ROI vs. ROO: Private vs. Ad Networks

Posted by on Dec 5, 2012 in Industry, Software

We have discussed previously the difference between ad-funded and private digital signage networks. The majority of our industry’s inquiries–and believe me, we see a fair amount–are flowing in from the small-business sector. It will continue to pan out like this. Small business represents 85% of the market. Accordingly, digital signage software applications work

Advertising Propped Networks

Unfortunately many of the ad-supported networks are overly zealous about their plans and predictions, but not overly educated about their predecessors and the market they are entering. Certainly there are great opportunities in digital signage as a business. However, being educated on what works and what does not is vitally important.

Perhaps the most important aspect of network success is funding. Funding your digital signage network is necessary for sustainability and network growth. Who is not interested in growing their existing digital sign business? One thing I hear from advertising networks on a fairly regular basis is something like this:

We don’t need funding, the advertising is going to pay for the network.

I’m sorry, but this is not true in 99% of cases. This would be similar to having a real-estate investor say to you, “oh, we don’t need to take out a loan for the mortgage, the rent revenue will take care of that…” Absolutely foolish. When it comes to investing in digital signage as a business, funding is the second thing required. The first requirement is a viable and actionable business plan, then seeking for funding. Once the funding is obtained, then investing in technology begins. The return on that investment generally depends on a number of factors.

First, revenue depends on sales. If someone can sell 100% of the advertising space on the display, then your applicable ROI will be the fastest recorded. If not, you’ll have to determine how long a practical ROI will take. Second, what is your initial/recurring investment in the technology going to run you? As the prices for digital signage continue to fall, there will be even more entrance into the ad network side of the industry. When it comes to advertising networks in digital media, I DO NOT worry about the fluff of things like return on objectives. That kind of thing is for those who want to invest in their own network.

A Thought for the Week on Private Networks

A good friend who develops digital signage software, recently told me of a holiday excursion wherein he visited the Florida Keys. While he was there, he went to a small restaurant/bar. He was immediately taken aback by the roughly 800 square foot facility. If his count was correct–as I’m sure it was–he said this tiny bar held 15, 40″+ digital signage screens. Fifteen in an area that was no greater than the size of one room. Did this venue want to make a recurring revenue stream from the advertisements? Of course not, but my developer friend said it best, “this guy got the idea of digital signage as a method for increasing ambiance.” He had invested in digital signage as way to increase the livelihood of his bar. His investment in the technology became part of the sunk cost of his business, but one that increased the value of the user-experience to a great degree. His was a return on objectives campaign that brought people back for the experience. The ROI was less measurable, but it certainly was present.

While it all depends on what business you are in initially, digital signage certainly can act as a simple tool to increase the effectiveness of whatever it is you may be currently doing. That is why the question I always ask is, “what are you trying to do?” It’s like the age-old Cheshire cat response, “unless you know where you want to go, it doesn’t really matter what direction you take.” For those who know where they are going, digital signage can help take them there.

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