How the Cloud Can Add Value to RMR Using Cloud-Based Video Storage
Combined with new mindsets about sales and service, cloud-based video storage has the potential to boost margins for dealers and integrators.
In the past, video surveillance was looked at as a reactive solution, as in “I’ll go look at the tape” in the case of any event that required further scrutiny. Reliability was also sketchy, as many people went to view their video only to learn — after the fact — that it wasn’t there, says Matt Krebs, business development manager for Cloud Solutions at Chelmsford, Mass.-based Axis Communications.
“You’d find that the hard drive or the DVR had failed or someone had disconnected the camera, or any number of things. In that case, the system failed for the purpose for which it was purchased,” he says.
With cloud-based video storage, those concerns are minimized, which makes the solution ideal for, well, anyone.
“Anywhere you’re going to install a video surveillance system fits into the parameters of hosted or cloud-based video,” Krebs thinks. “The cloud should always be considered, even if it’s just for a side-by-side quote. VSaaS (video storage as a solution) is attractive and available for everybody from both a price and usability perspective.”
Storing video in the cloud also creates opportunities for additional revenue, says Jumbi Edulbehram, business development manager for Next Level Security Systems, based in Carlsbad, Calif. “Having video and data be remotely accessible also opens up the possibility of providing value-added services based on proactive system monitoring and support, remotely monitoring the video to provide services such as video verification and video guard tours, and collecting and reporting on data from video analytics,” he says. “Analytics such as people-counting run on the video can yield data that may be useful for certain businesses, such as retail.”
These and other services create opportunities for dealers and integrators to go to market with different sales and pricing models that make cloud-based video storage — and video surveillance as a whole, by extension — more affordable. Service contracts, reduced up-front costs for customers and — wait for it — a steady RMR stream are just some of the reasons cloud-based video storage may be on the cusp of greater proliferation in the security space.
Sales & Service
The biggest opportunity cloud-based video storage represents for integrators is the ability to alter the model from equipment-based to service-based. This creates a long-term relationship with customers and opens the door for value-added services, which in turn create more RMR: a huge plus for dealers and integrators.
When there is a longer-term service contract in place, there’s also an opportunity to get creative with sales and pricing. “With the service component, the integrator provides service to the customer, which is theoretically paid for ongoing. That presents an opportunity to amortize the equipment over the life of the contract and offer solutions to customers at a lower up-front cost,” says Brian Carle, director of product strategy for Salient Systems, based in Austin, Texas. “Small businesses need a video system to combat theft. But sometimes they have to decide between that video surveillance system and an ad campaign that’s going to help grow their business. With cloud-based video storage, they may not have to choose.”
There’s no way this was ever going to happen in traditional installations, Krebs says, because of the risk to the dealer or integrator, risk that the cloud minimizes or eliminates.
“In a traditional deployment with a DVR or NVR and IP or analog cameras, you’d never put a model in place with the end user customer on a lease-based RMR because if that customer decided not to pay, they would still have functioning equipment,” he says. “The cloud-based model is completely suitable. The integrator has more controls and can cover expenses better because there is less equipment cost and they have captured some of that up front. If the customer stops paying, they have the flexibility to turn access off automatically.”
If this model sounds familiar, that’s because it is.
“I’ve heard people talk about this, and to me, this is clearly the direction for the market. Cloud-based video surveillance is going to become very attractive, particularly because the cost of the system is reduced,” Carle says. “It’s following the same pattern as burglar alarm systems. In the early days, you paid thousands of dollars up front for an alarm system and if it went off, you hoped your neighbor would hear it and call the police. When remote monitoring came along, dealers began to amortize the cost of the alarm system. This is going to help video surveillance move in that direction.”
Krebs sees the approach having the same positive effect on video as it had on alarm systems in the past. “We have been doing this in the industry for years with alarm systems, where customers’ subscription costs cover the cost of the system over time,” he says. “Now we’re just getting into that with video surveillance. Dealers and integrators are always searching for new ways to add monthly revenue. Traditional video surveillance was not one of those avenues. Today, this model is very attractive with lower price points for customers and a steady recurring revenue stream that could become 30 to 40 times the revenue value on the street.”
