We’ve long been advocates of the merits of Software as a Service (SaaS) and have always said that we believe there is tremendous potential for this model to disrupt the traditional video surveillance business.  Despite our firm belief in this, other providers in the market have been slow to pursue this model and continue to pursue the traditional hardware or enterprise software models.  While on one hand this is good for us from a competitive standpoint, it leaves the burden of educating the market on the benefits to a small group of companies, of which we are one.

With that as a back drop I was pleasantly surprised to see an article in Today’s System’s Integrator about the merits of SaaS.  I’ll forgive the author for saying SaaS is Security as a Service as the overall article was a reasonable overview of the concepts aimed at an audience that hasn’t spent a lot of time thinking about it.

It’s great to see this becoming part of the dialog in the industry beyond what we’ve been contributing.

Computers use a lot of power.  A typical home PC might use between $5-$10 a month in power if left on 24×7 without any power savings functions turned on.  Video recording systems based on PC’s which are encoding video and constantly writing that to hard drives puts a heavy load on computers and normally  defeats any power saving capabilities they have.   Multiply this times hundreds or thousands of video recorders and the cost for power starts to add up to tens of thousands of dollars a year.

As part of some development we’ve done to implement the Envysion EnVR software on low power embedded type systems coupled with IP cameras I wondered what the cost savings in power might be versus more power hungry PC based platforms.  So I compared the embedded platform to a configuring using our standard video recorder system which runs on PC based hardware and utilizes software compression with analog capture and analog cameras.

Doing this we’ve found the embedded system running the same EnVR software reduces power consumption by about 70% on up to 8 camera systems.  However, power still really isn’t currently all that expensive at a US national average somewhere around $0.11 per kilowatt hour.  So even with this big power reduction it didn’t make sense to go beyond 8 cameras due to the increased cost of the IP cameras versus analog cameras.

Even at 6-8 cameras, the cost savings in power consumption takes  3+ years to payback versus the lower cost analog cameras.  With more than 8 cameras, it quickly takes some much longer to achieve any cost savings that the time exceeds a reasonable life expectancy of the video recorder system (Assuming a range of 3-5 years for the hard drive and cooling fans in the recording system).

I had an opportunity to spend some time reflecting on the year during the holiday week.   I’ve got a lot to be thankful for this year – both personally and professionally.  I won’t bore you with any personal reflections, but did want to share with you some of the things I am most thankful for at Envysion.

Demonstrated customer results – The first thing I am grateful for is our large and growing customer base that is using the heck out of our service and that is seeing material results (profitability increases of 1-3% of net sales).  Without progressive customers and demonstrated results we’d be facing an uphill battle as an innovative start-up trying to disrupt the market.

Great team – I am very fortunate to have a team of people that are both incredibly talented and very fun to work with.  Both of those traits are critical to building a successful company with a strong, positive culture.  It is easy to find people with only one of those characteristics (we’ve had our share), but our goal is to make sure that everyone in the company has both.  We’ve come a long way toward that goal this year.

Committed investors – Growing a SaaS and recurring-revenue business from scratch requires a long-term investment horizon and a substantial amount of upfront capital.  We are fortunate to have a committed group of Tier 1 investors that have fully participated pro-rata in every investment round we’ve done to date.  This commitment enables us to pursue the growth opportunity in front of us without worrying about cash.

Incredible performance – Despite the worst economic period many people have witnessed, struggles in the restaurant and retail sectors and the poor results posted by many players in the video space, 2009 was Envysion’s best year ever.    We landed several large national brands and saw sales and recurring revenue grow 150-200%.  I’m not saying I told you so, but here’s a post from 4Q08 that has a pretty good hypothesis.

And finally, while it may be traditional to look backwards when saying thanks, I am most thankful for the bright future we have in front of us.  Looking forward to a fantastic 2010!

Read a good blog post by Brad Feld (a successful local, Boulder-based VC and prolific blogger) on how to approach planning.  In it he challenges management teams and their boards to spend some portion of their time thinking about how to add another zero to one of their key metrics.

How can we get from 100 customers to 1,000 customers?  How can we increase our average daily usage from 500 to 5,000 etc.  This type of thinking encourages companies to think beyond the tactical “how do we grow revenue 20% next year” and to focus some attention on how you change your business performance by an order of magnitude.

As I was reflecting on the aspects of our business that I would like to hang another zero onto, I thought about one metric on which we had already achieved this feat.  In fact, not only did we add one zero – we hung two zero’s onto the metric, which for those that stopped doing math in their head means we increased the metric by 100x.  Curious as to what it was?

Active video users in a single company.  In one of our larger customers we increased the number of active users of video from ~10 to over 1,000.   I’ve thrown this stat around before in prior blog posts, but I’m guessing that many folks haven’t really reflected on the true significance.  Think about it for a little bit.  I don’t care what functionality you have or how amazing your technology is, if you only have 10 people using it you can’t compete with a company that has 1,000 people driving value.

