The Next Killer App
Jul 1, 2005 12:00 PM, By Brad Gleeson
Opportunities for integrators in the digital signage market.
New industries evolve; they don't emerge overnight. The digital signage industry has reached the “buzz” stage in its evolution. People are talking because virtually everyone notices the impact of high-resolution digital displays in an airport, a mall, or some other public place, and the potential of other applications is not hard to imagine. Some have framed it as the next “killer app” for pro AV. Depending on your perspective, either this buzz has been a long time coming, or it's too early to tell if it means anything. Regardless, the facts point to increasing opportunities for integrators to claim a piece of the growing digital signage industry pie. Whether you are already working in this market or you're just beginning to learn about it, you must remember that the landscape is changing quickly. Only those companies who keep up with the rapid evolution of the business of digital signage are likely to succeed in the long run.
As someone who has been involved in this industry from its inception, I'll offer some observations and recommendations to help you decide if the opportunities are right for you, as well as tips for taking advantage of them. While the topic is too big and is changing too quickly to cover everything in a single article, I'll offer some ideas and tips that you can use to boost your current position in the industry.
WHAT IS DIGITAL SIGNAGE?
In the interest of clarity, I'd like to spend a moment reviewing what digital signage is. In some sense, digital signage's DNA can be traced back as far as the very early days of electric signs. In my presentations, I like to use a slide of the first Goodyear blimp as a symbol of how early advertisers created new ways to get their messages in front of potential customers. Who doesn't remember looking up into the sky at ballgames or the state fair and seeing “Buy Goodyear Tires” emblazoned on the side of a blimp at night? Later on, Times Square became the symbol of what electric signs could achieve. But when we talk about digital signage, most of us are referring to the combination of high-resolution digital displays — typically plasma or LCD flat-screen monitors — with dedicated computers and software delivering targeted messages over a network to viewers and customers in public spaces.
A digital signage system can be as simple as tube televisions driven by a dedicated DVD player showing some form of customized content. While some will argue that this is not digital signage due to the lack of network connectivity, I would submit that if it accomplishes the end user's goals of informing, influencing, entertaining, or educating, then the DVD playback mechanism is merely a detail. I will agree, however, that digital signage systems can deliver on their full potential only if they are “smart” networks.
The true benefit of digital signage is the ability to deliver relevant, meaningful content in the right place at the right time to cause the desired response from the viewer. The ability of a networked digital sign to adapt its message according to time of day, day of the week, geographic location, and even inventory levels or current events is what ultimately lifts digital signage to a the position of a true “new media.”
While all of this sounds good, what really matters is whether there is a marketplace for these new systems. Does the world really need flat screens in malls and grocery stores? Are there advertisers willing to pay to advertise their products on these public displays? Indications are clear that there is not only a need and a market for this new approach to commercial communications; there is an urgency for building these networks and fine-tuning business models.
Digital signage is a new industry that has developed from the collision of several new product technologies and the reality of conducting business in the Internet age. Take one part flat-screen display, add really cheap computing power and readily available communications bandwidth, stir in software that is part PowerPoint and part TV Guide (OK, a gross over-simplification), and you have the recipe for the digital signage movement. When you also consider what is happening in the media and retailing industries, it's no wonder everybody is talking about digital signage. I really believe, though, that any combination of these elements together without the display technology component would not be enough. While we will see lots of different display technologies used in digital signage, I believe it was the plasma monitor that ignited this market.
STATE OF THE INDUSTRY
The current state of the digital signage industry is strong and getting stronger. As I write this, Active-Light is preparing for InfoComm 2005, where we will be exhibiting in the first Digital Signage Pavilion at the show. For the first time this year, Government Video Expo will have a similar space dedicated to digital signage in the public sector. ActiveLight's Dynamic Digital Signage Resource Directory is in its third edition now, and at NSCA's Systems Integration Expo, ActiveLight hosted the industry's first awards program — the DIGI Awards — in recognition of the year's most significant and innovative installations. In short, 2005 has been a whirlwind of digital signage conferences, market studies, tradeshows, articles, and speaking opportunities.
