Ad Networks in DOOH

Posted by on Jun 30, 2011 in DOOH, Industry

In their 2007 publication, “Lighting up the Aisle”, industry consultant experts, Laura Davis-Taylor and Adrian Weidman refer to the choices between digital signage business models as correlated directly with the following key factors:

1. How much you want to control it

2. How much you want to spend

3. Your appetite for risk

At first glance, it sounded to me like they were asking for a “level of committment.” How often do you receive a lead for a digital signage project where there is no budget and, even worse, no investors in the project itself? It is not ironic to me that these inquiries come across my desk regularly. From my perspective Ms. Davis-Taylor and Mr. Weidman are asking for the following:

How much time you want to spend?

How much money you want to spend?

And how much sleep do you want to spend?

For fully funded, company-backed deployments, risk, money, and control will be spread over the corporation. This is the suggested and optimal route, but for those seeking to implement a home-grown ad supported digital signage network, this post may be helpful. This post will address the issue of the advertising supported digital signage revenue model. In doing so, we’ll hope to answer the following questions ourselves:
How does an ad supported signage network work? Or does it work at all?
What are some different types of ad supported digital signage networks? Which type seems to work the best?
Are there any current successful examples of an ad supported network?
What are some of the benefits of an advertising supported digital signage network?
What are some downfalls of this revenue model?

All the preceding questions will be answered and discussed throughout. In my mind, understanding the detailed “heretofores” and “theretofores” involved in creating a network based solely on ad revenues is somewhat of a daunting task. In doing so, I think it will be very wise to discuss the “morphology” of an ad supported network.

Types of Digital Signage Advertising Networks

1. External Model

In this model a host venue agrees to have digital signage. End of story. 100% of displayed content does not benefit the host venue. Has anyone witenessed a deployment like this? More importantly, if such a backwards way of thinking does exist, could it possibly work? I’m sure if software and hardware were free, then it might work. In the real world, this is a unicorn of an idea.

Such a system would only benefit the owner or operator of the screen, not the venue itself. In my mind the only controlling power given to a host venue in such a situation would be “veto” power for content they did not want displayed. It would appear as a private digital sigage network, in another public location not owned by the operating company. I know that sounds weird to say, but it could exist. While we’re on ficticious ideas, I should reiterate that we’re speaking of ad supported networks. This would make a 100% external ad supported model seem even more insane.

2. Owner/Advertiser Hybrid Model

A shared spaces network involves several players: signage network operator, digital signage host venue, external advertisers, and media buyers. Hybrid digital signage networks are almost diametrically opposed on a local vs. national level. In order to understand how different they are, we’ll discuss both in some detail.

National Leasing Model

In the case of a national network, media buying agencies provide the fuel to keep the network alive and well. Jimmy Schaeffler puts it this way, “The ‘Leasing Advertising Space’ business model, involves the controlling stakeholder looking outside, to others, to add additional content and, in turn, help pay for the posting of that content. This can be a symbiotic relationshipo that assists both the controlling stakeholder, as well as the advertisers and/or their clients. Advertisers looking to reach larger audiences in places like travel centers, malls, and event arenas are particularly attracted to this model…The consumer is at the top of the chain, because the consumer is still the most important party in the overall system, in that his or her response governs what the advertiser and its client are ultimately willing to do toward less or more spending using this model” (“Digital Signage,” Shaeffler, pg. 175).

Unlike the local network, national digital signage corporations go through a media buying agency for sale of advertising spots on their network. In this way, respect for individual players’ core competencies is maintained and media buyers can better connect with key individuals for such a buy to be implemented.

Local Advertising Swap Model
I’ve been approached and had discussions with numerous individuals who, in excited frenzy of the emerging multi-billion dollar industry, wish start and operate their own digital signage network. Often, “the greatest plans of mice and men often go awry.” One must be careful not to jump to conclusions. Before we discuss such conclusions, let’s do a little discovery into different types of “shared spaces digital signage networks.”

In some cases, the players involved can wear more than one hat. For instance, some network operators entice venues by promising “ad swapping” on the network. In the case of a local network, a venue would be able to advertise at the barber shop, dentist, lube center, and doughnut shop in exchange for having the barber’s, dentist’s, lube center’s, and doughnut shop’s ads on their screen as well. I’ve never liked this model. I know there are numerous local networks currently operating under this guise, but many were struggling before economics threw another wrench at the cogs. Why is this alerting? Many companies have worked hard to build a strong, heavily branded, local businesses. Mucking that up with other local companies ads is not appealing to some. In fact, many local companies often feel a resentment toward “swapping” ad spots.

Requirements and Specific Issues
On either a local or national level, there are several prerequisites for a shared ad model to succeed. First, consumers have to react. In other words, the digital signage advertising has to be useful and effective. If not, consumers won’t create sales lift. In turn, advertisers will not want to purchase. It’s that simple. Let me put it another way, consumer responsiveness governs all. Let’s say it again for emphasis: consumer responsiveness governs all. It doesn’t matter if the ad rolled 400 times an hour on a network of 5,000 screens. If it didn’t do jack, then the model is a flop (a little caviat here: something like that would never happen). Second and finally, any digital signage network who wishes to sell a significant amount of theoretical “space” needs to own space available for sale. This means you need advertising space and advertisers waiting with their billfolds open. National networks with a significant footprint can, much more easily, vie for the eyes and ears of large media buying companies who wish to purchase spots.

