WireSpring Blog

How To Raise Money For Your Business During the Economic Crisis

Author: Bill Gerba on 2008-10-09 10:21:15

Over the past few weeks a lot of people have asked me how the current economic crisis will affect the advertising market and emerging media like digital signage. Since I'm neither an economist nor a finance guy, I'm not particularly tuned in to the effects of macroeconomic conditions on our little niche. Then again, given the recent track record of the world's "best" economists and finance guys, perhaps less knowledge works in my favor :) All kidding aside, recent market trends will have consequences for all businesses, including digital signage and other new media. But how big will the impact be? To answer this question, I spoke to a bunch of people at banks, VC firms, hedge funds and various debt financiers. Then, I put together a handy diagram to summarize what I learned. In this article, I'll cover the more interesting tips -- some of which may surprise you.

Everyone likes to spend other people's money

Say you're starting up a new company. It might be in the digital signage industry or placed-based media, or maybe something else altogether. Like most new businesses, you need capital to grow and expand. Or maybe you've just gotten the go-ahead from your CEO and Board of the big firm you work for to begin deploying your screens, but it's going to cost $25 million to get the job done. What are the options for getting that money? Decision number one is whether to use existing cash in the bank or find new cash to fund the project. Until recently, the conventional wisdom was to minimize equity raises in favor of using cash on-hand or taking on some debt. For large companies, this continues to be an option. But for smaller companies, $25 million is way more than you have on hand or could borrow from the bank. That means finding external sources of cash.

The bad news: Debt, credit and loans have dried up

First, the bad news. You probably heard about it on the news or read about it on the web after making the terrible, terrible mistake of looking at your 401(k) account this week. Simply put, we have a "credit crisis". It's really hard to get a loan right now, even if your business has been operating profitably for a long time. As excessive debt is no longer an option for many companies, they've become much more conservative about spending their available cash. So conservative, in fact, that for the first time in a long, long while, a lot of companies are giving out equity stakes instead of spending the money in their bank accounts. Just as GE and Goldman Sachs took multi-billion dollar investments that they don't actually need right now from billionaire investor Warren Buffett, small and mid-sized firms with strong balance sheets and operating histories have been more willing to give up a share of the company to keep more cash on the books. Consequently, we're tracking a fair amount of venture capital activity right now, though requirements have become tighter and valuations lower than before. Unfortunately this doesn't extend to the very low-end of equity financing, and I expect many startups are going to find that their friends and family are quite tapped out at the moment, between shrinking savings, no access to home equity, and high food and energy prices.

The good news: Private investors and leasing companies are still active

The good news, you ask? Well, the stock market has become rather volatile and "safe" investments like T-bills and bonds have interest rates hovering just above 0% right now. This means that many wealthy individuals and angel investors are putting their money to work in private equity markets. Not all equity deals look good right now, of course. You'd have to be crazy (or desperate) to try going public any time in the next 12-18 months, and only the biggest, best companies are having much luck issuing new shares on the public market. But private companies with a good plan and solid executions should be able to find money out there, provided they're willing to give up a fair chunk of equity for the privilege. Also, the one sort of debt financing that still seems to be in favor is equipment leasing. Since the full amount of money is backed by assets with known retail values and depreciation curves, these debts are a bit less risky than those based on company performance or balance sheets. However, it does seem that the leasing companies have become even more careful about who they'll lend to.

The silver lining: Companies that survive in today's economy will dominate in the long-run

It's hard to imagine some good coming out of all this, but there is a silver lining: just as there are buying opportunities on the stock market during a down period, the same is true in the digital signage market. I expect to see a wave of consolidation as small networks merge together to improve their footprint and performance. Likewise, we'll continue to see a culling of weak vendors and service providers. Hopefully, a few winners will emerge over the next couple of years. These firms will be more svelte and streamlined, but also more nimble and dedicated to innovation. And if you're just starting out today, make sure to keep these same attributes in mind.

How has the economic crisis affected the growth of your business? Have you found any other unusual sources of funding? Leave a comment and let me know.

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Want to Hedge Your Media Buys? Try Digital Signage Advertising

Author: Bill Gerba on 2008-10-03 09:51:12

We're in the middle of our busy season right now, so this week's post is going to be short and sweet -- and nearly as speculative as the returns on a government bailout plan. I was looking at some of the recent forecasts for advertising spending in the US and came upon an interesting question: Can ad buys on digital signage networks work as a hedge against purchases of TV, newspaper and magazine ads -- similar to how stock options can be used to hedge against falling share prices?

