The Digital Signage Insider
Thoughtful analysis, industry news and best practices for digital signage, M2M and kiosk projects

Is Now a Good Time to Start a Digital Signage Company?

Author: Bill Gerba on 2012-05-10 09:50:24

I don't know why so many of the titles for my blog articles are written in the form of a question. I know it's a horrible Internet cliche, but sometimes I just can't help myself. Anyhow, the reason I ask the above question is because a couple of years ago, as the economy really started to sputter, we wrote an article about digital signage "safe havens". While nothing is truly safe (in our industry or any other), we tried to identify areas that might be a little more immune to poor economic conditions than others. Since then, the economy has improved some, and we've learned a few new things about the business side of digital signage. More importantly, people have been coming out of the woodwork asking whether they should dive into the product/services/network end of the digital signage industry. I started to wonder about that myself, and came to the conclusion that while there are still a lot of good opportunities to pursue in the digital signage space, there are certain places where we as an industry have already missed the boat.

Looking back, how did our predictions fare?

Back in 2008, we identified four areas where we thought digital signage networks could continue to grow despite the near-universal instinct of every company to pull back, dig in and hunker down. Specifically, we suggested looking at:

Small networks. At the time we said, "We've seen strong and accelerating growth for networks with less than 25 unique channels of content (typically spanning less than 25 venues), and we expect this trend to continue well into the future. VARs like them because they have a lot of clients that fit that profile. Angel investors like them because they can fully fund them out of pocket. And entrepreneurs like them because they're manageable with a small team, for less money. And heck, there are just a lot of places where you can put 25 or fewer screens, period." This prediction has definitely held true from my perspective, and small networks continue to get funded (usually internally) and deployed. The one exception is probably small-scale advertising networks, which never made a whole lot of sense to me to begin with (though there are exceptions). This is probably because, as we've started to muse, DOOH networks need front-loaded scale to survive.

New screens on existing properties. At the time we said, "[We're] seeing a lot of opportunities to attach digital signs to existing real-world properties like ATMs, kiosks and even heart defibrillators. This makes sense, since all of those things require similar infrastructure to digital signs (i.e. power, Internet connectivity, etc.), and their owners are now looking for more ways to generate revenue from their existing investment." Today the "Internet of things" is bigger and more interconnected than ever, but M2M and digital signage are anything but merged. The natural progression of things seems to suggest that one day digital signage management and M2M device management should be the same, but we're not there yet. It also doesn't help that M2M deployments tend to be very large and very, very cost-conscious.

Non-advertising networks. At the time we said, "PQ Media indicated [in 2007] that non-advertising networks are being installed faster than advertising networks. New objectives and innovative business models are allowing these networks to skirt tough questions about ad sales and efficacy in order to focus on goals that aren't directly tied to filling advertising space." Advertising networks continue to be a tough sell -- not much has changed there. That doesn't seem to have deterred many entrepreneurs, though my general feeling is that the number of proposed large-scale DOOH networks has declined in the past few years. However, when you look at the number of screens devoted to advertising compared to the number of screens used for other purposes (corporate communications, digital menuboards, whatever), it quickly becomes apparent that these low-key installations greatly outnumber their DOOH cousins.

Non-retail networks. At the time we said, "Retailers may lose their taste for spending money after the [2008 holiday season] if sales aren't good (and they're not looking too great right now). But growth in other sectors -- particularly health care and corporate communications -- remains strong." I think even just 4 years ago, most retail networks were heavily advertising-funded. Today that's not really true anymore. While there are still plenty of examples of retail screens used for advertising purposes, many more have been deployed for merchandising and general purpose messaging.

Where have we missed the boat?

