Is Digital Signage an Industry? Yes. Is Everyone an Expert? No.Author: Bill Gerba on
2010-07-29 11:15:44
A few weeks ago, Paul Flanigan
posed the question of whether the digital signage industry is really an industry at all. He put up a short survey on his blog, got back a good handful of responses, and ultimately decided that no, we're not an industry. Paul has devoted two articles to the cause, and Ken Goldberg
proffered his own opinion as well. Since this is one of those rare opportunities for us digital signage folks to share a meme that doesn't involve corporate name calling, I'd like to offer my opinion on why there is a real industry around digital signage, why that's important, and why all those dolts going around calling themselves digital signage experts are going to cause problems for us down the road (if they aren't already).
An industry by any other name...
Paul's main arguments against calling digital signage an "industry" are that (a) most of the parts that go into our projects are off-the-shelf commodities, (b) our clients have trouble figuring out a return on their investment (and look to other industries to figure out how to do it), and (c) ad agencies and media planners still don't like us. I agree with all of those points. But I don't think they have any bearing on whether we're an industry or not (and we are).
A really basic definition of an industry is simply a group of companies that sell similar products and services and have similar business activities. Well, whether you look at the hardware, software or integration aspects of our business, there are lots and lots of companies out there selling products and services that are frequently indistinguishable from one another. Well-diversified companies like Sony and Cisco have put effort into developing industry-specific products to supplement wares offered to dozens of other industries. They're joined by literally hundreds of smaller companies that sell specialized hardware, software and services, and exist solely to help enable visual communication on digital screens. These companies, in turn, are supported by
thousands of integrators, dealers and resellers that provide supporting products and services -- frequently to many other industries as well. Well over a billion dollars was spent last year enabling new networks and managing old ones. And that billion almost certainly spawned several billion more in ancillary economic benefit.
Our rag-tag group of misfit companies (if you don't want to call it an industry) also supports two
bona fide trade shows, four non-profit organizations, a couple dozen conferences, two magazines (plus plenty of column-inches in others), and innumerable blogs, websites and online newsletters. Yes, we generate a
lot of hype, and spew a lot of garbage into the press channels and onto the Internet. But we also attract minds and money from industries as varied as education, government, retail, advertising, health and hospitality, just to name a few.
Why should we even care about being an industry?
What's the big deal, you ask? If companies are already involved with digital signage, why worry about the semantics of calling them part of an industry? Well, there are a few reasons. First of all, the aforementioned trade publications and outlets do actually draw more people into the industry. While a newcomer might be overwhelmed, he's certainly not going to be at a loss for places to find information. Websites and magazines spread the word to people who've not yet heard of digital signage -- and yes, there are still quite a lot of them. Trade shows give potentially interested parties a way to kick the tires before deciding whether to get involved. And conferences help draw in fresh minds from big companies who like to attend those things for ongoing education purposes (and frequently, for the free drinks).
Second, being an industry -- and actually behaving like one -- means that we can solve common problems without having to reinvent the wheel each time. This might take the form of one company pointing to another company's "Digital Signage 101" presentation -- as published on an industry blog -- to help educate a new customer. Or it might take the form of emerging industry standards that make it easier to know which types of content are supported by multiple digital signage vendors. Heck, it has already kinda-sorta started with the general acceptance and use of terms like "digital signage" to mean the screens, players and mere ability to send messages, and "DOOH" to mean the advertising-focused application of digital signage.
Despite a few nagging concerns about ROI, our chief obstacle as an industry is actually our own inefficiency. Too many companies doing the same thing -- and too many "experts" giving out bad advice -- wastes money and manpower that might otherwise go toward successfully completing projects and trying out new ideas. As lone companies, it's impossible for any one of us (no matter how cranky) to do much about this. But as an industry, we can act together, either through a formal association or just an adherence to de-facto best practices, to not only avoid this for ourselves, but hopefully make others less likely to suffer the same pitfalls.