To answer this question, let's start with some market data. PQ Media estimates the total size of the US digital out-of-home (DOOH) market at $1.3B, but only about $330M of that represents advertising revenue, with the rest going to capital and maintenance costs. To put that in perspective, the total US advertising market is about $120B, which means that less than 0.3% of ad dollars go to digital signage right now. By comparison, the TV advertising market that Google is chasing does about $77.5B, accounting for about 65% of the total. Thus, the TV market (including the broadcast, cable, local and Hispanic segments) is more than 200 times the size of the digital signage market.

Most TV advertising generates a net loss for the advertiser

Now for the really speculative part. Research suggests that CPG companies are only paid back $0.49 for every $1 spent on TV advertising. Non-CPG advertisers do almost twice as well, but still "break the buck," earning only $0.81 for each $1 spent. So if we put TV advertising in its own little box, disconnected from other parts of a brand campaign, it's a losing proposition. In other words, TV is only profitable when working in conjunction with other media to influence the viewer.

As far as I'm aware, there is no similar statistic indicating the relative "payback" for advertising on digital signage projects. My own gut feeling is that it's slightly positive, perhaps yielding an average return of $1.07 or $1.08 for each $1 spent. There's also huge variety, with some ads producing $3-$4 in value for each $1 spent, while others show much poorer performance. But unlike relatively staid and standard 30-second spots for TV, advertisers have their choice of formats and venues when it comes to digital signs, making any kind of like-like comparison very difficult. Further, TV advertisers have had a long time to hone their craft, so it's unlikely there will be a dramatic improvement in performance anytime soon. In comparison, the ongoing refinement of digital signage design techniques continues to produce better ad performance.

Digital signage ads provide a better return than TV

So what does it all mean? Simply put, if we assume that my estimate above isn't wildly off the mark (and it might be), then for every dollar that comes out of TV advertising and gets put into digital signage advertising, a CPG advertiser would "recover" the entire $0.51 loss and then generate a small profit on the original amount spent. (This is based on an average return of $1.08 for digital signage versus $0.49 with TV, each on a per-dollar basis.) For an advertiser that spends $10M a year on TV, simply moving 10% of that into digital signs would be like reducing their ad budget by $590,000 without sacrificing performance. In fact, there would probably be a performance boost, since their skills with designing and deploying ads for digital out-of-home environments would improve with experience. If we extend this trend to the advertising industry as a whole, moving 10% of TV ad spend into digital signage would save $4.5B per year, with no loss of performance and lots of upside potential.

What's stopping this from happening? For starters, the pivotal number in my argument is made up. I don't know for sure that there's a net positive return on most digital signage advertising -- I just think there is based on my own experience. Likewise, the amount lost or returned for TV commercials is a subject of much debate, so we can't count on it either. But I'm confident that dollar for dollar, a well-designed spot running on a well-placed digital sign should outperform a similar TV commercial by a wide margin. While I doubt there's any consensus from the industry at large, I'd like to know your thoughts on the matter:

All else equal, will a spot on a digital signage network "do" more than a spot running on TV? And where does the bulk of an in-store ad's value come from: "hard" sources like sales lift, or "soft" sources like brand recognition?

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Elephants in the Room: Measuring the Value of Emerging Media

Author: Bill Gerba on 2008-09-25 13:11:09

For a while now I've been studying how different measurement tactics can be used to determine the value of emerging media, including digital signage. And for the second time in recent memory, a post from one of my favorite blogs helped me see a new way of approaching an old problem. Simply put, I think the digital signage industry is missing what Adaptive Path would call the "Value Metric." It's the way that we take data from our measurement tools and relate it to the ultimate value of the system, such as generating ad revenues or increasing product sales. Sounds confusing, right? Let's take a look at a handy illustration and some examples.

We can connect behavior to outcomes with "Linking Elephants"

Adaptive Path, one of the premier user experience companies out there, feel that this "Linking Elephants" illustration is vital for helping clients determine ROI. In fact, they kept it hidden from the public for years, only making it available in pricey research papers and reports. Recently, they decided to share their findings in the context of how organizations approach the user experience. This worked out nicely, since that pesky block #4 -- the Value Metric -- is exactly what I've been trying to identify and work out for the digital signage industry. It's essentially the measured component that attaches a hard value to the original customer behavior being measured. That's a mouthful, so let's start by investigating how the concept of Linking Elephants applies to traditional media.

