Last week, I had the opportunity to speak at the second annual Digital Out-of-Home Media Investor Conference, presented by the Strategy Institute. With speakers ranging from Wall Street investment bankers to network owners and venture capitalists, the show was filled with people I don't normally get the chance to speak with. As one might expect, each had unique views on how the industry is doing and where we're headed. Though the two-day event covered a number of topics ranging from success in the retail environment to the economics of roadside billboards, there were a few unifying themes that really held the whole thing together. The most notable of these is a question that has come up again and again while studying the viability of the major ad-funded digital signage networks. Specifically, is there money to be made in local advertising, or can networks only survive by securing large deals with national brand advertisers?
Think globally, act locally
Hopefully, Friends of the Earth won't mind me borrowing their catchphrase, since the one recurring theme at the conference was that local is IN. While global ambition and plans for massive expansion are great, many out-of-home (OOH) network owners are finding that there's a mint to be made in local advertising. I've written about catering to local and regional advertisers before, like when I covered NBC's digital signage ad sales model and Wal-Mart's checkout channel, and lots of other people are definitely thinking the same way now. While many networks continue to swing for the fences -- hoping to sign up the likes of Nike or Coca-Cola as a premier national sponsor -- more are starting to realize that their smaller, regional networks are ideally suited to advertising local products and services. These networks have begun targeting their ad sales strategies to the businesses that will likely gain the most from a successful out-of-home media campaign, as opposed to larger brands that have more diffuse (and less regional) sales goals. Think about it: is an ad that converts five viewers to clients more valuable for the local dry cleaner or to Coca-Cola? Sure, Coke may have great margins, and of course they'll do practically anything to gain market share, but given their immense size and the fact that they advertise practically everywhere already, they start to run into the law of diminishing returns with each new ad they place. Not to mention that with so many messages out there at any given time, it's nearly impossible to track which strategy is the most successful for them. The local dry cleaner, laundromat or pizza parlor, on the other hand, probably won't suffer from these problems. Aside from perhaps taking out some ads in the local paper and passing out coupons or fliers, local businesses deal with a relatively small number of regular customers, and they don't do a lot of advertising, so tracking effectiveness is pretty straightforward. It's also easier for them to generate meaningful relationships with new customers, which in turn yields better loyalty, more repeat purchases, and greater profitability.
There's another somewhat ironic twist to going after local advertisers: for lots of big advertisers, making a small dollar commitment and a large dollar commitment take roughly the same amount of time. And in fact, those smaller purchases might even take longer because they're earmarked for "experimental" media and services and could be subject to more scrutiny than, say, a larger purchase that simply extends or expands an existing "traditional" contract. Thus, a low-cost proposal from a network owner hoping to speed the process along by making a major advertiser an unbelievable offer could actually backfire and cause additional delays. Not to mention that securing ad dollars from a huge company will require commitments from all sorts of internal departments, signatures from different executives and (at least for now) somebody willing to stake their reputation on the viability of digital signage as an ad conveyance system in the first place. All of these things add up to headaches that make major advertising contracts -- while potentially very lucrative in the long run -- very costly to set up. By comparison, less ambitious sales to local firms are more straightforward and even somewhat formulaic to the point where once you hit upon the correct formula for success, it's reasonably easy for a larger sales force to get trained up with the appropriate technique and start making additional sales.
The challenges of going local
Of course, the downside to focusing on smaller sales is that it can be time-consuming to sign up the many advertiser accounts that you'd need to equal the revenue coming in from a larger, national sponsor. While it might only take a few $50,000 contracts to cover the initial capital expense of deploying a small to medium-sized network, it will take many more at $500 to do so. Mobilizing a big sales force can speed up your customer acquisition rate, but it also raises costs, so even more ads must be sold before you can turn a profit. It's a vicious cycle. Still, while detractors might argue that the amount of manpower needed to identify, sign, and maintain numerous smaller accounts would likely negate any potential upside, I have my doubts as to whether that's really the case. Assuming that they actually are more effective, ads for local products and services ought to have high subscription rates. After some trial period during which the business owner would determine whether the ad worked, you might expect that business to subscribe for six months or a year of placements. After all, there are a limited number of screens, a limited number of time slots, and if there's a positive return for the business owner, it's a no-brainer to try and secure a number of spots. Consequently, while it might take a fairly large amount of effort to secure enough small advertisers to pay all the bills early on, the sum of the maintenance time for all of these accounts (coupled with sales of new accounts, of course), probably isn't any more than what you'd need to do to keep a larger advertiser happy. As an added consideration, if that major backer pulls out after six months of lackluster results, it will probably have a much more significant impact on your bottom line than if even a handful of smaller advertisers departed. Smaller accounts thus also afford a degree of redundancy and revenue predictability that can be hard to equal when so much of your revenue stream is dependent upon a few larger clients.
By now, you probably think I'm dead-set against selling to national brand advertisers. Not at all. In fact, we've seen quite a few examples of the big guys testing out different digital signage campaigns. I'm simply suggesting that all too often, some of the most promising networks kill themselves trying to catch the elephant, when instead they should be out hunting rabbits. If you don't have a massive network with broad demographic penetration in the top 20 or 30 DMAs, you're going to have a hard time articulating your value proposition to national advertisers. But even a tiny network of a dozen signs covering a five-block slice of urban landscape has something of value to offer to nearby businesses. All of this having been said, my advice to the majority of advertising-supported networks is this: play to the strengths of digital signage. You can deliver a specific message at a precise location and at an exact moment in time. Build up a steady source of recurring revenue by catering to those who will feel the largest and most immediate gain from successfully advertising on your network. In most cases, this means smaller, local clients. With your network's security assured (or at least less uncertain), you'll have more time and energy to direct towards bigger prospects -- along with effectiveness data and testimonials from thrilled customers to help you seal the deal.