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Episode 1 Summary: The influence of China on American security, consumer vs. commercial security cameras and the overall value chain of security system supply to the end-user. We also talk about if the grass is greener in other industries outside security and the challenges for start-ups coming into the security industry. Guest: John Honovich

Founder IPVM

Episode 1: Transcript

 

China’s Influence on American Security

Within this podcast we will discuss a variety of topics revolving around security systems. Some including China’s involvement with American video surveillance, the comparison of industries outside of the security market including the involvement of the system integrators, as well as the contrast of consumer and professional cameras. We’re also going to touch on the value chain of security system suppliers and start up tech being integrated in video surveillance technologies like gun shot detection and surveillance systems that provide end to end solutions. 

 

Thomas Carnevale

When I decided to start this podcast, I really just wanted to talk about some of my interests. My three favorite topics are security, entrepreneurship, and business and I only really wanted to do it with people whom I like and admire so I'm super honored...
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Help me give a big warm welcome to John Honovich the founder of IPVM. John thank you so much for being my very first guest. Within this podcast we will discuss a variety of topics revolving around security systems. Some including China’s involvement with American video surveillance, the comparison of industries outside of the security market including the involvement of the system integrators, as well as the contrast of consumer and professional cameras. We’re also going to touch on the value chain of security system suppliers and start up tech being integrated in video surveillance technologies like gunshot detection and surveillance systems that provide end to end solutions.

 

 

John Honovich

Happy to do so. Let's get it on.
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Thomas Carnavale

So I wanted to really just dive in and you've been covering this essentially from the beginning and it has taken forever for it to make national headlines but it finally has...
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And that’s basically the involvement and influence of China on American security. And it strikes me that still today there is still a lot of pockets of unawareness, misinformation even though you know we’re getting governments involvement heavily now and I’m hoping for the audience you can kind of break down what has gone on with these two Chinese manufacturers Dahua and Hikvision primarily.

John Honovich

Like the whole story from the beginning?
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Thomas Carnavale

No not the whole story like major bullet points ...
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because I’m hearing a lot of different interpretations from people on this topic. I think a great place to start are these companies’ involvements in human rights violations which has made national headlines recently.

John Honovich

So they usually think that they're the province in the far west of China Shenyang. That province, that's where they report of a million or multiple millions of people in interment in concentration camps. There has been a massive amount of security spending there...
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massive in the terms of multiple billions of dollars. I mean think about it like that province, I think has a few tens of millions of people. So even by PRC or China standards it’s relatively small population but it’s spending more (for example we’ll give you a sense of how big the security spending is there) Dahua probably sold more in Shinji province, one province in China than they did in the entire United States last year. Dahua has hundreds and hundreds of millions of dollars in projects. Hikvision has a few hundred million dollars of products that we know of. The PRC is not good about disclosing sort of who wins which projects. But even with the unlimited amount of information they provide we’ve craft over a billion dollars of projects in that province. And so that’s kind of the basis of that. I mean a lot of things I think especially in the industry there is less awareness of what exactly is going on.

But you know some of the things are interesting Hikvision has a contract that was publicly disclose where they did facial recognition to nine hundred plus mosques. What’s interesting about this is that if you think from the perspective of the mosques, they don’t want to have that facial recognition, it’s of no benefit to them. It’s the counter right. The issue there is that they’re forcing facial recognition into these mosques and they’re using it such that you use the Hikvision facial recognition then you say, okay who’s coming to the mosque regularly. These people are likely to be enemies quote unquote of sort of the China Communist Party and those people need to be sent to quote unquote reeducation camps. So, surveillance technology, video surveillance technology is at the core of what’s going on in Shenzhen being used you know across the country.

But Shenyang is in many ways considered like the laboratory of sort of doing all these types of social experiments using technologies. For example, Dahua who has one project alone is more than 600 million dollars a contract and they’re building what again the PRC likes to call convenience police stations those police stations are not convenient for the people being put into these concentration camps and tortured. But they are very convenient for the CPC and their police to be all throughout their cities and Dahua is actually building and managing these convenience police stations among many other surveillance projects that they’re doing. So, both of the companies are pretty significantly and directly involved there’s actually interestingly, pictures of Dahua’s chairman smiling like it’s a groundbreaking ceremony in Shenyang. Dahua actually has said nothing. Hikvision is at least sophisticated enough to say, hey we respect human rights and we’re going to look into this, you know we promise. Dahua basically just put their head in the sand and is hoping this goes away.

Thomas Carnavale

That's unbelievable. And that actually is making me rethink my next question a little bit. I had assumed that the United States was basically the prize market of the video surveillance world...
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If you’re thinking about it from a manufacturer’s perspective. So, all the bad PR that you know, they forget the bot attacks that happened years ago. The accusations of espionage, the actual U.S. government now imposing bans, and the horrible PR the past 18-24 months these two companies have gotten. What do you think their strategy will be to regain back into the United States market? Because I’m confident they’re not going to give up. But if you’re telling me that they’re getting six hundred million-dollar deals in their own backyard at a crack maybe I’ll second guess that a bit.

