Yesterday I left readers dangling with a “things are looking better, but…” ending. So with commodity costs down, sales down to flat, but profitability starting to tick upwards, why wouldn’t a small business owner want to draw a paycheck? Perhaps the first paycheck in over a year?

Earlier this month, a coalition led by the USDA and the US Senate took actions that resulted in a “Dairy Bailout.” That’s right – a bailout of the American dairy industry. Since dairy prices have sank to 30 year lows, many dairy producers were pricing below operating cost. The government has stepped in to purposely bid higher than market and remove excess inventory, nearly a $350 million price tag to taxpayers. The result? The price of cheese has skyrocketed 25% and is expected to hit 40% by year’s end.

Market forces of our great economy at work? Doesn’t sound like it. When the price of cheese was 2x their current levels in 2008 and pizzerias were bleeding red, was there an equivalent support model? No, and it really never crossed their minds back then. However, I can guarantee small business owners are seeing red having their tax dollars go towards a program that is systematically eroding the profitability that has been so elusive over the past 18 months.

So what does all of this have to do with MVaaS? It comes down to maximizing profitability. While we can’t control the surprising dealings on Capitol Hill that raid the bottom line, we can control the exceptions, variance and negative behaviors at the store level and across the enterprise. MVaaS will help you and your business keep a few more cents for every dollar that goes in the register.

Over the past year I’ve tracked the roller coaster trends in commodity food costs that affect the restaurant industry. It started in late 2007 with the “corn bubble” where over zealous farmers were chasing the ethanol craze, creating a ripple effect on the world food supply. The resulting food cost escalation squeezed restaurant profitability and forced many to shutter their eateries for good.

In early 2009 it appeared the bubble had burst and the sky-high costs of proteins, wheat and dairy came crashing down. As is typical with this economic condition, high prices led to over supply and now dairy prices have plummeted to 30 year lows. This is great news for restaurants and specifically, pizzerias, who consume 25% of  cheese in the US. While consumer spending continues to apply pressure to top line growth, there has been some commodity cost relief following an awful 2008.

Yep, the market forces of our great economy are at work. We can expect that lower production will offset any market oversupply to naturally stabilize prices. It may take some time and the overflowing coffers of the suppliers from the record high prices of 2008 may suffer a bit. On the flip side, the wholesale consumers get to enjoy a little extra profit that had all but vanished during the same period.

Just when you thought it was safe to draw a paycheck from your small business…

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.

Despite the challenging economy (and perhaps b/c of it), Envysion’s MVaaS solution continues to drive material value and resonate with large multi-unit operators.  We are seeing more demand in the retail and restaurant space now than we ever have.  We’re well ahead of our 2009 plan and have some very material opportunities for 3Q09.

As a result, we’re stepping on the gas to take advantage of the opportunity we have.  If you are interested in joining a rapidly growing startup that is disrupting a large traditional marketplace with a differentiated and compelling solution, shoot your resume to jobs@envysion.com

All jobs (except Sales) are in Louisville, CO – which happens to be CNN Money’s #1 Best Small Town in America.  Here are some of the areas we are looking to augment:

• Product Management (SaaS, software product management)
• Customer Implementation (to manage customers through pilots and early rollouts)
• Customer Service (need basic technical skills, Linux knowledge)
• Sales (strong enterprise solution selling capabilities)
• Procurement/Inventory Management
• Web development (PHP, Java, Linux, Apache, MySQL)

Today’s 40th anniversary NASA will broadcast the best available footage from some recordings engineers made of the video received on the ground as opposed to the original tapes from the moon.  These are reported the highest quality images published in 40 years since the lunar mission.  Some original tapes from the lunar cameras of the Apollo 11 moonwalk appear to be lost.

The lunar camera used Slow-scan television (SSTV) and when re-broadcast for TV, it was converted which resulted in a big loss in image quality.  According to Wikipedia, early Apollo 11 video was at 10 frames per second and 320 lines of resolution.  Not so different from the typical low-end CCTV system today.

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.

Fredrik Nilsson of Axis Communications gives a talk promoting the benefits of SaaS.

While the talk focuses a bit on security applications, it’s refreshing to see that they’re not focusing exclusively on “remote recording” for video.   Instead they are focusing more on “hosted software” aspect, where the video managment system is hosted.

The power point presentation does mention that DVR’s for the hosted service are often deployed on site.  This is an important requirement for many if not most applications in order to make the solution cost effective.

Envysion recently introduced support for ACTi IP cameras.  In particular our customers are demanding a mid to low priced camera that offers megapixel resolution.

Our customers needed a reliable, high resolution camera option at the lowest possible price.  ACTi’s megapixel cameras supply good quality images that exceed our customer’s requirements.  Our customers also like the several flavors of dome cameras which ACTi offers in megapixel resolutions.

We liked the easy integration with ACTi‘s software and the near ubiquitous Power over Ethernet support.   For software integration, all we really need is the RTSP protocol for video transmission and a simple web interface that we can create scripts to auto-provision from our Hybrid NVR’s.  We also received excellent support from their development team.

Thanks ACTi!

Is IT governance a problem?  Using internal charge back schemes to manage costs for IT?  A simpler solution might just be SaaS.  Check out RSR’s article on IT Chargebacks: Tools for Business Alignment or Past their Prime?

I agree with them that internal chargebacks for IT have past their prime.  SaaS is helping to further make such schemes unnecessary by helping companies stay specialized on their business and not building ‘infrastructure’ that is outside their core competence.  It seems to especially make sense in business segments where technology isn’t the core product or competency.

Not sure if you’ve been paying attention, but it appears that there are a host of players and investors that share our bullish view of the opportunity in the restaurant and retail space – despite the gloomy economy.

By my informal count, $35 million has been invested in video providers that target retail and restaurants in the first half of 2009 alone.  None of these companies are MVaaS providers (well except for us, as we are counted in that $35M figure having raised a round ourselves), but all of them are squarely focused on the value proposition of taking video beyond security and extending it into the organization.

Here’s are some examples:

• DTT - Geovision based DVR solution + operational audits focused on franchisee community – $7M
• Westec – Video and remote guard/monitoring – $20M (although big chunk of that was recap)
• Agilence – Video, exception reporting and LP consulting – $4M + undisclosed strategic investment from Schneider

I’m excited to see this activity, despite the competitive nature of these companies, for a couple of reasons.  First, it is again a sign that others (including investors willing to bet serious $) see the same opportunity that we do, which is always reassuring for our current and prospective investors.  Second, one of the biggest categories of competition we face is the “status quo” – old DVR and video technology that companies still buy that will only ever be used by a small group of people in a company for security purposes only.  The more companies that are promoting a broader value proposition, the more customers will start looking for solutions that meet these increased needs – this will be good for all of the providers that can deliver a more extensive ROI.

There might be more people competing for the same opportunities, but the number of opportunities will grow exponentially.   This is good for the space and good for us (b/c I really like our chances..)