I'd like to offer up an observation based on nearly a decade of experience in this industry: business as usual hasn't changed much for the small network operator since the turn of the 21st century. For one reason or another, things haven't gotten any easier for companies who manage 100 screens or less. And despite numerous advances in the marketplace, the longevity of a smaller digital signage company doesn't seem to have improved much, either. This baffles me, since in the 5+ years that I've been writing this blog and researching the industry, digital signage costs have continued to decline, the quality of the products and services that make up a digital signage network has improved, and people have generally become more accepting (and less incredulous) of the benefits of out-of-home digital media. I haven't completed an exhaustive analysis of the data, but at this point I want to throw out a couple of guesses as to why this might be the case. With your feedback, my goal is to turn this discussion into a more comprehensive study that can benefit network operators of all sizes.
Why focus on the "little" guys?
Image credit: Stefan
Before I jump into this, I want to point something out: the digital signage business is probably quite difficult for everybody, large and small. I doubt the execs at industry heavyweights like CBS Outernet and PRN just breeze through their operations without a care in the world. However, there happen to be a lot more small companies in our space than large ones, and I certainly deal with many more small companies on a day-to-day basis. Thus, I have a much larger pool of data to work with there. If anybody from one of the really big networks would like to chime in with a comment or two about their own businesses, all the better. Also, there's nothing magical about the 100 screen or 100 venue cap on my analysis. That just happens to be my mental point for dividing networks into "small" and "large" categories, and is otherwise completely arbitrary. So, don't think that installing just one more screen or venue will catapult you out of the danger zone and into safety.
Those who don't know history...
...are destined to repeat it, as the British philosopher and statesman Edmund Burke noted a few hundred years ago. Sadly, plenty of people in the digital signage industry seem hell-bent on trying to prove him wrong. Very few succeed in this endeavor. One of the biggest sources of angst in our marketplace -- to large and small digital signage companies alike -- continues to be the challenge of justifying the value of the screens (or screen time) to entities that might like to put some content on them. The entity might be an advertiser, a government organization, or a non-profit. But whoever they are, networks owners have to convince them that the audience viewing their screens is valuable. Furthermore, they have to prove that the screens can reach that audience in a meaningful way. As many experienced folks in the industry have said: if you haven't sold ads before, then starting out with advertising-supported digital signage is a very difficult path to take -- and one littered with the corpses of dead networks.
Clearly, the gung-ho attitudes of new network startups hasn't changed. And while that continues to lend plenty of optimism to the industry, it also means that more companies are charging into the space head-first, often without the understanding of why so many of their peers have failed. Thankfully, I've talked to numerous institutional investors and angel groups recently who've noted they see many fewer "build it and they will come" propositions from network startups, even while the rate of new network formation (from my perspective) seems to be increasing. So my gut feeling is that more companies are testing the waters with smaller, self-funded pilots, and perhaps relying more on organic growth from real, actual revenues.
Wait, I thought this was a cost-driven industry?
Ask any digital signage vendor and they'll say it certainly feels that way sometimes. And as I noted above, costs have steadily declined since we started tracking them in 2004. But that trend only seems to be helping with the rate of new network formation, not the relative success or longevity of those networks. To me, this suggests that the reason for failure has to do with operating costs (or revenue shortfalls) that aren't related to the technology or initial installation expense (which is really all that we track). It might be content, it might be management, or it might be sales. But whatever it is, it's enough to sink network after network. Of course, the upshot for savvy firms is that once a digital signage company goes under, their screens remain in the field, so over time we've seen smaller networks grow inorganically by purchasing the assets of their defunct ex-competitors.
Obviously, lower costs will continue to reduce entry barriers for prospective network owners. However, just because more companies get started doesn't necessarily mean that more will be successful in the long-term. In fact, I kind of expect the percentage of successful network operators to decrease as more new firms jump in, realize how hard this stuff really is, and then quickly make an exit (or die trying). But on the other hand, more new companies means more innovation, more new and different business models, and hopefully more paths to success. From WireSpring's perspective, we continue to see the strongest growth from new customers starting relatively small networks. But the next biggest growth area is from small- to medium-sized networks expanding their existing operations (which by some accounts is an indicator of their health). For all that, though, there are plenty of networks that have fallen by the wayside.