Even as we admit the industry is still in early development mode, indications are that it will become a tremendously significant market in terms of revenues. Depending upon which market research firm you prefer, and how you slice the pie, digital signage is expected to surpass $2 billion in overall revenues by 2009 (see figure 1). The hardware and integration segment of this is somewhere around $500 million. By comparison, the data projector market, which has been developing for more than 15 years, is also around $2 billion.
Digital signage can be segmented into several different markets and categories. Cap Ventures estimates there are approximately 2.7 million potential sites for digital signage or “narrowcasting,” as they call it. Samples of this market total include more than 45,000 shopping malls, 794 airports, 1.12 million retail sites, 545,000 hospitality and entertainment locations, and 739,000 service-oriented locations such as financial and health service locations. The number of these locations that are currently using digital signage is infinitesimal compared to the total number of opportunities. The take-away message here is that there is tremendous opportunity in your geographic market, and probably among the customers you already serve.
VALUE FOR THE END USER
End users' interest in digital signage is based on a strategic imperative. Retailers are interested in digital signage because it can create a more compelling environment for their customers. It can attract customers to come into their store. Once the customers are there, it can help them move into and through the store, provide cross-selling and co-marketing opportunities, and influence the purchase of items the retailer most wants to sell. These statements are backed by a May 2005 study by the Platt Retail Institute (sponsored in part by ActiveLight), which concluded, “Messages communicated via retail digital signage systems can have a meaningful impact upon consumer purchase behavior in retail stores.” Digital signage can also be a consistent, tireless sales associate and brand communicator. Corporations can be confident that they know which items are being promoted in each store at all times. They might even be able to collect revenues from brands and products they feature on their displays to create incremental revenue for the store.
This enhanced experience doesn't always need to be about sales, either. At Nike stores, for example, Nike and Downstream Digital (the network operator) have created programs that inform customers about local charity-oriented races and sporting events. The programs also show rich images evoking the emotions that Nike wants customers to associate with using its products. Retailers need to compete for customers and create an environment that rewards them for visiting the store rather than shopping online.
For advertisers and brand marketers, it's all about putting their vast resources to work in measurable and effective media. Broadcast TV depends on commercials to survive. Commercials are scheduled to run inside entertainment programs that attract a certain demographic of viewer. These viewers then go to the retail store and buy the advertised products. It's a model that has worked for 50 years, until now. Personal video recorders such as TiVo have rendered TV schedules meaningless: Owners of these devices skip 70 percent of commercials. Newspaper and magazine readership is on the decline as we all spend more time online (usage has doubled in the past five years), and traditional radio is being challenged by satellite radio companies such as XM and Sirius, which offer hundreds of commercial-free choices to listeners. Suddenly, advertisers are asking broadcasters for measurable proof that their advertisements are reaching the audience they are paying for. The mass media industry is in turmoil unlike any time in its history. Advertising guru and NPR commentator Bob Garfield has written The Chaos Scenario, a book about this “perfect storm” of technical and cultural change that is leaving $130 billion in annual advertising spending somewhat up for grabs.
What it comes down to, then, is that dynamic digital signage offers the pro AV industry a tremendous opportunity to market the latest in AV display technology combined with readily available computing, connectivity, and specialized software and services as an integrated solution to a new application and market. Retailers, merchants, and service providers increasingly need to enhance the experience they deliver to customers in order to attract them away from Internet shopping sites and into their brick-and-mortar locations. Brand marketers need more effective media options that deliver a meaningful and measurable return on investment when compared to current mass media advertising. So why does it still seem like the digital signage revolution is always on the brink of truly taking off?
COLLABORATION IN THE INDUSTRY
Wall Street types refer to the digital signage industry as a “fractured” market/industry. What this means is that there are no clear 800-pound gorillas controlling major market share. Instead, there are a lot of small companies — fewer than 50 people and less than $100 million in annual revenue. Regardless of what you might hear, there are few companies in the industry currently delivering end-to-end solutions themselves. To contribute their component of the supply chain, everyone relies upon expert partners. While one company might act as general contractor, each of us can play a role in these projects — especially the larger projects.