John Honovich

Yeah. So that's one of the really interesting things about this. You know historically the US has been the largest market for most products. However, the PRC surveillance market is just enormous now...
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You look at it basically for example Hikvision is over 7 billion of revenue 70 percent or more than 5 billion of that comes from directly within the PRC. So, it’s literally Hikvision’s China market revenue is at least 10 times greater than their U.S. market revenue. So, if you think about it from their perspective a little bit like a huge headache for a little bit of business right. This would be like a customer that represents just a fraction of your business like complains all the time you know you do a bad job; you know you guys kind of suck. At some level if your Hikvision, you’re just like listen guys you know you’re more trouble than it’s worth. Now on the other hand Hikvision certainly I think more than any company in video surveillance, they’re determined to be number one in every market whether it’s China, the United States, or South Africa they want to be number one everywhere.

Thomas Carnavale

So, why aren't Hikvision then with that context, why if you're Hikvision do you hire a cyber quote unquote cybersecurity, lobbyist, or experts to lobby on your behalf why do you sponsor NSA keynote speeches from the SIA forums and events? Why do you go to these lengths to lobby and politic in and buy your way back into favor?
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John Honovich

See here why they do that. I mean it's hard to understand exactly their motivations. I mean we have sources and we try to get intel on these types of things. You know I think some potential motivations are ...
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it can potentially have greater implications than just the United States. I mean one of the funny things that you see with Hikvision they’ll say things like when the ban first passed last year, they’re like well we don’t really sell to the government anyway so this is irrelevant. But they know that that’s not true right. It’s not just the issue of selling to the U.S. government

Thomas Carnavale

On GSA schedules.
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John Honovich

Well I think the bigger thing it's the validation beyond sort of like even if they're direct government sales. The US government sales was something basically less than 1 percent of the revenue. I'm pretty sure it is, to be a fraction of 1 percent. The issue was a bit of a branding thing...
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You know security manufacturers like you know where a security MVP or some sort of trade magazine you never heard of gave us an award right. They’re always trumpeting these types of things. So, if you look at it in that context this is like the US giving sort of Dahua and Hikvision the award quote unquote if you will of like the worst company in the world. It’s a really bad branding thing. So I would think that that’s one of their motivations is that they don’t want the bad branding sort of umbrella that could basically impact other markets so that I think would be one reason that you would want to defend against that is that you’re not just concerned about the US you’re concerned about what would happen in Canada what would happen in Europe there as many other markets that basically this can impact.

For instance, the Financial Times just today which is not a U.S. publication the U.K. publication. And then last week what was it, The Times UK had a report. So, these types of things have sort of like rolling ramifications and other parts of the world. So I think that’s one of the reasons basically why they go to such great lengths and then I think the other thing you especially look at what’s going on in Shinji Yang is that if there were sanctions right that are being sort of discussed or reported the sanctions are ready or to be held it’s not clear but I think it’s fair to say even they acknowledge that there is a real risk that they might be sanctioned. The problem with sanctions for them right is that just what we’re seeing with Huewei.

There is lots of core technology that has ties back to the United States and could have them being blocked from accessing. I mean the most obvious ones are Intel, Nvidia, and Western Digital. So, there’s a number of big companies that they might not be able to buy from. And that would have implications not only in the US but in the EU and potentially even inside of the PRC right. Especially a lot of these deep learning A.I. analytics things that they’re doing and Nvidia and Intel are key players in this. And so if they were somehow blocked from basically being able to access this technology it could actually give a ramification now of course they say, well you know we have our own stuff we develop is like with Huewei said well we don’t care about Android we’re going to develop our own operating system by the end of the year Is it true, is it not true you don’t know how much is bluffing but I think the reason why and they’ve spent you know two million dollars or more at this point on lobbyists in the US in the last two years is because they concerned about the branding and the supply chain ramifications.

Thomas Carnavale

So that's something I just learned here in the moment. I really thought that most manufacturers were always battling over the U.S. market.
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John Honovich

I do think most manufacturers are. I think that's sort of true as a point of fact. It's true as a point of fact especially because the U.S. market like you think we know basically is you know in the US people in the US will buy from any country right. We don't care if it's from Korea, Taiwan, Sweden, or Germany or wherever. America's pretty good basically you know we're looking for the highest quality best value etcetera...
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And so, I think that’s why it’s so attractive for companies or for companies from all over the world on the surveillance market just because the unprecedented scale of the spending on surveillance right now inside of China makes that a pretty distinct scenario.

But now to your question the other part that you mentioned was basically what’s their strategy? It’s not clear to me that ever for instance for Dahua as I mentioned this on IPVM many times is that they’re just a very poorly run business like shockingly poorly run the most poorly run multibillion-dollar business I’ve ever seen. Sometimes you see small companies right poorly run but usually when you have a thousand employees and billions of dollars in revenue usually, you’re pretty well put together. Case in point is basically Dahua saying nothing about some of the sanction risks and their contracts in Shenyang at some level what can they say. It’s totally true. Right. It’s not like they can say basically aww it’s a mistake that’s the other Dahua. But I don’t think Dahua overall has a plan I think Dahua is doing better in the United States when they acquired the Flier Lorex team and I think now doing better in terms of the SMB market. And if you look at Hikvision their strategy thing for now is to hope this sort of goes away. And then in the meantime just sell to the SMB. If you look at basically the consumer market the Dahua and Hikvision have never really done well in Nest and Amazon on even Wise Camera. They’re using China hardware developing their own software. They’ve never really done well in the consumer market and the enterprise market has been a challenge. And now the enterprise market has really sort of shrank and even for Hikvision they had a little bit of position in the enterprise market. So, I think the strategy Dahua has no strategy overall. The U.S. team strategy is customer service. Go and go to the SMB and the Hikvision strategies retreated to SMB hopefully sort of these things will blow over. You know Trump will basically be Trump and someone will basically knock him off office the new person comes in will basically be happy and we’ll sort of re-engage China. I think that’s the approach for now.

