Digital Signage: Adding Revenue From Specialized Advertising
By Jason Bates
In a short period of time, digital signage networks have evolved beyond the phase where they are viewed as simply a new technology that provides an interesting way to relay information in a consumer environment.
Today, digital signage networks are receiving stronger consideration when matched side-by-side with older, more established advertising venues, and network operators are looking to derive even more revenue from these systems by bringing in more advertising and specialized programming.
"Some companies are placing bets on digital signage versus traditional media buys," says Mike Tippets, vice president and chief technology officer of hardware provider Helius Inc.. "Should Dr. Brown buy a slice of time on the local diner ad loop instead of time on the local cable channel or a print ad in the local newspaper? Again, there is a lack of credible information about uplift in traffic from one versus the other. There is a reasonable argument that [digital video recorder] technologies are making local cable ads less appealing."
That opens a door for advertising on digital signage networks, and industry officials see numerous ways to turn the networks into revenue-generating machines, both for the hardware provider and the enterprise customer. "Fundamentally, this has been an emerging area for the last two or three years," says Mike Cook, senior vice president, North American division at Hughes Network Systems. "The technology is there and a bunch of people are saying this is neat, but how can we make that work for us?"
Market Poised To Break Out
To date, companies have used digital signage networks for several reasons, including increasing sales, reducing the perceived wait times of customers and enhancing brand awareness or differentiating themselves from competitors, says Kris Konrath, director of marketing, Convergent Media Systems. "Digital signage can have both direct and indirect effects on revenue. It can directly affect sales lift by promoting and up-selling products sold within the retail environment. This can be relatively easy to measure through past and present same store and/or similar store sales comparisons. Some companies have even been successful in correlating how a reduction in perceived wait time can be translated into increased customer satisfaction and increased revenue. Likewise, digital signage can also indirectly affect revenue by creating efficiencies, ensuring message compliance across all locations and improving employee productivity."
The digital signage industry is among the hot picks in the technology world according to a wide variety of market analysis forecasts. The rosiest predictions call for a market valued at $3.7 billion by 2009, while even the low end of the forecasts see a market of at least $1.3 billion by the end of the decade. While equipment sales account for a fair share of those growth curves, the market for advertising could still be in the billions by the end of the decade, industry officials say.
"Playspace advertising has taken a seat at the table and is coming to the forefront. Traditional media is on the decline and the alternative is booming," says Craig Presser, CEO of OOH Vision Networks LLC, a third-party advertising company.
One Size Does Not Fit All
Increasingly, parties involved in the digital signage industry — from network providers to content distributors to retailers installing the systems — are seeking a more direct impact from these platforms in terms of generating measurable revenue from advertising for the end user. While the opportunity waits for the company that figures out how to capitalize, the approach varies. The one point of agreement is that no single model fits everyone and no single business model "represents a home-run case."
"At the early stage of the digital signage life cycle, some retailers are thinking, ‘Put me up some screens and I will sell more,’" says Joe Amor, vice president and general manager of Microspace Communications Corp., a provider of point-to-multipoint satellite services. "Those case studies have been unsuccessful. Right now, there is no one-size-fits all. … Microspace works with many hardware and software providers to custom design exactly what enterprise clients are seeking from a digital signage platform. Does the method vary depending on type of business and type of system used? Certainly, screen size, placement, content and dwell times directly influence the final product. Each system is different based on clients’ expectations."
OOH Vision has made its mark providing systems to restaurants and casual dining environments, which provide the advertisers using the network a captive audience that may no longer exist in front of the home television. OOH Vision, in conjunction with Helius and Microspace, has installed a proprietary digital signage network in more than 100 diners in New York, New Jersey and Connecticut. The network displays a variety of advertisements, video content and text crawlers on strategically placed plasma screen TVs. OOH Vision owns and operates the network and sells the ads.
But there are many other retail industries — financial institutions, home improvement companies, automotive firms — that have yet to embrace digital signage to its full extent, says Presser. Educating customers on the benefits that can be derived from digital signage systems will be key to expanding the market and capturing advertising revenue. "There is still a tremendous amount of education that needs to take place," he adds. "That said, it’s been a monumental leap from two years ago to now. Traditionally, we are finding the adapters are the local and regional clients, and to be more specific, a lot of the larger contracts are direct to client."
Cook defines three basic business models in the industry. The first, designed to build brand equity, can be found in businesses such as Nike stores that are devoted to reinforcing the Nike products in the store, as well as reinforce customer loyalty to the brand. Another network business model may be devoted to changing the buying behavior of a customer already in a store. This model, which some studies suggest has been successful in driving consumers toward a particular brand of product, is used in retail stores such as Target or Wal-Mart. The third network business model is used to display an in-store channel intended to create revenue by selling the advertising space to third parties who have merchandise in the store. This can also be combined with the second model, Cook says.
Hughes has found success providing a network to Tesco, the largest grocery store in the United Kingdom with nearly 2,500 stores. The company’s Tesco TV, which uses Hughes’ Direcway satellite broadband platform, provides advertising designed to guide customers to in-store sales and specials. "We have basically implemented the whole of their digital signage infrastructure throughout the grocery chain," Cook says. "We chose the screens, put them in service and operate the whole thing. They manage the content."
