Hosted Video Can Be Lucrative

A recurring revenue stream that puts more profit in your pocket

• By Matt Krebs
• Jun 01, 2013

If you’re limiting your business to selling surveillance technology as a capital expense, you’re leaving a lot of money on the table. With a hosted IP video solution, you not only create a monthly revenue stream for your company, but the service contract ensures that your customer remains your customer for the long term. It’s a partnership.

Think of hosted video surveillance like a cell phone contract: For a low upfront investment the customer gets the latest-and-greatest smartphone, or in this case an IP camera, but the real profit comes from the monthly subscription fee for service. It’s a strategy worth considering. Here’s why.

Figuring Dollars and Sense

In a traditional capital expense model for a CCTV installation, there’s really no long-term value to the video surveillance dealer/integrator. Take a typical turnkey analog surveillance system with a DVR. You run the cable, mount the camera, hook up the DVR, grab the check and walk away. If you’re persuasive, you might also have sold the customer a maintenance contract on the system. But that maintenance agreement is a risky proposition. If the DVR fails, which they are prone to do, you’re obligated to repair or replace that unit at your own expense, which quickly eats up your profit.

On the other hand, if there are no claims against the contract, you stand to make money on the deal. So on paper, you’ve got a steady recurring revenue stream. But in reality, it’s a gamble that can make or break your business.

Then think of that analog system from the customer’s perspective. When a DVR fails they’re left with no surveillance coverage at all until you’ve sent the technician out with a replacement unit. The coverage gap continues while the technician installs and programs the new unit, leaving the customer vulnerable for an extended period of time. Given that it could take up to a day or more to even schedule an onsite service call to remedy the situation, the anxiety generated by the delay may well cost you that customer.

Pursuing a More Profitable Business Model

In a hosted video model where the customer consumes video surveillance-asa- service (VSaaS), the long-term value of the subscription fee is significant. Because you’re working with a highly available, highly reliable video-based service in the cloud, most components can be diagnosed and fixed remotely without having to incur the expense or time of rolling a truck and technician to the customer site. This translates into substantially lower downtime for the customer as well, which helps to cement customer loyalty. It also removes the burden of maintenance from the customer’s shoulder because troubleshooting and upgrading hardware, software and firmware are all part of the subscription service.

A hosted model gives customers an opportunity to get up and running for a much lower upfront cost than a traditional analog installation, providing a clear financial benefit from the first day. Plus, it gives them access to more sophisticated video surveillance technology that might otherwise be beyond their budget and in-house managerial competence. For example, in an analog world, you might charge $2,500 to install a four-camera system with a DVR and cabling. For a four-camera IP system in a hosted configuration, you might only charge the customer $1,000 to install the IP cameras and connect them to the user’s network. So, for significantly less upfront cost they can experience the benefits and improved quality of IP video. This is because as the dealer/integrator you’ll probably charge the customer a discounted rate for the cameras and the labor expense for installation and then amortize the rest of the costs— and your profit margin—over the length of the 12-, 24-, 36-, 48- or 60-month subscription contract. So there will still be a capital component to the sale. But the more important side of the equation will be the high-margin recurring revenue on the long-term subscription agreement. And, of course, you can upgrade the customer’s cameras over the course of the contract to the latestand- greatest features without ripping and replacing or breaking their budget.

Making the Transition to Selling Video Surveillance-as-a-Service

Once you’ve accepted the idea of deriving profit from selling VSaaS, how do you get started? The first step is to do some due diligence, much like you did when you vetted the video cameras, video management software and other components you wanted to be part of your customer solutions. Start by evaluating all the cloud-based, hosted video offerings on the market and select the cloud storage and hardware partners you feel will best help you grow your business.

Look for partners who will guide you in making the transition from a capital expense sales approach to a hosted video one. The ideal partner will be a company that can help you not only with pricing and packaging but marketing strategies as well. After that, it’s just a matter of actual physical deployment of the hosted solution.

Identifying the Right Prospective Customer Base

If you’re typically installing 10-or-less camera analog solutions today, you’re already selling to the right market segment for hosted video services. We’re already seeing hosted video gaining excellent traction in small commercial environments, quick-serve restaurants, property management, storefront loan operations and more. Interestingly enough, once these small entrepreneurs get access to more sophisticated video technology, they start leveraging surveillance for more than watching out for crime. They’re using the video to document operational efficiencies, implement people counting, heat mapping and a host of other analytics to pinpoint ways to improve their businesses.

To do the same in an analog world, customers would have to add a whole service-based analytic platform on top of the analog system. In an IP-hosted world, the service provider simply downloads new analytic applications directly to the camera through the network.

While a hosted video model is versatile enough to fit any number of customer needs, the sweet spot is a business owner with multiple locations to secure, with the need for only a few cameras per location. Let’s look at some places where hosted video is proving to be a great fit:

• Gated environments. Places with gated entry points—parking garages, community entrances—are ideal candidates for VSaaS because they provide a cost-efficient alternative to paying security guards to sit 24/7 in a booth at a gated entrance. With the addition of two-way audio, a feature of many IP cameras, customers can link the system to a call center in the cloud where the center attendant can verify the identity of the driver and lift the gate remotely. If the customer wants to go that extra step, they can have license plate recognition analytics downloaded onto the camera.
• Coffee and sub-shop chains. For chains with thousands of storefronts, the cost of installing small-camera-count analog systems with DVRs at each location can be a serious financial and operational burden, especially considering the failure rate of DVRs and the absence of trained video surveillance staff at each location. With VSaaS, each location gets sophisticated, highly reliable and available surveillance technology at a fraction of the upfront cost of an analog system, plus the peace of mind that the technology is being managed by a service provider who has the expertise lacking in the customer’s operation.

Putting More Profit in Your Pocket

Let’s be honest, when it comes to selling analog video surveillance systems, the cash flow can be pretty erratic at times. One month you’re selling dozens of systems and you’re feeling pretty great. The next month, sales are pretty lean and you’re starting to worry about covering your monthly costs.

Selling VSaaS can ease that strain by creating a steady, high-margin monthly revenue stream you can depend on. And that builds long-term value for your company.

Hosted video isn’t some future technology in the offing. It’s here today. It’s a field-proven solution in the very market segment you currently sell to. There are a growing number of businesses that need a surveillance system with 10 cameras or less—and once these business owners properly understand a hosted-video option is available, you’ll find there are many who are eager to embrace the solution. It’s up to you to provide this option if and when it fits.

This article originally appeared in the June 2013 issue of Security Today.