Thomas Carnavale

It's amazing and I am glad it's finally getting real coverage that it deserves because the Chinese ownership was a mysterious thing for a number of years and now it's kind of becoming a resident fact. I don't remember if it was a year ago but you actually posted some pictures of the Communist Party and the chairman, what is he like a secretary role in the communist government?
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John Honovich

Well Chen Zongnian he's possibly the most fascinating person in the entire industry. So, Mr. Hu is (so people in the American industry have an awareness of who Mr. Hu is) because especially in the early days Mr. Hu did a lot of the deals directly in the United States quite a number of people know who Mr. Hu is and a lot of the Hikvision employees have interacted with Mr. Hu. But Chen Jiang In is kind of the mysterious sort of man behind the scenes...
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But it’s pretty clear when you go to Chinese language publications that you know not only is he the chairman but he is the primary spokesperson for Hikvision within China. And he’s been there from the beginning it’s not like oh they added this guy last week or something right like Hu and Chen basically were together. Chen was Hu’s manager when they worked for the Research Institute of the Chinese government so Chen has been there from the very beginning and he’s been the communist party secretary and now last year which is sort of amazing he was elected to their national government.

They have National People’s Congress. It’s roughly in sort of like our Congress except people aren’t actually elected and it’s more of a rubber stamp thing nobody basically opposes the China Communist Party because if they do, they sort of wind up locked away in prison but it’s clearly quite powerful. I mean it’s clearly a point of honor and power for him to be a delegate of the NPC so you know not only basically as the chairman of Hikvision he’s a communist party secretary and he’s a member of the Chinese government. I don’t know of any basically comparable, if you look at Dahua like it’s Mr. Fu. Fu basically is kind of like an operator guy independent generally from here. The things we hear kind of in various places right they have their electric car start up now. So even from a PRC perspective Dahua basically is nothing like Hikvision in terms of the control the connections.

Is the Grass Greener in Industries Outside of the Security Systems Market?

Thomas Carnavale

Interesting. Well I think we could probably have a podcast all dedicated to that in and of itself but I definitely wanted to transition a bit to your business and your journey in entrepreneurship...
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I’ve consumed so much of your content and I make it required reading for my people and my business and through your training sessions as well. There’s a lot of different trend lines you have in your content. One is maybe less talked about that I wanted to bring up is kind of you have this trend line of the grass is always maybe greener. You talk about sometimes executives leaving going to other industries, sales people going to other industries, even cyber security coming into this industry and then on their way back out. I kind of was wondering.

John Honovich

I think if you looked at like objectively speaking, if you looked at the 2014 to 2017 time period definitely the grass was greener in other markets right. Like just objectively so.
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Thomas Carnavale

Yeah.
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John Honovich

And a lot has to do with you know Hikvision, Dahua, and the race to the bottom which I think made it difficult for manufacturers and wasn't really great for integrators to have prices basically dropping you know 20 percent basically every six months or a year for a while.
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Thomas Carnavale

Yeah.
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John Honovich

So I think it was fair to say the grass was greener for a long time. Now what happened with sort of the US government legislation, the ban, etc. I think that's helped the industry in some ways overall...
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But the bigger thing is I think right now we’re seeing one thing that’s really interesting that we’ve started really in the last six months. There is an unprecedented flood of startups coming into video surveillance every week we talk to a company whether it’s a U.S. company, EU company, companies from Asia. There are companies all over the place coming into the market and so much of this has to do with the growth of AI, deep learning, and the cloud.

Thomas Carnavale

Correct.
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John Honovich

So you know is the grass always greener on the other side. No. Sometimes it's greener. Right now, I think it's a greener time because not only the ending of the race the bottom even with Dahua and Hikvision...
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…there’s only so much you can cut your prices and I think they found it right. Like once you get your prices to 50 dollars per camera it becomes sort of like the mount and the cabling becomes more expensive than the camera. So, it’s really like you’re not going to move the needle by going from 50 to 45. Right. Especially in a professional setting where you have to install and service and etc. So, I do think the grass is increasingly green even without looking at the China side. Just a growth in AI and cloud and I think about what that can do for the industry.  So, I would say again just on a purely technology side I think the industry reasonably has a case for being much more optimistic.

Difference Between Consumer and Professional Video Surveillance Cameras

Thomas Carnavale

And with that note and with that point. Yes there's been a lot of startups in the commercial sector ...
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…but there’s been an exuberant amount if we have a timeframe of let’s say you know Dropcam launching their first camera which really basically started to create the Do It Yourself camera market and then you had ring and then you had a dozen other players after that you know and Amazon getting involved and Google getting involved with their acquisition and nest and then Dropcam Nest. So, it makes me wonder when some of the largest tech giants in the world are investing so much in forget consumer commercial, they’re just investing in surveillance and security technology. But there has been a clear division between consumer and commercial. Do you think it’s possible that the Amazon, Google would you know the things of the world can take over in a meaningful way the commercial market as they’ve started to do in the do it yourself space?

