Digital Signage Expo - The Digital Signage Industry: Strengths, Weaknesses, Opportunities & Threats
This article originally was posted on September 18, 2008 at Digital Signage Expo.
By Geri Wolff
Introduction
We spoke with the panelists of “A Strategic SWOT” Super Session prior to their broad topical discussion on the state of the digital signage industry to get a preview of what that discussion would focus on. Contributing their insights were Rocky Gunderson, Founder, VP Network Development & Marketing for SeeSaw Networks, Eric Olson, Associate, DFJ Venture Partners, Carre Dawson, Principal, Dawson & Company, LLC, and Jeff Porter, Executive Vice President, Experts Group for Scala. The panelists emphasized areas on which they felt the industry could best capitalize, itemized those that are still impediments to growth, and offered their projections for the future.
Strengths
The panel felt that the four biggest strengths that digital signage represents are mobility, flexibility, customer engagement and proximity:
Gunderson: The biggest strength of digital out-of-home networks is mobility. Digital OOH reaches a lot of people when they’re out and about when they’re not tied to the internet. We have a huge group of consumers that can be engaged in advertising.
Dawson: There is no other medium that provides the flexibility of digital signage. The message can be converted to other languages, adapted to environment, location and season and even directed to specific locations.
Gunderson: Because we work with about 40 different networks (aggregators) we give media planners the opportunity to think about who their brands want to connect with from a consumer perspective and they can focus on demographics, psychographics, budgets, and our system will evaluate all 30,000 locations around the US, calculating indexes of potential buyer characteristics that are important to the advertiser.
Porter: But, these days, advertisers are challenged to connect with customers, and consumers are harder to connect and engage. Digital signage engages like no other medium. The technology can filter out clutter, provide timely information in an efficient way, and generate sales lift at point of purchase.
Gunderson: I agree. Based on the OTX research, when the potential consumer sees an OOH network they consider it informative and educational but not obtrusive or annoying. It’s critical for any medium that’s going to convey advertising to effectively engage the consumer. If the content is informative or entertaining it can also drive a customer to a website or store location, or in another situation, make time waiting in line more productive and perceived to be shorter, enhancing the customer experience. Increasingly, if a customer is in proximity to the path of purchase, often the last thing they see will affect that purchase decision. In addition, integration of place-based media with interactive cell phone technology allows the customer to opt-in and will drive that customer toward a purchase decision that they may not have made before. Some networks allow you to ask for more information or be part of a public safety effort (amber alert) because a digital OOH network allows you to send your message to a specific location.
Dawson: The first moment of truth at retail is getting a customer to pick up a product and put it in the basket rather than put it back on the shelf. Having a digital signage promotion is an advantage when product is right there to give the brand a direct tie to sale at point of consumer. It connects that last three feet of retail. Digital OOH has been considered “glance” media which gives you only a few seconds to get someone’s attention, but it really depends on dwell time in the area, but if you don’t make the connection in the first three seconds you’ve lost them. Customer-centric applications and integrated marketing strategies are all about the customer and interaction connecting the brands, products & services with that consumer. Recent proprietary test results indicate that brands are now “getting it” and implementing more of an integrated marketing strategy to be more successful.
Weaknesses
All panelists agreed that the industry is still suffering from “growing pains” as it evolves toward critical mass. They felt that the fact that it has not yet achieved broad acceptance is due to five key factors:
1. No widely accepted standards for measurement
2. Lack of formatted standards for content
3. Lack of acceptance with agency and advertisers
4. Multitude of small individual networks makes planning and buying complex
5. Size of US market makes cost of entry prohibitive compared with non-US markets
Gunderson: There is no common currency in measurement to provide an assessed value of advertising exposure in a particular location and advertisers want to know what they’re getting for their dollar.
Dawson: Lack of standard measurement is a big weakness and there is no agreement between retailer, brand and operator on what the true measurement of the medium’s impact is. We need good measurement systems in the market place.