Not to mention that this model also could be a huge benefit to potential customers, Krebs adds. “There are a lot of different advantages to video surveillance. The cloud takes video surveillance from a capital-expense model to an operating-expense model. It’s a go-to-market model that brings video to the market as a service,” he says. “That recurring revenue model wasn’t there until now.”
Those advantages are more than just technological, says Tom Larson of BCDVideo, based in Northbrook, Ill. “For the end customer, if they buy a DVR system, they’re spending $3,000 out of pocket, which gets depreciated over time because it’s an asset. If they go with a hosted solution, it’s now a recurring monthly cost, so they can write off 100 percent a month as a cost to the business. With depreciation, you don’t get the full write-off because it’s spread out over three years, so you’re getting pennies on the dollar,” he says. “[Hosted video] is better financially for the business than depreciation.”
Because video is stored in the cloud, this model requires less actual equipment, making it the kind of math every dealer and integrator understands: capital investment plus service agreement equals increased margins. There are also two other factors to consider: installation versus maintenance and business value, Carle says.
“Maintaining existing systems is a heck of a lot less difficult than selling new systems and getting them online,” he says. “It’s also great for the value of the business because RMR is much easier for prospective investors to evaluate.”
The biggest drawback, Carle says, is the impact on a dealer’s or integrator’s cash flow in the early part of the contract, before the service agreement has covered initial equipment costs. “The con is the cost to the business of the installing business. At first, cash flow can be low, but over some period of the contract, the customer becomes much more profitable than if they’d paid more up front,” he says.
Still, there are strategies for overcoming this tough period, Carle says, one of which is to partner with manufacturers to finance equipment. “You lease the equipment and the customer leases it from you,” he explains. “So with certain products, the cost and license model is more in line with how an integrator receives revenue.”
Many dealers are looking for additional services they can offer on top of video, such as bundling hardware and leasing cameras because they make more money that way, says Christian Morin, director of the Stratocast product group for Montreal-based Genetec. Nevertheless, he adds, in any service-based relationship, there is no room for complacency.
“In the new era of the cloud, you don’t get all your money up front. The money is spread over the lifetime of the customer, so the longer you can keep that customer, the better,” he says. “Quality of service is what’s going to keep the relationship. If customers stick around, there’s a great opportunity to increase those margins. If they receive poor service, they can take their fee and go somewhere else. This keeps the integrator on his toes to make that customer stay a long time and keep that recurring revenue coming.”
Done correctly, Krebs says this model can create long-term success for dealers and integrators and can even change customers’ overall buying mindset.
“There’s a high stickiness value to this model, so customers will stay for a while,” Krebs believes. “It also takes it from a grudge purchase (‘I have to have this because my insurance company or my local jurisdiction requires it.’) to a ‘How do I get that?’ purchase. It changes the paradigm.”
As for installing and deploying cloud-based storage, that should not be much of a consideration, Krebs says. “It’s pretty easy to deploy and install cloud-based storage; it’s minimalistic, relatively lightweight technology. There’s no recording device, cables, power supply or footprint; it has a lower cost of entry and offers a higher ROI,” he says.
Cloud-based storage opens the door to dealers and integrators who may never have considered IP video systems because of the complexity of installing storage solutions, Morin says. “Depending on how a solution is built it can be easier to deploy and roll out. For the dealer or integrator, that means less time to implement a solution and less hassle because they’re not installing all the different components — they’re all handled in the cloud,” he says. “They can do more with less, and with less IT expertise because they don’t have to deal with these devices. They can focus on the security camera, where they have more confidence. Competency level in this area is up in the industry as a whole, but we’re not at the point where we can install a server with a blindfold on.”
The Bandwidth Conundrum
From a technical standpoint, the greatest challenge to cloud-based video storage is the bandwidth a customer has available, Carle says. If there is not enough upstream bandwidth to upload the number of cameras the customer wants deployed, that limits the scalability of the deployment. In these situations, he says, a dealer or integrator can offer customers the option to record dual streams — one locally and one in the cloud.