A brief word on expertise
Adding a few letters after your name on your business card does not make you an expert. Attending a one-day class does not make you an expert. Even hanging a few screens out in the world doesn't make you an expert -- though it's a good start. An expert is someone widely recognized as being highly skilled in his or her art. And because of the broad range of industries that digital signage touches, there are plenty of digital signage
industry experts, digital signage
technology experts, digital signage
advertising experts and even digital signage
project experts. But I can count on one hand the number of people who I would genuinely consider to be across-the-board digital signage experts. At present, "expertise" is far too easy to come by, it's not specific enough to tell potential customer what a vendor is actually good at, and there's no recognized way of validating it. As an industry we do a poor job of shining light on these problems, so they're left to create more confusion, add more hype and cause more wasteful spending. I'd certainly be interested in hearing suggestions for how to go about fixing them.
Are we an industry, or are we not? Do you call yourself an expert, or do you use a more low-key approach when describing your skills? Leave a comment below and let us know!7 Comments | Back to Top
When Gimmicks Start Looking Good: Unusual DOOH Business ModelsAuthor: Bill Gerba on
2010-07-16 10:17:48
Hang screens. Connect screens to Internet. Sell screen time to interested parties. It all sounds so easy, right? Yet while we've all heard a thousand variations on this theme, time and the free market have rendered 99% of them dead and gone. Now if we were in a
normal industry, that kind of failure rate might make us step back and re-examine the overall feasibility of the screen time model. But instead, it seems as if the number of people trying out new (and often wacky) sales and business models has been
accelerating, fueled by the remnants of failed digital signage companies. From time to time, I think I'm getting caught up in the movement too. Whereas at one point I'd pick out many of these freakishly outlandish sales pitches and dismiss them out-of-hand, these days I find myself thinking "Gee, I haven't heard that one before. Maybe that means it could work..."
♪♫ Nobody knows... the trouble I've seen... ♫♪
I'm not so far gone as to immediately think of those off-the-wall ideas as surefire hits. After all, the digital signage game -- fundamentally at least -- isn't different than any other line of business. Thus, we should expect all of the standard business rules to apply. So, for example, we can expect that less than half of new businesses will last five years. (30 years of US Census data tells us that story with pretty good accuracy.) Of the remaining half, a good number will be liquidated (which doesn't
technically count as failure according to the government), and still others will shift directions entirely without closing down the business. (For example, changing from a digital signage company to a bed and breakfast.... Don't laugh. You know it has happened.)
But in addition to all the typical new business caveats, I definitely get the feeling that there's another layer of trouble heaped on top of DOOH firms. For example, lots of companies that try some variant of the screen time model literally can't prove their worth. With no solid ROI numbers to stand on and still no accepted means of measurement,
everyone looks at them skeptically. Additionally, many companies think that just because it's easy to scale the technology, it will be equally straightforward to scale their business -- something they'll need to master in order to achieve profitability. Meanwhile, back in the real world, front-loaded costs, perpetually changing financing options and spotty deal flow combine with logistical issues, install-time difficulties and other mundane but important challenges to make scaling organically harder than almost everyone realizes.
Different doesn't always mean better, but sometimes, better must be different
An anonymous commenter left an incredible comment describing the rise and fall of Reactrix on a recent blog article about
how to sell your digital signage company. Reactrix had a
very different model, different technology, different... well, pretty much everything. In addition to building out their own technology platform, developing their own physical infrastructure for each venue and designing brand-new, totally custom content for each advertiser wanting to try the system, they also had to convince prospects of the feasibility and desirability of all that new stuff.
Many less ambitious DOOH companies have run into trouble, too. In fact, "I'll put your ad on this screen if you pay me X" is such a tough sell for so many that we've seen and heard about hundreds of variant models that try to make it easier to pry the money out of prospective advertisers' tight grips. Some have involved co-marketing funds. Others relied on government programs to make the purchase a tax write-off (or close to it). And still others used barter arrangements, in-kind transactions and other non-cash incentives to make screen time buys seem as manageable as possible to potential buyers.