One thing that has changed A LOT since 2008 is the emergence of smartphones. Today about 50% of mobile phone users own smartphones, many of which have as much processing power and as many pixels as a typical digital sign. Unlike a digital sign, though, the smartphone owner is able to decide exactly what they want to see, what kind of media they want to consume, and when and how they should be exposed to it. Consequently, networks that depended on a lot of "ancillary" engagement without offering much additional benefit are finding themselves more or less out of an audience. Bar and restaurant networks, waiting room networks and public space networks have all felt this pinch. And while some have taken steps to add relevancy through shared social games and the like, many have already succumbed to the "fourth screen." All I know is that if I were asked to fund a digital signage network in a public space, my first question would be "so what's the social angle?" That would probably be my second and third questions as well.

What about advertising?

Well, the good news is, advertisers really like having total control over their media, so the ability to precisely manage exactly what shows up on digital signage networks is still going in our favor. Unfortunately, they also like it when people actually look at the aforementioned media, so digital signs will no doubt suffer some smartphone envy. To me, the play going forward will be pushing solutions where digital signs can be used to enhance a viewer's experience, even if they're using their smartphone. This might be through some kind of interactive content that provides some social context or even the ability to unlock additional access, features or promotions (based on the type of location). For example, imagine using your phone to interact with the pre-roll loop at a movie theater so that you and your friends in the audience could vote on the content you wanted to see.

From a network perspective, we'll still walk the line between broadcast and "true" 1:1 narrowcast. But with clever programming, we can also serve as a bridge between the two, and maybe give advertisers the best of both worlds in the process.

Has the digital signage industry done a good job at spotting and pursuing new market opportunities, or have we missed out on some obvious uses for our products? Leave a comment and let us know what you think.

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Why Do So Many Digital Signage Projects Fail? A Fresh Look

Author: Bill Gerba on 2012-05-03 09:12:19

About five years ago, we wrote an article called "5 crucial steps that can make or break your digital signage project," which in turn inspired another article called "Why do so many digital signage projects fail?" You see, back in '07 and '08, a staggering number of projects started and stopped as the industry hype machine pumped up digital signage as the next big thing in advertising. So as I reviewed these articles recently, I wondered whether our old advice still held true, and whether today's digital signage companies were as prone to failure as those of old.

Which things made a difference last time?

In short, after reviewing thousands of leads and asking those companies what became of their projects (regardless of whether we wound up working with the folks or not), we found that there were really only 5 major areas separating those companies that succeeded from those who did not. They were:

1. Know your business model

In 2007 we said, "the big winners in our data set either had a very unique spin on a particular revenue model, or virtually flawless execution on a "standard" model. While I wish I could say we're at the point where we can hear an idea and give you a thumbs up or thumbs down based on how good it "sounds," just having a solid model isn't good enough." A 2012 review affirms that having a solid business model, preferably complete with written plan, is still essential. This is probably because, as we've seen, the typical DOOH network needs to plan for and fund a certain amount of front-loaded scale in order to tip the break-even equation in its favor.

2. Understand your goals

As noted in 2007, I'm still not really satisfied with the phrase "understand your goals," since what we're trying to capture from the data here includes media consumption measurement, sales goals, growth goals, follow-on funding goals, and a whole host of other measurement-related things that, while inexorably tied to one another, require complex, interdisciplinary teamwork, careful planning, and fastidious, ongoing oversight. Suffice it to say that companies that don't set meaningful goals at every step of their growth seem to have a very hard time accomplishing anything, regardless of whether they're a three man startup installing a 20 screen pilot, or a Fortune 500 company working on a much larger project.

3. Build a solid team

Back in 2007, we began by saying that, "if this list were in order of importance, this item would almost certainly be #1". Interestingly, the digital signage ecosystem has evolved quite a bit in the past 5 years, to the point where this might not be the case anymore. Indeed, there are true, bona fide experts available to handle so much of your project now -- from content strategy to finance to network management -- that it might actually make more sense to keep your core group small and outsource everything else. However, there are still a fair number of companies who seem to ignore their core competencies and try to do all the wrong things in-house. As we observed in 2007:

We've had IT firms that want to sell ads. Agencies that want to install networks. Content production studios that want to do infrastructure management. And all the while they think that they can handle it all, and partnering/outsourcing is for wimps. At least, that's what I'd have to guess when looking at (a) the number of companies that were handling at least one part of a project that was clearly outside of their operational expertise, and (b) the percentage of those companies that never got a project off the ground or failed within nine months.