“You can record higher resolution and frame rate and store it locally; then if you need to investigate something, you can pull the video recording locally from the camera,” he explains.
The bandwidth conundrum is a good reminder that cloud-based storage is not always the best solution, Morin says. “The cloud is not a magical silver bullet that’s going to solve all the problems of the world,” he claims. “It’s a great tool that you have to know how to wield and when to wield it.”
Rather, Morin says, it lends itself not only to the small- to medium-sized business (SMB) space, but to multiple-site locations. However, there are still situations where it is just not going to work, no matter how badly an integrator or customer wants it to.
“A more traditional on-premise solution is better for some situations. Where the cloud works well is in situations where there’s a high likelihood of a camera being stolen or damaged or in temporary surveillance solutions because there’s less hardware to manage and fewer servers to install,” he says.
Larson says bandwidth is the biggest factor that is preventing remote video storage from reaching its full potential. “What’s going to make this a reality quicker rather than farther down the road is Comcast, Time Warner, Charter and the other Internet providers. When faster, high-broadband is available to business, it will lead to greater adoption,” he predicts. “Here in the Chicago area, there’s no broadband for business, only DSL, and DSL isn’t adequate for transferring video to the cloud. The sooner that gets done, the sooner hosted video will become a more realistic solution.”
Remote situations, even in the absence of bandwidth, are also good candidates for cloud storage using a third-party bandwidth provider, such as a broadband card, Morin says. “In a situation like a substation that needs to be protected with no bandwidth, a 4G LTE air card is very effective and efficient,” he says.
A blended local/cloud storage solution also can be attractive because of the flexibility it offers. “The flexibility of using variable frame rate, resolution and time schedules suits businesses,” he says. “If your video surveillance is taking up all your bandwidth and affecting your business, you can record to a network-attached drive. Then when you lock the doors, the NAS can upload data to the cloud without impacting your business.”
In general, the cloud makes video management easier for end users as well as installers, who don’t have to worry about a video system’s infrastructure because the hosting provider has already taken care of that, Edulbehram says. “Without the cloud, designing, implementing and managing an infrastructure that enables centralized and remote access to a large number of sites is very difficult,” he says. “Leveraging cloud technologies, they can very easily provide remotely accessible and centrally manageable systems to a host of customers.”
Regardless of the installation or application, the most important thing to remember, Morin believes, is that while cloud-based storage can work for businesses of several sizes, it is not always the right solution.
“Use it where it works well. We see it working very well in the enterprise space. Large enterprises can use the cloud to extend their system and build a high-end application. It offers the best of both worlds. But the cloud is good for some, while on-premise is good for others,” he says. “Today, the bulk of business, in video in general as well as the cloud, is in the SMB space. They just don’t have the expertise to run their own system in-house. That’s the benefit from the end user’s side and it’s one more argument for the dealer or integrator who’s selling the solution.”
Making the Best Choice
When choosing a cloud service offering, there are a number of important criteria dealers and integrators should consider. Jumbi Edulbehram of Next Level Security Systems makes the following suggestions:
• Ease of installation: The cameras should be plug-and-play and not require network configuration at the customer site. Look for solutions where the cameras connect automatically to the cloud.
• Security: Camera connections to the cloud should not require the opening of any network ports into the site because this presents a security risk. Look for solutions where a secure link to the cloud is created from the inside out using network ports that are already in use to access the Internet.
• Video quality: Look for solutions that do not limit the customer to a particular video quality (resolution and frame rates) regardless of the bandwidth available. Smart solutions can vary video quality based on the amount of bandwidth available, giving customers the best quality video that their bandwidth allows.
• Cost: The difference between how much you can charge your customers and how much you pay the service provider is your profit; so pick a cost-effective service provider, i.e., one that has a low monthly fee per camera and competitive pricing on cloud storage.
• Reliability: Ensure that the service provider has a high level of reliability; this can be achieved through the use of a strong Service Level Agreement (SLA).
• Certifications: There are a number of third party certifications such as SAS-70 for cloud infrastructure that ensure proper reporting procedures.