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What big fish?

Author: Bill Gerba on 2004-03-08 23:20:00

In a recent article over at http://kioskmarketplace.com entitled "Look out folks: a big fish might get you", Gordon Short, CEO of METALfx, describes his vision of how the kiosk industry will play out over the next few years. As one might gather from the title, Short believes that the industry is ready for a wave of consolidation, where one or more large players will buy up some number of the dozens (if not hundreds) of small kiosk hardware, software and integration companies out there today. His article makes a number of well-formed arguments, noting how the lack of commoditization and standards prevents any company from achieving true ecomomies of scale, and makes achieving high-quality results very expensive.

On the one hand, I can clearly understand how Short reaches his conclusions. (Granted I could also see how he has some vested interest in seeing his predictions come true, since he does own a company that would be a good target for acquisition by his own standards) However, I think that there are a number of flaws with his arguments that suggest that the kiosk industry will continue on as a collection of smaller players for at least the next few years -- and possibly forever.

Argument 1: The industry is too fragmented

On the surface, I can understand this one. As the CEO of WireSpring Technologies, makers of the FireCast line of software for kiosks and digital signage, I come in contact with dozens of companies each week who want to deploy a turnkey kiosk solutions. Regardless of the fact that WireSpring is only a software shop, we constantly find ourselves recommending kiosk enclosures, peripherals, installation and maintenance services, and even financing options to customers who don't know where else to to turn for these things.

However, when one starts to look at kiosk deployments more closely, one realizes that this type of organization has come about because each kiosk deployment is so unique. While kiosk integrators can utilize knowledge from past deployments to help avoid common pitfalls and gain certain efficiencies, the very nature of a kiosk network precludes a cookie-cutter approach that might work with similar technology ventures, e.g. ATM networks or POS installations. Why? Well, aside from a few specific kiosk applications (for example pay-per-use Internet kiosks, jukebox kiosks, wayfinding kiosks, etc.), everybody wants a custom solution. At the very least, this means that people want to be able to customize their application interface and the kiosk's exterior signage. In most cases, it goes further than this, with customers demanding unique kiosk cabinets and software features that don't exist in whatever system it is that they're looking at. And before anybody starts talking to me about a self-fulfilling prophecy, let me make one thing clear: WireSpring makes a boxed software product, a generic kiosk operating system and remote management package. We have absolutely no interest in being a software consulting company, and it would be better for us if every application was cookie-cutter.

In order for a kiosk application to work, it has to be geared exactly towards its target audience. A frequent shopper kiosk at the GAP might need to be totally different from one at Banana Republic, despite the similarities between the end users. Or it might only need to be slightly different. But even tiny differences in the fit and finish of a kiosk can have a huge impact on its overall performance in the real world. Without experts in all different industries focusing on the thousands of niche applications, much of this knowledge will be lost, possibly diminishing the effectiveness of future kiosk deployments.

Or, there could be huge consolidation forming an IBM Global Services of kiosk consultants. They'll be able to do anything, but every application will cost a fortune and will take years to complete (and consequently a new crop of smaller players will emerge to fill in the gaps in service).

Argument 2: There are no economies of scale, and the industry lacks commoditization

These are essentially the same argument. They're completely true, again, but I don't think that there is an immediate solution at hand. First of all, take a look at some of the offerings from Affordable Kiosks, CeroView, and KIS, to name just a few. Many of their designs are remarkably similar, if not identical. Obviously they're not all custom jobs, and they must be coming from somewhere. So there has to be at least one volume producer of kiosk hardwhere somewhere. But even given the possibility that one master producer might provide kiosk enclosures to a number of other companies, there still isn't enough of a market across the entire globe to produce these items in such large quantities as to ever achieve significant economies of scale. There are few kiosk deployments that reach the 1,000 unit mark, and those that do often employ a custom enclosure design. And in terms of commoditization, a kiosk these days is little more than a glorified PC. A motherboard, CPU, a few peripherals and a power supply. Most kiosks use the same commodity parts that the average consumer has in their desktop computer. The bottom line is: the parts that make kiosks kiosks (namely the cabinets) must inherently be unique or else they won't sell. The parts that can be commodity already are. And going back to argument number one, kiosk software already takes advantage of a number of commodity technologies (just about everybody uses Windows and Internet Explorer for their base, except for FireCast OS, which uses the free Linux kernel and open source components under the hood).

Argument 3: Companies will bring all services together under one roof to compete

Been there, done that. In the late 90s, a number of research firms expected a huge surge in kiosk deployments. All of the conditions seemed right: computers were becoming cheap enough to deploy in large numbers, Internet connectivity was becoming generally available anywhere, and consumers were becoming more comfortable with interacting with technology. Consequently, a number of companies sprung up to answer the call. Some large players, like NCR, IBM, and even Nortel Networks went into full-scale production, coming out with kiosk hardware, software and service lines. But the market wasn't quite ready, prices weren't quite low enough, and the services weren't quite compelling enough to push kiosks into the limelight. As expected, these companies eventually reigned in their kiosk aspirations. NCR continues to make a line of kiosk hardware bundled with 3rd party software, IBM has its own kiosks, which can be bundled with its own anaemic software or 3rd party software, and Nortel, having sloughed off most of its unprofitable units (does it have any profitable ones?), has divested all of its kiosk assets to some little Canadian company.

There really aren't any synergies resulting from having your hardware and software bulit under one roof, as these powerhouse companies have shown us. In fact, quite the opposite is true. Hardware manufacturers have to know about things like raw materials, inventory, production, storage and shipping -- logistics, mostly. Software companies, on the other hand, have to be focused on timeframe estimates and integration. There isn't really any overlap in skills or techniques. Almost all of the hardware is commodity, and the few peripherals that don't work out-of-the-box can be dealt with ahead of time.

That's not to say that hardware and software vendors shouldn't work together, or that there shouldn't be integrated solutions providers. These things are essential to a good kiosk deployment, but there is no benefit to having your cabinet maker also be your software programmer. Don't get these things confused.

I do think the kiosk industry will see quite a deal of change over the next few years, but not in the way that Short sees it. My guess is that the lines between interactive kiosks and digital signage will begin to blur, as kiosks begin to use large form factor displays and signage systems start to take on certain interactive elements. I think that as prices drop on computer and display components, more people will be willing to experiment with new out-of-home marketing and self-service techniques. And I think that advertisers will become increasingly more interested in alternative networks as the impact of their ads in traditional media decreases.

But all of that is the subject for another day's blog...

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