The Middle East has one of the world's highest digital technology penetration rates in the surveillance camera segment, according to Axis Communications.
The region has crossed the 50 per cent level – and the UAE is one of the highest contributors to this figure. The US lags behind at only 20 per cent, with analogue accounting for remaining installations, said Martin Gren, co-founder of Axis and a member of the board. The company, which competes mainly with Sony and Panasonic, was the first to launch such a product globally.
Gren and two friends founded Axis because they believed what they wanted to build would never otherwise become available on the market.
Gren comes from a family of teachers. However, at the age of 11 he decided he wanted to run his own business and by that stage he had already started making electronic goods for friends. Axis' first product was a print server made for IBM.
Gren shared his view of the industry with Emirates Business.
From print servers to digital camera surveillance is an unusual business journey. How did it come about?
Axis started with designing and selling of print servers and then ventured into the camera surveillance business by launching its first network camera. Before this we attended trade shows and could see the industry was extremely traditional. It was the period when the time-lapse recorder was being used, before the DVR camera came into the market. In 1997, when we first exhibited our product, the market thought we were a toy company. The Axis camera at that point took one full-size picture every 17 seconds, which was good for remote monitoring but not for regular surveillance.
Was your focus on security and networking from the start?
One of our customers needed to connect his large inventory of cameras. At the same time, one of my engineers was working with students on a video conferencing project and used the technology to network cameras. The first installation was in the US at a cheque cashing company and this was followed by an implementation for Steve Wozniak, the co-founder of Apple. He purchased one of our first cameras. In fact the focus on IT networking helped us in the surveillance industry. Selling networking products gave us experience of keeping track of quality. When we started with print servers it was boring as no one ever cared about the product until it stopped working.
In the camera industry, at that point, they wanted a reliable product. This is why DVR took over so quickly and with networking you get access to easier and more cost-effective ways to set up a number of cameras in a large deployment.
With focus on IBM mainframes, and as the ethernet and TCI/IP technologies had emerged, we got involved in this segment. That is why we tried selling these products in a modern way. Axis used a distributor who specialised in availability and integration, making sure all the bits fit together. This model helped us as we never went direct and competed with our customers. Everyone in the system contributes depending on his knowledge and specialisation.
What was the situation in the analogue camera segment?
The sales channel was old-fashioned as the competition there was Sensomatic, which is now part of Tyco Electronics. They had a division called Robot, which was the only good remote monitoring solution. The big names like Sony came only five years later, and Panasonic in 1999.
D-Llink was also a major name in the home computing segment. It is losing market share now as it doesn't have a business model to fit into the professional segment.
Did customers require a lot of convincing before they bought your monitoring solution?
We started off with remote monitoring solutions and were not good in general surveillance technologies till we got our first chip taking 30 frames per second. For customers, Axis was primarily a Detroit-based company but when the company completely moved to digital, it changed the market scenario.
Did you face any challenges when raising initial capital for the business?
At Axis, we always believed in self-financing and running the business in a profitable manner. This meant keeping costs low. We have only made a loss in two years, which was when we invested in a mobile internet business in 1999. This approach also helped us when we went public 10 years ago.
What was the size of the business initially?
We started the business with zero capital in 1984 but in 1991 Axis touched $7 million (Dh25.69m) in sales. The capital base was limited until the IPO. The camera business started in 1996.
Which markets did you focus on initially?
Axis is a Swedish-based company, but from the beginning, due to the IBM business, we decided to specialise in doing business outside our base. The focus initially was on Germany, which helped us to handle the language barrier. Later, an office was established in the US and the first distributor in the Middle East was appointed in 1986 in Kuwait and Bahrain. In Japan, Axis started operations in 1987 with an office in 1992. Offices were established in 1994 in Hong Kong and Singapore.
What is the size of the company today?
Today we have sales of $285m and aim for 10 per cent growth in 2010. Axis globally has 750 employees of which half are in Sweden.
What is your market positioning in both the network video and surveillance markets?
Axis holds the number one position in the network video market and is aiming for the number one spot in the video surveillance segment. Panasonic and Tyco lead the market but Tyco is more focused on analogue technology while Panasonic is aggressive in both digital and analogue.
How progressive are markets in the Middle East in terms of adopting digital technology?
In the Middle East, 40 per cent of our sales were from digital while the rest were from analogue. In 2009, we saw a turning point from an industry point of view as more than 50 per cent of sales was from digital. This has one of the highest penetrations globally. The region has so many new infrastructure projects, which is one of the main reasons new digital technology is accepted.
In the US, digital has less than 20 per cent penetration while in Europe there only certain markets, which are a bit ahead in adopting digital technology. The Middle East has had the highest penetration and conversion from analogue to digital in video surveillance. The top areas are the UAE, Kuwait and Qatar.
From an industry perspective, the market for network video surveillance has reached $54 billion, according to IMS research. The growth will increase moving forward in the next four to five years at an annual growth rate of 30 per cent until 2013.
With the general increased focus on security, was the surveillance industry immune to the slowdown last year?
The market did slow down as the amount of RFPs fell and decisions were put on hold. But at the same there were installations in countries like Pakistan and Iran. Medium to large projects were impacted by the crisis as decision-making took time.
Axis has already witnessed three major downturns, but the constant evolution of technology and GDP growth have helped us move on. In fact, comparing the GDP of the Western world, which is up by two to three per cent on average and a maximum of five per cent, the Middle East is much better at 10 per cent.
There are ups and downs, but the rate of technology development is always faster than the GDP growth, therefore IT companies remain immune to the crisis. Companies who depend on the consumer market are mostly affected by the global crisis. The best example is the television industry, especially the flat screen sector as prices come down from a $5,000 for a single monitor to $1,000.
Sony and Panasonic ventured into the surveillance segment later than Axis, but they have established brand names. Does that affect your market positioning?
When Axis was dealing in print servers there was competition from HP. We could do nothing about it as they were an established brand name. In the surveillance market, Axis did not want to have a brand name but by 2002 everyone in the industry knew the brand. Our marketing department always focused on establishing the brand within the relevant industry.