• The ad-supported revenue model: Does it work?

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The ad-supported revenue model: Does it work?

This story is taken from the how-to guide, "Digital Signage: Influencing customer buying behavior with one-to-one marketing." Visit our digital signage research center to sign up to receive your free copy of the guide.

In the months and years after the ATM was deregulated — in essence, making it possible for businesses and individuals to own and operate their own ATMs for profit — there was a sense, often put forth by the people selling them, that such machines were like licenses to print money. Just buy the machine, deploy it and watch the profits roll in — what could be easier?

Something analogous happened in the early days of digital signage, as a number of companies touted the promise of high advertising revenue as a means of paying for the machine. "Give us your wall space and we'll make you rich," many of them implied (or said outright).

That was easier said than done, and although advertising is a key component of a digital signage deployment, it is important to understand its role in the overall process.

"Retailers need to ask themselves what business they are in — retail or ad sales," said Mike Abbot, vice president of ADFLOW Networks. "For most retailers, we feel that the benefits of in-store digital signage networks are still found in controlling the message and using the network as a marketing tool to help achieve fundamental retail objectives."

One of the biggest flaws of the "pay for your screens with advertising" model is that it ignores the tightly integrated nature of the screens in the retail environment. Not just any advertising will do, and most retailers would be better served building their core business than chasing that small percentage of available ads that would fit in their environment.

"Most retailers looking at digital signage networks have invested millions in building up their brands and loyal customers," said Jason Cremins, chief executive of U.K.-based digital signage firm remotemedia. "The thought of spot-selling advertisements on their screens that do not compliment or have any relevance to their business is unacceptable."

Another approach, which has been more successful than the pure advertising play, is to offer ad partnerships with suppliers. In theory, any manufacturer wanting its product to sell well within a given retail environment will be open to spending advertising dollars to push those products within the store.

This works in theory, and in practice sometimes, but "cannibalization" is often an issue.

Wal-Mart, which has experienced success with in-store advertising, recently expanded its digital signage initiative in Latin America.
"This is a tricky one, as many retailers already tap into the marketing budgets of their suppliers," Cremins said. "While budgets may be moved over to digital signage, is the income incremental? In most cases, I would say that it is not."

Wayne Ruttle, ADFLOW's vice president of sales, said cannibalization of marketing funds is a serious impediment – but so are lack of ad-sales skills and confusion about who within the organization is tasked with keeping the ad inventory sold. "At best, we are seeing this as a small subsidy of the retailer's digital signage network investment," he said.

While some large retailers — chiefly Wal-Mart, with its very successful in-store TV network — have made the advertising model work, smaller companies will have a tougher time and might be better off spending their efforts elsewhere.

"It comes down to scale and focus," said Brian Nutt, principal of Captive Indoor Media. "Major advertisers are looking for mass-market reach and not small-target markets. So if a retailer is looking to move cost to a third-party, they will either need scale or the ability to sell ad space. Advertising is a difficult and competitive industry. I think the (digital signage) ad model has merit, but needs a couple more years to mature."

"Be leery of the promises of ad-paid, in-store media networks," Ruttle said. "This industry is still in its early stages. Watch out for the hype."

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