I’ve got all kinds of ideas on the next metric I’d like to increase by an order of magnitude, but in the meantime I think we’ve started off with a pretty good one.

John Honovich had a post a while back on the topic of Crowdsourcing.   In the post he asked the question of whether crowdsourcing can compete with traditional remote monitoring providers.  It’s a good article and you should check it out.  His conclusion is that crowdsourcing is unlikely to be a material threat to traditional proprietary remote monitoring services due to the difficulty in lots of people accessing video, privacy concerns, and the ability for proprietary providers to leverage video analytics to exceed human based efficiency.

I’ve got a slightly different take on the topic, although I do agree with John’s assessment of the challenges.  While “crowdsourcing” in its pure definition may not take off right away, I think that one of its key principles is already having a huge impact on the video surveillance market.  The principle at the heart of crowdsourcing is this:  providing access to video to a larger number of people can enable more value to be created from that video.

This principle is incredibly simple and very hard to argue with, but many in the industry have not yet come to understand how broad of an impact it will have or what is required to deliver.  Regardless of how much value is being generated from video today (whether in identifying risks, investigating issues, or learning about and improving operations) you could always generate more value by having more people review it.  It could be a numbers game in that you don’t have time to review everything or it could be an expertise game in that there are specific subject matter experts that could identify more useful information from the video.  The “more people” in this could be others inside the company (marketing, operations, finance) or outside the company (remote monitoring providers, guard replacement, operational auditors, LP consultants, cheap labor in India).

Most of the arguments against this trend don’t really attack the concept, they focus on the challenges that keep companies from giving access to more people.

it is hard technically

This is absolutely true, it is very hard to give access to video in a useable way to a large number of people, inside or outside of the company.  Most video systems were designed for onsite use by a handful of expert users.  While many video systems are now remotely accessable, many require significant effort including VPNs and lot of IT intensive setup to make this happen.  Extending video access to 1000s of people across 1000s of locations has some very difficult challenges that many video providers have not historically addressed.  MVaaS is in the forefront of addressing these challenges to eliminate technology as a barrier to wider spread video utilization.

it requires a much more sophisticated approach to access control

Privacy concerns are the most commonly stated issue, but the access control challenges start well before you think about giving access to your video  to Joe the Plumber.  When you had 20 people using video in your company your access control concerns were likely binary: someone had access to all the video or they had access to none of the video.  When you have 1,000 people accessing a large number of locations you have to worry about which sites they get access to, what they can do with the video, etc.  It is materially more complicated and more important to control who can see what.  Extend that one step further to outside organizations that you trust (a consultant, a remote guard company, etc.) and you need another layer of complexity to manage access within their organization.  Moving even closer to the crowdsourcing model and giving access to people you may not yet know you need mechanisms for ensuring reviewers are certified, flagging inappropriate or ineffective reviewers, etc.  MVaaS goes a long way to addressing the first two, but the third is an area, while solveable, that has not been fully addressed by the market.

it is not always economical (value of information generated greater than the incremental cost to generate)

Once you solve the technical issues and ensure that only the people you want to review video are able to do so, the remaining question is whether the additional viewers can create value for you at a price you are willing to pay.  This requires that video be efficiently useable by the extended group of people and that the output of their review be easily consumable by the organization.  Neither of these are true with most video systems today.  Telling a potential user to review hours of video on a clunky interface is not efficient.  Using POS data or targeted video analytics to limit the video that must be reviewed is efficient.  Creating a bunch of PDF audit documents or sending thousands of stand-alone email alerts is not easily consumable.  Using an easily configurable web interface for reviewers to create audits or capture new data from the video and then allowing the company to massage and filter the results is easily consumable.

Companies and organizations will continue to expand the number of people that have access to their video as it will most certainly increase their return on that investment.   While it may be a while before crowdsourcing becomes a material business model,  companies like Envysion are working to address the challenges that this broader access creates.

Half of the physics prize will be shared by two researchers from Bell Laboratories in Murray Hill, N.J. While at Bell Labs, Willard Boyle and George Smith invented the charge-coupled device, or CCD, which takes the place of conventional film in many of today’s digital cameras.

The CCD also powers a lot of surveillance cameras and was invented in 1969.  They were working on a video phone.  My my, how time files and still no video phones! 

The other day I opened my utility bill and just about hit the floor because my electric bill was so huge.  I have to get a handle on how much power I am using, I thought, as I wrote way to large of a check to our local utility.  Fast forward a month and I found myself having lunch with a good friend of mine, Dennis Kyle, a consumer marketing uberstar who is now working at Tendril Networks.  Tendril is a “smart energy” start-up that is working in the energy management industry.  For a consumer, Tendril will provide a small display device called an Insight.  The Insight will track kilowatts used and cost per hour of energy as it is used.  It can also communicate wirelessly with other energy management devices in your home.

