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Maybe it’s my penchant for financial analysis, but I was particularly drawn to Jeff Gannon recent post, Alternatives to Expansion in Today’s Economy.

Jeff lays out two scenarios for a hypothetical enterprise to increase earnings by 22%.

1. Build 11 new stores - Upfront cost $9.4 million - Annualized profit $1.1 million
2. Implement a video solution - Upfront cost $0.3 million - Annualized profit $1.1 million

Does anything jump off of your screen?  How about the astonishing difference in invested capital! 

I’m not an expert in the restaurant operating costs, but maybe a reader could help us pinpoint the typical costs of opening a new store.  Changing these costs assumptions would certainly impact the analysis.  However, I do know that customers our our MVaaS solution at Envysion have reported an increase of 1.5% to 2.0% of revenue to their bottom lines.  This is an increase of profitability of approximately 20% (depending on their pre-video results).

In my opinion this is not an either/or question.  Rather the merits of the video solution should be evaluated separately.  And the merits are very compelling:

• Payback Period ~ 4 months
• IRR ~ 319%
• NPV ~ $2.3 million (at 10% discount rate, 50 store enterprise)
• ROI ~ 323%

Any way you look at it, this is very efficient capital.

Okay, so this post has nothing to do with MVaaS really.  This is a pure video application.  Maybe a video that is accessible by a cellphone application.

I was fortunate enough to attend the Democratic National Convention at Denver’s Invesco field tonight, complements of my Chairman and friend, Dan Caruso (neither of us were expressing a strong political view in attending, we just felt fortunate to witness history).  Dan, his son, me and another friend all walked over to Invesco field around 3pm at the start of the event thinking we’d wait in line for a little bit but get into the stadium in short order.  Wrong.

The line that we entered snaked all along the stadium and wound around some parking lots and nearby streets.  That and it didn’t really move at all.  It was amazing to stand there and watch as the line behind us grew and grew and grew.  By the time we got into the stadium we heard stories of people waiting in that line for more than 4 hours.  It was not fun.

So where is the video application?  I learned a couple of things standing in line.  First thing I learned was that there were no organizers, police, or team of people with orange vests managing or watching the lines.  It wasn’t until 90% of the way through the line that we actually encountered someone that was “working”.  Second thing I learned was that, according to the first “worker” we encountered, we were lucky - this side of the stadium where we were standing was set up to handle 25,000 people, we should consider ourselves lucky that we weren’t on the other side of the stadium where they anticipated 50,000 people to be in line.  It must be a madhouse on the heavier volume side of the stadium he said.

Here’s the problem with that logic, and where the video would have come in really REALLY REALLY handy.  They may have anticipated 50,000 people on the other side of the building and only 25,000 on our side of the stadium, but I swear that 60,000 people didn’t get that memo and were standing in the same crazy line I was on the shorter staffed side of the venue.  No one on our side had any idea what the line looked like on the other side or I can guarantee you there would have been a mad stampeed to get over there (where some of my fortunate friends tell me the whole line took only 45 minutes - and where the people were complaining about that, not knowing how lucky they were they came in the short way)

Maybe it wouldn’t be practical to give me, a random person in line, access to video of what is going on on the other side of the building.  But surely they could have made up for the lack of people working the line by having just one volunteer take a peak at a camera on both sides of the stadium and see that this enormous problem was happening and take some corrective action.  There were hundreds of cameras all around the stadium - but no one thought to use them to understand the customer experience and try to make it better.

Video is everywhere, but apparently not everyone has clued in to the fact that you can actually use it.

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.

There are more ways than ever to communicate using video.  Of course, there is video conferencing, either via a special phone device like a Polycom or software on your computer like Skype.

But whole new segments of video communication have emerged in the last 3-5 years that most of us probably never thought would happen.  YouTube is increasingly being used as a visual collaboration tool and it isn’t only for entertainment, but also increasingly for business.  There are ton’s of informational videos, how to and product demos out there.  Now, take this to the next level.

There is a concept called Visual Networking in which anyone can immediately talk, see and share content with a few people or thousands of colleagues or friends”.  An interesting startup company called Bada Networks (formerly Amity Systems) is building technology just for this purpose.

Here’s a good article in network world about Bada.

When I worked in the cable industry, I especially enjoyed the perk of free cable. We’re talking the works - all of the movie channels and digital channels - not just basic cable. The logic behind giving cable company employees free cable was that we could fully experience what our customers experienced. For example, we could be the first to report outages, or even offer suggestions for improving the customer experience. In reality, it was the customer service representatives who took customer feedback (usually in the form of complaints), and, unless it was a forward-thinking cable company, customer feedback rarely turned into service improvements.