Traditional media focuses on audience size

For television, newspapers and magazines, the whole chain is pretty easy to visualize:

1. Business Problem: How much do you sell your (limited) ad inventory for?
   
   
2. User Behavior: Reading/viewing your medium
   
   
3. Behavior Metric: Number of viewers/readers, based on subscription rates or data from Nielsen, etc.
   
   
4. Value Metric: Demographic makeup of viewers combined with historical pricing and total inventory availability
   
   
5. Financial Metric: CPM, the cost per thousand viewers

A hard cost to deliver a message to a thousand viewers (CPM) is simply based on the number of people consuming the content, as estimated by subscription rates or measurement agencies, and some factor accounting for market forces like supply and demand. The actual value of the ad inventory is thus directly proportional to the measured audience size.

Online media looks at measurable actions

Internet advertisers tried to adopt CPM for their own use in the mid 1990s, but quickly discovered a more accurate -- and valuable -- way to monetize their space. Because they could measure not just who had an ad served to them, but also who responded to that ad by clicking on it, they decided to price their inventory on a per-click basis. It doesn't matter if 10,000 people view your ad: if only 1,000 click on it (indicating engagement), you get billed only for that 1,000. Thus, their chain of metrics might look like this:

1. Business Problem: How much do you sell your (unlimited) ad inventory for?
   
   
2. User Behavior: Clicking ads on your web pages
   
   
3. Behavior Metric: Ad clickthroughs
   
   
4. Value Metric: Auction-based determination of the value of a contextually relevant "warm lead"
   
   
5. Financial Metric: Cost per click

The rate for each click is much higher than it would be for a mere view, since the click is perceived as being more valuable.

Emerging media is stuck in the middle

Simple enough so far, right? The problem with out-of-home ads is that in terms of engagement and measurement, we're somewhere in between the old stalwarts -- TV, print and radio -- and the new heavyweight, Internet. Consequently, the best way to link measurement and return together is still a topic of much debate. (This is one of the reasons why the value of measuring digital signage remains uncertain, even in the context of behavioral analysis.) The main question is this: Are our customers viewing, engaging, or acting?

So far, I've pinned down what steps #1 and #5 should be in the diagram. Our Business Problem is just like TV and print: "How much do you sell your (limited) inventory for?" Our Financial Metric is ultimately going to be the cost per spot. On most digital signage networks, this would be the price for an individual playback on an individual screen in the network. But the User Behavior, Behavior Metric and Value Metric are all up for grabs. For example, the user behavior might be "glancing at the screen" (whatever a glance is). Or maybe it's "engaging the screen via mobile phone." Or it could be something totally unrelated to the screen, such as picking up a coupon or moving in a different direction inside the store. Because there are so many possibilities, the Behavior Metric is equally difficult to lock down. If a glance is the desired User Behavior, then tracking cameras and software might be the best way to generate a "number of glances", "glances/spot" or "glances/hour" metric. Of course, that information is less useful if the preferred behavior is interacting with the screen some other way.

Many questions remain

We're still left scratching our heads about the Value Metric. Should it have some demographic component? What about the kinds of purchases typically made at the venue? Can it account for "soft value" things like customer experience or trip history and other measures of loyalty?

From my analysis, there is no one single User Behavior nor one Behavior Metric nor one Value Metric. Thus, we probably won't be able to create a single chain of behaviors and metrics like Adaptive Path uses. But we can have a flowchart! In an upcoming article, I plan to chart out all of the common user behaviors that a digital signage network operator might pay attention to. Then, I'll try to create a map of available Behavior Metrics and Value Metrics for each one. To make the list as comprehensive as possible, I'm asking for your help with the following questions:

1. What's the most common goal for digital signage at-retail??
   
   
2. What kind of "interaction" is the best to measure?
   
   
3. What would that measurement be worth to you?

Let's get a great list of answers together, and hopefully we'll see a natural Value Metric fall out. To join the discussion, leave a comment below.