Gunderson: Thankfully, industry research is getting better, ARB and NSI are pulling metrics together, but it is more complex than that. Even measuring awareness should be simple. But does the term “awareness” mean that people are aware of the screen, or aware of the ads, or did they take action on the message. We need to agree on what we’re measuring first. At the same time, we need some formatted standards for creative. It’s not in the advertiser’s best interest to use repurposed TV spots, particularly if sound won’t work in the venue and then force an adjustment for footage originally shot in portrait or landscape formats. Lack of format standards is a weakness of the medium.
Gunderson: We all have to think about our businesses from a SWOT perspective because digital signage is not yet main stream. There are about 200 ad-serving networks. This multitude of small individual networks creates complexity from an advertiser’s point of view. When the planners are planning campaigns or strategies, they think about traditional media, mobile and internet, but not a lot of them think about digital OOH media networks because it is still not a line item. If you’re trying to grab some of the major ad dollars, you need to tap into those traditional budgets that are normally allocated to television to reach the top 25-50 DMA’s. Our network generates 50 million impressions, reaching 85-90 million people per week. The super bowl had an audience of 100 million. Media purchase decisions should be driven by relevant audiences. The question is when will the industry get to the tipping point where digital OOH networks will be budgeted in at the beginning? We’re not yet on a level playing field and revenue is not yet flowing into digital OOH.
Dawson: You only get Madison Avenue’s attention with larger digital OOH network opportunities and those companies have the resources to withstand the cost of entry and funding to stay in the game. Larger, better-funded entities have an advantage in investing in OOH. Larger companies are getting more involved in digital signage and there is now more experience in the industry, but because it is still a young industry, traditional media companies are becoming involved and treating the business like their traditional media businesses. But there is a slow turn around where those companies are now recognizing that digital OOH is not TV or another broadcast outlet it has its own set of advantages, tools and rules.
Porter: This is particularly true in the US as opposed to Europe. In the US we are challenged with go big or go home. It’s not the same in Europe, because for instance, what you do in France can be relatively smaller and you can achieve critical mass with smaller numbers. It’s the same in the UK or Poland. In the US cost of entry is at least 10X what it is in Europe because of sheer size. The capital expenditure is much higher to deploy in the US. The brands are willing to spend the money when all the pieces are in place. It’s similar to the introduction of the car. Once tires, highways and gas stations were widely available, the car was accepted. But at this point in the development of digital OOH networks no one is willing to finance it. Who is capable of making that investment? Only larger companies who move slowly and are reticent to invest in change - that is why things in the US are so far behind.
Porter: The fact is that we all know digital signage works. In Germany Burger King has 600 stores that all have signage a single screen in the menu board, which when installed resulted in a 13% increase in sales. But the cost of installation of one screen per store was nominal over 600 stores compared to the US. If Burger King knows they’ll get a 13% increase in sales if they install one screen per store, why haven’t they replicated that success in the US? Because the traditional thinking in the US is if you want to increase revenue you open new stores. A similar investment in the US is far more expensive. It’s the law of large numbers.
Opportunities
The general feeling is that the industry will be propelled forward by things such as new innovation, which will continue to attract investment capital, the growth of niche markets, lower costs of equipment and market consolidation, the latter of which will create true national coverage that will make the medium easier and more attractive for agencies to plan and buy.
Olson: We’re seeing a lot of folks trying to build digital signage networks in various types of locations to convey content targeted to a specific audience such as consumers in doctors offices. We’ve seen the business start to grow over the last six months. We’re also seeing interesting innovations in the space such as “printed electronics.” These are electronics applications that replace printed posters and may make sense, because you can use digital signage to print inexpensively and have an animated message at the same time. With digital electronics, the end product is like average poster, but is digital, and therefore more adaptable and eye-catching.
Dawson: One of the biggest areas of opportunity is being able to reach demographic profiles that are hard to reach, such as teens and young males who are not being reached by television. Digital OOH is a niche marketing opportunity particularly with these groups have been “plugged in” their whole lives and are consumers who are more comfortable and in control of the technology. Digital OOH is opt-in and these groups will engage if the message is relevant and of value.