At the recent Strategy Institute conference on digital signage in New York, advertising executives spoke on their belief that forms of place-based media such as digital signage will really begin to command the attention of media buyers and planners once successful networks are deployed and measured. An obstacle to making that happen is the fractured nature of the industry and the need for qualified professional systems integrators to build out the networks. The capital expenditure required to build out a 500-display, 250-location digital signage network that includes hardware, services, content creation, and ongoing support can run to $5 million or more. In order for digital signage to achieve the position of a viable broad-based media, thousands of displays must be in place and accessible to both viewers and advertisers. We have a long way to go to make that happen, and it won't come from one or two companies.
Several movements are underway right now that will help establish the infrastructure of a digital signage industry for pro AV systems integrators to participate in. An industry association, now in its formative stages, is currently recruiting members and committee contributors. Formed under the POPAI (Point-Of-Purchase Advertising International) banner, the Digital Signage Group is chartered to develop education standards, industry advocacy, and research in support of this fledgling industry.
At ActiveLight, we believe so strongly in this need for collaboration that we've started a new division in our company in order to help facilitate it. Our dedicated digital signage division, called the ActiveSource Digital Signage Affiliate Network, will allow experienced and certified suppliers, content providers, network operators, installers, and consultants to work together to deliver world-class signage networks. ActiveSource will offer training, instruction, and certification. It will also provide project leads, access to specialized products, and the opportunity to partner with and learn from the industry leaders in digital signage — including companies like EDR Media, Scala, Mercury Online Solutions, Harbor Digital, Screenplay, Microspace, BTV+, and, of course, ActiveLight. I urge you to get involved with the POPAI's Digital Signage Group and ActiveLight's affiliate network if you are seriously interested in the business of digital signage.
WHERE DOES THE SYSTEMS INTEGRATOR FIT IN?
As a pro AV contractor or systems integrator, you may be asking yourself where you fit in and how you get started. Where you fit in depends on you. But the structure for different categories of digital signage operators can be seen in Figure 2 on p. 38, in which we can start to break down the business and the industry and perhaps you can figure out where you best fit in.
There are tremendous opportunities for professional AV integrators to sell and support the growing market for networked displays in public spaces. The market is expanding faster than any other pro AV segment, and there exists a great need for experienced professional systems designers, integrators, and installers. The opportunity also exists for companies to branch out into a more specialized and dedicated strategy in order to maximize their growth in this exciting new market segment.
There are of course several significant risks and obstacles that must be considered. The recent past is littered with companies who had big plans for digital signage but who are now gone and (nearly) forgotten. The key here is to understand how these systems and this market work, proceed with caution, and keep your business focused on your expertise and execution. There are many ways to get a piece of the digital signage market without committing your company to building out, owning, and/or operating your own network. The fact is, there are far more folks talking about doing digital signage than there are those who have any real experience designing and installing complex audiovisual technology networks.
We are approaching a rare moment in the development of a new business. Several factors that can influence its development are converging. Prices of the required technologies are declining rapidly. Awareness of and demand for the capabilities this business can provide are growing rapidly. Market leaders and de facto standards have yet to emerge, and the skilled workforce and knowledge base are there. Business models are being refined, and financial interest is beginning to develop. The opportunities for established, experienced, and committed pro AV integrators and contractors will probably never be better than they are right now. Don't miss it.
A great deal of information in this article is from a recent study performed by InfoTrends/Cap Ventures and is offered with their permission. Several other reports exist from such firms as Frost & Sullivan, iSuppli, and Display Search, and I would encourage you to seek out these sources for additional information and insight as you prepare your digital signage business plans.
With more than 20 years of industry experience, Brad Gleeson is president and COO of ActiveLight. Email him at firstname.lastname@example.org.
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