Yup. Still true today. Sigh.

4. Avoid common pitfalls

Back in early 2007, we noticed that more of our conversations actually began to feature customers/prospects/interested parties, "articulating (to some extent) what they thought their problems were likely to be, and how to mitigate them. It could be that we simply didn't take such good notes prior to that point, but my wholly-unscientific feeling is that enough people "got it" now to avoid common planning, budgeting and deployment problems." In 2012, I'm less sure, and I'll say this again when we talk about #5 below. I expect this is partly because things that appear obvious to those of us who have spent far too much time in the digital signage industry are in fact not apparent to those new to the industry, and partly because some people never learn.

5. Learn from past mistakes

In 2007, we were pleased and surprised to find that folks in the industry had started talking to each other, and it became fashionable to cite industry references when talking about why they will succeed when others have failed. And for a while, I was optimistic that the mistakes of the past might not be repeated quite so frequently. Unfortunately, with another 5 years of perspective, I no longer think this is the case. In fact, if you just take a look at our M&A lists for 2008-2010 and 2011, it's clear that there are quite a few failed or mediocre exits to go along with the more successful ones. And while that in and of itself isn't surprising (many more companies fail than succeed in a typical industry), when you take a look at the reasons for many of these failures, you'll see that indeed the management teams frequently repeated the same old mistakes of the past.

All that said, there are clearly plenty of other reasons why a network or project might succeed or fail. A key stakeholder might leave. Motivations and goals might change mid-way through the project. Prosperous networks might even be overtaken by upstart competitors promising better deals. But while understanding the above list isn't enough to guarantee you'll succeed, it is definitely necessary if you want to avoid failure.

Have digital signage companies gotten more savvy during the last 5 years, or are we all still spinning our wheels? Leave a comment and let us know.

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Digital Signage Sentiment Index for Q2 2012: Continued Optimism

Author: Bill Gerba on 2012-04-26 09:36:31

Last week, we asked for your help assessing the health of the digital signage industry. A few days and about a hundred survey responses later, it appears we have at least a small reason to celebrate: industry suppliers and participants indicate that the industry has grown a bit, and some (very) preliminary data shows that the estimates and forecasts supplied by last quarter's survey takers might actually turn out to be pretty accurate. If you recall, in the Digital Signage Sentiment Index for Q1, just over half of respondents felt that Q1 2012 would be stronger than Q4 2011. About 30% expected modest growth of 1-20%, though about 11% expected to see growth of 40% or more. When asked to prognosticate about this quarter (Q2 2012), 75% expected additional growth, with 10% predicting growth in excess of 40%. Let's take a look at the latest numbers and see how things stack up.

So, how was Q1, and how are people feeling about Q2 and beyond?

To begin with, here are the charts for this quarter's Digital Signage Sentiment Index:







As you can see, just as before the majority of respondents are digital signage service providers, with a mix of network owner/operators, agencies, venue owners and others making up the rest. From there, the results change a bit. Whereas most respondents last quarter felt that business was "about flat", this quarter more of them suggested things were picking up, with about 27% saying it's up 11-20%, and another 25% or so saying it's up 1-10%. Last quarter's respondents were more unevenly optimistic about the future, though: a bunch (about 10%) thought they'd see a 40% increase in the coming months, which kind of offset the less optimistic folks who expected smaller gains and even (gasp) some declines. This time around, expectations were more evenly distributed. While there's still plenty of optimism, it's now more universal and also more conservative: 30% expect to see growth of 1-10% in the coming months, and another 27% expect growth of 11-20%. Rounding things out, about 11% expect growth of 21-30%, about 8% expect growth of 31-40%, and just 3% expect growth of 41% or more. For all that, though, the average growth forecast for next quarter is almost exactly the same as it was last quarter -- almost exactly 10%.