John Honovich

I don't think they're even really trying to right. I mean you look at based on the residential side it's very obvious that there is a clear direct play there.
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Thomas Carnavale

Right.
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John Honovich

And the commercial side says they're not even trying it's hard to basically make a case they're going to win right. They're going to try before they can win. So, given that they're not even really trying.
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Thomas Carnavale

Well they did start to do services that Amazon did start to do like installation services, I think. But yes, I think that's also for residential.
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Well they did start to do services that Amazon did start to do like installation services, I think. But yes, I think that’s also for residential.

John Honovich

But it's insulated. So basically, you know 1 camera 2 camera 8 camera type systems.
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Thomas Carnavale

Yeah.
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John Honovich

I don't see that expanding that much in terms of like 16 cameras you know, 32 cameras more commercial jobs where like you're much more concerned about the operations of it and maintenance etcetera. On the residential side I'm just looking at ADT stock quote.
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ADT stock is still at six dollars and 14 cents over what they wanted, they wanted to go public I think at 17 and then they went public at like 12 or something and now they’re down to six and now they’re buying integrators. If you would’ve told me 10 years ago that like ADT was going to (again this were the old ADT and whatnot and they had integration) but if you had told me that ADT’s big bet was on commercial integration, I’d tell you you’re out of your mind. Because ADT and all of these basically residential guys are always used to say, commercial integration is not a good business. And to be clear I think they were right 10 or 12 years ago. Residential monitoring was a much better just on a purely investor financial metrics basis was a better business than to be an integration valuations etcetera.

So, it’s a bit shocking to me with that perspective and mine that ADT basically sees their boat sinking and they’re sort of like a lifeboat is now commercial integration but at another level they’re probably right. It’s a safer choice to go into commercial because when you look at Amazon and Google, they’re clearly more consumer-oriented businesses. And then the thing of basically selling to sort of Business Solutions and enterprise sales-B2B if you will right-is clearly not a core part of who they sell and market to. So, I think residential will end once they suffer but will basically be severely impacted by the Silicon Valley if you will companies with a commercial space. Certainly, if you’re looking sort of to 2025, it seems very unlikely that they’re going to have significant inroads basically by that time. No one knows what goes on the long-term future but in the short term I think there is a lot of safety on the commercial side.

Thomas Carnavale

So when we're talking with end users, we still constantly see this confusion...
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…of why can’t I just put a wireless camera in my manufacturing facility. Why can’t I just do this and integrate it with that. I guess not a not enough education on the differences between what makes up a consumer camera and what makes up a professional security surveillance camera and clearly on both sides of the aisle there’s a lot of differentiating features sensors, lenses, optics, low light capabilities, sensors. But if you could maybe summarize it for an end user what would you say to an end user that wants to put wireless cameras or it doesn’t really know the difference between a professional and a consumer grade camera.

John Honovich

A couple of key things to look at. Most of the consumer products are closed systems.
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Thomas Carnavale

Right.
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John Honovich

So I think that one of the fundamentals that you get into is that it's fine.
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Like you know for your house or something if you have Nest it’s two Nest cams a thermostat whatever you really only care about that. But you know in a commercial application how do you basically integrate different systems cameras over time with buildings, floors, rooms, etcetera. And then I think there are certain things that you know in terms of you look at like video quality like a lot of consumer products have really short IR range everything with every camera.

Thomas Carnavale

They look great when you're standing at the door bell. But outside of that.
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John Honovich

Yeah. So, you know they are made basically for a small room a 10 by 10 room. The IR is fine but then you go to a larger area...
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…and then you realize like wait a second we were doing actually you know the 20, 25-dollar cameras. So, we’ve been doing some comparative shoot-out between wise and even sort of lower and things like you know Hikvision camera etcetera. And one thing you clearly see from a commercial lower and commercial camera is that you’re going to have longer IR range and tends to be more even than what you would see in a commercial and consumer element. And I think if you’re just doing it for a house like really all you care at that point is like oh that’s my kid or my dog or whatever.

Thomas Carnavale

Was the package delivered on time.
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John Honovich

You know in a commercial situation or in an enterprise or industrial situation it often is basically who is that person. And you're trying to make it out and so details count.
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So, image quality, we talked about openness you know, wireless is notorious for working poorly in any type of larger environment. Wireless for homes is generally easier for an apartment because you’re talking about a thousand square feet or something. Right. When you’re talking about commercial areas like even our facility, we have eight thousand square feet right and an eight thousand square foot home would be you know enormous but like eight thousand square feet for a business is not very big. But then you need to basically make your systems work over that sort of larger areas. And that’s where things like wireless or basically just plugging in sort of not using POE. A lot of consumers don’t use POE. That’s fine. If you’re just plugging in one camera to the wall or two cameras in your living room or whatever but if you’re now starting to do 20-30 cameras these types of features whether image quality or POE things of that sort become sort of  more important for longer term larger systems.

Thomas Carnavale

And your readers, I mean of course there's some consumer elements and interest to your platform and your content at IPVM but for the most part I think your subscribers are end users, manufacturers of cameras, maybe access control a little bit, distributors, and system integrators. Isn't that fair to say in your subscriber base those are kind of the primary I'm sure you have some investors.
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John Honovich

I think at most or whatever 9 percent are people doing things that are sort of like commercial industrial enterprise.
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Thomas Carnavale

Right.
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John Honovich

Once in a while a homeowner will sign five cameras being like wow this is great. But that's obviously uncommon.
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Thomas Carnavale

Yeah.
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John Honovich

And every so often every few months they’re like you know I can't pay one hundred ninety-nine dollars, like I just want one camera in my house. And that's fair. But obviously IPVM isn't designed for someone who wants one camera in their house.
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Thomas Carnavale

Exactly.
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John Honovich

Well you know even with end users growing probably more significantly than any other segment is any users.
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Thomas Carnavale

Interesting.
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John Honovich

But generally we see a larger end user. Again if you're putting four cameras it's not really a big deal but if you're doing hundreds of cameras...
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…then the types of things that IPVM talks about like where technology is going and what works better or worse those then become much more important for people deploying lots of cameras and more complicated systems over a longer period time.

