SecurityWorldMarket

25/01/2012

Milestone CEO: "We shall become the Microsoft of VMS"

Lars Thinggaard, President and CEO of Milestone Systems.

Danish Milestone Systems is the acknowledged global market leader in video management software and the company continues to grow rapidly. During 2010, revenues grew by 56 per cent and during the first half of 2011, Milestone has increased staff by 20 per cent. SecurityWorldHotel.com met up with the Milestone CEO Lars Thinggaard in Copenhagen. He believes Milestone will reach 80 per cent market share within eight to ten years.

(Published in Detektor autumn 2011)
Milestone was founded in 1998 and develops IP network video surveillance software based on open architecture. The company has had an average annual revenue growth rate of 41 per cent since the start up. This year the company has expanded its global presence by opening offices in Brazil, Bulgaria and India. Lars Thinggaard has held the position as President & CEO since 2003. Before that he worked as CFO in the IT-industry.

2010 was a great year for Milestone with revenues growing by 56 per cent. Do you expect it to continue?
"It truly was a great year. We have been enjoying an average growth rate of 41 per cent since we started the company and I expect that level to be sustained for the foreseeable future. If you do the maths, with a 41 per cent growth rate, revenues will triple every three years. In a few years, we will become a 100-150 million euro revenue company, and that will make us a substantial player in the European and global community."

How is Milestone positioned in the market right now?
"We are in what we refer to as phase four. Phase one was all about starting up the company, phase two was about going out with the SDK (Software Development Kit) and interoperability with third party products. In the third phase we started up global offices and now in phase four we are penetrating further into the market and our long term vision of becoming for video IP solutions, what Microsoft is for PCs, a kind of operating system for video over IP solutions."

Can you define that vision?
"In many technology sectors, like digital photography for example, you will find that very often 80-90 per cent of the value creation within a given sector will reside with one company in the end, like Adobe in PDF, Microsoft, and iPOD from Apple. The VMS market is a pretty narrow sector in itself and our belief is that we can get 80-90 percent market share. We have come to the stage where we are today with a very solid foundation, a strong brand, robust products and a certified sales channel. We continue to be bullish about the future."

How big is your market share right now?
"It depends how you measure, but it is somewhere between 20-25 per cent and we are growing faster than the market every day, gaining market share all the time. A stepping stone towards the ultimate goal of being an 80-90 per cent sector market holder will be to build a company that is twice the size of the number two player. We are not there yet, but I see that we have a fair chance of being there within 3-5 years."

In an interview in Detektor earlier this year, Axis CEO Ray Mauritsson said that it is not hard to visualise what will happen in the coming years because of the transition from analogue to IP. Can you anticipate what will happen during the next years?
"I think we can. We have set up various criteria for success in order to accomplish each goal in the different phases we are going through. We have always achieved these targets and I believe we know what we need to do in the coming years. It is all a question of the degree of risk we are prepared to take. A larger risk would be to take money from the balance sheet and invest even more aggressively in geographical expansion, more products, acquiring companies and so on. But that is not what we want to do at this point."

You will continue to grow organically?
"Yes. I think we have a very good chance of success with the scalable model we have today. Some people would call it conservative, but our growth rate of about 40-50 per cent per year, and even higher in some regions, is far from conservative. However, in relation to risk taking, we are conservative in that we want to continue along the same lines at this point in time. We are not a risk taking company; we are a sustainable long-term builder of value for our share holders."

What is the biggest external challenge for Milestone?
"The economic turmoil is an external challenge. It affects the buying power in certain parts of the world. We have the opportunity to offset weak economic parts of the world since we sell our products in more than 115 countries and have our own offices in 15 countries."

What about internal challenges?
"There is a never ending internal discussion of how to execute better than today. We always strive and work harder, but of course there are a lot of internal constraints in a growth scenario because we are constantly adding new resources to the teams. These teams often hit the ground running, and we have a lot of programmes in order to facilitate this. In summary, for the most part we are in control of the internal challenges, and we can balance the external challenges thanks to our broad representation across the globe."