The strength of the digital signage business is that companies such as Hughes can tailor the network to the individual requirements of the customer, Cook says. "The jury is out on which one is the most effective," Cook says. "… Of all the ones that are available, the in-store opportunity is the most appealing, because you know that if somebody already is in the store they are looking to buy goods of the class you are trying to sell. They can be more efficient in targeting their particular audience, creating a lot of interest from that point of view.
Tippets also sees three segments driving market growth, though he defines them somewhat differently. Externally controlled/ad revenue supported networks will be "the biggest drivers of digital signage in the near term and will be for companies who have access to capital and have experience selling advertising," he says. "… This model is the one that receives the least resistance to implementation and if the company truly has ad sales experience and capability, it will succeed."
The other two segments — internally controlled/ad revenue supported networks and internally controlled marketing/branding supported networks — will develop as well. Their growth may be slower because they require more capital expenditures by customers without providing an easily defined returned on investment. "Once the externally controlled/ad revenue supported model is successful and people can point to ad revenue supporting the network infrastructure and actually turn a profit, then large retail and other chains will be willing to spend the capital to put in the network," Tippets says. "But they will still want to charge someone else to make back the capital expenditure dollars."
As companies seek to tap into these dollars via various systems, there will be winners and losers, says Scott Calder, CEO of Mainstream Data Inc. "As is the case with most nascent businesses, entrepreneurs will try a variety of approaches and only a few will be economically viable," he adds. "I think we are still too early to know exactly which formula will be successful. … My bet is on the in-store point-of-purchase model" placing the advertising in the store.
"Clearly there needs to be a tight correlation between the venue — what is the consumer target doing and thinking about when you present the digital signage promotion — and the advertising message," Calder says. "I think most digital signage experiments in the past have focused on pounding the same message through a new channel, and that doesn’t work. The right answer is a message that represents a favorable value proposition to the target, whether that value is in the form of information or entertainment. We have become pretty adept at tuning out blatant advertising messages that don’t represent value to us."
Measuring Return On Investment
Measurements will be required to determine these winners and losers, but officials disagree on the best way to measure return on investment. In the early stages, system operators may need to look beyond just revenue generated by advertising sales and take into account the impact of such advertising on in-house product sales, along with the impact of product education and branding.
"Right now I don’t believe enough companies have implemented digital signage in order to give an industry expectation," says Tippets. "I believe that companies implementing digital signage are simply doing standard ‘cost of money’ calculations. If I invest $10,000 in digital signage for my location, how fast will I make that money back through increased sales or ad revenues? Is the cost of that money for the expected return period worth the risk or not? There is not enough credible data available to say that by adding digital signage you will see a percentage uplift in sales or ad revenue dollars in the market today.
Microspace has three distinct goals for client networks, says Amor. The impact can be seen in product lift through direct advertising, education and branding. "Show a steaming apple pie when people are standing in line and sell more apple pies," he says. "[It can be as] simple as that."
Consumer education is not as easily measured, "but the main reason we see the consumer education benefit is due to high turnover rates in retail employees," Amor adds. "With a constant turnover, a retailer cannot guarantee the consistency of the in-store experience from location to location. However, if the same information on products or services is available [regardless of the geographic location] they can maintain their ultimate goal, consistency across all locations. Return on investment measurements can be measured but not clearly or as easily as with direct product sales lift."
Branding the customer with the in-store experience also is a measurable impact of a digital signage network, Amor says. "These networks are creating their own unique experience inside their locations that you can’t get anywhere else. They do not show prices or specials. In some cases, they may not show their product at all," he adds. "Again, they aren’t trying to direct sell a product; they are distinguishing themselves from being ‘another vanilla.’"
Others believe a definitive measure, such as simply covering the cost of the money invested in the network, can be set. "You have to be able to generate 60 percent or better gross margins at each location or the economics don’t play, which means that a typical site needs to generate $500 to $1,000 per month or it probably isn’t going to be worth it in the long run," says Calder. "There is a lot of smoke being generated about ‘building the brand’ or ‘creating ambiance’, but I think that ultimately economics will win out."
In other words, Calder says that such a business model means generating significant and easily measurable incremental revenue with gross margins of 60 percent or better on each site. "It is too early to say what is and isn’t working, because we are still in the earliest stages of this business," he adds. "You can always get someone to throw money at a hare-brained scheme once, but will they come back the next time? Time will tell."
Strategic Planning Is Key For Digital Signage Success
"A digital signage network can be a powerful tool to tailor specific messages for playback at specific times and places, directly impacting sales at the point of purchase," Konrath says. "However, a blank digital signage display can have a negative influence on customer behavior and could result in decreased revenues. Network monitoring and maintenance are critical factors in implementing a digital signage network and can directly impact network uptime."
But for the digital signage industry to spread the word, they need to make sure potential customers know they are missing out if they do not have a network. "It’s about getting content out and into the retail environment, and satellite technology is the perfect way of delivering that," Cook says. "We have to put together a series of platforms on which we can deliver content and manage that in a way which is meaningful to retailers. From putting screens in stores, and providing services and content control mechanism, to providing transport, our goal is to say we’re good at driving sales volumes. We’re not going to be able to convince a retailer that hasn’t even thought about it to implement a network, but frankly, every retailer out there is aware of digital signage, and we’re not doing our job if they are not thinking about how they might leverage digital signage."