The Value Chain of Security System Suppliers & System Integrators

Thomas Carnavale

In this context of commercial I want to talk a little bit about the value chain here for the end user...
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So, what is more likely to be weakened in the coming years as it relates to commercial security supply chain manufacturers, distributors, security system integrators. These are all you know the three key delivery mechanisms for the end user to get an installed sophisticated security system. So where is the weak point potentially.

John Honovich

Let me ask you, in the Chicago land area what's the average rate for a security technician?
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Thomas Carnavale

One hundred twenty-five bucks an hour I'd say.
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John Honovich

That's what I would think. So, I think that points to basically like sending a guy on site to do basically you know basic task X that's where I think is going to be chewed into.
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Thomas Carnavale

Yeah.
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John Honovich

You're going to always need people to physically be for certain types of elements. And I think you'll need people who really know what they're doing...
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…but that poor portion of the middle where basically integrators are going out and are just being paid one hundred twenty-five dollars an hour to physically do basic things or mid-level things. I think that’s the area that that’s at risk of being attacked. Either you look at it basically what’s going to cause that. I think a lot of this is cloud management right where these things basically I think some of it is even worse when you look at Quatar right. Is that like the manufacturer then essentially acts a lot like the integrator because the manufacturing does go in and change settings themselves.

Thomas Carnavale

Right.
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John Honovich

Of course I think still for larger systems you're going to want to have like an expert who's like independent of the supplier who's your person, your expert, you know giving you advice about what you should use and how it should be optimized and what are the problems connecting these things together.
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So, I think the greatest risk is for integrators and especially integrators who charge one hundred twenty-five dollars an hour but really aren’t all that expert. You’re one of these like lower level installer and you’re charging sixty dollars an hour maybe that’s fine, because you need someone to mount things or connect things or take things down and you’ll definitely still want to pay people one hundred twenty five or 150 or 200 an hour who really know what they’re doing right. Like the guy though the guy or the gal who’s the Guru or the expert. Those are the types of people.

Thomas Carnavale

Have the manufacturer's certification.
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John Honovich

I think one thing I think of beyond if you have your certifications and there's one thing maybe I think we're going to talk about this later and touch on it now.
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To start is that one thing I think that integrators can do to defend against this is to really establish themselves as truly being experts and not experts in the way I think you know whatever your Axis certified or Hikvision certified let’s be clear here. If you’re Axis certified that doesn’t mean you’re an expert you may be an expert. I’m not saying like getting a certification doesn’t mean you know no one with an Axis certification and expert.

Thomas Carnavale

Its going to help the install go better but outside of that it doesn’t make you an industry expert.
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John Honovich

Even for things like IPVM training right like we're not training you to be the expert. Our training is more advanced than what you would ever get from manufacturer training in terms of sophisticated technology that we talk about...
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…but I’m talking about even above that you’re really sort of a master if you will of the trade. And that’s one thing we found really interesting when we do a bad job. We should do more quizzes. There’s one thing we do with quizzes. A lot of people think they know what they’re doing and then when you ask them for instance Smart Codecs is a topic somehow, you’ll ask an integrator like explain to me how Smart Codec works. Well you know it compresses the video and it you know it like… but they don’t understand what’s going on and what the key technical elements are. And it makes a difference right because certain things whether it’s Smart Codecs or shutter speed or whatever the topic that you’re talking about how you can figure it or how you use it has impacts basically both on bandwidth consumption and quality issues etcetera.

Thomas Carnavale

Processing power. Yeah.
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John Honovich

Processing power yeah potentially as well. So that I think when you look at IPVM we basically have seen a lot of times communicating or publicizing things online is a core part of our business. But I think that's one thing that integrators could do. I think you'll see that like really good integrators we'll get more and more remote business.
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Even if your base and you know you may be doing a system in Western Massachusetts but be based in Chicago or you may be doing a system in Virginia but you’re based in Tampa especially as more of these things are sort of cloud enabled and things can be done remotely. It’ll be historically like well like I’m in Topeka Kansas you’ve got to come into my command center and you have to do this inside of my office because that’s the only place you can physically access it. So, if you’re a genius at security technologies but you’re based in Chicago well that’s great but I’m in Topeka Kansas. So, I think things like that will change for the benefit of better integrators that can really show like a we can basically do the same thing with software development. I think software development is certainly a more internationalized because so much can be done virtually. So, I think you’ll see more virtualization of sort of the integrator role which will help better integrators that can basically prove their expertise.

Thomas Carnavale

You know you kind of answered part of that question what is the biggest missed opportunity for security system integrators and I'll start answering it.
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It’s continued investment in expertise but I also think that if you don’t continue to invest in that expertise and without letting people know about it which I think integrators are notoriously horrible at example-marketing-that you’re wasting your time you have to be specific about niche. I think focusing on a niche core area of expertise is going to be very critical for the future of security consultants and system integrators.

