Image by doublelibra via Flickr

I read a good post by Brad Feld dealing with a recent accounting pronouncement (Feld Thoughts – FAS 157 – Another Annoying Accounting Provision).  He promises more on the subject, and I’m looking forward to the posts to come.

Now that I’ve mentioned accounting, I’ll pause briefly, allowing you to complete your yawn. . . but I do urge you to read Brad’s post.  It is very funny and decidedly anti-accountant, a popular sentiment after six years of SOX compliance and 146 years of benevolence from the IRS.  I think you’ll enjoy his take on the topic.

That being said, and in the spirit of full disclosure, I’m a certified public accountant.  However, I have a somewhat different background than many of my brethren in that I majored in psychology as an undergraduate.  How did I find my way to accounting from psychology?  Probably not important.  What did occur to me, however, was a possible new business opportunity.  Think about it.  I could offer the technical reasoning for the necessity of an accounting pronouncement, and then provide counseling services post-op to subjects that remain light-headed.  Talk about a two-fer.  The green visor crowd would be envious…

The venture capital market is clearly still bullish on the broad video market as the dollars keep flowing into both start-up and well established companies. It is interesting to watch where the dollars are going – there has been a lot of investment in video analytics companies, IP camera manufacturers, video management software providers (primarily IP camera based) and other leading edge providers that are changing the landscape of the video surveillance world.

I saw two recent examples today.

The first was VideoIQ, which raised $10M in a Series B (second round of funding for those that don’t speak VC) round from Atlas Ventures, Matrix Partners, and Lehman Brothers Venture Capital – all very successful and well-known VCs. VideoIQ is a technology company that spun out of GE Security last year that does IP cameras with on-board storage and analytics. From their website, “VideoIQ is taking a leadership role in making video analytics a standard part of every video surveillance system with affordable, plug-and-play analytics systems that perform in every environment.”  They say, not surprisingly, that the new money is to fuel market expansion and product development (has a start-up ever said anything else when it comes to how they plan to use their money?)

The second was Milestone Systems, which raised a whopping $27M, from Index Ventures, a European VC firm that I don’t know much about.  It is interesting to see Milestone, who makes software to manage IP camera networks, raise money as they have been in business for 10 years and have a rather large business with offices in 9 different countries. Despite not being a startup, guess what Milestone is going to do with its new capital? From their press release “Milestone will also use the funding to continue development of its technology platform and spearhead new business initiatives”

It is great to see such strong investment activity continuing in our space – it is a great sign that the market continues to have tremendous promise for those that can innovate and create value for their customers.

I just read a popular article on where to deploy video analytics at Security Info Watch, Axis: Video Analytics at the Edge.

The article written by Fredrik Nilsson of Axis Communications does a great job of describing different deployment options for deploying video analytics. While I agree with the bandwidth advantages and improved analytic performance for video analytics in the camera, I believe the cost of implementing this scenario is not always clearly an advantage.

1. Operational cost: maintaining the more complex configurations and software which are required for analytics at the edge may result in increased operational costs compared to a more centralized configuration scheme.  Video management software must be more sophisticated to manage custom configurations in 10,000 camera devices versus 1,000 NVR’s with video analytics.  Either can be done, but guess which one costs less?

2. Cost to change: Video analytics is rapidly changing. The ability to cost effectively upgrade the analytic components is extremely important.  A solution which performs analytics in software on high powered servers should have much more flexibility for upgrades.  In addition, upgrading the processing capacity of commodity based servers performing analytics should prove to be lower cost than upgrading all of one’s cameras at the edge.

3. Cost Optimization: Not all cameras need video analytics.  With a separate device performing analytics, it is possible to change which cameras have analytics being performed. When hardware in the camera is required, one has to replace cameras to turn on video analytics. If analytics are needed in a different area, more cameras have to be purchased or the cameras have to be physically moved.

Having the option to add analytics in the recording device (NVR or DVR) or other server one or more “layers” above the cameras helps address the above cost issues. Products such as Amietis Symphony supply such a capability through their NVR software which performs analytics on PC based servers.

To fully realize the advantages of analytics outside of the camera, one needs to be able to integrate Video management with NVR’s and Cameras all in one.  Amietis does not appear to currently publish a simple web or XML based API for integration with their analytics.  Rather, one must use Amietis’ video management software in combination with their analytics to deliver a working solution. Not exactly something a web based MVaaS provider is able to do since Amietis Symphony is not web based itself.

Cernium on the other hand appears to have a product line which has both analytics only software and hardware based solutions with open, XML based API’s.  They appear to have a business model for integrating with Video Management software providers as they recently announced integration with Milestone systems.

Axis’ open approach of exposing simple, web based and XML based API’s to interface with their IP camera products is likely to help them gain a lot of traction for their analytics working in a variety of video management platforms since this makes it so much easier to integrate into many video management platforms, ultimately delivering the ability to mix and match the best products to solve problems.