Porter: There is definitely a positive generational component because younger people are comfortable doing business this way, but the fact that costs have come down on screens and PC’s, coupled with greater broadband access and technology that is proving itself will also help motivate adoption.
Gunderson: Not only are prices coming down, but there will be market consolidation because the size of networks matters to advertisers. The folks who can buy up the retail locations will fold in smaller operators to create more coverage nationally, which is attractive to advertisers because they will be able to control the message to a larger group of people.
Olson: The biggest new technology we’re seeing is the idea of printed electronics. If it is at the right price point it an be very game changing because you get the same end-result, but have a greater opportunity to grab the consumers eye, the message can be more adaptable, it’s lightweight, and at a lower price point become the type of digital signage that is a lot more affordable for more people. Being able to update digital signage from a central location is direction the industry is going, but it will be interesting to figure out what kind of business model will work. Should the network owner charge for every creative update? The challenge is to make a viable business out of this idea. It’s a lower cost and lower functionality play. If you don’t have to spend huge on huge flat panels, the low functionality printed digital signage will open the market to smaller companies and it can become much more interactive.
Porter: Overall, the biggest industry opportunity is the ability of the industry to connect all the dots so the dollars that are being misspent today on TV can find their way into digital OOH networks more easily. We are in the process of setting standards for how these systems can operate together. As the industry grows, the people who were so used to buying TV advertising will eventually learn that digital OOH is more effective.
Threats
The panel suggested that impediments to industry growth include the lack of sufficient capitalization, potential government regulation, and the privacy concerns related to audience measurement.
Olson: Growing the industry will require funding. When considering potential capitalization for start-ups, expansions or acquisitions, we look at a lot of things such as the management team and whether or not they have been together for a while and whether or not the technology is feasible. Then we try to figure out what the market might be for the new technology. That means we want to know if they can sell it into the market and if their price point is realistic. For instance, in the case of printed electronics, we need to consider if people will pay more than for the static alternative, or if it has to be at a competitive price point with traditional printed matter. Then there is the question of whether it can be amortized over a period of time. Would the equipment last a long time? If you could have one digital installation at any given store and continue to upgrade it instead of re-investing to replace it that would be very interesting and have great economy, but then how do you sell a business around that concept? If it will last a long time you lose the ability to cycle things out to regenerate revenue, and the key to growing business is allowing for some type of revenue generation, which makes more sense. Therefore we need to develop some traditional price point comparability.
Gunderson: Capital investment versus the ability to monetize that investment is a large concern. The technology is coming down in price and capabilities are going up, but operators still need to invest before seeing revenue. To be seen as a viable media alternative an operator needs to have close to 100 locations, proof of performance, ability to change out creative that drives up the price on a location basis. But operators must spend that money before seeing any predictable revenue stream.
Dawson: Privacy is a big issue in the industry now. There are a lot of different types of measurement tools, but the issue appended to the correct approach is the issue of personal privacy. How as an industry are we going to explain this to the customer? The reality is that no retailer wants to be first to invest to chart this new territory and get negative exposure as a result. We are now grappling with how the industry should present this in a favorable way to ensure that measurement is acceptable.
Porter: The question is really what will prevent the industry tipping point? Will the industry be subject to government regulation? For instance, billboard companies have had restrictions for years, but there is currently no legal threat as opposed to doing business in China where the government must be involved to secure approvals. We don’t want to leave ourselves open to legislation the same way that Capitol Hill is now considering action on advertising to children regarding childhood obesity issues. This is a very exciting time in this industry. We are experiencing a lot of growth and sometime in the next few years we will reach critical mass.
This article was written by Geri Wolff, President/CEO, Market Works International, Inc. a Business Development and Strategic Marketing firm, and the Communications firm of record for Digital Signage Expo.