For those of you with children that leave lights on all over the house, or who turn on two electric ovens to 450 degrees to cook two pizzas, the Insight will alert you when your power usage exceeds a pre-configured threshold, signaling an alarm that clues everyone into the situation immediately.

After lunch, my mind started spinning with how this service could be optimized for restaurants.  The key to Tendril is that it can use information from multiple devices to make smart energy decisions.  For me, the obvious information tie into restaurants was point of sale data.  What if you could interconnect POS trending data with energy management?  How about turning on/off ovens or other cooking devices based on historical trending of the average/peak number of guests for that day?

While it’s early, smart energy is the way of the future and I suspect the return on investment for retail is just around the corner.

Read a good blog post today over at Sandhill.com on Meaningful Information by Harold Hambros.  While the post had nothing to do with SaaS, video or MVaaS, his main thesis is squarely in synch with our philosophy at Envysion.

To paraphrase, it states that without a way to provide meaningful data to end-users in a manner that is easy for them to consume, having incredibly rich features and extensive access to data will not create significant value.

Some of my favorite excerpt are:

“what business needs is an interface to its enterprise system that sparks excitement in its target community of human users – excitement in the fact that their work is easier, more enjoyable, that they are more effective, and that the employer is supplying tools that reinforce their belief that they are part of a winning team”

“the true measure of a system’s performance isn’t its raw power, but its efficiency and effectiveness”

“The unfortunate reality is that unless it’s designed to be easy to use, most human beings aren’t capable of figuring out how to make that request in an acceptable amount of time”

One of the biggest differentiators of Envysion’s service versus traditional video surveillance solutions is that our entire business model is focused exactly on this goal: to make meaningful information (in our case relevant video tied to business system data) easily and efficiently available to as many people both within and outside the organization that the company wants to have access.

It’s not about the technology, it’s about empowering people to use technology to create value.

Most people, when given the opportunity, will ”try before they buy.”  This doesn’t work in some industries (think fruit vendors).  But for others, this approach works well.  MVaaS is certainly in the latter group.

Typically, customers that are afforded a pilot are those with a large number of sites.  And it is certainly reasonable that these customers would want to “kick the tires” prior to committing to an extensive enterprise roll-out.

There are a multitude of things that a customer may want to know prior to buying.  Does the system operate as presented during the sales process?  Has the system been properly integrated with the POS System?  Are the views clear and useful to the operators?  Are people within the organization adopting the software?

But there is one ultimate question in which these companies are interested - Will our investment in this technolgy provide a healthy return?

In our experience, when our MVaaS system is utilized, customers are able to drive 1.5% to 2% of revenue to their operating profit.  This leads to a payback of five months, and a triple digit ROI!  

If these returns are achieved (and we’ve seen them replicated several times over), the logical conclusion is to move ahead quickly, because every day delayed is another missed opportunity to gather the extra cash.

I’ve had several conversations with cutsomers and industry folks about specific feature capabilities of our MVaaS solution versus traditional video solutions.  The comparisons run in two directions – comparing us to legacy video solutions (traditional DVRs) and comparing us more leading edge video solutions (advanced DVRs, with analytics, IP camera support, etc.)

The conversations typically center around some feature that the customer or channel partner is used to having (like having a CD burner), believes that they want (like video analytics), or didn’t realize was possible but now really wants (like an enterprise integration to their POS).  In every case the conversation typically culminates with the conclusion that there are 1-2 features that the customer views as absolutely critical to their business.  From the customer’s pespective, these are the must have features to be able to generate a return.  From the vendor’s perspective, these are the must have features to be able to win the business.  Killer features you might say.

Having the right set of killer features for your targeted market is then obviously pretty important.  Having them gets you a shot at new busines, it gets you included in the RFP, it gets customers excited about the near-term value you can add.  Clearly its better to have the killer features than not.

Is it the most important thing?  I don’t think so.  The problem is that killer features are an ever-changing thing.  As customer’s use of video changes and evolves, the features that are most valuable to them change as well.  As you expand the base of users of video from 10s to 100s you get new killer features from your new users.  Killer features are a moving target and always should be.

One could argue that what is most important then is a company’s ability to identify and implement new killer features over time and to roll them out to their users as quickly and efficiently as possible.  I’ve heard the argument that video is a pretty simple and well understood business and that there aren’t really that many changes that need to be made and certainly none that need to be quickly rolled out.  I think this comes from the view that video is simply a security tool for the security and LP groups.  I’m not seeing that on our side.  We have customers with over 1000 users, only a handful of which are security and LP users.  Almost all of the usage is from operators and managers on the business side and I can tell you their requirements are constantly evolving as they have never used video before and are still learning how best to make use of it.

It’s in this environment of broad-based utilization by a diverse set of users where having all the right killer features on day one isn’t the most important, being able to quickly react and deploy the right killer features is the key.

One of our big prospects offered up the following quote from Charles Darwin that I think sums up my view the best:

“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”