What's the biggest reason that digital signage networks fail? Is there anything on the horizon that will make things easier for new network operators? Leave a comment and let us know! Click here to leave a comment What's WireSpring's Blog All About? WireSpring provides hardware, software and services for digital signage and kiosk projects. But our blog is a labor of love. Our posts cover everything from case studies to creative briefs, and are authored by some of the industry's most well-respected leaders.
Five years ago, we started a tradition that -- much to our surprise -- led to industry notoriety as well as more fans and flames than you can count. Yes, that's right, I'm talking about the annual digital signage pricing guide. As the number of articles on this blog started to become unwieldy, we decided to create a single page with all the digital signage cost estimates and price guidelines that we've published over time. This year, we're introducing a brand new feature: the pricing study will incorporate some of the data collected from our "How Much Should Digital Signage Cost?" survey, which we analyzed in a series of recent blog articles. As you'll see from the results below, digital signage has never been more affordable or more available than it is today. So what are you waiting for? Keep reading to find out just what it'll take to get you into your very own 100-screen network today!
A quick review and introduction
For those new to the market (and those who've read these articles before but have forgotten), the numbers below are meant to model a "typical" 100-screen network. What does that mean? I think this paragraph from last year's writeup still says it well:
While our previous cost estimates and ecosystem components have closely matched those from other industry analysts (so we don't think we're too far off the mark), the myth of a "typical" network is more strained this year than ever before. More vendors and network owners are choosing to implement screens with new formats and more varied locations, injecting more diversity into the projects. Plus, the idea that there's a standard staffing requirement for any digital signage network is pretty ridiculous. While we and others have proposed a list of key positions that need to be filled when creating a digital signage team, some networks are still very heavy on content production, while others might be composed almost entirely of sales folks. Still, as we looked across a wide array of networks -- representing not just our products but also our competitors' solutions -- we were able to get a reasonable feel for what most companies needed as far as the human resources side of things.
What's the cost of a typical 100-screen digital signage network?
Despite the many variables that go along with this type of broad estimate, we found that the data we compiled internally -- combined with the survey results that many of you contributed a few months ago -- paint a very logical picture. More importantly, the pricing continues to follow the well-defined trend that we've observed for several years now. The resulting cost estimates appear in the table below. (If you're viewing this in your email or RSS reader and can't see the tables and charts, we encourage you to visit http://www.wirespring.com/blog to get the full experience.)
Cost of a digital sign for 3 years
40" LCD screen
$800
Player hardware
$775
Display mount
$110
Player software
$405
Management software & tech support
$1,300
Installation
$740
Initial project management
$225
Total
$4,355
How have things changed since our last pricing study?
Right off the bat, you can see the dramatic decline in pricing, which we attribute to the confluence of a few things. First, and most obviously, the broad macroeconomic trends that we've all been experiencing the last 12 months or so have made ours an even more dog-eat-dog world than usual. With slower than normal deal flow and a more cautious customer base, many providers have felt compelled to slash prices in order to keep the deals moving. Stemming from this, several of the better-known vendors in our industry have experienced some pain (e.g. running out of working capital, having major investors withhold cash payments, trying to get bought/sold, etc.), and have consequently tried some... um... creative pricing strategies in an attempt to keep their heads above water. And finally, the tireless march of progress (aided by low or negative inflation rates) has simply made some of this stuff cheaper, as it almost always does. Interestingly, looking at the breakdown of costs by component, you can really see the effect of the commoditization of the hardware:
Hardware items are taking up less and less of the pie, while the service-oriented components like management software and tech support take up larger portions. While I don't think we've seen the end of this trend yet, it's clear that those service areas are where the true value to the customer lies, so it's no wonder that they're getting bigger at the expense of the mere "nuts and bolts." The upshot to you, gentle reader, is that there has never been a better time to get into the digital signage business as a network owner or operator -- provided you have the working capital, at least.
