Why did NICE exit the video surveillance business?

In the second divestiture in the past few months, NICE Systems recently announced that it has sold its physical security business to tech investment firm Battery Ventures for $85 million in cash, with additional provisions that could raise the final price to $100 million. The company is a long-time participant in the physical security space, and is a manufacturer of digital video and audio recording solutions for CCTV security applications.

In an industry that has seen continual hardware-software integration by its largest companies, why did NICE drop this part of the business? According to its announcement, the company is moving on from lower-margin physical security to focus on its customer interaction and intelligence division as well as its financial fraud services. It had largely based its physical security business on government and public safety systems, meaning large but complex contracts that tended to be less lucrative than its other businesses.

Does this signal difficulty in the government and infrastructure security markets? Probably not; it is more likely that the company has become more focused on the software and services side of security – especially analytics and “Big Data”. In addition, in its most recent financial releases, the company’s security segment had increased its earnings by 17 percent YoY in Q2 2015. This indicates that while the division had healthy growth, it may not have been able to fit in with the company’s vision. Also, larger but rarer contracts may not have been able to blend with the company’s financial objectives, preferring more regular revenue.

What it does appear to show is that competition in security hardware has been heating up over the past few years. New manufacturers in location tracking, hardware encoding, and camera systems have pulled down prices, while software and multimedia data management have become both more ubiquitous and profitable.