Highlights
- Chinese supplier branded consumer video surveillance equipment accounted for approximately 5 percent of US market revenues in 2016. However, the recent explosion of supply and demand for consumer video in the Chinese domestic market is a potential ticking time bomb for US market stakeholders.
- The US market itself has experienced exceptional growth during the past five years, averaging double digit annual growth with 2016 and yielding market revenues of $830 million.
- Consumer demand for surveillance has grown in the shadow of the smartphone explosion. Smartphones have given video surveillance suppliers the perfect platform to develop their user interfaces and give consumers instant access to their surveillance system from anywhere. Better wireless technology, mobile data coverage and connections speeds, cloud storage and analytics have also helped facilitate new demand.
- However, the other main contributing factor to the growing demand has been the improvement to the affordability of equipment. Camera prices have almost halved in the past three years alone. Herein lies the threat to the companies currently capitalising on the new demand. If the market is price sensitive enough, then the suppliers with the lowest prices will eventually gain control.
Analysis
The issue for US suppliers
- The average selling price of a consumer-grade, standalone network video surveillance camera in the US was $95 in 2015. However, in Asia, the average selling price was just $27. One might expect that this is due to a vast difference in technical specifications between the cameras sold. However, in China, consumers can purchase a 720p PTZ standalone network camera with remote connectivity, night vision, motion detection, two-way audio, a free 8GB micro SD card and cloud storage options for less than $20.
- Should these Chinese manufacturers intensify their export attempts this could present the current US market incumbents with a real problem. US suppliers are unable to compete at these prices because most of them actually OEM their product from a Chinese manufacturer to begin with. If the battle for market share ever came down to simple price war the Chinese OEMs would win without question. So why hasn't this happened already and what is currently stopping it from happening?
- In China, these OEMs are able to sell to the domestic market at such low prices because they sell direct to consumers via online retailers like Taobao (part off the Alibaba group). They do not have to pay another company to make the product for them and they also do not have to give any of their profits to distributors or retailers - apart from a razor thin slice to Taobao. However, this would not be the case if they wanted to dominate the US market due to the strength of its offline sale channel. Very few Chinese manufacturers have managed to get their cameras on US retailer's shelves nationwide and building the relationships and brand recognition necessary to do so takes a great deal of time and investment. Only the largest Chinese OEMs can consider this a viable strategy. As a result, the smaller companies that lack the budget to set up local sales offices are instead opting to focus on selling through Amazon and eBay. However, these often suffer with poor reviews (the death knell of any ecommerce venture) due to the lack of local customer service.
What US market suppliers can do to maintain market share
- Maintain a premium brand reputation; as long as customers continue to perceive the Chinese branded product as lower quality they can justify the additional expense. The most effective way US companies can do this is through software innovation, whether that be through improvements to the mobile application's user interface or advanced features like video analytics.
- Keep their retailers happy. Chinese manufacturers struggle to get US retailers to stock their product (largely due to the bullet above). As long as this continues, their potential to gain market share is significantly reduced.
- Integrate their video offerings with other highly sought-after home applications such as home automation, alarms or entertainment systems.
- Accept that the average camera price is going to continue to fall and adjust accordingly.