As you can see in the tables below, the cost of implementing a 100-screen network has dropped nearly 23% in the past year and nearly 50% since 2004, which is the biggest annual decline that we've recorded since we started keeping track. (Note: to ensure an accurate comparison, we removed the 24/7 tech support line from the 2004 numbers, since this was not included in subsequent years.)
What happens when you consider personnel costs?
As noted, the table above is a composite estimate for running a 100-screen network over the course of 3 years. Building on work that we did last year to figure out the approximate cost (including personnel) for running such a network, we've re-verified that the "average" 100-screen network takes somewhere between 7 and 15 people to run. We stuck with the assumption that the average salary for these personnel is $50K (which is fair, since average salaries haven't dropped that much in the past 12 months). But we reduced the average staff size by one person (to reflect the dismal state of employment today), bringing the average headcount to 9 people. This adds up to another $450,000 in salaries and associated costs every year, for a total of $1.35M over our 3-year planning horizon. That's equivalent to $37,500/month in expenses, or $375/screen/month. When added to the $121/month in capital expenses, the "average" screen in a "typical" 100-screen network costs about $496/month after salaries are factored in. In other words, a 100-screen network would need to pull in just under $50,000/month to break even.
What about connectivity and content?
First, connectivity. To the people who tell me year in and year out that I need to include bandwidth and connectivity costs in my estimates, I once again went out to the masses and asked. Aside from a couple of interesting exceptions, most networks are still sharing the bandwidth that's already in place at their host venues, essentially getting Internet connectivity for free. So while connectivity could easily add another $30-$150/month in expenses to your network if you need to spring for it, in my experience this will be the exception, not the norm. And with airports, malls, superstores and coffee shops giving away free bandwidth to anybody with a wireless adapter, I really don't expect that to change. I know a lot of people are waiting for WiMax to really start making headroads in the market, but today we're still stuck with 3G at best, and 2.5G or worse in areas with poor coverage. So cellular connectivity doesn't really save anything versus wiring into an existing LAN or using WiFi today.
Next, content. In 2007, we took a look at some of the content creation costs that go along with digital signage networks and found them to be all over the map. Since then, content gurus like Pat Hellberg and Gary Halpin have chimed in with explanations of why certain things cost what they do. But during that period, nobody has really ventured forward with a formula for guesstimating the a la carte content production costs. The good news is that the prices in our 2007 budgeting article have likely fallen, thanks largely to the lousy economy, low inflation, greater competition, improved workflow processes, and offshoring. The even better news is that since last year's budgeting article, I discovered that every single network I spoke to has at least one in-house content person who handles some (or nearly all) of the network's content needs. Consequently, at least part of the content creation budget is already built-in to my estimates above.
Closing thoughts (and some more light reading)
So there you have it, the 2009 digital signage pricing estimate. After speaking with a bunch of networks directly and incorporating the data that we culled from the 220+ responses to our pricing survey, I'm more confident of the numbers above than ever before. Want more info on the survey results that informed our final pricing numbers? Check out our recent articles where we looked at each category in detail:
Digital Signage LCD and Installation Prices Are Falling
Digital Signage Software, Management Services Costs Vary
Digital Signage Services Mainly Handled In-House
How Network Size Impacts Digital Signage Service Choices
Of course, even with all my number-crunching, I don't claim this data is perfect. That's why I hope you'll chime in with your own thoughts and experiences. So...
Are you surprised by the big drop in costs this year? Do our numbers match up with your own experiences on the open market? Leave your thoughts in a comment below! Click here to leave a comment What's WireSpring's Blog All About? WireSpring provides hardware, software and services for digital signage and kiosk projects. But our blog is a labor of love. Our posts cover everything from case studies to creative briefs, and are authored by some of the industry's most well-respected leaders.
Friday, December 11, 2009
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