John Honovich

One of the things we see with integrators most of the marketing is really generic marketing. It's like you know you should use PTZ or multi images or whatever it is right. It's very generic it's like this could have been written by someone on Fiver or someone who Googled for like five minutes.
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Thomas Carnavale

Yeah.
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John Honovich

I think if you're going to sort of prove that you're an expert you have to write expertly and that's where the challenge is...
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It’s well okay that means your top people who are in the field sort of billing out are actually sometimes not in the field and they’re actually writing these things and are publishing or they’re filming videos or whatever it is basically you know we even look at that when we think about how we market right. That’s why we don’t have a marketing person.

Thomas Carnavale

You are building up the Facebook posts and you're starting to do more video content though I've noticed.
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John Honovich

So yeah. So that's true. But I think the difference is we're afraid to get like a generic market for like a PR agency right. Like we want to get like a PR agency that's just going to write fluff.
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Thomas Carnavale

Sure.
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John Honovich

Now I mean the fluff thing sort of works; you've got the former trade magazine editors who now basically sell themselves to do ghostwritten pieces and trade mags. That I think is totally old school. You look at their numbers and when you look at the trade magazine numbers ...
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…it’s pretty clear very few people read trade magazines regularly. I’ve been part of the people online. There’s so much competition I don’t mean just in things like videos and security. There are so many interesting things being put online and all different types of spheres whether it’s sports or politics or news or whatever that like if you’re just going to write like, my camera is really super great and it produce good images and did it like how many people are really going to read that. I think it’s much more important that you can differentiate by providing basically insights that are above and beyond what any other people are providing.

Thomas Carnavale

When you started in 2008 there was a meaningful problem...
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…of getting access to quality, real information and fast forward to today. It’s only a bigger problem not just in our industry, everywhere. It’s become completely mainstream that even if you’re selling knitted Christmas sweaters out of your kitchen as your startup business you are told to preach content marketing, content marketing and create all kinds of everything.

John Honovich

For most integrators.
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Thomas Carnavale

The noise has become louder.
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John Honovich

Yeah but I think in this industry most integrators don't even try to do content marketing. I remember a couple of years ago one guy he got really mad at me because I told him like hey you should have a Web site. And he was like how dare you tell me that I need to have a Web site. And I was like I'm not trying to be I'm not; I mean I was I was shocked. I was like what?
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Thomas Carnavale

Right. What year was this wait a second what year was this.
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John Honovich

This was only a couple of years ago maybe 2017 or something. Yeah.
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Thomas Carnavale

What a horrible recommendation in 2017 to have a website.
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John Honovich

Yeah. And then I said like listen if you’re not going to have a website like...
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have like a LinkedIn or a Facebook page. He’s like I’m too busy like you know I’ll use my AOL account. I’m like really angry and I was like I think you know at some level it’s and I don’t he’s totally wrong because at some level if he has business now, he has more than a business and he can do now. That’s fine. It’s a risk sort of long term because if you want either to expand or that business may sort of subside right the like because other people as they look for people right. They may basically look like you know when I look for things online if I’m looking for something, I’m going to search online right for like different things. I’m looking for different services.

So, if you don’t have a web page or something, you’re pretty much out of luck right. Like it’s going to be hard for you to be considered unless somehow someone you know already uses you but that you know that would have so dramatically sort of limits basically your potential market. But I do think that that is all too common issue with anywhere. One thing we did, we did a survey with some statistics and was like integrators one thing was really anything integrators turned out to be. I don’t know surprisingly to be pretty highly risk averse in the sense that we ask them something like you know would you rather like grow faster or make more profits. And like the clear answer was like make more profits.

Thomas Carnavale

Right.
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Start up Technologies in the Video Surveillance Industry

John Honovich

Well that's of course the challenge. If you take more profits especially if you're taking cash out of the business you know how do you build the business unless you're putting more cash back in. I mean one of the really good things I think...
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…when you look at startups is that startups basically, they lose a lot of cash by definition. But that cash is being invested into either building a better product or service and building an awareness and sort of brand within the market. You know some of the challenges of integrators is that they often don’t have access to a lot of money. Often these businesses are their family businesses. So, you don’t have say like oh I have access to two million dollars in private equity and sort of a five-year plan. So, I do think there is some inherent challenges in the way a lot of integrators are built. But I think it also sort of undermines their ability to compete in sort of a more Internet centric if you will world.

Thomas Carnavale

Well adaptability I mean I think if you compare startups versus security integrators, they will flip on a dime if they calculated and did the math that something isn't working. I think integrator would probably trend the opposite ways that they would beat it into the ground until it doesn't exist anymore. The palette for change in security is traditional security system integrators is not very diverse.
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John Honovich

I think a lot of that is the case. I also think that a lot of them are basically content as is. But I think at some level is fine. Like in terms of what the priorities are...
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If you’re a VC funded business then your priority is making the VCs happy and you becoming a multimillionaire or else, you’ll go out of business. Whereas I think a lot of integrators are being potentially an accountant or a plumber. Either a professional or a trade, like hey this is my business I do this basically to make a living. So, I think those are one of the challenges and even you see these roll ups with convergent ADT and what not. It’s just amazing there are literally thousands and thousands of independent integrators throughout the country right in all sorts of regions etcetera.