There are a couple of problems with these techniques, though. First, there's no guarantee they're going to work. The difficulty of explaining your compensation model might be enough to drive prospective buyers away before they have a chance to make an informed decision. Or, your model might be so far outside of what the client is used to doing from a business and accounting point of view that they'd just as soon not be bothered. This is especially true for networks that plan on securing national or regional advertising through media planning agencies. And second, unless you're already very familiar with the ins and outs of your model, there's a very good chance that your too-good-to-be-true, guaranteed sales generating business approach will promise too much, ultimately not leaving you enough to actually run your business on.
Using the unusual to your advantage
In order to close digital signage deals, it's important to be creative -- and
essential to be flexible. A while back, I might have discouraged new networks from starting out with nonstandard business terms. But these days, I honestly believe that the oddball deals are doing more good than harm, gaining wins and concessions that probably would not have happened under traditional terms. One thing that worries me, though, is that I still haven't seen a surefire execution strategy. We've seen multiple incarnations of even the strangest business models, and just like anything else, sometimes they succeed and sometimes they fail. I suppose that can be chalked up to all the usual business execution challenges and market forces. But it'd sure be nice to know that there was
some plan -- when properly executed -- that produced consistent results.
Have you heard about any bizarre sales strategies? Can these unusual approaches succeed in the long run? Leave a comment below and let us know what you think.1 Comment | Back to Top
Selling Digital Signage Players: The Magician and the TechnicianAuthor: Bill Gerba on
2010-07-01 14:58:03
For the most part, I've noticed that when we're selling kit to a client who's going to install and operate their own digital signage network, they don't really give the media player hardware a second thought. As long as the price is right, it's small enough, and it has a good warranty (and really, just as long as the price is right), it's good enough for them. Then there are the channel partners. Whether they call themselves distributors, resellers or VARs, they all seem to fall into one of two distinct categories: "Magicians" and "Technicians".
The Magician
Once upon a time, computer skills were a rare commodity. The big, beige cases they came in were like mysterious obelisks, and those who could command them to do things were no less than magicians in the eyes of many. Fast forward to today, when my two year-old is already starting to hunt-and-peck and my tween neighbor's iPhone has a hundred times more CPU power than NASA used to put men on the moon, and it's clear that the technically capable have lost much of their mystique. But for all that, there are still a group of tech professionals -- the Magicians -- who rely on mystique to make a sale. When these folks come to us, they want to know what we can offer that's unique, unusual and decidedly different than what their own competitors are selling. Often, they'll focus on physical characteristics like size, or even demand a player that uses a RISC processor instead of an Intel or AMD, just so they have something that can still conjure a little bit of mystery when they show it off to their clients. The fact that it's much more difficult for a customer to get price comparisons for a unique product probably doesn't hurt either.
The Technician
The sworn enemy of the Magician is the Technician. These folks are hell-bent on ROI, and are only interested in the things that will get them the most bang for their buck. In the digital signage media player world, that usually translates to fairly stock PC-like devices running off-the-shelf hardware. Technicians can still be swayed by a fancy form factor or tiny case, but only if it will let them shave a few minutes off an install because the smaller hardware is easier to mount behind a screen. Technicians also seem to really like having some optional components available (for example: more storage, better graphics, adapters for tuning TV signals, etc.), because they can add extra margin to otherwise thin deals.
Technicians rely on good deal flow to make ends meet. Because they're usually selling a bunch of commodity parts tied together to form a system, their margins tend to be lower than those of Magicians. However, because their products are typically easier to explain and thus more straightforward to sell, they make up it by being able to complete more deals in the same amount of time (in theory).