Setting a trend

One of the interesting things about a survey like this is that we can start to put together solid trend data in a fairly short amount of time. Consider the chart below: right now it doesn't have a whole lot of data, but what's there is encouraging:



Actual performance numbers are already sticking pretty close to forecast numbers, and as time goes forward, that will hopefully continue. But even if it doesn't, plotting the actual versus estimated numbers should help to keep us honest. At some point, we can probably even combine this data with our meta-analysis of digital signage market statistics from some of the major research firms to see if our informal study agrees or disagrees with what the big boys say.

Last but not least, a few caveats

No analysis that I turn out would be complete without its own list of faults and shortcomings, and this one is no exception. Most notably, we got fewer results for this survey than our last one -- only 97 in total. While this should still be large enough to yield some statistically significant results, it highlights a couple of problems we've encountered, some significant and some less so. First off, after publishing the survey last week, I tweeted the wrong link, so a whole bunch of people got sent to a completely unrelated page. Second, I expect we're starting to see a bit of survey fatigue: we've been doing a lot of surveys lately, and I think people are just getting tired of them, since we tend to hit the same pool of potential survey takers over and over and over. Finally, and perhaps most importantly, we're probably starting to see the beginnings of an adverse selection problem with our Digital Signage Sentiment Index. People want to say things are good because they fear negativity might deter future clients. Consequently, those who might have something bad to say probably prefer to say nothing at all, even anonymously, so we're just left with the industry boosters.

Despite these problems, I think this quarter's results already start to demonstrate the usefulness of this type of simple, periodic industry survey. That said, I'd love to hear any feedback you might have for improving these results or tracking other important industry metrics. As always, leave a comment or send me an email to share your thoughts.

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Survey: Updating the Digital Signage Sentiment Index

Author: Bill Gerba on 2012-04-18 10:07:25

A few months ago we analyzed whether the big research firms have been under- or over-estimating the size of the digital signage market (short answer: they've been underestimating so far, but may be overestimating going forward). In that same post, we introduced a short new survey called the Digital Signage Sentiment Index, which aims to gauge -- as transparently as possible -- how the industry itself thinks it's doing. About three months have gone by since we published the results of that first survey, so today we'd like to poll you all again and add a second data point to our index.

What did the first Digital Signage Sentiment Index tell us?

As we analyzed the Digital Signage Sentiment Index for Q1, we learned that the majority of our 155 respondents were digital signage services companies or network operators. Just over half felt that Q1 2012 would be stronger than Q4 2011. About 30% expected modest growth of 1-20%, while about 11% expected to see growth of 40% or more -- I can't wait to see if that pans out in this survey! Additionally, 75% of respondents felt that growth would continue through this quarter (Q2 2012), with 10% predicting growth in excess of 40%. In both cases, those who didn't expect to grow much expected to stay mostly stable, with only 9% expecting a decline in Q1 and a bit less than 10% expecting a decline in Q2.

Please take the Q2 survey!

Help us find out if any of the Q1 survey's predictions came to pass. At only 3 questions long, this survey should be very quick to complete, and will hopefully serve as a barometer for the industry -- as well as a source of historical data.

If you're reading this article in a web browser, the survey should appear below. If you don't see it, simply click this link to take the survey.


We'll publish the results in the next week or so (along with our first set of trend data comparing this quarter's results against last quarter's), and will continue running follow-up surveys throughout the year. With this information in hand, we should be able to gauge the level of industry optimism at any given time, and see how the current levels compare to how we've felt in the past.

Do you regularly purchase industry research reports, or do you rely primarily on free data sources? Leave a comment and let us know!

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If Costs Keep Dropping, Why Do So Many DOOH Startups Fail?