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Why You Won't See Political Ads on Most Digital Signage Screens

Author: Bill Gerba on 2008-09-19 11:01:00

I'm Bill Gerba, and I approved this message. If you're living in the US, you've probably heard that sentence (sans my name, of course) a zillion times over the past few months as candidates for all sorts of offices have tried to claw their way out of the TV and into your brain to influence your decision on election day. In addition to the endless commercials, direct mail flyers (I've somehow been invited to numerous $1,000 per-head dinners by both parties -- no thanks!), and blogs and Internet "news" sites, the candidates' minions have also been busy putting up signs and placards on every street corner -- plus posters on every visible space that will allow them. So it's a bit counter-intuitive to think that the places that typically contain the most commercial messages per square foot -- retail stores -- have been a safe haven from political ads. The question is: why?

Every store is a purple store

It's not that retailers can't run political ads. Stores are private spaces, so the corporate powers-that-be can do virtually anything they want as far as internal messaging is concerned. But regardless of what the mass media might feed us about "red" and "blue" states, the simple truth is that there are plenty of Democrats, Republicans and independents wherever you look. Thus, promoting one candidate means you're always going to be ticking off a certain percentage of your customer base, and that's not good for business. I don't claim to know the contents of every network operations contract and ad sales agreement signed between retailers and digital signage companies, but I'm willing to bet that most have an implicit understanding, if not an explicit clause, keeping political ads off-limits for that very reason -- greater good be darned.

I use the phrase "greater good" above for maximum effect, because my more politically-inclined friends still insist that being an activist for your preferred candidate somehow improves the world. I've never really bought into this on an individual level. And I'm downright positive that it's totally untrue when applied to retailers, hotels, restaurants and other commercially-driven private and semi-public spaces. Pick a candidate, and you alienate some portion of your customer base. If your guy wins, you've essentially locked in that alienation for the next four, six or eight years, depending on the office. If your guy loses, your customers' memories of your activism will likely fade more quickly, but you still haven't encouraged any additional loyalty. Unless there are considerable political favors to be had if your candidate prevails (which I understand is a big no-no), it's a lose-lose situation for the retailer.

Gas stations and retailers are in the spotlight

Gas Station TV (which sells ads on pump-top digital screens) was in the news recently for coming to this very conclusion. Apparently, the Obama campaign approached the company about buying ad time to talk about the energy crisis behind $4/gallon gas. However, Gas Station TV made "a conscious decision not to run political ads" and eventually refused to accept the placement. It doesn't take much imagination to guess what might have happened had they run the ads. Regardless of where you lean on the political spectrum, it's not going to be very comforting to hear about why gas is so expensive while you're right in the middle of pumping that expensive gas into your car. And that discomfort might get transferred to the station or brand of stations playing the ads, which could easily translate to future lost sales.

The nation's largest retailer, Walmart, has taken a different approach to handling political ads. Instead of explicitly endorsing one party or another, they've decided to air voting-oriented public service announcements on their in-store TV network. Arranged like a series of old-school gym posters, the "Exercise Your Right to Vote" campaign will be seen by 136 million customers and 1.4 million US store employees every week. Superficially, at least, the Walmart behemoth appears to be doing good and encouraging the democratic process. Conspiracy theorists, on the other hand, think the retailer has a preferred candidate and a good understanding of how core shoppers are likely to vote, and believe that the latter might help get the former elected if enough of them can be encouraged to go to the polls. If that theory is true, Walmart could score a major coup by getting their choice for president elected while never running a single political ad in their stores -- all the while encouraging fair play by airing public service announcements instead.

Taking sides is unlikely to pay off

When I was growing up, discussions about religion and politics were generally off-the-table at our family gatherings. (Things were loud and fractious enough without broaching those topics.) That same rule definitely carries over into the retail space, as well it should. Unless a retailer has a significant vested interest and a predictable upside in seeing a particular candidate win office, they're much better off avoiding the entire debate. And while a mom-and-pop operation probably isn't going to run into too many problems supporting their man (or woman) for the city council, that doesn't carry over to national retailers. When you have to present a unified image and message to multiple idiosyncratic audiences in cities and towns all around the country, the game changes considerably.

Say what you will about capitalism trumping politics. I'll take ads for Pop-Tarts over presidential candidates any day.

Did Gas Station TV and Walmart make the right decision to avoid politically-charged ads? Leave a comment and let me know your opinion.

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How to Design Better Content by Avoiding the Dead Zone of Slick

Author: Bill Gerba on 2008-09-11 12:05:13

While I enjoy Seth Godin's blog posts, it can sometimes be challenging to translate his quips and observations into things that are really helpful. Every once in a while, though, he presents something that's immediately useful and valuable to me. A recent post called "The dead zone of slick" is a good example of that. For a while now, I've been trying to figure out why some digital signage content can look great but perform poorly, while other content looks like it was drawn by a 3rd grader with a blunt crayon, yet shows remarkable results at the sales register. Godin's "dead zone" observation was exactly what I was looking for to explain this strange phenomenon.