One size rarely fits all
Over the years, we've wracked our brains trying to come up with a product that would appeal to both Technicians and Magicians. At this point, I'm pretty sure it's impossible. We've had good luck selling embedded media players hand-built specifically for us. And we've had good luck selling "media players" with names like HP and Dell stamped into them. We just haven't been able to sell them to the same people. Today, a number of vendors make small form factor PCs specifically for the digital signage market. These systems look like anything but a standard computer, yet still have the right innards to run most off-the-shelf software. While some have found reasonable success in the field, most of those vendors are stuck in the low-volume world. Unfortunately, this causes problems for the Magicians and Technicians alike. The Magicians, often tempted by form factor and the allure of the "black box" that can't be shopped around online, tend to be fickle once they've realized that they're just buying regular (albeit small) PCs. They themselves turn into shoppers, going from vendor to vendor in search of the newest, coolest little box. The Technicians, on the other hand, have a hard time justifying to their clients why a small box from an unknown vendor should command a 30% price premium over an only-slightly-larger box from a big name PC company.
There's still room in the
digital signage ecosystem for both the Magician and the Technician, just as there's room for both Macs and PCs in the desktop world. Price erosion driven by intense competition and relatively tepid demand definitely makes it
harder to sell a tiny $1,500 media player whose main benefit is that it can do everything a $500 machine can do in 1/3 the space. But there are still clients who -- for whatever reason -- find that pitch appealing. Likewise, Technicians have to move
a lot of inventory to make money when the price of systems gets pushed lower and lower. But falling prices bring new opportunities, since mass acceptance of once-esoteric digital signage means they can spend less time explaining, and more time selling. When it comes down to refining your own sales pitch, I suppose it comes down to a simple question: does your ability to close deals more often hinge on having a unique or unusual proposition, or simply a good proposition at a good cost? If it's the former, put on your top hat and tails: you're a Magician. If it's the latter, lace up your work boots, because yours is the Technician's lot.
Will the market be more kind to Technicians or Magicians in the near future? Is there still room for the hardware guys who specialize in low-volume, custom-built systems? Leave a comment and let us know what you think!2 Comments | Back to Top
Why Are We So Enamored with Ad-Driven Digital Signage Networks?Author: Bill Gerba on
2010-06-24 14:07:07
Earlier this week I participated in a conference call with a writer who is fairly new to our industry. He posed a simple question: "why is the digital signage industry so enamored with advertising?" My immediate answer was, "beats the hell out of me." But that was somewhat unsatisfactory, so I made a little list of potential reasons why everybody from one-man startups to Fortune 500 companies feel they simply
must get into the digital signage advertising business, one way or another. After writing down just a few items, it suddenly became abundantly clear why there's so much hype in our industry, especially compared to the amount of actual business being done.
Advertising is where the money is (or could be, at least)
This one's the low-hanging fruit. A number of national advertisers have ad budgets that exceed the GDPs some small countries. And for each of the past five years (even including the last two really ugly ones), the total ad spend inside the United States has been over a quarter
trillion dollars. Stop and think about that for a second, and you can start to understand the allure of going after advertising dollars.
Of course, when you get down to the nitty-gritty, only a tiny fraction of ad dollars are being put into any kind of digital out-of-home right now, and advertisers, brand marketers and media planners don't seem to be in too much of a hurry to change that. Oh, and you have to be able to actually
sell ad time to reap any of the rewards. So, all of those AV VARs out there who are hocking "free" products that promise a lifetime of easy (and perpetually recurring) ad revenue are going to be sorely disappointed.
Advertising entices people with the lure of the unknown
This argument starts out with clichéd axiom #1: The grass is always greener on the other side of the fence. And for many people who have spent their careers working in technology or sales, digital signage seems to be exactly on the other side of the fence that they've found themselves up against. It's reasonably familiar, yet just slightly different and more exotic than what they're used to. That exoticness, I posit, gives many of these people enough imaginary license to ignore harsh realities like "I've been terrible at selling everything in the past, so why would this be any different?" Instead, they just presume that everything will work itself out later.
Needless to say, it doesn't usually turn out that way. So we end up with clichéd axiom #2: hindsight is always 20/20.
Advertising drives new leads and new projects
As I made my way down the list (I have another half dozen or so reasons in addition to the two biggest ones above), I decided to put my vendor hat back on and figure out why so many digital signage hardware and software companies contribute to the fantasy of an advertising-driven paradise. The answer there is simple: a lot of leads come in already believing that it's within reach. As vendors, we either try to educate them (which turns many of them away), or we humor them and take their money. And as long as the products that each of us sell actually deliver on the features and functionality that the customer is looking for, it's hard to fault the vendor if the customer's half-baked advertising sales plan goes awry.
