Intriguing idea, but I don’t know if I believe you one hundred percent….

Should have the analytics review up on the site early next week.

Dang it. I didn’t mean to steal your thunder.

Did Scott say the same thing I did?

I guess we will have to wait and read Sam’s thunderous interview to find out.

Thanks.

Doug.

I love the discussion. Let’s get to it.

I’m going to respond to each of your points – and they are all good ones:

Yes, OV has built their embedded solution into industry standard chips. Most of the companies trying to license are using TI, as well. Ours runs on a TI DSP as well. But that only makes the hardware portion easier. The time it takes to integrate the software inter-connectivity and functionality is not as simple as I think you are suggesting. Making sure you have a product that works when you are done and the testing is not trivial either. Since everyone is developing a different product (especially high end products), that means added time to support different needs.

We’ve talked to many who wanted to license our analytics, and I can tell you there is a wide range of different things wanted and different hardware platforms to integrate into. If it was easy to do, we’d look closer at more of those opportunities.

My point is that you can’t just develop one reference design. You end up designing lots and continue to add to the design to meet all the needs requested.

In your point about getting the same benefits from designing your own, I think you missed my point. What I was talking about was our early discussions with companies who wanted to license our technology. We tried to get them to see the opportunity with storage and bandwidth, but we couldn’t get any who were interested. They only saw analytics as a means for detection. That’s why we felt we needed to demonstrate it by doing it ourselves.

You mentioned the trade-off between the cost of developing the analytics yourself and licensing. That’s absolutely true for camera and DVR manufacturers who don’t have the analytics technology. I agree 100% that it’s an easy decision for them. What I was talking about was our decision. We had the analytics technology. We didn’t have to spend
$10M to develop it. Our question was whether to hope that the camera and DVR manufacturers would know what to do with our technology if they licensed it, or did we need to develop it ourselves to be sure it demonstrated all the potential it had.

Everyone kept looking at analytics as a detection technology, but we thought that market was too small, and the real potential was much bigger.

Now onto the negatives:

I agree completely that you need to be an expert in both camera technology and analytics. We happened to have that expertise. We’ve got a long background in both, so we knew we were uniquely qualified. This is an excellent point you make, and will indeed be a difficulty for anyone else. Steve Lefkowitz has been developing and selling innovative cameras for over 30 years. We acquired a large camera manufacturer in Taiwan, when we both worked at GE Security, and learned all the ins and outs of camera design and manufacturing. For example, we introduced the first Pixim based camera into the marketplace, and it was an immediate success. Our analytics technology is second to none.

That’s exactly one of the things that makes VideoIQ so unique.

I agree with you on the last point. This is a limitation to our approach. If someone loves buying from Sony, for example, then they really don’t want to buy from another vendor. If our technology was about the same as everyone else’s, then this would be a problem. Or even if everyone else’s analytics were good enough, then a slight technical advantage wouldn’t be enough to make an impact as a new company.

However, the main problems that have kept video analytics from becoming widely adopted show that the technology is not good enough. It needs to be as easy to install as a standard camera. It can’t require hours of tuning and calibration. It needs to be accurate. You can’t be dealing with 5-20 false alarms per day per camera. It needs to be cost effective. It can’t double the cost of your video system.

So, if the integrator who loves Sony wants and needs a product with real video analtyics that works, is easy to use and costs about the same as a standard IP camera, he can’t get it from Sony. So, he either lets his competitors get a leg up on him, or he will take a look at our iCVRs. Fortunately, most are eager to try a product like ours.

Without a substantial advantage, our approach would be much riskier. But seeing the slow down in the analytics market, while our business is booming, we couldn’t be happier with our choice to build the whole product rather than just licensing and hoping others would get it right and sell it properly.

As always, I enjoy all of your comments, and hopefully this discussion benefits others as well.

Doug.

Hey! I asked Scott Schnell that question on Monday!

You’re stealing a little of my thunder here Doug…

All of your points are interesting and I tend to agree with many of them. Here are some counter-arguments to your position:

You say, “Every new company you license requires working with a different design to embed the technology into their products” ObjectVideo has standardized around TI chips and now Intel. While there is some work involved, I think you are over-stating the level of difficulty.

You say, “the power of analytics to make your cameras smarter, to control bandwidth and improve storage quality … just as valuable as the ability to detect intruders early to prevent crimes before they happen” I think you can get most of the bandwidth and storage benefits through licensing or developing one’s own.

You say, “But camera manufacturers paying license fees to add in analytics will always have to charge more to cover their added costs.” This is a fixed cost vs variable cost issue. I may pay a few hundred to license an analytic per camera but I save the ten million from developing it myself.

Finally, let me offer 2 negatives for building an all-in-one appliance with video analytics (like VideoIQ’s).

(1) One has to be an expert at developing cameras and video analytics (hardware, software, mechanical issues, optics, etc.). It’s a lot harder to do both. The all-in-one company can be left with a product that is mediocre at both.

(2) Even if the all-in-one product is good, now the customer is forced to buy through you, rather than his existing suppliers. This may block him from selecting this product. It may also force the all-in-one manufacturer to spend far more in marketing and building a channel.

I think it’s a great question and worthy of discussion.

Personally, I think there are risks on both sides.

Best,

John