IP Security Technology: A disruptive or sustaining
IP security – a disruptive or sustaining technology shift?
Executive Summary
The shift towards IP-based security products and systems is often touted as an example of a disruptive technology that have had – and will continue to have – profound consequences for the electronic security industry as a
whole. Based on Clayton Christensen’s theories on disruptive innovation, this document argues that the introduction of IP-based technology has different effects depending on the product segment observed. In the case of video surveillance, it is argued that IP has brought about a disruptive change, whereas the effect on access control is found to be more of an incremental, or sustaining character. These conclusions are based partly on an analysis of the impact of IP technology on product platforms, and partly on observations of changes in industry structure that can be observed in the video surveillance and access control sectors.
The wider effects on security industry dynamics are also discussed. It is argued that despite the apparently disruptive changes seen so far in the video surveillance sector, the unique characteristics of the security industry (e.g. end-user and channel conservatism, slow technology replacement cycles) may lead to a different scenario than that prescribed by Christensen. Hence, analog CCTV incumbents may still have time to catch up with the entrants that currently dominate the IP video surveillance market. In access control, the dominant incumbents are leading the change towards IP-based solutions, leading to less dramatic effects on industry dynamics. Viewed from an overall security industry perspective, these conclusions indicate that the shift towards the digital technology has not happened – and will likely not happen – through a disruptive change, but rather gradually and incrementally, in a sustaining fashion. Finally, emerging technologies with disruptive potential are briefly discussed.
Introduction
As the electronic security industry is migrating digital and networked technology platforms, many industry commentators have been keen to point out the radical and disruptive nature of this change. Among proponents on the IT and IP side of the industry, this disruptiveness is seen as creating no less than a major upheaval of the structure and business logic of the industry. In contrast, some security sector veterans point out that the industry has seen it all before and that the current wave of change is not necessarily more significant than many previous technological shifts. To these observers, the move towards IT and IP represents more of an incremental change that is likely to happen slowly enough that most of the incumbent firms in the security industry will have time to adapt. In economics and management science, it is widely acknowledged that industries often face radical change and that firms need specific strategies to cope with these situations. The discussion goes back to Austrian economist Joseph Schumpeter (1934; 1942) who believed that all economic development emanates from a continuous process of strategic innovation, generated by the entrepreneurial activity of individuals and firms within the capitalist system. ‘Schumpeterian innovations’ are difficult to predict and, if successful, tend to lead to radical, discontinuous change, where incumbent firms that are not able to adapt to the new conditions are unceremoniously swept away in what Schumpeter (1942) dubbed ‘the process of creative destruction’.
PARTNERS
Christensen’s disruptive innovation
context
Since Schumpeter, research on radical change has focused mainly on the management of technology and innovation. In this field, it is the theories of Clayton Christensen that has garnered most interest. Originally based on longitudinal data from the disk drive industry, the quest of Christensen’s research has been to examine why established leaders in a particular industry often fail in periods of radical technological change. While incumbents are usually great at improving the technologies and products that gave them their initial success in the market, they often fail to recognize and embrace the dominant technologies of the future, paving the way for innovative entrant companies.
In a series of articles and books aimed at both practitioners and academia Christensen and his co-authors (Bower & Christensen, 1995; Christensen, 1997; Christensen and Raynor, 2003) have identified two types of innovation contexts1 that determine whether incumbents are likely to fail or not. In a sustaining innovation context, already dominant companies refine and improve their products – and the technology base used to manufacture them – to satisfy the demands of their most important customers. In contrast, a disruptive innovation context sees the emergence of a new technology base that generates a new class of products. At the outset, these products are more basic, lower performing, (often) cheaper and exhibit new and different set of features or performance attributes that are initially not valued by the majority of existing end-users.
This leads incumbents to misjudge the market potential of disruptive technologies, assuming the profit margins will be too low in relation to the effort needed to reach new customer segments. Instead, it is innovative intranet companies – unencumbered by legacy technology and old ways of doing business – that are successful in commercializing disruptive products. Once the critical product performance attributes valued by the majority of customers segments are improved, entrants are Intially referring mainly to disruptive technology, Christensen changed the term to disruptive innovation in The Innovator’s Solution (Christensen and Raynor, 2003). This is in reflection of the fact that few technologies are inherently disruptive – they only become so when they are successfully commercialized.