While I'd love to say that every digital signage vendor always operates with the best interests of their potential customers in mind, from the amount of noise in the industry press channel it's quite clear which approach most companies take. For example, there are innumerable examples of vendors issuing press releases "on behalf of their clients". In the typical scenario, the vendor is announcing the deployment of a 500-location advertising network when only the first few sites are in place (if that), and the rest of the deployment is contingent upon hitting performance goals -- a rather important detail that you'll rarely see mentioned in a press release. This type of boasting does nothing for the client, but it does make it look like there are many more big, successful networks in operation than there really are. Which is why every Friday (it seems), I get four or five calls from venture capitalists in various stages of due diligence, asking why my curmudgeonly blog posts go against everything they've read on every other site on the Internet (with the usual exceptions of Adrian's, Dave's and Ken's blogs).
What role will advertising play in the future of our industry?
Ultimately, while people like Steve Gurley have come out with
reports suggesting that digital signage advertising will likely
never take off in a truly spectacular fashion, I believe that ad-driven networks will continue to play an important role in the industry's growth. I
do think it's a little disingenuous to cite advertising as being the key to the industry's long-term success, though. And I
would like vendors to stop spreading half-truths about how easy it is to monetize screen time just to score a few easy wins. That kind of misinformation leads a lot of people down the wrong path, causing a lot of waste and inefficiency in the process.
Of course, if you have a solid sales model and a means of actually closing deals with potential advertisers -- and you're not dependent on impossibly unrealistic goals like securing ten national advertisers during your 30-day pilot project -- running a successful
advertising-driven digital signage network is not out of the question. But for the vast majority of people who undertake the task, it
is a lot harder than they originally expected.
Who's to blame for all the hype surrounding advertising networks? Is this even really a problem? Leave a comment and let us know what you think.19 Comments | Back to Top
M&A Advice: How to Sell Your Digital Signage CompanyAuthor: Bill Gerba on
2010-06-10 15:39:36
Building out a digital signage network takes a lot of capital -- there's no doubt about that. And for many companies, the challenge of raising enough money to get a network started is matched in difficulty only by the subsequent tasks of raising follow-on money for expansion, and making a successful exit via merger or acquisition. (I'd normally add "or IPO," but I'm hard pressed to find an example of a publicly-traded digital signage company that I'd be willing to call successful.) That's where Kevin Covert comes in. You may not know him by name, but Kevin and his firm were the force behind Reactrix's $45 million capital raise, as well as
SignStorey's $71 million sale to CBS. Since he's going to be speaking at Strategy Institute's Digital Signage Investor Conference in October, I gave him a call to see what he thinks about the market, the interesting deals he sees on the horizon, and perhaps most importantly, what it takes to be successful with mergers and acquisitions in the digital signage space.
Does raising more money upfront = success?
I've written about the do's and don'ts of digital signage a number of times in the past. And as any regular reader will tell you, a
surefire recipe for digital signage failure is expecting to be ad-revenue supported without any prior experience selling ads. That's by far the best way to crash and burn (or, more typically, sputter and die) in our market. But a close second is not leaving enough working capital in the bank to cover the longer-than-expected road to break-even/next milestone/profitability. And Kevin echoed that same sentiment. But is raising a lot of cash early on a guarantee of future success? Not always, and one of Kevin's own deals -- Reactrix -- is a good illustration of that. The firm raised $45 million very early on in their life, with little more than a tech demo and a dream. Their buildout was fast and furious after that. Unfortunately, so was their burnout.
Admittedly, Reactrix worked themselves into a tight spot. Not only were they faced with the massive expense of building out their own network of interactive displays, but they were also designing their own technology in-house. And if that wasn't enough, their medium of gesture-aware projections on floors, walls and ceilings was unlike anything that advertisers had ever worked with before, so they also had the extremely tough (and ultimately fatal) challenge of convincing advertisers that the totally custom content developed for their brand-new medium was going to pay off in a big way.
