David vs Goliath: Can a Smaller Digital Signage Company Succeed?

Author: Bill Gerba on 2009-09-03 19:02:08

I'd like to offer up an observation based on nearly a decade of experience in this industry: business as usual hasn't changed much for the small network operator since the turn of the 21st century. For one reason or another, things haven't gotten any easier for companies who manage 100 screens or less. And despite numerous advances in the marketplace, the longevity of a smaller digital signage company doesn't seem to have improved much, either. This baffles me, since in the 5+ years that I've been writing this blog and researching the industry, digital signage costs have continued to decline, the quality of the products and services that make up a digital signage network has improved, and people have generally become more accepting (and less incredulous) of the benefits of out-of-home digital media. I haven't completed an exhaustive analysis of the data, but at this point I want to throw out a couple of guesses as to why this might be the case. With your feedback, my goal is to turn this discussion into a more comprehensive study that can benefit network operators of all sizes.

Why focus on the "little" guys?

Image credit: Stefan

Before I jump into this, I want to point something out: the digital signage business is probably quite difficult for everybody, large and small. I doubt the execs at industry heavyweights like CBS Outernet and PRN just breeze through their operations without a care in the world. However, there happen to be a lot more small companies in our space than large ones, and I certainly deal with many more small companies on a day-to-day basis. Thus, I have a much larger pool of data to work with there. If anybody from one of the really big networks would like to chime in with a comment or two about their own businesses, all the better. Also, there's nothing magical about the 100 screen or 100 venue cap on my analysis. That just happens to be my mental point for dividing networks into "small" and "large" categories, and is otherwise completely arbitrary. So, don't think that installing just one more screen or venue will catapult you out of the danger zone and into safety.

Those who don't know history...

...are destined to repeat it, as the British philosopher and statesman Edmund Burke noted a few hundred years ago. Sadly, plenty of people in the digital signage industry seem hell-bent on trying to prove him wrong. Very few succeed in this endeavor. One of the biggest sources of angst in our marketplace -- to large and small digital signage companies alike -- continues to be the challenge of justifying the value of the screens (or screen time) to entities that might like to put some content on them. The entity might be an advertiser, a government organization, or a non-profit. But whoever they are, networks owners have to convince them that the audience viewing their screens is valuable. Furthermore, they have to prove that the screens can reach that audience in a meaningful way. As many experienced folks in the industry have said: if you haven't sold ads before, then starting out with advertising-supported digital signage is a very difficult path to take -- and one littered with the corpses of dead networks.

Clearly, the gung-ho attitudes of new network startups hasn't changed. And while that continues to lend plenty of optimism to the industry, it also means that more companies are charging into the space head-first, often without the understanding of why so many of their peers have failed. Thankfully, I've talked to numerous institutional investors and angel groups recently who've noted they see many fewer "build it and they will come" propositions from network startups, even while the rate of new network formation (from my perspective) seems to be increasing. So my gut feeling is that more companies are testing the waters with smaller, self-funded pilots, and perhaps relying more on organic growth from real, actual revenues.

Wait, I thought this was a cost-driven industry?

Ask any digital signage vendor and they'll say it certainly feels that way sometimes. And as I noted above, costs have steadily declined since we started tracking them in 2004. But that trend only seems to be helping with the rate of new network formation, not the relative success or longevity of those networks. To me, this suggests that the reason for failure has to do with operating costs (or revenue shortfalls) that aren't related to the technology or initial installation expense (which is really all that we track). It might be content, it might be management, or it might be sales. But whatever it is, it's enough to sink network after network. Of course, the upshot for savvy firms is that once a digital signage company goes under, their screens remain in the field, so over time we've seen smaller networks grow inorganically by purchasing the assets of their defunct ex-competitors.

Obviously, lower costs will continue to reduce entry barriers for prospective network owners. However, just because more companies get started doesn't necessarily mean that more will be successful in the long-term. In fact, I kind of expect the percentage of successful network operators to decrease as more new firms jump in, realize how hard this stuff really is, and then quickly make an exit (or die trying). But on the other hand, more new companies means more innovation, more new and different business models, and hopefully more paths to success. From WireSpring's perspective, we continue to see the strongest growth from new customers starting relatively small networks. But the next biggest growth area is from small- to medium-sized networks expanding their existing operations (which by some accounts is an indicator of their health). For all that, though, there are plenty of networks that have fallen by the wayside.

What's the biggest reason that digital signage networks fail? Is there anything on the horizon that will make things easier for new network operators? Leave a comment and let us know!

Comments (13)

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2009-09-04Tony Scott writes:

Bill, I agree with your comments regarding how difficult life is for both big and small netwrok operators. We have been supplying our software to advertising netwrok operators for about 6 years now and in that time some have survived and some failed. The ones who have difficulty as small operators are usually the under capitalised ones. Nearly every week we are approached by hopeful operators who are going to set up a network of say 10 or 20 displays in maybe hotel lobbies or other public spaces. They usually have the same model that they will start off advertising local mom and pop stores and services and 'once we have some revenue coming in' we will be expanding the network.

