Before inspecting the state of the digital signage industry, it is vital to understand the architecture, operating models and business models that power the marketplace. In such a multi-faceted industry, the interplay between each can have a huge impact on every corner of the business.

The primary function of a digital signage system is to play multimedia content on one or more electronic screens installed in venues (e.g. retail stores and hotels) for the purpose of informing, educating, entertaining or persuading viewers. At its most elementary level, a digital signage system is four technologies working in concert to support the primary function. These four technologies are a content management system, a content scheduling system, one or more media players and one or more displays.

The content management system manages the collection and distribution of digital assets (including videos, graphics, pictures and text) to one or more displays on a visual communications network. The content management system is the heart of a digital signage system. Sophisticated content management systems manage the real-time collection, delivery and display of data, manage access to digital assets, provide user access administration, manage approvals, provide proof-of-play reporting, provide network utilisation/management controls and support data visualisation.

The scheduling system typically directs how the content management system handles the collection and distribution of digital content. In other words, the scheduling system tells the content management system which asset to play, where, at what time and on what date. The more sophisticated scheduling systems allow administrators to define content transition effects, content layering effects, content triggering rules, schedule repeats, interactivity and more.

The media player can be broadly defined as the interface between the content management system and the screen. It is the media player’s responsibility to collect the digital assets from the content management system and then pass them on to the screen in an appropriate format for the screen.

A typical digital signage installation is concerned with deploying screens that have high mean times between failures, are equipped with anti-burn-in technologies, possess high energy efficiency ratings, support standard display protocols, and feature commercial-grade cases and warranties.

Operating models

A digital signage system may be operated on either a “hosted” or “premises” basis. The terms hosted and premises refer to where the two major components of a digital signage system (i.e. the content management and scheduling software) reside, how they are operated and how they are billed to the venue owner, if billed at all.

A hosted system (also known as “software as a service” or SaaS) is a digital signage system that is administered and operated by a third party on a server that is remotely located from the venue in which the media players and screens are installed. In a hosted model, the venue owner is given access to the scheduling system, usually via a Web browser, in exchange for a monthly subscription fee. The remotely-hosted content management software then communicates content to the venue’s players/ screens via the Internet.

The key benefit of a hosted system is that it requires little upfront capital commitment by the venue owner, because major hardware and software components are not purchased. The downside is that almost every aspect of the system, including features, functions, operations and management, are out of the venue’s control.

A premises-based system is a digital signage system that is purchased upfront and then installed at the venue’s premises, on its hardware and behind its firewall. The system also is operated on the venue’s network.

The key benefit of the premises-based system is that the venue has complete control of the system, from both operational and security perspectives. The downside is that it requires a larger initial capital investment and a larger operational support commitment. This model is typically embraced by companies that demand maximum control of systems that run on its IT infrastructure.

Business models

There are three business models from which venue owners may choose: ad-funded digital signage, traditional digital signage and ad-supported digital signage.

In an ad-funded digital signage deployment, a third party provides a digital signage system to a venue at little or no cost to the venue owner. The third party then seeks to recoup their initial capital outlay and ongoing operational expenses by selling ads that will be subsequently shown on a dedicated portion of the venue’s screen. The venue is free to use the other non-dedicated areas of the screen to deliver their message, which is typically focused on informing, educating, persuading or entertaining viewers.

This is a model that is typically used today by grocers, pharmacies, fast-food restaurants, convenience stores, small businesses and small retailers. The key benefit of this model is that the venue owner incurs little to no cost to deploy the system. The downsides, however, are many. They have no control over the total message being delivered, no control over the features and functions of the system and little to no control over system stability. Ad-funded digital signage systems are almost always provided to venue owner on a hosted basis.

In a traditional premises-based digital signage deployment, the venue owner purchases the digital signage system to address a specific need, which, again, is characteristically focused on informing, educating, persuading and/or entertaining customers or employees. The venue owner then takes fiscal and operational responsibility for maintaining the system and the content it shows. Typically, corporations, hotels, casinos, universities, hospitals and banks use this model.

In a traditional hosted digital signage deployment, the venue owner contracts to use the digital signage system on a subscription basis to address a specific internal need. The venue owner usually pays a monthly subscription fee for access to the system and then supplies the content. Typically, smaller venues such as small-to-medium-sized businesses use this model.

An ad-supported system is a hybrid of the ad-funded and traditional models. In an ad-supported model, the venue owner uses the system to meet a specific internal need but then works to sell advertising to either offset the cost of the system or make money from the system. Ads are typically sold to companies that do business with the venue, and both the venue owner and advertiser typically benefit from the success of the ads.

The ad-supported model can be either premises-based or hosted. The premises-based version of this model is typically used by large retailers, mall operators, arenas and stadiums. The hosted version is typically used by small businesses.

Where’s it going?

The industry as a whole is doing well. However, five years ago it was forecast that by 2010 the digital signage market would reach nearly $2bn in revenue. In reality, the industry is generating less than half of that.

The current pool of digital signage manufacturers is finding that the smaller revenue pool is making the competition extremely intense. Hardware manufacturers and software developers are engaged in a fierce struggle to capture a piece of the smaller pie. As the competition has intensified, prices have come down.

As prices have dropped, more digital signage suppliers have gravitated toward a hosted model as a way to compete in a low-cost environment. Suppliers of low-end premises-based systems are seeing tough competition from an ever-growing pool of hosted suppliers.

Even the screen manufacturers are getting into the hosted solutions game. In the last quarter alone, LG has released a low-cost hosted solution, and NEC has announced a free hosted offering. Most likely, hosted solutions will do well with small and medium-sized businesses but will not make significant inroads in large corporations.

It is clear that these new hosted entrants will steal business from premises-based suppliers that have no compelling value-add. Premises-based suppliers that can offer advanced features, such as interactive signage, real-time data, sophisticated content transactions and the delivery of content to a broader range of displays – including mobile, desktops, kiosks and marquees – will continue to do well. However, they will still feel the pinch of price competition.

Those companies that are delivering ad-funded solutions will continue to grow but at a slower pace. Ad-funded digital signage has had a tough time attracting advertisers and agencies. The ad-funded model has just not been able to provide the quantitative measures or the broad reach (in other words, the number of screens) that agencies demand. Ad-funded signage also will come under increasing threat of attach from newer, more compelling technologies such as mobile advertising.

Traditional digital signage will continue to grow as more corporations use electronic displays to replace old, large-print signage. The premises side of traditional signage will continue to be the primary growth engine for digital signage. Digital signage has the glitz that large corporations want and can afford.

Ad-supported digital signage will do well. Companies like Wal-Mart will increasingly deploy digital signage and will look to their suppliers to help fund the systems. There has been tremendous growth of this model in Europe as major retail brands have adopted the ad-supported model.
In summary, the digital signage industry will indeed grow – but not at the breakneck pace predicted five years ago. Prices will come down as technology improves and as competition plays a governing role in the market.

The low end of the market will be relegated to low-cost hosted solutions, and the high end of the market will be ceded to those providers that can offer feature-rich premises-based systems. Traditional premises-based signage deployments will be where the big money will flow, followed by ad-supported.

This article first appeared in a slightly different form in Signage Solutions magazine.

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For 14 years, KioskCom & The Digital Signage Show have delivered strategic, marketing and technical business solutions for organizations focused on enhancing their customer engagement programs through digital media such as kiosks, digital signage, self-service, digital out-of-home/place based media and other customer-facing technologies.

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