Is anyone actually buying and selling companies these days?
Pop quiz: if there's a frost in California and the state's orange crop freezes, are OJ prices likely to go up or down? When I first heard this question, I thought "up, of course, since the supply of oranges decreases." But in fact the opposite is true, since those oranges are probably still fine for juicing even if they're no longer pretty enough to be sold as whole fruit. This is analogous to what's happening today with companies facing growth and exit challenges. The finance markets are still tight, and many private equity firms are having trouble raising new funds. Worse, the money they have in existing funds is often required to go to existing client companies. This makes raising new money expensive -- if you can get it at all. To make matters worse, the IPO market is only just beginning to recover after nearly two years of neglect by investors. For many cash-strapped and growth-constrained companies, the best options left are mergers and acquisitions.
While big companies still prefer to do big deals, Kevin indicates that the market for smaller deals is also thriving. This is probably due in part to acquirers being more conservative with their resources and more averse to risk. Simply put, when cash is king it's easier to get board approval for smaller, tuck-in acquisitions than for game-changing mega-mergers.
So, what's your company worth?
I know that dealmakers are often hesitant to give shoot-from-the-hip estimates about hypothetical companies and deals, so I'm grateful that Kevin was willing to give me some perspective on the going rate for "typical" companies these days. So if you're planning your exit or penning your business plan, what can you expect to come out with? Well, if you make it to profitability, somewhere between 5 and 8 times annual earnings before interest, taxes, depreciation and amortization (EBITDA) is the norm. You'll find yourself on the lower end of that scale if you're stuck in high single or low double-digit growth. Although most of our discussion focused on DOOH network owners, Kevin also shared a few very rough estimates for the folks who provide the software that powers these networks. In particular, licensed software guys can expect somewhere around 2x annual revenues. SaaS guys do a bit better, provided they aren't hemorrhaging customers. For SaaS providers, a rough estimate might be around 3-5x annual revenues, with the upper end of that scale reserved for companies with a 30% or higher growth rate.
If you're growing but not profitable... well, you're in for a tougher sell. Kevin suggests that potential acquirers will look at not only your assets, but the amount of money you've already raised, the milestones you've reached on that cash, and any peculiar provisions that past investors may have inserted into their contracts.
A word about scale
One more thing: remember the
digital signage M&A article I wrote a few weeks ago, where I noted that some companies were employing the "roll-up" strategy to bundle together lots of smaller networks? Apparently that's a good thing. As mentioned above, bigger companies still prefer bigger deals. But more importantly, Kevin suggests that in our industry -- and particularly on the network side -- there is real value in scale. I can only imagine that this value will be multiplied if and when somebody can finally present a rigorous analysis of just how profitable digital signage networks can be, and how powerful advertising at the point-of-decision really is. While our industry has made a lot of progress in a variety of areas, our medium still isn't in the mainstream. That means it's more risky. And even if that higher risk is commensurate with a greater potential reward, when it comes to selling your company, a bigger risk almost always means a lower valuation.
Don't believe me? Ask Kevin Covert yourself
As I said, I reached out to Kevin because I noticed he'll be speaking at the Digital Signage
Investor Conference this October in NYC. If you're shopping for a digital signage company, or if you
are a digital signage company trying to raise money or get acquired, this conference is a great place to meet people who can actually make deals happen. Wall Street analysts, private equity guys and M&A guys like Kevin will be speaking on a broad range of topics and will be available for questions afterward. So instead of stalking them via phone and email, you can simply corner them in the room!
Nonsense FTC disclaimer: edicts from an obscure branch of the federal government apparently trump the free speech clause in the Bill of Rights, so I'm required to say that I don't work for Strategy Institute and they're not paying me for this post, but I will be attending the Digital Signage Investor Conference at the Strategy Institute's invitation.2 Comments | Back to Top
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