Thomas Carnavale

Who controls the end user more. Is it the manufacturers or is it the independent security integrators?
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John Honovich

I worry at the word control.
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Thomas Carnavale

I mean recommends. So, like what ultimately whatever brand or whatever solution the end user uses. Do you think the influence is more with manufacturers on the end user or do you think the influence is more from the system integration market?
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John Honovich

It depends. I think the best the best answer would be that it depends on the size of the end user. One thing has become very clear is that enterprise end users walk and talk directly with manufacturers ...
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…whether or not the deal is sold directly to the manufacturer. If you are a company or organization that has a thousand cameras or five thousand cameras this will be something that almost certainly, you’re going to have many manufacturers going indirectly and pitching the deal. Now they may say at the very end like okay I’m going to sell it through ADT or X Y Z or whoever the integrator is. That’s definitely when you see that across the board Axis and Avigilon you know pretty much all of them now at this point have sales people that are focused on calling and pitching end users. And I think that the boat is sort of passed on that. I think there are a bunch of integrators that are still kind of upset about that because of the question of control like who’s customer is it, is that my customer, is that your customer, both of our customers and almost certainly I think all the manufacturers have learned at this point that we’re not going to win these big deals unless our own people are going out making the case. Otherwise you’re banking that ADT or convergent or JCI or Siemens or whoever is going to go in and make the pitch for you. And the reality is right for most manufacturers they aren’t going to be pitching for the manufacturer. They may have one of the manufacturers they pitch for or they may be often integrated. You know whatever you think is best we’ll go with, right, we’re just there to service and support you.

So, I think more and more of that the internet makes it so that Verkada is a great example of where they’re moving this more down market. Certainly, a lot of these schools that Verkada is winning are thousands of cameras. So, it fits perfectly in that sort of model that like listen if you have a thousand cameras and I’m a manufacturer that’s a deal that’s big enough that I want to go after and have my own people directly involved. But I think you look at the Internet with webinars, email, newsletters, social media marketing and who does it right. It’s easier now than ever for manufacturers to directly communicate with end users, even end users that might only have a few hundred cameras. You know when we first got into the industry, I think a lot of it used to be like well I’m going to be in Houston for three weeks from now and I set up an appointment right. That was literally it. Because otherwise you do a phone call but it’s not very sort of useful just to do a phone call. And now obviously these things have changed. You know if I want to know in Houston who is the security manager operating in our facilities manager. Whatever it might be is pretty likely that I’m going to be able to find it on LinkedIn. That’s why you see so many sales people that are paying eighty-five dollars a month for LinkedIn premium whatever they call it.

So, you can have that type of intel and reach out to these people directly and then do webinars etcetera to sort of picture products directly. So, I see that you know more and more continuing and I think that’s you know to the detriment of the historical role or at least the historical role of what an integrator was where you know the integrator would figure these things out and bring it back to the end user. You’re seeing a lot more I think in general when talk about the Internet disintermediation right the inner the integrator is historically been the intermediary between the manufacturer and the end user and the Internet like it does from anything like real estate agents right. It enables basically people to connect directly or the buyer and seller correct directly without having to use real estate agent or the integrator as exclusively as the intermediate point.

Thomas Carnavale

And with all these startups come to market some are going gorilla after the end user they're using A.I. We even talked about it the other day...
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Siren cams and cameras out of South Africa that shoot rubber bullets at people all kinds of interesting perspectives on how to secure a facility. What do you see right now with the influx of startups and new tech coming into the space? What are some promising trend lines at least? You don’t necessarily have to mention a brand or a product but what are some interesting trends and technologies that are actually having some legs because you’ve actually reported multiple times, which is very true, it was that same period 2014 to 2017 well where it was the race to the bottom where we have that lack of innovation. So now that we’re in a better space now do you see that innovation is starting to up curve and do you have any specifics on it?

John Honovich

One of the things I worry about that with all the startups most of startups have really bad business models.
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Thomas Carnavale

Right.
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John Honovich

In the sense that what they're trying to do a lot of them are trying to sell point solutions. And this has been done for years...
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When you try to sell a point solution, I mean something that is an addition like you already have cameras ready, you have this and that you’re going to add something on top of that existing system. It’s a really hard sale and it’s hard to scale the business because you’ve got to charge a lot of money because you have a sales team just selling one thing and an example of this like we’ve seen a number of companies try to sell gunshot detection. It’s hard, how do you sell scale selling gunshot detection when you’ve got to sell it individually to all these end users and then the larger manufacturers are essentially your competitors right. Because if I’m an existing manufacturer selling VMS side for example, I’d probably say to myself well you know okay you’re selling gunshot detection or why don’t I just add gunshot detection and sell it myself I already have a relationship with this customer. So, a lot of these startups are going to struggle.

Thomas Carnavale

They are building a full product around a feature.
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John Honovich

Yeah. I remember you used to say BriefCam was a feature and not a product. The BriefCam like the counter example that sort of prove this wrong...
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…but it took them 14 years or whatever it was to do it. But generally, when you’re a feature and not really a product it’s really hard to sell it just the way this industry is built and how things are sold.

Now is a good time to sell a camera not just a generic camera or just a higher resolution camera but a camera that has AI. You’re better off selling a camera that has AI embedded than trying to say like hey I got this algorithm with the software and we’re going to try to add it on and connect it and whatever. I think it’s an easier sell, it’s more revenue, you probably can get greater performance by controlling both ends. If you look at Verkada which I think is just from financial perspective is the star but doing the best so far they’re selling an end to end solution. Another company that we’re seeing right now that that’s working on selling an end to end solution is Vaion. V-A-I-O-N, they are a primarily European startup.

