Some video analytics math

I didn't catch up with Cernium CEO Craig Chambers at ISC West so I caught up with him yesterday on the phone. As part of a pretty wide ranging conversation (which matched up pretty well with the video analytics discussion we had at TechSec), he offered up one piece of math that called into question the tactic of selling video analytics licenses. Because that's basically the debate in the video analytics market: Do you sell products that have video analytics as part of their features, or do you sell video analytics licenses to other people who make products and make your margin on the sale of those licenses? Is video analytics a product unto itself, or is video analytics just a feature of another product? You've heard this before, I'm sure. The license guys point to Dolby - they seem to be doing okay just selling their technology to other guys who make products. The product guys say, "you don't see people making a living selling chemistry. But chemistry makes other products possible. Analytics are just a technology that makes other things possible." But here's Craig Chambers' math: Say there are 10 million cameras sold worldwide in 2010 (maybe it's a little more or less, it doesn't really matter, you'll see). Say 10 percent of them have video analytics associated with them (that's probably a high number, considering only maybe 10 percent of all the cameras sold will be IP cameras, but that's made up for by DVRs with analytics and encoders with analytics, etc., so it's 10 percent of all "channels"). That leaves you with 1 million cameras that can have a video analytics software license associated with them. So, how much does that video analytics license cost, wholesale? What's Pelco pay for an OV license on a Sarix camera, say? Chambers postulates that it's about $10. While many video analytics companies drew up business plans that assumed licenses would retain values near $100 for a while, he says the market, flooded by analytics vendors, has crashed down into the single digits for some licenses. But go ahead and say you can get $20 a license for your embedded analytics. What is there to the market? Maybe $20 million in total potential revenue, split up between how many companies? Go ahead and double every piece of the equation - you're still talking about less than $100 million worldwide no matter how you figure it. Chambers argues that unless you've got a product to sell, wrapped around the analytics (Cernium's Archerfish and CheckVideo, VideoIQ's ICVR, ioimage's little red boxes, even Aimetis' VMS software), there's just no way to create a scalable company with analytics. There's not enough total money, no matter how good the margin is on algorithms. Maybe this isn't a new concept. Plenty of people have made the argument to me that analytics are a feature, not a product, but that math sort of brought the argument home for me. Will the number of cameras explode to 100 million, with half of them having analytics on board, thereby creating a much bigger pot? Seems unlikely. Maybe a company like BRS Labs can show so much value with their algorithms that they can continue to get hundreds of dollars a channel for their analytics, but that's going to take a lot of differentiation to show the return on that investment. And, yes, I know I wrote a story referencing VB/Research's numbers on the growth of the market, where they took the total value of the products that have the analytics on board and made that represent the total market for analytics, but, yeah, I'm coming around to the idea that that's a little like saying the market for the guys who make the sensors that tell my car if I've got my seatbelt on or not is represented by the entire number for auto sales worldwide.


The bigger aspect of this story is the the excessive spending of these companies. No one required OV, ioimage, Cernium, 3VR, etc. to spend $150 Million collectively.

Of course, when you spend that much money, a $20 Million market is infeasible. However, that is their fault, not a fundamental flaw in the market.

Small teams of computer vision experts, highly focused of analytics, with an OEM sales model can be financially successful in a $20 Million market.

Can you have large sales teams, big booths at trade shows, global advertising campaigns in trade magazines and be successful in a $20 Million market? No but it's not required. These companies simply chose to do this.

Now, there's no free lunch when building a product around analytics. Take Cernium's Archerfish. They know need to become experts in building cameras, storing video centrally, running a data center plus they need to grow retail sales channels, etc.

The market for products may be larger but the costs and the competition is significantly greater. If you take $30-$50 Million investment for analytics, it's probably your only move but they did not need to take it and now they have a very formidable challenge in its own right.

A few final points. You allude to BRS Labs providing 'so much value' but the Houston Chronicle in December 2009 reports total revenue of only $500,000 (a pittance even for analytics companies) (see: Do you have quantifiable details on BRS value/revenue generation?
Secondly, V/B 'Research's analytic report was released and its clear that they are pulling numbers out of the air without any understanding of the market (see: Premium).

Well, I don't think it can be the market's "fault." It is what it is. I'm just saying that the pie is only so big, and with the number of companies trying to divide it up, they all have a ceiling. That ceiling seems to get higher if they are product manufacturers instead of just software developers. The marketing done by the analytics companies I think was just based on incorrect projections about how analytics would be valued. I think it has turned out that the barrier to entry for analytics companies was much lower than some of the early entrants anticipated and thus the value placed on the technology plummeted more rapidly than they expected.
Re: BRS Labs. I don't allude to them providing so much value, I just said, "maybe ... BRS Labs can show so much value," as in: that's the only way they can survive. How would that happen? Only if, as I say, they can show a huge differentiation between their performance and everyone else's. That's what remains to sort out. I have no idea whether that's possible or not. The market will tell us.