.  When you add the ad hoc meetings that just happen (okay Jackie – they don’t just happen, I know you work tirelessly to make them happen!) your schedule can get crazy.  As a result I didn’t get to spend as much time wandering around as I would have liked.

One of the more interesting (but not necessarily revenue producing) conversations from the conference is actually with a couple of partners and a competitor of ours.  I won’t go into any details but let’s just say that its good to know and be friends with everyone in the industry, you never know how you can help each other.  More on that front if/as it evolves.

ONVIF, PSIA , SIA.  What are they?  Fringe terrorist groups?  l337 techno jargon?  No, they are standards organizations working on Network Video.

Standards can be very valuable to end customers and users of video products.  Value will come to customers by enabling increased competition (lower initial purchase cost) and ease of deployments (lower install cost) for video management software, recording hardware and cameras. In addition, significant value will come from being able to put together “best of breed” solutions.  eg: Solutions that use a combination of information management, video management, recording and cameras that best meet the needs of the customer.

A customer who has more reasons to buy is more likely to buy.   With more applications available, more customers are going to find value.

Hopefully this is what the competing Network Video standards bodies are vying for.

I hope the simplest, easy to obtain and use standard that also WORKS will win.  Having a low barrier to entry into the market will help spurn innovation and increase value for the end customer.  As a long time, but infrequent participant in the IETF (Internet standards body), I tend to lean towards the most simple setups that build off what’s already widely available and has a reference implementation running which is very low cost and/or freely available.

The Internet, the WWW and Voice over IP are all products of such a process.  However, most of the companies involved in the IP Camera/Network video market aren’t part of the Internet world.  It’ll be interesting to see what happens over the next couple years.  (Yes, it’ll take at least that long)

I recommend that you check out this post at IPVideoMarket.info.

The post seeks feedback on an idea to establish a marketplace where buyers of video solutions can find experts to help them with their purchase.  Given the rate of change in the marketplace, including the impact of new solutions like MVaaS, I’m certain that buyers would welcome assistance in narrowing their choices and assuring that they are purchasing a solution right for them.  

From a selfish perspective, video solution providers (at least those with a superior product and service) would also be major beneficiaries.  When buyers are armed with information, they make better and quicker decisions.  

I’m hopeful that this idea takes off!

Sitting here on a Saturday reflecting on the upcoming ASIS conference in Atlanta this coming week.

This will be my 3rd ASIS since starting Envysion and I feel like I finally understand the lay of the land well enough to maximize my time there this week.  The first time I went I just walked around not knowing anybody and couldn’t tell who was relevant for me to talk to, so I just talked to whoever I could trying to sort out the various industry players.  The second time I went I had a much better sense of how we fit relative to the various players and potential channel partners, but I didn’t know any of them so I spent my time trying to meet folks by just walking up to their booths and engaging in dialog.

We also had some meetings set up for us by one of the industry insiders that had joined us (Jackie Andersen).  The meetings were all of the “here’s an interesting company that you’ve never heard of or met that you might want to meet variety”.

This year is already different and I haven’t even left yet.  I am going not only knowing who the relevant players are for us – we are already in active discussions with many of them – but also with specific mutually agreed upon objectives lined up for each partner and potential customer to advance our relationship.

I’m excited to have this be the first ASIS that results in more than just a better understanding of the market!  I look forward to catching up with a number of you at the conference and for the rest I’ll post some thoughts on key takeaways either from the show or when I get back.

Now back to 6 year olds and soccer…

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I had a series of posts in June asking the simple question, who’s bigger, Salesforce.com or GM? (I, II, III, IV)

The series concludes here, indicating that Salesforce.com’s market capitalization remained slightly behind that of General Motors.  At least this was true on June 4th.

Well, some things have changed.  Most who are interested in economic issues are well aware of the challenges now facing GM (and for that matter, Ford and Chrysler).  A multi-billion dollar bailout  may be next.  It has not been an easy run for the ”Big Three” automakers.  GM’s market capitalization has been battered (~$6.1 billion).

Salesforce.com has also faced some challenges.  While they set company records with their 2nd quarter profits, the results were short of investor expectations, and the stock plummeted 8% in one day.  The San Francisco based company is now valued at ~$6.6 billion.

Perhaps this is an unfair comparison, especially given the very difficult situation in the auto industry.  Still, who would you rather own?

John Honovich rated managed video as one of the top 3 emerging technologies in Video Surveillance for 2008.  We here at Envysion are flattered to be mentioned as the segment leader!

I think John has it right that it’s going to take several years before managed video is as big as the general IP video market is today.  J. C. R. Licklider wrote back in 1965: “A modern maxim says: People tend to overestimate what can be done in one year and to underestimate what can be done in five or ten years…”.  Bill Gates said something similar in the 90′s.  It’s not uncommon for even only incrementally new technologies to take 3-5 years to reach critical mass.

The speed of market acceptance and adoption of managed video will also take time.  Technology and bandwidth are not barriers, but only with the right mix of centralized and distributed software, storage and video streaming.  Envysion is doing it today.

However, operating a managed video system at scales of over a millon cameras is something that’s going to take considerable “know-how” that only comes from having “been there and done that” over years of learning.

Managed video may be plug-and-play at the edge, but scaling up all the systems necessary to keeping everything running well together is not plug-and-play.  Fortunately we’ve accomplished similar feats in the telecom space building the backbones of the Internet and voice over IP systems.

In 5 or 10 years, a million cameras will feel like just the start.  It’s crystal clear to me that there is enormous growth potential for managed video.