The news of the failure of gesture-based interactive technology provider Reactrix is not shocking, but it would appear to be instructive. Reactrix was certainly successful in three important elements of a technology start-up:
- They developed very slick, very sexy software that allowed users to interact with digitally-projected advertisements. Most people who have navigated to this blog have probably had the experience of interacting with a Reactrix device either at a trade show or in the field. It is/was cool.
- They attracted stellar venues and advertisers. The company made deals to place devices in malls, cinemas and airports, with a pantheon of top shelf advertisers signing on and creating exciting interactive brand presentations.
- They mixed up several batches of venture capital KoolAid that were ravenously chugged by veteran venture backers. Reports of a $45M round 18 months ago are probably accurate, and quite staggering.
A good product, highly visible placements and advertisers and deep pocketed backers were apparently not sufficient to make things happen. Let’s take a quick look at what may have gone wrong.
In terms of whiz-bang, the Reactrix product was right up there. However, it required quite a bit of expensive hardware and what had to be a fair amount of software wizardry to support each site. While we are not privy to any data to back this up, it is fair to assume that the interactive presentations/advertisements were significantly more expensive in terms of time and money to design, produce, test and deploy than a 30-second video or Flash presentation. It required a large amount of dedicated space (usually floor space from what I have seen) to serve as the interactive palette, limiting its application to the wide open spaces offered by cinema lobbies, malls and airports. Retailers like to dedicate space to merchandise, and loathe the creation of distractions for their precious customers. It is hard to imagine grocery shoppers pausing to kick M&Ms around the floor more than once, or DIY customers painting a house projected on the floor for thrills. The nature of the product limited its potential deployment venues.
Reactrix based its business on placing its technology in venues where it could generate advertising revenue to offset deployment and placement costs. By definition, this implies that advertisers would pay a premium for those venues and come back for more. The failure would seem to indicate that repeat business was not high or that advertising rates were not able to reach levels that could generate a per-site profit. Competitors, such as GestureTek, focused on multiple applications of gesture-based technology, and have sold variations on the theme in a variety of environments, including museums, nightclubs, tradeshows and many more. Their focus is on supporting multiple products leveraging gesture-based technology and many use cases, rather than what appeared to be a single threaded focus for Reactrix.
That Reactrix was able to extract huge sums of venture capital from experienced VCs is not shocking in and of itself. Much longer shots have attracted even more money than Reactrix, and it is not an indictment of the investors that they saw opportunity at the time of the initial round. In fact, it speaks to their vision of a dynamic new industry in digital out-of-home media. It just seems odd that perhaps the biggest VC bet in terms of total capital in the digital out-of-home space was placed on a niche play, a non-retail play, and a one trick pony with strong competitors and minimal (if any) protection of the IP.
If one does the math on the last round, Reactrix managed to burn through $2.5M in venture cash per month in addition to whatever cash was coming in from operations. That exceeds the cash incineration rate of the most visible public out-of-home entity by a factor of two. Neither example will make it into a Harvard Business School case study of cash stewardship in a positive manner. And neither will make it easier for others in the industry to raise capital. On the positive side, the Reactrix experience will be instructive for investors who still believe in the DOOH space (and there are many), and will make their diligence efforts more productive and their contributions as Board members more valuable.
For the rest of us competing in the DOOH space, we must learn that a good product is necessary but not sufficient; that there is often more value in profitable and referenceable customers than in the halo effect of blue chip names (not that it hurts); that the ability to be nimble and reactive to market demands is paramount; and that cash becomes smoke if it is burned rather than invested in advancing the product and the success of customers.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]