Thomas Carnavale

I just got a couple of LinkedIn requests from them this past week.
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John Honovich

So yeah, they're building up a sales team. So, they're doing an end to end solution. Their differences unlike Verkada which is famously and proud of being closed a vine is actually supporting on if it is willing to be open. But I think it's a lot easier to sell when you're selling basically a whole end to end solution...
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Yeah, you’re not going to be able to get into existing accounts that are like, oh I’m happy with basically Avigilon, Milestone, or whatever but there’s those replacement cycles out there. And you’re better off basically finding people or finding customers or end users that are looking to do a replacement and going after them than you’re trying to say hey you we want to sell you this sort of analytics for 50 dollars per camera per month. Because then you know what you’re saying is like okay 50 dollars per camera per month or even thirty dollars per camera per month right now you define a new budget.

This is one thing I learned when I was a startup 13-14 years ago a long time ago. But the issue there was that security is how do you find budget for new product. So, it’s one thing to say like oh I can either replace my VM mass my recorder my cameras or whatever. That’s sort of a known standard budget thing and it’s much easier to say like yeah, we have this block of dollars and we were going to use it for cameras X and now we’re using camera Y. But if you listen well you know you have this sort of block of dollars and now by the way I need to get a new block of dollars in addition to the block of dollars you have. That’s a hard thing. Then you need to go back, now you need to sort of explain well what’s the return on this money and then security has always famously the issues -which you know- it’s hard to justify the return, are you reducing operational costs or reducing losses? Probably not generating revenue. So, I think those are the types of challenges when you look at what the startups and again you know most the startups are pretty new. They’re a year two years old. So, they really have been selling that much yet. So, I think they’ll learn and they’ll adapt in the next few years. And then you’ll see how it shakes out.

Thomas Carnavale

Yeah. Avigilon did that. I mean they were closed and closed and stubborn and closed for so long and then they realized that in order to own a customer which is their goal they're going to have to play nice with other technologies.
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John Honovich

I still think Avigilon’s tactic was better than my friends at video IQ who they eventually wound up buying...
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The whole thing of well you’re going to buy this video IQ camera I know they did for a while the ICVR, the hard drive, and the camera it’s a whole other thing but video IQ is not really a full end-to-end system it was well maybe I’ll connect it to something else. I think that the Avigilon story proves out like things for Verkada and least by hypothesis with Vaion is that it’s still better to start selling a closed solution or end-to-end solution first or at least a camera dedicated piece. They’re not going to sell like an add on it’s like will you sell Qumulex it’s replacing Exacq. It’s pretty clear both sides know what’s going on.

Thomas Carnavale

Well let's not pretend there's not a barrier to market for the startup to actually get their foot in the door...
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I’m sure they could code Onvif. But then if they want to have meaningful partnerships in a technology ecosystem and be a milestone in tech partner at Genetec tech-partner there is a barrier to entry for that partnership. They’re not just welcomed with open arms. They’ve got to still prove themselves first. So that actually proves your point that why spend your time getting through the technology barrier to enter entry when you should be focused on execution of your quality product. Building up the customer base then force demanding the technology ecosystem to respond.

John Honovich

Yes and the technology ecosystem generally won't. It's usually a large manufacturer, a large integrator when the funny thing is, I've seen over the years...
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…like you know a startup says, we’re talking with ADT we’re real close. It’s like no you’re not. No, you’re not real close like you know it’s like the most famous counterexample to that was Eagle Eye. Eagle Eye had to spend 50 million dollars to buy Brivo to get themselves into the ADT account. Smart move right. I’m not criticizing them for it but that that kind of shows you basically like it’s really hard. And rightfully so.

If you’re a large integrator there’s lots of like startups that come to you like oh yeah, my thing works so great, but your thing doesn’t really work that great. And like we’re stuck servicing it. If the company of the startup sort of has problems or fails or whatever they need to deal with it right. What do you do with this equipment that like has these problems or is now out of business? So, I think a lot of rationality that many integrators are risk averse with startups.

Thomas Carnavale

Well this has been fantastic. We've talked about China, value chains, startups, in politics a little bit in between. This has been a great first inaugural episode. John thank you so much for taking the time. Would you tell the 2.5 people listening where they can sign up to review your content and where they can go to do that?
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John Honovich

Yeah sure...
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So, at IPVM dot com everything’s pretty much there. We’ve got reviews, news, we’ve got a discussion forum, and people sort of debate things. We’ve got software etc. So, they can check it out there and then if they ever need help, they can email info at IPVM dot com. I’m John at IPVM dot com, I try to read as many emails as I can. But yeah, they can always reach out, happy to talk.

Thomas Carnavale

Perfect in the past five six years I'd add to that...
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…their classes from access control, to networking, and video surveillance to you know software and server setup and they’re you doing new courses for business development and account management have really come on strong. So, if you’re a security system integrator thinking about getting your people more aptitude and experience in the field in the micro and the macro go to IPVM dot com John thanks for joining me. And it was really great talk.

John Honovich

You got it. Awesome.
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Thomas Carnavale

Appreciate it.
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John Honovich

Thanks take care.
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Thomas Carnavale

Thanks everyone.
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