The sad fact is that in most cases they can never sttract high paying ads to their network because they are too small. The big budget advertisers are not interested because the exposure is too limited. In the end they realise they will never see enough revenue to increase the number of screens and usually either settle for just keeping it ticking over.

Our advice to most erstwhile operators is start out with enough capital to deploy a worthwhile number of screens to start with and have enough budget to keep them running while the advertising build up. New Zealand is a pretty tiny country but it is still difficuolt unless you can get at least 100 displays in a network.

Of course what can help is if you can build a network in conjunction with an advertiser who is willing to stake you. This can be government departments such as health information departments who are willing to pay a good sized retainer but are still happy for you to sell a percentage of the screen time to other advertisers.

2009-09-04Carlos Silva writes:

I completely agree, i started working in that industry 15 years ago!! i wrote my first digital signage program at the university, and the Barcelona Metro network is runnig since 1997.

But the fact that a lot of companys are trying to make his first movements from web to digital signage we will have a lot of failures in the way, but sometimes they will give us a new perspective (at least this is what i hope) to become a real category in business.

Congratulations for the blog.

2009-09-04Robert Scozzari writes:

Hi Bill,

I am not directly in the digital signage industry but indirectly. I provide creative to a smaller digital signage company. Much like any business, including my own, there are many small players and a hand full of larger players. The key to success is to understand what makes you stand out from your competitors.

It's much easier to identify what makes you stand out from your larger Goliaths. That would be greater customer service, more personalized service, more one-on-one with the owner not a sales rep, etc. Ok, but what about the many smaller competitors?

All the smaller companies can say the same thing. So to find out what makes you stand out from them will be a bit trickier. I like to think that creative is way to stand out. What is going on those screens? Your customers are not leasing a beautiful LCD screen. They are not leasing pretty pictures of their products that get displayed on those screens. What they are paying for is a means to convert prospects into customers and convince customers to spend more.

When I sell a brochure, I don't sell a folded sheet of paper, I sell the the creative that will increase sales, which just happens to be on a folded piece of paper. So make sure you have a great creative team making creative work that catches eyeballs and converts prospects.

Other ways to stand out are finding a niche, or and industry that could benefit from screens but has not typically used them.

There are many ways to succeed, but only if you are innovative and stand out.

Robert Scozzari

2009-09-04Jeremy Gavin writes:

My company provides content feeds to many smaller networks, 90% of whom are ad-based and I was involved in starting an ad-based digital signage network myself.

When we ran numbers for our startup network I initially was concerning myself with the costs associated with the hardware, software and ongoing fees. But, I quickly came to realize that even if my costs doubled from what I predicted it was not the determining factor for success. Our X-factor was sales of advertising. Particularly the percentage of ad space sold. If we could sell 50% of our ad space and up we'd have plenty of success and saving $100 on a screen or $20 on content per month wouldn't matter.

You've got to identify your revenue stream and focus on that more than the technology. Before you jump in - talk to potential advertisers and learn who you can sell to and for how much.

2009-09-04James Petersen, Ph.D. writes:

Greetings,

To sell an ad on a digital display network such as Car Washes where we have a small network of 5 locations, requires that the ad buyer believes that the media works. I started with scrolling displays in the 90's and found that we could sell ads because people actually watched the ads move. When an ad stayed static for 10 seconds and then slowly changed to another, the Duratran graphic moved and made a sounds%u2026 people attended to it! They liked watching the thing move.

Going from Static to Motion triggered a response. So, when a person came in to consider buying an ad they would come to the location and watch the people. If the people looked at it enough, they would do the buy. If they people did not watch it, even lowering the price would not help the ad buy.

Digital is a continuous stream of information and has only a break between each ad that may or may not cause a consumer to watch. Putting in rich content and better creative helps, but more is needed. Consumers have attenuated to watching TVs, LCDs or Plasmas unless they WANT to watch it for some reason...like a show or sport program. Ads and rich content are simply not that interesting or compelling to watch. Now, when a buyer comes in to evaluate the our DOOH concept, they watch the people and say, "well...no one is watching it". I don't care what the price is, I'll pass. DOOH is not network TV where people want to watch a program and get tricked into watching the ads%u2026but even here, people are tuning out the ads more and more.

To solve this problem, we've gone to a multi-media concept at each location so that we can "hit" the consumer in more than one way such as adding static billboards in outside waiting areas, brochure racks, and 50" plasmas. Value added works better. However, we sell many more static ads than 20 second vids in two plasmas inside. All this helps, but as all have said, this is a difficult business. Figure out how to sell ads on 5 displays and make money and then you can build a large network. We're still trying.

Jim Petersen
Emerging Media, Inc.

2009-09-04Bill Gerba writes:

Great discussion, all. I'm so interested to hear that the challenge resides mostly on the sales side and not the expense side. It certainly mirrors many of the experiences my clients have related to me, as well as a kind of "gut" feeling I've had, but never having sold ads I couldn't say for sure.