For the local network, obtaining the space is sometimes difficult. Because the model I’ve been discussing morphs venue hosts and advertisers into a “catch-all” category, the model becomes much more complex. Because “screensharing” is taking place, conflict may arise. For instance, five dental offices working solely as the hosts would not only not work, but is a sure fire way to rethink your model very abruptly. Finally,

3. Internal Model

An internal ad-funded digital signage network model is nearly 100% synonymous with that of the private label digital signage network model. This type of model has also been referred to as the owner model of the manager model. The internal ad-based model does not gain revenue from advertisers themselves, but is in the business of internal branding and targeting customers at the point-of-sale within the confines of their own established place of business. For more information on the internal model, please see the related post entitled: Private Owner Network Digital Signage Business Model.

Where’s the Cash?

In order to completely understand the model, one must understand and know with a certainty where the flow of money is taking place. And, most importantly, does the cash influx make up for–and hopefully–exceed the outflow.

$$$ Out
When all the resources necessary are given full sway in a digital signage installment, I believe many would be a bit less hesitant about “jumping in” with both feet into the digital signage market, especially with an ad-supported business model as their means of generating revenue. Consider for a moment the shear cost of a single deployment: hardware (mount, screen, wiring, media player, etc.), software, and installation fees only amount for a portion of the cost. Consider hosting fees under a digital signage SaaS model or general connectivity fees if an internet wireless card were needed for regular uploads of dynamic content. Recurring costs can sometimes even trump an initial deployment costs, which is almost always the case in the aggregate. Then, there are the maintenance costs and content creation fees. I could go on and on. The question is, who is going to pay for all this?

Theoretically, the ad-based model, as the name implies, assumes a third-party ad supplier will front the deployment and recurring expenses. Again, in theory, both the ad supplier and the network manager will benefit with increased ROI from such an investment of technological capital. Rest assured, some methods must be considered for effective ROI measurement of digital signage networks for this model to work well. The standards may be codified, but generalized effective methods of measurement are still not to the coveted “Minority Report” levels yet.

$$$ In

Sure, we may understand our costs down to the penny. We may also be fully aware of who will be covering the cost of our digital signage deployment.  in them In general, because the network operator and screen venue are separate entities (not in all cases, but generally), any advertising revenues gained through on-screen media buys must be divided in some form between network operator and whoever is hosting the screen itself. This alone can become a very complex system of percentage agreements, proof of play reports, and precise audience measurement methods. At any rate, there needs to be some sort of agreeable method of divied shares between managers and hosts. Once terms are agreed upon in this regard, what was the take home? Was it worth the time and effort for deployment? Or, could you have made more in stocks this year? (currently, this statement seems completely preposterous).

Problems

I’ve only delved into some of the crags of the perverbial digital signage iceberg. The business models have many different niches and nuances I’ve not even begun to mention. The real issue is money. Where is it coming from and where does it go after a network starts pulling it in, if it can pull it in. Do you currently have advertisers drooling to place content on your screens, willing to pay whatever it takes to have their spot go primetime during the restaurant’s lunch hour? Most likely not. And, if not, maybe it’s time to rethink the methods. In such a “chicken or egg” gamble, do you feel it wise to risk a high stakes race when reason, logic, and the failed experience of other networks is right in front of you? I’ll let you answer the rhetoric.

In reference to smaller, localized networks, I do not wish to be overly critical. Some work. Mike Draghici of Seattle Digital Signage has, in my mind, done a fine job with a hybrid digital signage business model. Then again, they also have their own software solution. However, out of necessity, prudence warrants me voicing a loud opinion on the subject.

Benefits

While we’ve remained almost solely on a negative vein, I think discussing possible benefits of this model are absolutely necessary. Digital signage advertising is effective. The numbers continue to prove that fact. Branding, sales-lift, and an occassional call-to-action are some of the ways a venue as well as a digital signage advertiser can benefit. Increased ROI is definitely a possibility. The benefits can be seen by both the third party advertiser and the network operator if they are connected in a proper manner. The advertiser can see increased branding and increased ROI through calls-to-action, while the network manager reeps the benefits of a advertising revenue. It’s a seemingly perfect marriage of ideals and goals, where both parties benefit in a symbiotic relationship. But, in my mind, such a perfect “digital signage universe” is a bit nonsensical and far-fetched.

However, those who are able to gain suitable advertisers can be successful. Indeed, some of the most successful signage networks to date have an annoying attention to details, including audience tracking, you’ve ever seen. This ensures that when they sell advertisements, they know eyeballs are getting pinged. Additionally, it should be noted that many of the most successful (and perhaps, the only successful) ad supported digital signage network had existing connections with advertisers, knew advertising sales, and/or were dilligent in gaining the LOIs etc. before the networks were installed. In summation, sell the sizzle not the steak and get advertisers before software and hardware is expended. Once completed, a nice residual income for the network operator will not only pay for a screen, but yield revenue on an ongoing basis.

Conclusion

Hopefully the forgoing questions were answered. I’m sure there’s room for discussion, some will heartily disagree. In fact, I can think of several localized networks I’ve had discussions with that are doing great with their “citywide” digital signage networks. Of course, that was 8 months ago when words like “recession” were in reference to 1929. When the Lion’s Share of local networks, whose model is based 100% off the assumption that, “once we have the chicken, it will lay for us a golden egg,” fail, I find it difficult to look at the successful minority and be unflailingly optimistic. But perhaps I am a crackpot.

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