Is it important to maintain a culture within the company?
"Absolutely, we are represented from the US West coast to Sydney, Australia and Japan. The time span that we are covering in our day-to-day operation is broad. It is a big challenge.
Sometimes we get less sleep than we need, but it is fun for the most part."

Where in the world do you have the best growth opportunities?
"Last year we had about 55 per cent of our revenues in the US, and we are growing very rapidly over there. In recent years Europe has been growing very slowly, but it has taken off this year. In Asia, we started with a relatively low level of business and now we are growing extremely fast. We just opened an office in Brazil and the BRIC-countries are strong except for China."

Why is that?
"We are not certain of how to approach the market in China. It is very difficult to sell software there. It is a cultural thing: they do not accept high-level software there. But it could be attractive in the long term if we find a partnership."

Russia is the fastest growing market for VMS.
"We do not have our own offices in Russia yet, but there are lots of reasons for why we should. For example, the day after it was announced that Russia had won the campaign to host the football world cup in 2018, it was decided that 40 billion dollars would be invested in infrastructure, and a good deal of that will be spent on security. Russia is a very interesting market."

You are an open standards company. Has ONVIF been important for you?
"Not much yet but it will be. We support both PSIA and ONVIF because these standards are really to our benefit in the long run. It is hard for such a large group to come together and speak the same language. When the standards between cameras and software are solid enough for interoperability, I will welcome this because it will mean that we will be able to free up a lot of resources. It is a huge task for Milestone today to have 1,400 cameras and hardware devices all supported fully and working smoothly."

ONVIF is creating a standard for access control. Will you consider integrating access control into your software in the future?
"Absolutely. For sure it is an obvious way forward for any VMS vendor to have solutions that include access control. The difference between us and any competitor today is that we continue working as an open platform integrating third-party access control systems, whereas our competitors seem to be going towards proprietary solutions. Right now, it is all about business to business, but in the future there will be business to consumer, too. People will sooner or later want to have video management or access control in their homes, controlled from a mobile device. It will be a big opportunity for us. We will be ready when the market is ready."

What do you think about Security-as-a-Service as a business model?
"It all comes down to the market's readiness for uptake. We are prepared with products when the market is ready. XProtect Corporate is already used today in certain parts of the world, particularly in the US, in Saas solutions. In the shorter term, Security-as-a-Service is not a market that is extremely attractive for a software vendor. In the longer term, it will be fairly or very attractive because bandwidth will not be a limitation anymore. There will be many opportunities for this."

You have been the Milestone CEO since 2003. What is left to achieve?
"I am not done with this task until we have 80 per cent market share. We have a great opportunity to succeed and I have many ideas on how to get us there. Before becoming CEO I was on the board of directors and I have been involved in the company since it was founded. I have been investing time, money and effort, and it would be a pity for me to leave too soon. I love working with the team and I want to do that until we reach dominance in the sector."

When will you do that?
"I would guess eight to ten years. If we want to do it faster we should take the company public sooner than later and become a consolidator in a fragmented market, acquiring a lot of competitors in order to increase market share."

But you will wait?
"Now is not the right time to take the company public, but when the market is ready we will take it into consideration. We need the money if we want to make a big blast of consolidation, but organic growth works extremely well for us so far. I think we can grow organically up to a certain level and add acquisitions later on."

Which level is that?
"I think we will be able to achieve 50-60 per cent organically with the model we are using right now. The remaining part will have to be acquired. Then we have to refine the organic growth model and apply that to the acquisitions, in order to achieve 80-90 per cent total market share."

How will you change the business model?
"We might come up with a better model for how to penetrate new geographical regions - it could be in a partnership fashion, and it could be less risk taking. On the other hand we might become more aggressive, and acquire a local player in a certain region."

When you became CEO eight years ago, did you expect all this to come?
"Well, we knew that it was going to be a nice market. But it has been even better than I anticipated back then."

Lars Thinggaard
Age: 46.
Place of residence: Copenhagen, Denmark.
Career: Arthur Andersen, PriceWaterhouse, three software startups of which two were sold, Milestone Systems.
Family: Wife and three children.
Hobby: Running, sailboating, golf, literature.


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