TASER International, the maker of electrical weapons for police officers, is changing its name to Axon as it pushes further into the software business.
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The Axon name comes from the business unit that sells police body cameras, patrol car cameras and the software for managing the hours of digital footage they generate.
In a gamble that police departments will sign up for paid software subscriptions, the company is offering a free body camera to police officers in addition to a year of free access to Evidence.com, its online software for managing video and other evidence.
TASER still gets the bulk of its revenue from selling its weapons, which use electrical current to immobilize targets. Last year, $202.6 million of its $268.2 million in revenue came from its weapons segment, mostly in the form of replacement cartridges.
But nearly a quarter of TASER's revenue now comes from the Axon segment. Software revenue for Evidence.com nearly doubled to $11.7 million.
"The hardware creates an issue for police departments in a sense that you're creating hours and hours of raw data," said Steve Dyer, senior research analyst for Craig-Hallum Capital Group. "You have the question not only of how to store the data in an industry that is not traditionally that tech savvy, but also how to handle digital evidence with the same safeguards as physical evidence."
Evidence.com software is sold on a subscription basis, typically five-year contracts. That means TASER would have to spend money to sign up the customer, but revenue would trickle in over a number of years.
Software firms like Salesforce.com or Workday have persuaded investors to tolerate this revenue model. But it can cut into profits in the short term: TASER's profits dipped from $19.9 million to $17.2 million last year despite strong revenue growth.
"Once an agency has been on board with Evidence.com for five years, we think the churn rate will be quite low," CEO Rick Smith told Reuters.
TASER only started selling software in earnest in 2012, so there is still little data to support Smith's assertion. Meantime, the company is working to add features: it acquired an artificial intelligence startup called Dextro this year, providing technology that helps police search and redact footage.
Dyer said TASER had a virtual monopoly on electric weapons and had already sold body cameras to most of the big police departments that have made a decision on the technology.
"It's a bet on whether they can turn this captive audience and first-mover advantage into a software and services revenue stream down the road," he said.
(Reporting by Stephen Nellis; Editing by Jonathan Weber and Andrew Hay)