Image via Wikipedia

You may remember the hilarious SNL character Theodoric of York, Medieval Barber.  If not, here is a link to the hulu site.

Theodoric of York (clip)

It’s certainly easy to laugh at the ignorance of our ancestors.  Then again, I wonder if we’ll be proud of all the things we “know” 100 years from now…

What is the moral?   

1. Speak only of which you are certain?
2. Stay off the cutting edge, because it could be wrong?  
3. Avoid toads and leeches?

No, Nah and Nope.

Rather, I would suggest that it is the following:

Know what you know.  Learn what you don’t.  Challenge both.

This holds true for many areas of life, and it is specifically applicable to business.  Leaders who fail in this regard risk being obsoleted.

Do you think that video providers are experts in all aspects of their own business?  What about their suppliers?  Competitors?  Are they experts in their customers businesses?  If they aren’t, how can they possible meet the needs and requirements of their customers?

The MVaaS providers that will succeed will be those that:

1. Understand what they know about their ecosystem, with special consideration for their customers,
2. Learn about what they don’t know,
3. Continually challenge it all.

In my last post I gave some highlights of customers conversations at this past week’s NRF LP show.  I also talked to a number of current and potential channel partners for MVaaS services.   While there are a number of potential channels that weren’t represented at the show, there were a couple channel segments that were represented.

Traditional security providers

I’d like to see the marketing budgets at the companies as they are at every loss prevention and security show I have ever seen, and when they go, they bring at least a dozen people with them.  It either speaks to the amount of business that they do in this space or to an industry-wide lack of concern over expenses.  I’m guessing the former.  These companies sell video, access control, alarms, etc to the retail and restaurant providers.  They have all been around for a long long time and have deep personal relationships with the industry practioners.  They are all very familiar with video.  My general experience with this category of partner, which was consistent with the conversations at the show, is that these guys understand the market, see the value of MVaaS (particularly the recurring revenue piece) but are a little uncertain how to proceed.  Their biggest challenge is the installed base of traditional DVRs that they have in place.  They want an MVaaS solution that can work for their customers on their existing DVRs.  This speaks to the need for standards on how to communicate across vendor platforms, something the MVaaS industry really needs to tackle to take full advantage of the opportunity.

Remote Monitoring Companies

I talked to several service providers that put eyes on video for their customers.  They provide remote guard services, operational audits and just about anything that a customer would want them to watch.  Some are evolving out of the central monitoring station model and are looking to expand the breadth of their services and see MVaaS and the integration with POS and other systems as way to add more value for their customers.  Others are entering the space using offshore monitoring resources.  These guys definitely get it.  Their challenge is incorporating an MVaaS solution into the central monitoring software and systems they are already using to monitor video and alarms so that they don’t have to use their legacy systems and a separate MVaaS service.  Again, this speaks to the need to have some communication standards in the industry so that MVaaS services can be easily integrated into some of the common central station tools, such as MAS.

There were a number of other potential partner segments at the show, but I’ll cover these in a subsequent post as they aren’t traditional channel partners.

As promised, here are some random thoughts from the National Retail Federation Loss Prevention Show in Orlando earlier this week…

Video was everywhere – 3 out of 4 exhibitors at the show had some form of video in their booth, many of them demonstrating some form of video analytics (tracking people in and out of their booth, showing examples of check out lines, peering at the bottom of carts looking for people sneaking things through checkout)

MVaaS providers still in the minority – Most of the video providers were still of the traditional DVR in the store, run thick client on your laptop, works great in a single store variety.

ADT is the mothership -  I must have met 10 different people that are at various security/integrators that were either very recently at ADT and left or had worked there for an extended period of time at some point in their career.

The recession isn’t stopping retailers from investing in video – judging by the case studies presented and the reactions we got from retailers, the challenging market conditions aren’t causing a shut down in video investments.  Articles like this one suggest that perhaps the opposite might be appropriate.

Never hold a customer event at a Howl at the Moon Saloon – One of the larger security integrators hosted a party there.  I won’t get into specifics, but it’s a good thing this wasn’t a conference for HR professionals.  Never thought of getting customers to do an R-rated version of the hokey pokey as a customer retention tool.

ROI is king – the LP director at a large Fast Casual restaurant put it bluntly.  If you can’t demonstrate a very positive and very quick ROI, the C-level team will never go for any LP investments.

I’ll cover the high points of some of my specific conversations with partners and customers tomorrow…

Do you remember Kirk Gibson’s walk off home run in game one of the 1988 World Series?  The late Jack Buck’s famous radio call of the exciting moment was “I don’t believe what I just saw!”

Well, try finding the footage on YouTube.  Apparently YouTube does not have the “expressed written consent” from MLB.  If you want to view this moment, share it with your kids, pass on to them your love of America’s past-time, you’ll need to pay the toll to MLB.com.

Interesting marketing approach.

