DOOH Growth Strategies: Horizontal and Vertical Integration
Author: Bill Gerba on 2010-09-16 13:46:31
While chatting with Crisie Charan-Thomas from the Strategy Institute, I asked her which topics she expects to be the most popular at their upcoming Digital Signage Investor Conference
. The event always draws a mix of starry-eyed startups, owners of existing networks, institutional investors and a smörgåsbord of consultants and service people looking for new ways to grow. But it seems like the focus of this year's event will have to be split between how to thrive
in our market, and how to to simply survive
. Of course, the two needn't be mutually exclusive. For example, strategic mergers and acquisitions can (and should) benefit both acquirer and acquire-e. The trick for many firms is simply knowing which kind of strategy to pursue, and timing it for maximum effect.
Horizontal growth strategies
Whether we look at troubled firms selling off their assets or healthy companies getting acquired, most of the deals we've seen (by number) in the digital signage industry have been horizontal in nature. In these cases, materially similar businesses band together to do more of what they were already doing, just more efficiently (or with more scale). For example, any time one DOOH network buys another, it's a horizontal acquisition. Of course, in our sad little industry the acquisition is more likely to be a purchase of assets from a defunct entity, rather than a merging of two healthy firms, but the point is the same. The overall success of the new entity is predicated on (a) operating the combined networks less expensively than if they were separate, thus increasing operating margins, and/or (b) reaching a new level of scale that will allow the company to achieve business objectives that would otherwise have been impossible.
The siren call of scale
Every time I talk to an institutional investor on the phone -- every time
-- I can actually hear them get giddy as they talk about the revenue potential of a fully-scaled digital signage network. And admittedly, if someone could figure out how to build or buy a really, really big network AND get an audit process in place AND get the accredited information in front of the major media planners AND develop an optimal content model for digital signage AND convince/coerce advertisers to adhere to that model AND manage to run the whole thing economically... then yes, they could probably make a lot of money. However, experience has shown us that many of these steps are difficult if not outright impossible, and the most successful DOOH networks on a dollars-per-screen basis continue to be fairly small and very tightly focused.
A potentially more challenging growth option to pursue (if you're looking to get sold) is vertical integration, where your portion of a project is combined with another to either increase sales volume (by getting your widget included in more deals) or sales profitability (by consolidating margins that would previously have been spread among multiple firms working on the same deal). For example, when AV-giant AMX bought Inspired Signage back in 2007, they were no doubt thinking vertically, since their existing sales and fulfillment channels were already handling many of the other tasks associated with outfitting new digital signage projects. Likewise, when CBS bought SignStorey
that same year, they figured they could increase their profits by owning the medium that they and others were already trying to sell and place ads on.
Weighing the options
Big businesses are sitting on hundreds of billions of dollars that could be put to use buying and merging smaller firms, either to create scale or become vertically complete. But their big challenge is deciding where the deals are: do they want to buy the assets of companies that are otherwise unsalvageable, or do they prefer to spend more on healthier firms with more synergistic potential? From the seller's side, timing is everything, and selling a business isn't an overnight endeavor. That's why I'm hoping that some of the experts at the Strategy Institute conference will spend a little time talking about when to think about growth options, and where so many of the companies in our industry are currently going wrong.
So, in summary: two health care digital signage networks merging together for scale and efficiency = horizontal growth. Those networks getting bought up by the pharmaceutical media planning agency already selling advertising on them = vertical. Getting acquired in the middle of an obvious growth curve = good. Selling off the assets of your defunct company because you waited too long to start looking for a viable growth option = bad. Writing a few paragraphs to highlight some of these potentially very complex deals = easy. Actually getting a deal done at the right time = hard.
Have you noticed any horizontal or vertical integration strategies that made a lot of sense? What about deals that made no sense at all? Leave a comment and let us know.
Nonsense FTC disclaimer: I don't work for the 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.
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