I suppose the good news is that as long as costs decline, it gives companies a longer runway to work out their sales strategy. However, it sounds like the bad news is that people are still waiting until after deployment to bother testing that strategy out.

Now, if only there was a fool-proof way to convince potential advertisers to commit before ever rolling out a single screen... it seems like that's the kind of thing that could really solve this problem once and for all.

2009-09-04Dave Haynes writes:

Three of the biggest reasons why all these little networks are:
as noted, many start without having anyone on board who has ever sold media;
the per-site costs may be low but getting a big enough footprint makes the total capex a big number;
in almost every case, the screens are too small and not the dominant visual element in the environment, they're just an element in a site full of visual distractions ... potential advertisers look at what's on offer, and yawn

2009-09-04Mike writes:

Alas, I am but a humble human. Hmm...

I have a "small network" of 51 screens. I started with 3 screens 8 months ago, and paid for the additional screens only from revenues generated from sales.

My model is working because I'm in rural areas where there are a limited number of high traffic venues. My potential customers visit these locations in the course of their lives, and 50% of my sales are made by these customers contacting me! Currently I have over 200 customers and climbing.

Right now I'm in the process of converting my DVD players to an Internet Server. Can you believe that delivering content to 51 screens weekly by hand is getting too time consuming? This has been resolved by a software engineer for a $10/screen/mo fee which is totally customizable to fit my idea of a "Dream Screen." (the engineer has his own dreams)

Finally, to those of you struggling out there.
Get used to it, I have. Hard work, (100 hours a week) running ideas past several people before implementing, good content and SALES, SALES, SALES is what makes the difference.

2009-09-04Mike writes:

Letter of Apology

Got a call from the "Boss"

As a matter of clarity on my above comments.

I have no server software experience whatsoever. And, as pointed out to me, I will probably be opening a larger can of worms than the fish require.

To be fair, I appreciate this newsletter and read it with rapt attention. And, unfortunately I may have given the impression that any "Computer Nerd" could put me online with great "bells and whistles" for a low cost.

Please forgive my comment. It was unfair and probably unrealistic.

2009-09-05Hendrik writes:

Hi,
What is being shown on the screens is not suited for this kind of advertising. I still don't understand why all these so called marketing guru's do not understand that the messages need to be created specifically for the market or environment. Most of the screens I noticed have TV ads running, or small unreadable text, or bad timing, etc. etc. So how to sell a product where the customer (marketing dept.) doesn't or don't want to understand digital signage?
In my neighbourhood there are 2 shops running blank screens for more than 50% of the time, but are refusing professional advice, I think this says enough ... When will they start to understand !!!

2009-09-06Bill Gerba writes:

Hi Mike,

I'll be honest with you, but it'll sound like I'm lying since I sell software... :)

I don't think I could name you five significant networks that run their own software anymore. There were *LOTS* of them 5-6 years ago, but over time they've converted to an industry standard, sometimes including WireSpring, because the cost of maintaining software is just so expensive. So as a word of warning, look at the total cost of ownership of your software, including what happens when you programmers leave to take a new job or lose interest in your current project, or what happens when there's a catastropic error that you didn't anticipate. When you write your own kit, you bear the full burden of its initial cost, its maintenance and its future. When you buy from a provider, they get to spread those costs out across their entire customer base.

Hendrik,

I agree, there are SO MANY bad screens still out there today. Tiny, fast-moving tickers on top of audio-heavy video (which is sometimes playing without audio, no less), and the list of badness goes on and on. My personal experience here is that more people are starting to look at content creation with strategic intent, so hopeully we will continue to see an improvement in content as the years march on.

2009-09-07Doug Sexton writes:

Lets remember there is another model out there that is not 3rd party ad selling. Well positoned, focal point, medium - large screens promoting products and services of the store in which it's located... work hard for your client. Given that the content screams with a USP. Example: Position a screen in a eye glass store with a mirror attached to the bottom of it ...with content showing how special coatings improve your vision...as they customer trys on a frame they look up at the mirror and the screen can't be missed..... watch the sale of coatings grow!

2009-09-08Tom Nix writes:

Bill,

I will add my voice to the chorus and say the lack of competency selling advertising is the bullet. Most new ad supported networks will focus time trying to sell national advertisers. The result is cash burn. Trying to convince the most sophisticated customers that your 15-30 screens will grow to 1,000, usually results in the advertiser replying “ok call me when you have 1,000”. The network which is able to leverage local ad opportunities in the early days has a better chance at becoming cash flow positive.

The OOH game has always been about real estate and ad sales. So it’s location, location and location. A leader at a large Outdoor company gave me insight on how he sold billboards in his early days. The owner of business (car dealer) had massive ego gratification if his face/brand was on a sign at a high traffic intersection. So he always had the approach “your name up in lights”. If you think about that example, what locations would the car dealer buy? And what locations would he pass on?

Sure content strategies are important, but I think if you have the right locations and the right advertising sales team you can experiment as you grow.

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