The Digital Signage Insider

Will economic woes hinder growth for kiosks and digital signs?

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Did you folks know that the Platt Research Institute (PRI) -- the folks who deliver those case studies on the digital signage market from time to time -- also publish quarterly reports on the health of the retail industry? They're typically only a few pages long and consist of summary economic indicator data combined with retail-savvy commentary. Though these briefs are free, I actually find them to be more useful and valuable than PRI's in-depth digital signage studies since they frequently focus on areas that I'm trying to gauge, too. Interestingly, their Q1 2008 report (PDF format) covers an area that I've been investigating for some time: the impact an economic downturn might have on our industry.

Both PRI and (which published its own opinion about the report) seem to feel that on a macro level, the digital signage industry will be largely immune to the reduced spending levels and smaller investments in infrastructure that would come with a recession in the United States. As aka writes, "Digital signage is an investment in the consumer and the retail experience, it has been shown to support sales and to cut costs. It is also true that in the tough times, it is the more visionary companies that seek to win business from their rivals by investing in improving their stores and their proposition. Getting customers into stores and driving sales is what digital signage is all about." While these points are justifiable, I don't think they're exactly in tune with the PRI analysis, and they're a bit different from my own viewpoint as well.

First of all, one of the things that makes our industry more resilient to economic changes is the number of different verticals we play in -- ClearChannel's outdoor electronic billboards run on a completely different set of economic rules than a private label store's branding network or an experimental fleet of shopping carts rigged up with mini screens. However, if I were to pick the one part of our industry that was most likely to feel the pain from a recession or a prolonged period of reduced spending, it would have to be retail. An inordinate amount of our economy is powered by consumer spending, and consequently that market magnifies the effects of economic slowdown. aka's suggestion that visionary companies take advantage of their competitors' weaknesses during slow periods to make new and dramatic breakthroughs is reasonable -- we've all learned the stories of the Robber Barons and the massive gains they were able to make by investing during the Great Depression. Yet while a small number of visionaries could capitalize on economic malaise, the vast majority of firms won't do this (for a number of reasons), thus it's extreemly unlikely that aggressive business moves by digital signage firms will be able to offset the reduced interest and tighter budgets of the retail sector.

It's not all bad news, though. Digital signage applications with proven business models will continue to show strong growth regardless of broader economic trends. I'm particularly bullish on roadside electronic billboards, for example. The time to positive ROI for these devices is relatively quick, the business model is proven, and despite the substantial capital investment they require, electronic billboards (properly managed, of course) can bring in significant amounts of additional revenue compared with traditional billboards. Likewise, it seems like digital signage installations that reduce communication costs or improve productivity for the host venue should continue to see strong gains, regardless of the broader economic outlook. Store experience systems, new advertising ventures and public-funded systems that aren't connected with the gigantic cash cow that is the Department of Homeland Security could face slower growth, but perhaps aka is right and this will be a time for aggressive players to make an investment in the future.

On the interactive kiosk side, I'm happy to say that the outlook is a bit more rosy. Given the public's acceptance -- no, demand -- for self-service everywhere from airports to grocery stores, kiosk deployers are faced with fewer risks and more rewards than ever. That's not to say that everyone will be successful -- they won't. The interactive kiosk market is still intensely competitive, and companies continue to try out new business models, the majority of which will fail. But self-service kiosk projects are fairly well-understood now. Companies have learned how to budget for the inevitable problems that crop up, and they've learned to pick business models that promise a strong and measurable return-on-investment. Also spurring growth are the major success stories, including the now-ubiquitous airport check-in kiosks (which Continental credits with lowering personnel costs by handling over 85% of customer check-ins), and entirely new business categories like DVD rental kiosks (where RedBox processed over 15 million DVD rentals at McDonald's locations during 2006 alone).

While there would be plenty of opportunity for growth even during a recession, any kind of slowdown in a big economy like the US still carries some significant repercussions. With credit harder to come by, companies that need financing for big projects will have to pay more for the privilege. Marginal ideas will face much more scrutiny (thank goodness), and many won't be able to get funding at all. On the flip side, venture capital firms that are currently flush with cash may decide to diversify their risk by investing in more established industries with faster exit strategies, further reducing the amount of capital available to businesses in need of project startup funds. And, if you can believe it, the added scrutiny will mean that deals move slower and take even longer to get started.

You've heard several opinions on what an economic downturn could mean for our industry. But what's your feeling about it? Is our market really more recession-proof than others? Does the global nature of our business help protect us against the economic ups and downs of any given country?


+1 # Franois Reeves 2008-02-20 13:30
Couldn't agree with you more. Another aspect that has been overlooked is the tightening of financial criteria. It is going to be harder to finance new business ventures, given the consequences of the sub-prime write offs. Less availability of funds might impact the emerging digital signage industry negatively. It might hamper innovations and risky ventures. This is the most damaging side effect of a slowing economy, the thinning of creativity.
0 # Bill Gerba 2008-02-20 14:03
Yup, money is money, and lines of credit are definitely becoming both more difficult to get and more expensive. One wonders whether debt or equity capital is going to play a bigger role in digital signage projects that can't be funded out-of-pocket. On the one hand, there are plenty of networks out there that have some success and could potentially sway VCs to give them (on the aggregate) hundreds of millions of dollars for expansion -- especially if they point at the big Chinese firms trading on the Nasdaq and say "see, that could be us too!" On the other hand, though, projects coming down the pipeline of big companies (like major retail chains, banks, etc.) aren't a good fit for private equity, which basically leaves either paying cash or using some kind of debt financing. Either way, with less money available, big projects will become harder to finance, more expensive, or, quite possibly, both.
0 # Adrian Cotterill 2008-02-21 10:03
The 'worst slump in a decade' hit the advertising industry back in 2001 and hit the outdoor folks particularly hard. Many people in this 'vertical' believe that it actually also slowed down the adoption of non-traditional posters etc. - scrollers as well as digital billboards. Strange thing at the moment is that it is these High Impact / Outdoor folks who are many ways start to lead the race in digital. In terms of the retail vertical I think times have changed and the retailers challenge is all about online - retailers have been slow to wake up to the fact that they ALL need to transform the high street in order to attract custom. For far too long retailers have offered poor pricing alternatives in a shoddy high street package. I think we are starting to see high street retailers realise they need to invest - better looking, more accomodating, more 'theatre' like retail experiences - all of that is good for the signage and kiosk industries.

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