Author: Bill Gerba on 2012-04-12 10:43:40

As Michael Arnett pointed out last week, the digital signage industry seems to attract a disproportionate number of starry-eyed entrepreneurs. Usually fueled more by hopes and dreams than by data or common sense, these folks typically just spin their wheels for a while trying to get a project off the ground before moving on to greener pastures. But in my 12 years in the biz, I've seen a decent number actually succeed at getting some screens deployed and operated, even if for only a little while. Then, inevitably, those screens go dark as their implausible business models fail to perform and equity capital dries up. With their revenue gone, I then have to work a little bit harder to replace it, or else risk stagnation (or, dare I say it, decline). Consequently, trying to figure out why so many DOOH startups fail is something of an obsession of mine. In today's guess, I'm going to invoke everybody's favorite power law: the long tail.

A quick refresher on the long tail

I'm sure you've heard of the long tail, right? It's the probabilistic distribution pattern characterized by a "big head," or large cluster of results at the beginning, which quickly declines into a "long tail". The neat thing about a long tail distribution is that even though the tail part may seem small, it can extend out so far that the number of results in the tail-end typically exceeds the number in the much larger-looking head end. As usual, Wikipedia does a good job of illustrating this:



In this graph, the areas of both the green "head" end and yellow "tail" end are equal. However, the tail may extend out a considerable ways, and thus could potentially be much, much larger.

The long tail was most famously used to describe the business practices of companies like Amazon and Netflix when they first began. Unlike their brick-and-mortar counterparts (e.g. Barnes and Noble and Blockbuster Video), both companies didn't have to own, operate and maintain real-world retail presences. They were (and are) just giant warehouses with fancy e-commerce front ends. So while Barnes and Noble and Blockbuster have limited retail space to work with and can thus only stock a limited number of items, Amazon and Netflix don't effectively have that barrier. Consequently, they can maintain much, much larger inventories pretty cheaply. At the same time, their business models allow for selling both large quantities of popular "big head" items (where they compete against their brick-and-mortar counterparts), but also small quantities of a very large group of less popular items (where they effectively have no brick-and-mortar competitors, because nobody could afford to stock so many unique items in a retail space).

What on earth does any of this have to do with digital signage?

In a nutshell, it appears that the historical digital signage adoption rate has been driven largely by price. Mapping the price trends from our digital signage pricing articles against the data from our meta-analysis of digital signage market size reveals a pretty clear relationship:



So, as prices go down, we see more screens deployed. That makes sense, right? Right. The interesting thing is that for most deployments, the costs are spread out in a long tail fashion. Take a look at any of our previous pricing guides and you'll see the "big head" where the initial capex takes place (notably, buying the screen, media player, etc. and getting it all installed). But there's a long tail portion after that, consisting of creating content, doing the scheduling, handling maintenance tasks and the like. Our most recent data illustrates that on a month-to-month basis, operating expenses are over six times the size of amortized capital expenses. Even going back to the 2010 data (which suggested more modest staffing requirements), opex was about four times the size of amortized capex. And the longer a network runs, the larger its long tail costs are (but this is true for nearly any operating business, of course).

All of this furthers the point we tried to make a few weeks ago in our post about front-loaded scale. In that article, we came to the conclusion that most of the networks that have failed probably did so because entrepreneur and funding source alike misunderstood the true funding requirements of the network -- and more importantly, how those requirements scale up with network growth. You see, the cost of operating a network never goes away, but as we saw in that article, it also doesn't scale linearly with network size. So while running a 100 screen DOOH network might cost $X, running a 1,000 screen network isn't going to cost $10X -- it will probably be more like $2-5X. However, the 1,000 screen network has far better odds of succeeding because of how the larger scale affects ad sales, as described in our earlier article.

The moral of the story is this: If you're planning to fund or operate a network, allocate more funding for operations than for capital expenses. Failing to do so seems to be a pretty great way of assuring your network's demise.

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