We all know that digital video brings new levels of features and performance to what were utility products in the past. But the ability to upgrade these products and add features by simply updating software has major implications.

As more customers upgrade to digital (see “Get Customers to Stop Worrying and Love Digital”), the management of software upgrades is sure to become a differentiating feature as well.

Electronic security products face two separate development tracks: hardware and software. While a new-generation product once contained newly developed hardware and software, it is increasingly common to find existing hardware that will support the next-generation software.

Access control products have exploited this upgradeability for some time, allowing customers to add features as they needed them. CCTV manufacturers are new to this party and are struggling with the implications.

The problem is simple. CCTV customers have always purchased hardware and received the software for free. When software consisted of setup or programming utilities, this was not an issue. But as features are added into newer versions of software, manufacturers will look to recoup their development costs.

“We’ve become software developers as well as hardware manufacturers,” states a senior executive at a major CCTV manufacturer. “As customers upgrade existing products and there’s no hardware sale involved, we will need to find other ways to recoup these development costs.”

Follow the Pricing Rules
Paying for software is inevitable, and the industry is bound to shift sooner or later. As hardware processing power increases, it will become more than sufficient to support several generations of software. Paying for a software upgrade will be an inexpensive alternative to replacing equipment when new functionality is needed.

But before revising budgets to accommodate this new pricing model, manufacturers and end users will need to agree on a few ground rules:

Bug fixes are free — Customers don’t expect to have to pay for bug fixes. That’s where the struggle is for manufacturers.

One of the reasons customers are pushing back on paying for software is it is difficult to justify a fee if bug fixes are rolled into new feature releases. Manufacturers need to make sure two separate software development tracks are maintained to ensure problems can be resolved without adding functionality. If a product does not work as promised, customers will not pay to remedy the situation — they’ll shop elsewhere.

Value to new features — To charge for upgraded software, the features need to be worth paying for. Some features — such as user-interface improvements, minor “tweaks” to performance, and esoteric capabilities that are not often used — will only appeal to a select few.

Groundbreaking new features, such as object tracking in a DVR or motion detection in an IP camera, may justify a premium — but only if they weren’t promised in the initia release the customer has already bought.

Competitive landscape — Manufacturers will not be able to charge for features unless their competitors charge as well. This is where access control and CCTV differ dramatically.

Access control manufacturers have long charged for software maintenance, training and other services that are free in the CCTV industry. Charging for these services will be difficult as long as some CCTV manufacturers feel these services are more important as incentives to draw business than draw as revenue.

Past Releases Haunt Software Sales
Manufacturers need to remember that most customers are purchasing equipment to perform a required function.

Cameras are there to capture and transmit images, DVRs record and play back images, and access control systems allow or deny entry. As long as these devices continue to perform the functions they were purchased to do, many customers will be happy to maintain the status quo and will not respond to upgrade offers.

As the largest software manufacturer in the world, Microsoft™ has long realized that previous versions of its software are its main competition. Nearly four years after the release of Windows XP®, previous versions outnumber it in the market and continue to be sold and supported, despite massive marketing campaigns and significant new capabilities.

If manufacturers want to become more like software companies, they’ll need to be mindful of the software business model, not just the profit potential.

 

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