The Digital Signage Insider

Why Are We So Enamored with Ad-Driven Digital Signage Networks?

Published on: 0000-00-00

Earlier this week I participated in a conference call with a writer who is fairly new to our industry. He posed a simple question: "why is the digital signage industry so enamored with advertising?" My immediate answer was, "beats the hell out of me." But that was somewhat unsatisfactory, so I made a little list of potential reasons why everybody from one-man startups to Fortune 500 companies feel they simply must get into the digital signage advertising business, one way or another. After writing down just a few items, it suddenly became abundantly clear why there's so much hype in our industry, especially compared to the amount of actual business being done.

Advertising is where the money is (or could be, at least)

  This one's the low-hanging fruit. A number of national advertisers have ad budgets that exceed the GDPs some small countries. And for each of the past five years (even including the last two really ugly ones), the total ad spend inside the United States has been over a quarter trillion dollars. Stop and think about that for a second, and you can start to understand the allure of going after advertising dollars.


Image credit: Marcin Wichary
Of course, when you get down to the nitty-gritty, only a tiny fraction of ad dollars are being put into any kind of digital out-of-home right now, and advertisers, brand marketers and media planners don't seem to be in too much of a hurry to change that. Oh, and you have to be able to actually sell ad time to reap any of the rewards. So, all of those AV VARs out there who are hocking "free" products that promise a lifetime of easy (and perpetually recurring) ad revenue are going to be sorely disappointed.

Advertising entices people with the lure of the unknown

This argument starts out with clichéd axiom #1: The grass is always greener on the other side of the fence. And for many people who have spent their careers working in technology or sales, digital signage seems to be exactly on the other side of the fence that they've found themselves up against. It's reasonably familiar, yet just slightly different and more exotic than what they're used to. That exoticness, I posit, gives many of these people enough imaginary license to ignore harsh realities like "I've been terrible at selling everything in the past, so why would this be any different?" Instead, they just presume that everything will work itself out later.

Needless to say, it doesn't usually turn out that way. So we end up with clichéd axiom #2: hindsight is always 20/20.

Advertising drives new leads and new projects

  As I made my way down the list (I have another half dozen or so reasons in addition to the two biggest ones above), I decided to put my vendor hat back on and figure out why so many digital signage hardware and software companies contribute to the fantasy of an advertising-driven paradise. The answer there is simple: a lot of leads come in already believing that it's within reach. As vendors, we either try to educate them (which turns many of them away), or we humor them and take their money. And as long as the products that each of us sell actually deliver on the features and functionality that the customer is looking for, it's hard to fault the vendor if the customer's half-baked advertising sales plan goes awry.

While I'd love to say that every digital signage vendor always operates with the best interests of their potential customers in mind, from the amount of noise in the industry press channel it's quite clear which approach most companies take. For example, there are innumerable examples of vendors issuing press releases "on behalf of their clients". In the typical scenario, the vendor is announcing the deployment of a 500-location advertising network when only the first few sites are in place (if that), and the rest of the deployment is contingent upon hitting performance goals -- a rather important detail that you'll rarely see mentioned in a press release. This type of boasting does nothing for the client, but it does make it look like there are many more big, successful networks in operation than there really are. Which is why every Friday (it seems), I get four or five calls from venture capitalists in various stages of due diligence, asking why my curmudgeonly blog posts go against everything they've read on every other site on the Internet (with the usual exceptions of Adrian's, Dave's and Ken's blogs).

What role will advertising play in the future of our industry?

Ultimately, while people like Steve Gurley have come out with reports suggesting that digital signage advertising will likely never take off in a truly spectacular fashion, I believe that ad-driven networks will continue to play an important role in the industry's growth. I do think it's a little disingenuous to cite advertising as being the key to the industry's long-term success, though. And I would like vendors to stop spreading half-truths about how easy it is to monetize screen time just to score a few easy wins. That kind of misinformation leads a lot of people down the wrong path, causing a lot of waste and inefficiency in the process.

Of course, if you have a solid sales model and a means of actually closing deals with potential advertisers -- and you're not dependent on impossibly unrealistic goals like securing ten national advertisers during your 30-day pilot project -- running a successful advertising-driven digital signage network is not out of the question. But for the vast majority of people who undertake the task, it is a lot harder than they originally expected.

Who's to blame for all the hype surrounding advertising networks? Is this even really a problem? Leave a comment and let us know what you think.


