“Bagging the Video Giant” Schneider Electric Purchases Pelco!

by Dan Dunkel - President, New Era Associates

Published in Today's Systems Integrator

As the security convergence momentum continues, I expected that Pelco would be too good a potential acquisition to pass up. After all they were privately held, under a billion dollars in revenues and have set the quality standard for marketing, more importantly customer support, for the entire physical security industry. My mistake was assuming that a major IT vendor or telecom giant would beat Schneider Electric to the punch to gain some convergence ground on the likes of Cisco Systems, IBM or the major physical security integrators.

At any rate, congratulations to Schneider Electric: They bought a great company and it appears they have a solid strategic direction. Arne Frank, executive vice president of the Schneider Electric Building Automation business unit, said, “Pelco’s unique position in IP-based video security represents a tremendous additional organic growth opportunity. With this acquisition, a very important additional step is made to further reinforce our leadership in Open and Integrated solutions for Building IT.”

Fair enough, but I see a much larger long-term opportunity, centered a video storage strategy.

With Pelco, Schneider also has a platform to address another trend, underscored in an interesting article penned by Bob Banerjee of Bosch Security Systems, (www.networkworld.com July 30), regarding the demise of NVRs. As I have written numerous times, the next generation solution for the physical security market is streamlining IP video directly into NAS, SAN and iscsi storage platforms, eliminating the need for buying (read managing) NVRs.

This is the very same issue that caused the IT industry to eliminate PC servers 15 years ago and create storage architectures in the first place. Granted, Pelco and many others have these platforms today, but few have the research and development dollars, scope of operations and clout to influence the industry’s direction. This new entity could make some waves if they understand they may have a tiger by the tail. The interesting thing is that this was not the initial reason for the acquisition.

While I see the Pelco acquisition paying immediate dividends in the building automation segment, I wonder if Schnieder truly appreciates how well positioned they could “potentially” be in the growing future market for video mining, provided they are true to the issue of open systems. This will provide recurring revenues well beyond the building automation segment.

Jean-Pascal Tricoire, chief executive officer of Schneider Electric, commented, “Pelco systems will integrate gradually in our Power and Control solutions for buildings and infrastructure. Security offers a highly attractive growth profile and video is becoming the key application in the building management market.”

The key word in this quote for me is “infrastructure,” as in “global IT infrastructure,” meaning the convergence of voice, video and data across IP and into storage architectures. Having sold enterprise storage systems for many years, I understand how critical these systems are to a client’s ability to generate revenues. Nothing happens without the data (information) on these systems. Storage becomes more visual every day and volumes continue to grow annually. Customer satisfaction and support is a HUGE issue. Pelco has a well-earned reputation for taking care of their customers. As standards have evolved in the storage market, alternatives exist. Pelco can migrate existing NVR customers to larger storage architectures, with video content as the carrot.

Schneider already owns APC, a leading provider of global, end-to-end solutions for real-time network-critical physical infrastructure. Hopefully, they will understand how important the future enterprise storage strategy is to the convergence of video and access control, which will incorporate ever more 3-D modeling and graphics (GIS). This leads to integration services and recurring revenue as physical security solutions become more visual, are consolidated into storage databases and mined (think Oracle for video) to create unique solutions.

Scott Schafer, senior vice president of sales and marketing for Pelco, understands these issues, stating, “APC and Pelco is a powerful combination of synergies, and this is only the beginning.”Schafer also managed to put the acquisition into perspective for me. He said, “It was the right time and the right place for a lot of reasons to move forward, but the fact is that Schneider Electric loves our culture of customer focus, and at the end of the day, this merger provides additional value to our mutual customers.”

In my opinion, Schafer is as important as anyone in Pelco for establishing the revenue consistency and customer support reputation the firm has enjoyed over the years. Not surprising to me is that he comes from an IT background at NCR where he worked with his friend, Mark Hurd, now CEO of Hewlett Packard. In fact, I think HP would have been a potential buyer of Pelco; too bad the physical security guys beat them to the punch. Who says the IT guys are faster then the physical security guys?

Good move, Schneider Electric. Now leverage convergence trends!