This reminds me of Rob Hagen’s excellent post on standards setting for IP based video.  While not directly parallel, what the situations do have in common are big organizations, using size and influence, trying to derive new revenue streams.

Don’t get me wrong, more power to them if they can pull it off.  And they have had some success in attracting subscribers to their subscription service.  However, my guess is that most people willing to pay are hardcore baseball geeks (not meant as a pejorative) interested in fresh content.  As for the casual fan interested in re-living 20 year-old highlights, I’d venture that revenue is low and irritation is high.  These are my memories.  Why don’t they share?

Tomorrow I go to the National Retail Federation Loss Prevention Expo in Orlando.

For those of you that have ever been to this conference it is a great opportunity to get in front of a large number of security and LP professionals from the leading retail brands in the US and beyond.  While MVaaS has a tremendous value proposition that extends beyond security and loss prevention, the folks that come to this show are still the primary buyers for video services in a large portion of the market.

I’m excited to hear directly from these professionals how their company’s views of video and its potential applications are evolving.  I’m also going to be meeting with some cool companies in this space such as IntelliVid (retail video analytics) and Protiviti (an LP and risk consulting firm that spun out of Anderson) to share perspectives on market developments.

I’ll put out a post when I get back to let you know what I’ve learned.

As I covered in yesterday’s post, the valuations for SaaS companies have routinely exceeded that of the traditional software vendors.  I suggested that there are reasons for this, and they may be different from what you expect.

Phil Wainewright , a SaaS industry pioneer, recently wrote an intriguing post on this topic in ZDNet, “Want Cash? Buy SaaS”.  Mr. Wainewright covers a speech given by the Corum Group’s  Jerome Fougerat at the SIIA OnDemand Europe conference in Amersterdam.  Mr. Fougerat’s contention is that on-demand software companies generate cash flows that are more predictable than their more conventional software brethren.  And due to this, SaaS vendors make especially attractive takeover targets.

But this seems counter-intuitive, doesn’t it?  How can a SaaS company that collects cash over the life of the subscription period better generate cash than a company that collects large upfront software license fees?

The answer, according to Mr. Fougerat, is not the amount or timing of cash flows.  Rather it is in the predictability of these cash flows.  This predictability, he argues, is the reason that on-demand companies command valuations nearly twice as high as traditional software vendors.  This is a fact certainly not lost on savvy VC investors.

I agree with Mr. Fougerat that predictability of cash flows contributes to the equation.  However, I would take his thesis further.  It is not just the predictability of cash flows, but also the overall predictability of results, that make on-demand businesses so attractive to investors.

In the investing world, uncertainty is poison.  Investors demand results that are in-line with their expectations – expectations that are governed by the guidance of executives and predictions of analysts.  Companies that miss their numbers are brutalized.

Take for example GE, the darling of the blue chips.  On the day that Jeffrey Immelt announced that GE had missed its earnings guidance, by 7 pennies per share, the stock plummeted 13%.

SaaS companies are less prone to volatile swings in performance.  This is due to the construct of the recurring revenue model.  When properly managed, the revenue stream becomes very predictable.

In other words, boom and bust cycles are more easily avoided.  And investors are willing to pay a premium for this certainty.

The Celtics victory was the result of very talented individuals that played extremely well as a team.  The Lakers loss, despite having the single most talented player, was in part due to the failures of some members of his supporting cast and in part because he couldn’t do everything himself.  He had some incredible games, but they ended up losing because several of the role players failed to deliver – and rather than help them out he’d glare at them unapprovingly.

MVaaS is definitely a team sport – particularly when you look at it from the customers’ perspective.  You have a number of players involved in the delivery of video.  There are equipment manufacturers that make the cameras and recorders, technicians that do the installations and provide the service, software and service providers that provide the functionality, and integrators that can wrap the whole solution together.  The customer sees it as a team because they are looking to a single provider to pull all of these groups together and deliver a complete solution.  Wins and losses for this team are judged by the customer – are they happy with the solution and is it creating value for them.

There are several lessons for MVaaS providers: 1) that teams that are able to work together and deliver on all of the aspects of the service are ultimately better off than teams that are built on one superstar capability but that fall down on one of the other aspects of the service, and 2) it is hard to do everything yourself.

If you provide a service using the top of the line IP cameras but couple it with software that doesn’t enable you to do much with it – you will not win.  If you have a killer service that drives tremendous value for customers, but your installers are not professional and don’t do a good job – you will not win.  If you try to do it all yourself (like Kobe trying to play center, point guard, and power forward all at the same time) you will not win.

Teams that are built on great partnerships amongst companies that are each excellent at what they do will ultimately win.  Service providers that are excellent integrators and project managers, that use high quality equipment, that can provide excellent service through 3^rd party installation groups and that deliver software that enables the customer to easily use and manage video – they will win.  Leading providers in the MVaaS ecosystem need to work together to forge these partnerships so that they can assemble teams that will deliver wins for their customers.

Go Celtics! (and MVaaS providers)