Too Many Providers: Digital Signage Industry Growth Barrier?
The future of digital signage has never been more promising. Screens of all types, sizes and shapes have popped up everywhere: from sidewalks to restaurants to campuses and corporate offices. What is out there now is almost certainly just the tip of the iceberg. Despite the glorious and long-awaited proliferation of digital signs, there are still remnants of the lead-up to where we are today that may hinder future growth . How could that be true as applications and deployments of digital signage are expanding? There are a number of reasons that it took so long to get where the industry is today, and there are several threats to continued high growth. The biggest threat of them all is the over-supply of vendors on the software side of the business and their trickle down effect on industry advancement.
The popularly touted estimate of over 300 digital signage software providers is very likely on the low side. That should come as no surprise. Many entrepreneurs and more than a few opportunists have seen the emergence of digital signage as something both inevitable and too attractive to ignore. As a result, there is a galaxy of software offerings out there, running the gamut from enterprise ready to never-will-be ready. The size of the pie has not expanded at the same rate of those trying to grab a slice, creating a free for all in the market as players attempt to differentiate, create or burnish a brand, or simply survive. The resulting cacophony only serves to confuse a market of potential buyers that may not have enough perspective to sort out the wheat from the considerable chaff. An objective observer might look at all this and wonder if the space is mature enough to invest in. I would not blame them.
Taking a macro view, one can simplify the market for digital signage software into three layers: Enterprise, SMB, and Everything Else.
Enterprise level networks require scale of technology, service, and organizations. They usually require reasonably sophisticated licensing to match the nature of the buying process at that level. They represent the deals of highest value and therefore the greatest risk. Stability, staying power and executive attention are highly valued. The resources required to win and maintain such deals are very significant. Looking at how financial software offerings evolved within the enterprise class sector, it is hard to imagine more than five companies being truly successful in that sector of our market.
The SMB layer represents the greatest number of opportunities, and perhaps greater total dollar volume. While many networks at the SMB layer require scale, it is generally on a different level than enterprise deals. The SMB market is very diverse in use cases, so features, functions and pricing are more often the key drivers of selection processes. The SMB layer lends itself to niche solutions and the sheer volume and diversity of opportunities could support many more offerings than the enterprise layer. Factoring in geography, it is conceivable that 40-50 companies could have some ability to win and maintain business. And don’t forget: that includes the enterprise players!
Then there is Everything Else. This layer includes one-off deals, small networks, less sophisticated users, undercapitalized start-ups, and many edge cases. Scale of technology and organizations is of little importance here. Decisions at this layer are usually all about cost. Diligence in the selection process is markedly lower than in the other two. It is the domain of freemium models, garage level development shops, and digital signage startups. Getting deals here is all about scouring the bushes to find them. Enterprise level players won’t take these deals, and most SMB players will avoid them. The cost of entry at this level is low, so there is room for a cadre of companies going after this space, many hoping to scale up to the next levels. Factoring in geography again as well as sideline businesses of larger companies, one can see room for another 50 entries here.
Adding it all up, the total market could probably support a maximum of 100 viable software companies globally. Of the 300+ out there today, rest assured that there are not 100 viable companies, which makes mathematical sense. Something has to give. Having so many companies taking so many approaches to solving essentially the same problem drives a cascade of collateral damage.
Misallocation of Capital
If the market analysis above has any validity, then the existence of excess capacity in the market indicates a tremendous amount of capital being wasted. Large amounts of financial and human capital are misallocated in a losing game, statistically speaking. The market itself has a way of calibrating that over time, but while we await market forces to take hold, many other effects of oversupply show up.
Innovation is Hindered
Our problem is not a shortage of innovative ideas and thinkers in the market. The challenge is that some of the best thoughts may never see the light of day for one reason or another. Conversely, some really unremarkable ideas get accepted as innovative only due to the loudness of their associated trumpets. Financial or competitive pressures may force some of the best thinkers to focus on tactical ideas or trendy buzzwords rather than strategic advancements. That kind of short term, tactical trend chasing often wastes time and money, confuses buyers and pushes real innovation to the back seat, all of which impedes market growth. The display space is much more aligned with the three layers described above, and you can see innovation occurring at a faster pace in displays as a result.
With so many choices compounded by so few independent experts, it is no wonder that buyers, even procurement professionals, have trouble identifying the appropriate short list for their network platform. RFIs and RFPs have become stunningly similar from company to company, which would seem to me to indicate an unclear view of internal objectives and external capabilities. Two impacts of this phenomenon are apparent. One is that buying processes are far longer than they need to be because of uncertainty. The other is that buying decisions are made that are suboptimal, which is good for no one.
Failure to Celebrate
With so many collective mouths to feed, the battle to retain business is almost as intense as the competition for new business. Many companies keep a lid on successes, hoping to avoid a rush of competing salespeople from trolling their customers. At the same time, many network operators take steps to keep their own digital signage successes relatively quiet in order to keep their competitors from learning too much. The result is a general failure to celebrate the many successes in the industry. Yes, there are various award competitions every year, some better than others. Most are won by great content efforts, which makes sense. Few are won for great technical feats or innovation. Greater exposure for technical victories drives demand, success and further innovation.
Focus on Costs at the Expense of Objectives
Oversupply drives down prices: that is simple economic fact. In our industry, the oversupply of vendors has accelerated the natural downward progression of prices, and in many cases has made cost a more highly weighted selection factor than ability to meet objectives. This has two negative impacts. First, choosing based on artificially low prices creates project risk, which in turn drives a lower number of successes to celebrate. That weakens demand. Second, projects are often won at less profitable prices, reducing the winners’ ability to invest in product, people and innovation. That weakens companies and slows the march of progress.
Ad Buying Remains Inefficient
With such diversity of approaches, platforms and strategies, it makes it very hard for ad buyers to apply any degree of consistent measurement and automation across networks, which hinders growth of the important ad supported sector. An appropriately consolidated vendor marketplace, especially at the Enterprise and SMB levels, would likely accelerate the adoption of the types of standards and platforms that already exist in competing digital channels. That would make buying DOOH a more natural task for ad buyers to advance the industry as a whole.
Consolidation Has To Accelerate
The digital signage industry has been faced with an imbalance between supply and demand for software and related services almost since its inception. The imbalance today is more pronounced, arguably causing greater harm than good. The 300-vendor world is not sustainable, and its various effects on the industry are negative. Markets adjust to oversupply in very normal and natural ways, but at their own pace. The moment to rationalize financial and human capital in the software space is upon us. It may be time for players at every level to consider options. It might be combinations and rollups; or finding a strategic partner not currently in the space; or pivoting toward a different space. Complacency may well be costly. As Sir Paul has said, there’s too many people waiting for that lucky break.