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Every day, 30 million surveillance cameras beam down on America’s malls, ATMs, parking lots, railway platforms, airports, you name it. And as the technology shrinks, the cameras slip deeper into the background, hardly noticed, streaming more than 4 billion hours of footage a week—footage that usually ends up lost, and never seen.

David Anthony says the final chapter in the surveillance story is about to be rewritten. Mr. Anthony is a general partner at New York City-based 21Ventures, a venture firm that just bet $2 million on an Israeli startup that promises to scan every frame for suspicious events and sound the alert. “A human rent-a-cop cannot watch a bank of 50 screens for more than 22 minutes in an hour without going to sleep or not paying attention,” says Mr. Anthony. The Petach Tikva–based startup, Aspectus, has a system that can handle feeds from more than 100 cameras.

Mr. Anthony is not the only VC to have figured that out. In the past year alone, more than eight startups including VideoNext, Vigilos, Aspectus, 3VR Security, and EnVysion have raised their first or second rounds of funding. And their technologies all aim to do roughly the same thing—replace humans with intelligent video systems that capture high-quality images which can be easily searched by time, location, clothing, or facial characteristics.

The startups may be onto something. Lehman Brothers’ annual security industry report put the global market for video equipment and installation at $6 billion in 2005, with the United States accounting for about half of that. Frost & Sullivan projects the European video surveillance equipment market to grow at an annual rate of 6 percent, to $3.6 billion by 2010 from $2.4 billion in 2003.

Sandra Jones, founder of the eponymous Sandra Jones & Co., a security consultancy, says security used to be a “grudge purchase” for most organizations. “But now it has become a part of doing business.”

Since 2002, some 2 million surveillance cameras have been moving into position in the U.S. every year, each unit adding hundreds of new hours of footage to be organized, analyzed, and archived. That translates into a huge opportunity for companies making products that can do these jobs better.

Terrorism fears have heated up the market, of course, but so too has the world’s switch to digital, opening up all sorts of possibilities. Digital surveillance cameras outsold analog equipment for the first time last year, and when digital video is combined with Internet Protocol [IP] technology, things start to happen.

For example, where video feeds once rested on local hard drives and tapes, they can now be converted into digitized streams and transferred over the Internet or by satellite to offsite storage facilities. IP cameras can also work with other security equipment, such as biometric devices and alarms, automatically triggering alerts when suspicious events arise. They can be monitored from remote locations, with footage being searchable from anywhere.

Intelligent Video

The possibilities in an IP-linked surveillance world are almost limitless—which is why that market is set to explode, says Frost & Sullivan analyst Karthik Nagarajan. The digital segment, worth $435.8 million in 2005, is set to grow by nearly half again by 2010, he says.

Every video surveillance system is typically made up of two parts: hardware (cameras, storage devices like drives and tapes, and video screens) and software, which has become a sizeable piece of it, and includes video management to monitor and transmit the feed, and video analytics to help analyze the footage. And there’s a lot of innovation on the software side, which companies like Aspectus are in, according to Mr. Nagarajan.

Aspectus, which is in the analytics and intelligence segment, faces competition from companies like VistaScape, ActivEye, 3VR Security, IntelliVid, ObjectVideo, and VideoNext.

VideoNext, for instance, has developed web-based software that acts as a security content management tool, gathering information from cameras and motion detectors and organizing it all in a database. During the process, the data is also tagged with markers, including time and date, that allow the information to be searched to detect abnormal activity, before being sent as a single feed to a storage device.

Managing content from thousands of cameras can be daunting, says Dave Marra, chief technology officer at Vienna, Virginia-based VideoNext. One of VideoNext’s customers is the department of corrections for a state he declines to name. The department oversees 63 prisons. And here’s the thing: just one prison can have up to 300 cameras. “The object was to make a central archival site for all 8,000 cameras,” says Mr. Marra. “So the software had to reach out to all the cameras, ingest the footage coming in, organize it by time, date, and behavior, and then act as a conduit to channel the data to a storage medium.”

VideoNext says its open architecture and hardware-agnostic approach allows customers to use the software on any kind of surveillance network, including older analog infrastructure. With just 20 employees and $2 million in funding from Newlight Associates and Longstreet Partners, the startup has sold its systems to the U.S. Department of Education, the U.S. Army, and several commercial organizations. The company is on track to deliver licenses for about 25,000 cameras this year, according to VideoNext CEO Chris Gettings.

Other video management software firms, such as Seattle-based Vigilos, are seeing similar growth. Vigilos’ software makes it possible for organizations to configure, control, manage, and monitor different security systems including access cards, biometric systems, and video cameras from a single console. Traditionally, each security system has its own management software and alert system. The advantage of an integrated approach, the company says, is that alerts triggered by different systems are all consolidated, helping simplify security management and cut costs. Vigilos claims to offer up to 40 percent reduction in video security costs, though 25 percent savings is more common.

“If people just want video security, they can get it from lots of places,” says Vigilos CEO Geoffrey Barker. “If they want an intelligent system, then we are the logical choice.” With a score of employees and about as many customers, Vigilos has raised nearly $20 million in three rounds since starting up in 2000. The company, which sells to large organizations Mr. Barker declines to name, plans to make its product available to mid-sized businesses later this year.

The action isn’t limited to the software end of the business. Austin, Texas-based CoVi has been busy developing high-definition video camera systems. Barry Walker, president and CEO of CoVi, says he started the business out of curiosity. “We wondered why you can get better quality video from a CNN web site than a security video, where all you can usually see is a human being that walks upright,” he says.

Mr. Walker says his team realized that most systems were designed for cameras to gather data and send it to a centralized point, where it is recorded onto a digital storage device. But in a bid to reduce the bandwidth needed to send the video content, the picture quality had to be scaled down. Higher quality video requires higher throughput and bandwidth.

“The challenge is in the architecture,” says Mr. Walker. “There was no company that could build an end-to-end video solution including the cameras, recorders, and monitoring technology. Everyone built piece parts.” So CoVi, which got started in October 2002 and has raised $41 million in funding, created a hardware and software package that addressed all parts of a video surveillance system. CoVi made the high-definition cameras and partnered with software analytics startups like ObjectVideo to bring intelligence to the feed.

Getting the technology right may be the easiest part for startups like CoVi and Vigilos. Selling the idea and finding big buyers could well be the bigger challenge. Once completely dominated by camera makers like Bosch, Verint, Nice, and Panasonic, which also offer some software solutions through partnerships, the market is slowly moving toward large defense contractors like Lockheed Martin and Northrop Grumann—not to mention systems integrators like Raytheon and EMC.

Understanding Technology Nuances

Systems integrators work to combine newer digital security systems into older analog-based infrastructure, while defense contractors, typically the bidders on large government security contracts, source products from startups to bundle along with their existing solutions. Frost & Sullivan’s Mr. Nagarajan reckons the hard part for startups will be getting integrators and contractors to understand the nuances of their technology. “Traditional security integrators don’t really understand IP surveillance and the dynamics of it and they are yet to collectively train themselves,” he says.

The startups say they are not worried about legacy hardware players coming up with smarter software to bundle along with their cameras. “The DNA of a software company is very different from a hardware one,” says Tim Ross, co-founder of San Francisco-based surveillance search company 3VR Security. “The traditional video surveillance guys are hardware companies, and it is difficult to think of someone like Panasonic as a great software company,” he says.

In any case, replacing millions of older cameras with high-tech ones won’t happen overnight. “When life and safety are at stake, you can’t afford to be testing new products in the market,” says Ms. Jones, the security consultant. “So uptake will be slow.”

Contact the writer:PGanapati@RedHerring.com