Comments   

0 Chuck Gose 2010-06-24 18:34
The topic is frustrating for me, especially since my background is in building and managing internal networks for corporate communications. So many of the digital signage industry events I've attended over the last several years never even talk about internal networks and yet they have to be a considerable percentage of the digital signage pie.
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0 Bill Gerba 2010-06-24 18:42
Agreed, Chuck. I'm willing to bet that even in today's every-store-has-a-screen-or-three world internal and employee-facing networks are still the biggest source of new deployments (and maybe even total # of screens).
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0 Paul Flanigan 2010-06-24 18:51
The problem lies in our "instant gratification culture" that we live in. It's just so easy to talk about, so easy to show bottom lines, so easy to show how you can get a piece of the pie. A while back, a network claimed to have you up and running within days, and seeing revenue within hours. Not so fast. But it's hard. Really friggin' hard. And you're going to have to spend A LOT of money and time before you realize any real financial surplus. Regardless of your physical setup, you, as a network end-user or operator, will forfeit something in order to realize revenue. A network's success has to come from incremental revenue. Networks don't "pay for themselves." Some else does, just like everything. I fully support the ad-drive network model. It's good that companies want to use your network to sell stuff. But you must be realistic about the time and money that goes into it.
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0 Ken Goldberg 2010-06-24 21:14
Bill: Good stuff as always. You ask a good question at the end of the post. To me, the hype is caused by a capital environment where people can raise money based upon a good pitch and some mixture of technology, success of others and new spin. The fact that PRN and WalMartTV were so successful was actually a disservice to everyone, because WalMart was the exception, and was pitched as the norm. SignStorey extracted a ridiculous amount of money from CBS just by looking kinda like PRN. (Looks are deceiving, I guess) Then everyone thought it was a piece of cake: Hang some screens, lose money on each install, make up for it with volume, and sell it to the greater fool. Ugh. The supply of greater fools dried up. As Paul correctly points out, this isn't easy when you don't have a great value prop to sell the advertisers, or a relationship (like WalMart) that makes selling easy. And people entering the business without a deep understanding of how the advertising business works were doomed to failure. I see the right things happening out there now, so I don't think it is as doom-and-gloomy as others might. Realistic plans, adequate capital, the right team, and it can be done. It isn't the only model out there, but it IS viable.
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0 Dave Haynes 2010-06-24 22:04
I think we are all staggered by the steady stream of bright-eyed newbies to this sector who think selling ads is a walk in the park. Too many people get these confused looks when they're asked about CPMs and other basic stuff. This may be the one time in my life I quote George W. Bush, but as he was prone to say in speeches, "It's hard work." Most ad networks will fail because they are bad ideas, or "just OK" ideas, or even good ideas with bad execution or not enough working capital. BUT, there are people making real money on the ad side of this game. As Ken says, it is viable, but the people running it REALLY have to know media sales and be on their game.
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0 bbdd 2010-06-24 23:20
If you are trying to be a digital signage network provider who sells advertising, YouTMre Doing It Wrong.,, You need to be a sales organization using digital signage as just another delivery mechanism for your product. You can even outsource the network operation, if you like. Try being an operator and outsourcing the sales side of the equation. Ugh.
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0 Ed Personius 2010-06-25 06:15
A lot of what is being said here is right on. I see the industry dominated by hardware/software tech people, and not enough POS or Direct Marketing people. It's an issue compounded by the fact that many people in the Advertising Industry as a whole operate on very faulty premises. Advertising is not merely about "getting your name out there" or even exposure to the maximum number, or even about demographics. "Well then what IS it about?!!!" you may ask. It's about selling. Not memorability or mindshare or audience numbers. But then these generalities are what the Ad industry has peddled for 150 years, so why stop now. The Ad Industry is in serious trouble. There are no dominant media in growth mode today. The internet is not a medium, it is a place with multiple media and millions of channels. The Ad Industry doesn't understand it well, I don't care what anyone says. Witness the uproar over social media as proof; almost no one actually creates transactions with it. It's media that caters to the self-involved. It is mostly very obtuse and indirect, and I don't see the dots being connected to my satisfaction. Digital Signage needs to learn to sell product, and move customers to transaction. When more people in the industry learn how to use this medium to accomplish trackable SALES, it will become much more viable.
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0 Thomas Dockter 2010-06-25 11:25
Ed, you are absolutely right. DS in the retail environment is perfect as a sales tool. But the system (not the technology) has to be controlled by the retailer and not by some third party network operator. Showing advertising is not a business goal for a retailer. It is all about selling goods to customers. Why so often are retailers doing pilots and turning down the system afterwards? They believed the network operator that he will bring the big money - but without any real benefit for the retailers business (selling goods - just not forget).
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0 Thomas Dockter 2010-06-25 11:25
Ed, you are absolutely right. DS in the retail environment is perfect as a sales tool. But the system (not the technology) has to be controlled by the retailer and not by some third party network operator. Showing advertising is not a business goal for a retailer. It is all about selling goods to customers. Why so often are retailers doing pilots and turning down the system afterwards? They believed the network operator that he will bring the big money - but without any real benefit for the retailers business (selling goods - just not forget).
