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.
When trying to explain the benefits of installing an ad-funded digital signage network, I'm often asked the same question again and again: "Isn't it just an expensive way of replacing my printed ads?" The extreme focus on price might have something to do with the fact that I live in Mexico, where we've seen the exchange rate with the US dollar rise 30% in just a few months (and most things you need for a network are priced in dollars). But I think it has more to do with the fact that people still compare the cost of installing the network with the cost of printing ads once. While the benefits of digital signs might be obvious to many of us, there are still plenty of people who don't understand the additional value that digital signage can offer over traditional signage.
Do digital signs really earn more money than traditional ones?
I'll use a project I'm working on right now with 85 stores as an example. Our initial estimate is that it will cost them around $200K for the necessary hardware and software for an 85 store installation, which comes out to $2,352 per store (not including installation and ongoing production costs). If we assume the installation will run nicely for five years -- a fair, even conservative, estimate -- that comes out to merely $39.20 per store per month. Even assuming that the customer makes this initial investment through a financial (leasing) company and incurs some fees there, it seems like a pretty reasonable figure. By comparison, considering the costs of designing and printing ads, shipping them to each location and being sure they are displayed, you'll see that the monthly cost of the traditional method isn't too far away from the cost of buying the equipment for the digital signage network.
Image credit: Gaetan Lee
Production and distribution costs are only a part of the whole equation, though. Another thing you have to estimate is the value of the ads being shown, typically by calculating the impressions -- or opportunities to see -- that you can make at the same space at each store. If you install a digital screen, you'll have the ability to run several ads in the same piece of real estate (but with fewer impressions for each). With a traditional printed ad tacked to the wall, you can't use that same spot for another ad at the same time. While the opportunity to see each piece of content may be lower, the ability to put multiple items in the same high-value location is very compelling for advertisers, so the real value of each spot remains pretty high. I'm not the kind of guy that will tell you to replace all of your printed stuff with digital, but using digital for high-value locations is a great way to squeeze more value out of your high-traffic or high-impact areas, which is more important during our current economic crisis than ever.
What's the secret to getting the most value from digital signs?
If you've made it this far into today's article, you're surely wondering "How can this guy prove I'll make more on the net with digital ads instead of print?" Well, I can't tell you that for sure, but speaking from experience (in a past life I managed the entire Walmart TV network in Mexico), what I can tell you is that the right content mix will absolutely make more sales. And I'm not talking about flashy, expensive, high production value content either. You can use simple tools on your own PC to create the right kind of ads as long as you know the right messages to transmit to your customers.
For starters, in the digital world the "one size fits all" concept is simply wrong. When you have a digital network, you simply don't do a country-wide promotion like you might in a catalog (where all of the "best" items typically have the best placement because you know for sure they will sell well). What we found to be productive was to run specific local promotions with our first-tier items, mixed in with promotions for some of our lesser-selling items (which tended to have a lot of excess inventory). Even better was when we would change our promotions on specific days, weeks or months based on past data about the kinds of shoppers who would be in our stores at the time. For example, the people buying a high-end beauty product around the holidays may have been doing so for a gift, whereas those that bought the same product mid-year were more likely buying it for themselves.
Another benefit of digital signage is the speed it brings to your internal workflow and distribution. When you only have traditional signage to promote your products, the workflow of that system is really slow. In your best scenario, your September catalog has to be at the printers by July to allow enough time to print and deliver it. This means your promotions for September have to be designed and defined somewhere around May. Where is the "opportunity" there? With a digital network you can build your promotions for September even one week or one day before the month starts. Imagine you have a beautiful raincoat in your September catalog, but this year turns out to be particularly warm and dry. Your printed catalog's advertisement is worthless. With digital ads, on the other hand, you can continue to promote summer clothing until the first drop of rain appears (whenever that happens). Just like the guys in New York City that pop up out of nowhere with umbrellas when it starts to rain, digital signage has the ability to be on time with the right message when needed -- and advertisers are willing to pay some premium for that advantage.
Image credit: Kevin Coles
Make sure you try new things
In the end, digital signage is all about the opportunity to let your customers see what they need to see at a specific place and at a precise moment. Like the digital menu boards that show you breakfast in the morning, lunch in the afternoon and dinner at night, digital signs add value by letting you use your most valuable space as efficiently as possible, with less "waste." But there's another advantage that frequently gets overlooked. Because digital signs are often put in the best possible store locations, store owners and networks owners can be reluctant to let certain ads run. When you see traditional signage in a store, 90% of the space is used to advertise products that store owners already know will sell well (even if they don't advertise them). Because it's inexpensive to update content on a well-designed digital signage network, you have the ability to go beyond these "safe" advertisements and try to push items that have great potential, but don't yet deserve the prime poster space. While we continue to find value in selling ad space to A-list advertisers, there's even more to be found in atypical uses. Digital sign networks have turned out to be amazingly useful for moving the products that were sitting in the warehouse, great for temporary promotions, and truly excellent for promoting new arrivals -- all of which were either too expensive or too difficult to accomplish with static posters.