What's the Dead Zone of Slick?

To explain the Dead Zone of Slick, Godin recalls a time when he encountered some musicians playing to pedestrians at his local farmer's market. Impressed by their music, he bought a CD. Unfortunately, as much as he loved the live band, he hated the album. His explanation?

"Faced with the excitement of making a CD and all the knobs and dials, they overproduced the record. They went from being two real guys playing authentic music, live and for free, and became a multi-tracked quartet in search of a professional sound. And they ended up in the dead zone. Not enough gloss to be slick, too much to be real."

Not enough gloss to be slick, too much to be real. That one sentence pretty much sums it up, but if that's still too much to get a handle on, he provided a handy illustration. While the very real and the very slick have an equally powerful effect on perception, stray too far in either direction and you lose that power. It's easy to understand why that might be the case for things that are obviously phony (to the far left side of the curve), or things that are hyper-slick but lacking substance (to the far right). That bit in the middle between real and slick was less obvious to me. In retrospect, it makes perfect sense.

What does it mean for the creative process?

My argument -- articulated in a series of articles about making great digital signage content -- is that nearly anybody can create effective, memorable content by focusing on the fundamentals. This includes having a clearly articulated message, clean graphic design, and a strong call to action. Going by "The WireSpring Method," you don't have to be the world's most amazing graphic artist or Flash animator to make content that's thoughtful and compelling. You just have to be clear in your intent and understand how your audience is likely to consume content on your medium. Whether we're talking about TV, online banner ads, or digital signage, the same guidelines will apply.

But some people say the fundamentals are over-hyped. In their view, what really takes content to the next level is the slickness: fancy effects, killer soundtracks and the like. Pat Hellberg, who spent 19 years at Nike and led their in-store media efforts, happily plants his flag in this camp. As he wrote in a recent article: "During our years of creating content for the Nike Retail Network, I can't recall a single discussion about fonts, color or contrast. I worked with brilliant graphic and motion designers whose instincts led them to the appealing and to the attractive. That's what artists do. They create content that they know, in their gut, makes things 'beautiful, attractive and desirable.'"

With these two perspectives in mind, let's re-visit Godin's illustration and make a couple of modifications so it better fits the digital signage content creation model (or any other highly visual medium, for that matter). Let's replace his "perception" with "performance", since that's what we really want to measure, and introduce something called the "gloss factor" (which we'll get to in a moment). But first, let's talk about the "real" and "slick" curves. If you keep your content "real" by sticking to the fundamentals, you're going to get good results. That's the same as Godin's original illustration would suggest. But if you can keep it real and pump up the gloss a little, then you'll probably get even better results. Pat Hellberg and his team might not have been consciously thinking about fonts, colors and contrast when working on their in-store media. But a fundamental understanding of these things is going to be second nature to the kinds of brilliant graphic designers he was working with. So he essentially got the fundamentals -- the "real" -- for free, and was able to focus his team's efforts on the gloss to wring a little extra goodness out of each piece of content they produced.

Is being slick worth the effort?

In most cases, the "gloss factor" can only buy you a small boost in overall performance. So the question to ask yourself is, "Is it ever worth the effort?" After all, artist time is not cheap. Spending a few thousand dollars more to make something that both meets the fundamental criteria for good in-store media content and looks cool as all get-out is only going to be worthwhile when it helps you meet specific goals that offset the additional cost. Further, the type of objective you have in mind (e.g. to drive additional sales, enhance brand image or do something else entirely) will affect how you calculate that value to begin with.

I've watched many well-funded companies fail at the digital signage game in the eight years I've been doing this, so perhaps I've become something of a miser. But even with that in mind, I'm confident you'll get the most bang-for-your-buck by following our recommendations for great digital signage content. Any reasonably skilled designer can quickly get up to speed with those tips and start making attractive clips that are both memorable and compelling. But if time and money are no object, and your design team has already shown a full mastery of the basic concepts, there may well be some added value to giving your content that extra gloss. Just be aware that the additional time and money you invest may never be recuperated -- and might have been better spent elsewhere.

Have you ever seen content that tried to be slick, but ended up just looking fake? Did it fit the model I outlined above? Leave a comment and let me know.

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