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0 Bill Gerba 2010-06-25 14:21
I think bbdd (whomever that is) said it best above: "\\You need to be a sales organization using digital signage as just another delivery mechanism for your product.\\" I agree 100%. If you've solved the sales problem in a unique and viable way, virtually every other aspect of network design, implementation and management can be outsourced and you'll still do well.
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0 Dean Bowman 2010-06-25 14:24
Interesting comments all around. Chuck I disagree with you regarding internal networks. All due respect Chuck, I have lived and lost those wars already since 2005. I do enjoy your comments. 7-11 Couch Tard Chevron MacyTMs Several medical groups I have been involved with over the past two years. None would invest in their own network. Still have not to this day. Why should they when some upstart will spend their money to fail and teach the corporate world the pitfalls of a new technology. They may or may not follow Wal-Mart after it becomes profitable. I as many believed the ad world would respond and the fact that they have not coupled with "The Great Recession" is kind of a death blow to many small companies. Now the reality of a contraction of the capital markets will separate the future from the past of this industry. I believe there is a contraction in the "Friends and Family" money as well so we will see fewer new entries. The strong will survive and live to help create the next generation.
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0 Chuck Gose 2010-06-25 16:36
I'm curious Dean exactly which part of my comment do you disagree with? That shows aren't paying attention to internal networks or that they are a big invisible piece of the digital signage pie?
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0 Jeff Farrell 2010-06-26 02:52
As one who has studied advertising over the years and DS for the past few years, something has not seemed quite right about an ad-driven network; Thus my reluctance to invest in this type of DS. However, does anybody see the local ad market to be a much better model than the model which panders to regional or national advertisers? I have seen some success with this, but I am very leery. And, it always requires the DS to be placed in third-party establishments. Would I be better off to purchase vending machines? (Much respect to those business owners, but no, not really)
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0 bbdd 2010-06-28 18:58
The local ad-driven model is a viable one, but requires a much more oehands on approach than with national advertisers. Local advertisers need a lot more hand-holding as far as content design, customer service, and billing. No problem, you say, until you realize you need to sell a much larger quantity of advertising due to the lower price-point that local sales demand. This, in turn, means a larger sales staff. Personally, I think you need both national/regional and local advertising to succeed in the current climate surrounding digital signage. This means you are going to need the trifecta of a large (yet effective) sales staff, a nationwide network with different categories of venues, and an administrative team to tie it all together. Not an easy puzzle to assemble.
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0 Bill Gerba 2010-06-28 19:09
I agree with the mysterious bbdd. Going the local advertising route can be extremely lucrative. But you almost **need** to have a local ad sales force (I've never seen it done in a centralized fashion for digital signage), as well as the content design and related services he mentioned. Because of this, the local ad route is somewhat manpower intensive, and consequently doesn't scale as well as the mythical all regional/national network approach would if anybody could actually make it work the way it's supposed to. I also agree with bbdd: Even the most efficient local ad network would benefit from being able to show regional or national ads on excess inventory, just to provide a source of revenue that doesn't involve owning every step of the ad creation and management process.
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0 Thomas Dockter 2010-07-02 18:41
For the cost sensitive local ad market it would be good idea to copy from the web site industry. Give customers a choice of well designed templates and automate the design process to the max. Go to people like squarespace.com and look what is possible today by automated processes.
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0 christian 2010-07-08 12:41
I think you need both national/regional and local advertising to succeed in the current climate surrounding digital signage.
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0 Nikos Acuna 2010-07-13 18:25
The conversation always seems to touch on meaningful audience targeting. The retail environment is always an ideal place to push relevant content. Adding relevance and recency to reach and frequency is what advertisers value. There are still steep challenges in the entire space when it comes to measurement and accountability, proof of play reporting, aggregated data assessments, and pricing campaigns across multiple networks with effectiveness and value-efficiency. To me, it's really a fight to garner the most sophisticated toolset that connects brands to audiences in meaningful ways. Then networks won't have to bang there heads against the wall trying to figure out how to sell local and national ads on their digital signage network.
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0 Jason Goldberg 2010-07-30 18:06
Sorry to be so late in discovering this thread. I can certainly imagine lots of vertical markets where an ad driven model does make sense, but let me just echo the sentaments of those that point out that advertising isn't the only viable model. I chuckled recently when retailcustomerexpereince.com published an article that basically concluded that retail digital signage had finally arrived because Walmart had announced some advertising success data for their "new" network. I was surprised to read that digital displays had just arrived since I could walk my clients stores and count hundred of thousands of digital signage installs just in my little corner of the retail world. I ended up blogging a counterpoint. http://retailgeek.com/2010/07/22/walmart-digital-merchandising-statistics-dont-trust-an-ad-man/ I have no problem with ad-based business models, more power to you guys. But it's not the only economic model, and IMHO for retail it's not the best model.
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