How have you explained the value of digital signage to your customers? Has the process gotten easier over time, or are people becoming more skeptical due to the hype that accompanies many projects? 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.
The UK industry news watcher AKA had a post up last June about a US company called doPublicity that has a digital signage platform aimed at local businesses. The weirdness that can happen with alerts and industry portals is I just read about it now, and not by going to aka.What caught my eye was the reference to an online network assessment and profitability calculator that can help its potential customers figure out what a system might cost versus what it might bring back in new ad revenues.ROI calculators like this can be a really useful mechanism for starting to sort out the potential impact a DS install may have for a business, though it can be wildly imperfect. The one this Los Altos, California firm has pulled together is clever, and in many ways useful, but where it starts to fall down is on the advertising revenue side. It perpetuates the whole Pot of Gold theory about digital signage screens being amazing new revenue sources for small retailers. With some possible exceptions, it isn't happening like that, and probably never will.The calculator does a good basic job of sorting out the elemental site costs, asking how many locations, and baking in the costs of screens, players and installs. The player cost is pretty high, but not crazy-high.So using my cooked-up scenario of a five location dollar store chain, the start-up costs is $10,500 using the calculator.Now comes the part that doesn't work so hot. The calculator asks a series of questions intended to estimate advertising capacity and revenue, and therefore the profitability of the screens. Where it gets hung up is on what to estimate as the cost per ad. This thing is asking me to estimate the price per spot, as in how many cents per spot?Huh?This industry does media planning and sales using things like cost per thousand calculations and rate kits built around yardsticks like cost per venue per week. But costs per spot play?So let's say it is as low as you can go - one cent per play of a spot. The spots are 15 seconds, and the media loop is 60 per cent ads.That kicks back an estimate that the aggregate of ads will play out 302,400 times over a month, and therefore generate $3,042 in ad revenue, or $600 per store. After costs, including a pretty interesting rev share stab/grab by doPublicity, the margin is $1,800 to the good, or $360 per store.The calculator also includes a break-even point analysis, which is a nice way of either grounding expectations a bit or getting retailers more whipped up by thinking they only actually need to fill 14 per cent of the available ad inventory to break even.Now here's the trouble with this sort of thing. Selling local advertising is really, really hard work, and an intensely local system may end up being more of a barter network than one where checks are actually being written and passed around. Small business people are getting hit constantly by people wanting to sell them things, including advertising.The reality of this:A - Somebody has to sell this store network, which means either the retail owners or staff are taking time away from the core business, or somebody else is doing sales for probably 25 per cent of more sales commission. Those are very real hidden costs, either way.B - The filled inventory rate will be much lower than expected, and subterranean for six to nine months. Unless the planets somehow align immediately, these things are not revenue-positive for at least a few weeks ro months.C - Ad calcualations need to bake in audience size through some sort of report of foot traffic, percentage who notice the screen and dwell/loop time. The real revenues versus real costs are really hard for things like calculators to spit out. Calculators don't have perspective fields in them that can bake in what really happens.If it seems like I am kicking these guys around a little bit, I'm not. I actually think it's great when companies try to apply some business discipline to this stuff, and this is a pretty nice but imperfect run at things. They do stress it is not intended as accounting advice.But it has to be just a tool to start the analysis, not close the sale. It should not be regarded as some conclusive evidence of why a screen network is pretty much a money tree. It might generate some business early, but also nurture an ever-growing crowd of disappointed customers.The problem is people get all whipped up about how great this will all be, based on some simple calculations, and only find out once thewy're into it just how hard the advertising sales game can be.I've seen and also built some spreadsheet calculators based more on what well-placed screens in retail can do for boosting sales, and for a lot of retailers weighing the merits of investing in DS, THAT'S the sort of number-crunching they should be doing. That's immediately relevant and measurable for them, and in-store sales promotion (unlike ad sales) is something they know how to do.
Digital signage broadcasting has become an increasingly popular way to present information in a variety of public venues. From train stations to banks to hotels and much more, digital signage broadcasting has proven to be an effective way of delivering targeted messages to specific groups.
Friday, December 11, 2009
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