They are able to use their early lead in the disruptive technology to conquer mainstream customers. While incumbents’ R&D and engineering departments often develop and champion products based on disruptive technology, incumbents typically fail to move these products through their internal organization and onto the market as quickly and efficiently as the entrants. Thus, the short answer to why incumbents fail in the face of disruptive innovation, is that incumbents listen too much to the needs of their most valued customers. In The Innovator’s Solution, Christensen & Raynor (2003) refined the original theory of disruptiveness with two further distinctions. A low-end disruption occurs when the disruptive innovation takes place at the low end of the market in the original value network. As incumbents continue to refine technology through sustaining innovation, products eventually become so advanced or high- performing that they overshoot the needs of customers at the lower end of the market. In this case,a cheaper and simpler new technology may be ‘good enough’ or the low-end customer segments, allowing a disruption to occur. New-market disruption entails a different scenario, where simple and cheap disruptive innovation makes it possible for entirely new customer groups to acquire and own the product in question. In this case, the disruption does not compete with existing markets and customers segments, allowing entrants to gain market traction unnoticed by the incumbents. Disruptive technology in the security sector Applying Christensen’s theories to the electronic security industry as whole is difficult, as the model presumes a level of analysis at the product level. For this reason, the focus here will be on two of the most important security product segments: video surveillance and access control. Video surveillance From a product perspective, a video surveillance system can be said to comprise three distinct components: cameras, a video transmission system, and a monitoring and recording system. Apart from the introduction of color, the basic technology of a fully analog video surveillance system has changed little since it first appeared about half a century ago: A camera outputting a standard PAL or NTSC video signal is connected through coaxial cable to a monitor and a VCR. An analog video surveillance system is by nature a closed system, delimited by the physical cabling needed to interconnect all the components (hence the traditional moniker Closed Circuit TV).
Less than a decade ago, a first wave of digital technology disruption occurred with the advent of digital signal processing through the introduction of digital video multiplexers and – more importantly – Digital Video Recorders (DVRs). The obvious benefits of replacing VCRs with hard drive based digital recorders created a major disruption to the recording side of the industry, which rather closely followed Christensen’s predictions. Although not a low-end disruption in terms of rice, the increased performance of DVR was so obvious to end users that VCRs are all but extinct in the security industry today. For incumbent VCR vendors, the security industry was never more than a peripheral niche. Thus, in the video surveillance value network as a whole, the DVR simply substituted the VCR, with little impact on the business models of security distributors, systems integrators, installers and resellers. Representing the bridgehead to digital technology, the successful entrant DVR firms did however shift the power structure of the industry over time. Today, DVR companies play an important role in the video surveillance industry, often driving important projects at the forefront of surveillance technology.
The current shift towards fully IP-based video systems can be seen as the second wave of digitalization of the video surveillance segment. Driven by the replacement of analog cameras by digital network cameras, this disruption extends the digitalization of video surveillance through networking technology, in essence replacing the closed, proprietary nature of traditional CCTV with an open IP architecture. The benefits of shifting to an all-digital IP network video system are manifold but arguably the most disruptive feature of IP video is the possibility to remotely monitor and control cameras through the Internet or any corporate network. Although this feature can also partly be accomplished through hybrid solutions – here analog cameras are connected to a DVR or encoder with IP connectivity – an end-to-end IP system brings additional benefits in terms of cabling efficiencies, flexibility and scalability.
Network video surveillance – a disruptive technology?
The adoption of network video has largely followed Christensen’s formula for disruptive technological innovations. The first network cameras (or ‘webcams’) were treated as novelties and initially underperformed in all product attributes valued by traditional security end-users. Nonetheless, entrant network video companies managed to find a niche among early adopters that valued the remote monitoring possibilities of the new technology. Since their introduction in the late 1990s, network cameras have today largely bridged both the feature and price gaps to analog CCTV, while the additional benefits of converging all of an organization’s security and data communication on a single network have become increasingly evident.
Most tellingly, perhaps, is the fact that the push toward IP cameras has been almost exclusively driven by pure-play entrants without any analog CCTV background. Faced with initial skepticism and hesitation from traditional security customers, the IP entrants carefully built up their business through a new market disruption, e.g. by focusing on customer segments – such as retail, transport and education – that valued the specific benefits and new functionally offered by network video solutions. When traditional security channels initially appeared skeptical of the new technology, the IP entrants pushed their products through IT channels and IT value networks instead. And just as predicted by Christensen, most of the dominant CCTV incumbents have been very slow to respond to the shift towards IP cameras. Focused on the needs and preferences of their most important customers they initially failed to recognize the benefits of network video and underestimated the early market potential and pace of migration. The result today is that pure-play IP entrants dominate the network video segment of the video surveillance industry. Thus, while the incumbents hesitated and procrastinated, to build up a level of brand recognition and reputation that will be hard for the incumbents to catch up to, at least in the shorter term.
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