It’s quite the opposite at Envysion. I have the pleasure of sitting amidst our Sales team, and I often hear sales people on the phone with customers. If a customer is experiencing a problem with cameras or reports, the salesperson simply logs onto the application so they can see exactly what the customer is looking at. Not only can the salesperson help diagnose problems, but they can also discuss improvements to the service or the application. Because this is Envysion, and because our service is built upon the Managed Video as a Service platform, customer feedback doesn’t stop there. The feedback triggers an internal conversation with the development team, and sometimes the development team gets on the phone with the customer to fully understand their input. Thus, conversations with our customers often catalyze a feature enhancement or refinement of the application. Through the MVaaS platform, the new or upgraded feature can be quickly incorporated into the application and seamlessly pushed to all of our customers, not just the customer who initiated the idea.

At Envysion, we can literally see what our customers are saying, and our customers see the results of our conversations.

1. issue a request to search for video to the MVaaS server. Specify store (e.g., DVR), register (e.g., camera), and time of day. The MVaaS server returns a list of clips it found
2. initiate a video player in your web browser
3. instruct the video player to play the clips that were found in step one.

The past decade has seen unprecedented growth and investment in the restaurant space. Today, most of the industry is seeing top line revenue flatten while food and labor costs rise, putting a tight squeeze on profitability. As the credit markets continue to tighten, owners must find creative alternatives to increase earnings outside of revenue growth from new store expansion.

We’ll use a 50 location concept as an example with average unit volume of $1,200,000 and 8% earnings. This would put enterprise-wide earnings at $4,800,000. What are the options to increase earnings by 22%?

OPTION 1 - Growth Through Expansion

Target earnings increase: $1,050,000 (22%)

Number of new stores required to achieve: 11 = (Target Earnings)/(AUV*.08)

Cost to build 11 new stores: $9,350,000

Timeframe to deploy: 18 Months

OPTION 2 - Technology Investment to Improve Operations

Target Earnings Increase: $1,050,000 (22%)

175 Basis Point Operational Improvement Realized: $1,050,000 = (50*$1,200,000)*.0175

Cost of Investment: $327,100 (6 Camera System in all 50 locations)

Timeframe to deploy: 45 days

Even with flat revenue, an enterprise is able to demonstrate significant growth to the bottom line with minimal investment in technology when compared to an expansion strategy. The timeframe to deploy is of great significance as a technology deployment today would have positive impact on Q408 with full ROI by early Q109.

Do you remember reading George Orwell’s “1984″? It’s the story of an anti-utopia, with one of the central characters being ”Big Brother,” a creepy omniscient force that ensures all citizens follow the oppressive rules of the regime.

On each landing, opposite the lift-shaft, the poster with the enormous face gazed from the wall. It was one of those pictures which are so contrived that the eyes follow you about when you move. BIG BROTHER IS WATCHING YOU, the caption beneath it ran.

In conversations about MVaaS, the notion of “Big Brother” often arises. In presenting the concept of watching what’s going on in several locations without being detected, we indicate that it’s unlike “big brother,” in that virtually visiting your locations does not necessarily have negative intent. Applied strategically, MVaaS is not meant to strike fear into those being watched; rather it’s a powerful tool for managers to view their operations and to make improvements based on what they see and analyze.

MVaaS is not a form of Big Brother; it’s smart business.

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IP Video Market Info released a search engine designed specifically for the video surveillance professional.

John Honovich, founder of IP Video Market Info and frequent commenter to this blog, describes the new optimized search engine in this press release.

Let’s hope that word spreads and the search engine is successful!

MVaaS, as has been discussed in numerous previous blog posts, provides many valuable loss prevention benefits.  Most recently, one of our channel managers relayed a recent success story of a client who recently installed Envysion’s managed video.  The hamburger franchisee was looking at point of sale reporting from the previous night and saw a three hour drop in sales at the drive-thru.  Actually, during those three hours there were no reported sales at the drive-thru, to be more accurate.

Prior to installing video, a grand inquisition would have taken place, with the manager questioning employees and having little leverage in the situation.  Instead, the manager saved the clips of of the employees taking the order to the hosted Envysion “my clips” video library, saw them not ringing up the sale or voiding the sale and delivering the food to friends and family members.  Leverage was reversed and the employees were terminated.   The manager will move forward with integrating the POS with video which will allow him to receive alerts when thresholds that he sets are exceeded, such as voids, no sales, etc…  This will speed reaction time and ROI as he will be able to act faster next time.