Are Standards Essential for Growth in the Digital Signage Industry?

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Brian W. Carnell, Marketing and Advertising Product Strategy Leader, Cisco Systems, explains why the answer to this question is yes.
 
Digital out-of-home (DOOH) advertising is anticipated to grow rapidly. According to PQ Media, DOOH advertising is among the fastest growing media, with an anticipated 2010-2014 compound annual growth rate of 9.4 percent in the U.S. and 10.1% globally. Another estimate, in this case based upon commercial screens to be deployed, looks for compound annual growth of 16.6% in North America and 22.5% globally during the same time period.
 
Notwithstanding such positive predictions, for digital signage as an advertising medium to achieve mass global scale, there must be open access that facilitates seamless interoperability of content between the many systems that power digital displays. Today, a lack of uniform processes and procedures is inhibiting multi-network media and advertising buys, thus increasing operating costs, and inhibiting adoption in the industry. This effect is compounded due to end-user concerns of being locked into the wrong platform, should they choose a specific technology now. While the need for digital signage networks to interact and function without restriction is apparent, the path to achieving industry-wide agreement on compatibility is complex and time consuming.
 
Content and system compatibility directly influence knowing where and when advertising inventory is available, and what advertisers are willing to invest. As well, it influences which firms are able to offer applications, content, and information services. In the current state, the lack of compatibility in the industry as a whole has created a highly fragmented marketplace, which has begun to stifle growth. While this fragmentation principally exists in the provisioning of content between competing network technologies, it influences the entire industry by making the diverse systems less attractive to end users, who want a stable, easy-to-use method to reach their audience.
 
The ability to deliver advertising content across multiple digital signage networks requires a high degree of compatibility between the diverse software and hardware technologies. To achieve this interoperability and enhance industry growth, the digital signage industry may choose to adopt a set of open standards. The benefits that result from the implementation of compatibility standards are illustrated here. The industry standards adoption process itself is intricate, as also detailed. An alternative to open-standard acceptance is the introduction of an intermediary system that provides a modular approach to achieving open access that is quick and inexpensive, providing an effective solution to the issues surrounding industry compatibility to further DOOH growth.
 

 
Benefits of Industry Standards
 
An industry standard “defines a uniform set of measures, agreements, conditions, or specifications between parties (buyer-user, manufacturer-user, government-industry, or government-governed, etc.)". Essentially, an industry standard is an accepted system that enables a complex pattern of interactions. Standardisation reduces technological uncertainty in a market and increases cross-platform coordination, enables economies of scale, and opens an industry to the availability of compatible products.
 
Compatibility standards make it possible to connect different components (products or technologies) to establish a uniform system. Technology standards share three general characteristics:

1. they are intended to guide compatibility or interoperability related to tangible products, systems, data exchange or process standards;
2. they are created in either a regulatory fashion that enables industry coordination or by the marketplace;
3. they are proprietary or public domain agreements to which different parties have open access in that specifications are publicly available and can be influenced through institutional process.

Industry Standards Adoption
 
Technology platforms can be standardized in various ways. However, the standards competition process is complex; it can take several years, involve multiple actors in related markets, and span multiple versions of evolving standards. As such, standards competition includes both the processes by which standards are created, and the mechanisms by which they achieve dominance in a market. The development of technology standards generally occurs through one of two ways: committee-based or market-based. A variation on the two, known as a hybrid-based model, which is not discussed here, is also utilized. Unfortunately, the utility of the selected standard depends on the adoption decisions of the other players in the network.
 
A committee-based approach refers to the process in which a standard is selected by a group and then introduced into the market. That is, firms select a common standard in a collective decision-making process. This may include a permanent standard-setting body that develops, selects, or imposes a standard. Firms collaborate in this process either voluntarily (as in an industry consortium) or by law (when a government body sets standards). Key benefits associated with this method are the potential for increased consensus, larger economies of scale, avoidance of future anti-trust litigation and affordable product prices. Potential drawbacks associated with this centralized approach include the possibility of stifling innovation in an immature market; a static, inflexible outlook toward a dynamic market; a time-consuming approach; and the possibility of mandating an inferior standard/technology. And because they are open to a wide range of participants, such bodies are notoriously slow in setting standards.
 
In the market-based approach, competing technologies/standards are introduced which establish a de facto standard through market competition. The product market decides which incompatible technologies get adopted. Competition in the marketplace becomes a battle about standards, and market inefficiencies remain unless, and until, a standard is established. Firms that create de facto standards can seize significant competitive advantage, while firms that are locked out or lag behind face the risk of losing important markets. An advantage of this standardisation mode is timely market introduction. Companies introduce products as soon as the technology is ready. A disadvantage of this standardisation mode is that the market may fail to establish a de facto standard. As long as the market does not settle on a single standard, there is a loss of network externalities associated with the industry-wide adoption of a standard. As well, switching to a new standard is costly for companies that invested previously in technology that is now considered non-standard.
 
Achieving Open Access via an Intermediary
 
Growth of digital signage as an advertising medium is to a great extent dependent upon compatible networks and systems operating together seamlessly. Yet achieving this, as discussed, by way of establishing standards will require years of both technical and industry evolution. These long-term challenges create an immediate opportunity for a capable intermediary to step in and resolve these and other important issues.
 
An intermediary platform achieves the benefits of open access without the time and constraints imposed by the open standards process. By ensuring compliance with all content and systems, such an open platform creates interoperability between different systems, enabling new functions and services. In addition, end users and vendors do not incur any switching costs as the system itself ensures interoperability. Customers can mix and match components from various suppliers to create that configuration which suits them best and rest assured their in-vestment is safe. And as discussed below, an intermediary renders other important industry services.
 
An intermediary in the digital signage industry effectively reduces transaction costs and stabilizes the market by both aggregation (of network availability) and achieving pricing efficiencies. Pricing efficiencies are realized as intermediaries interact with networks and advertisers and mediate effective price-points based on their knowledge of supply and demand.
 
In addition, an intermediary adds value by aggregating all of the disparate information into one place. This information includes network knowledge (i.e., specifications, demographics, and availability), as well as knowledge of advertiser buyer requirements, preferences and willingness to pay. As such, intermediaries are positioned well to act as experts in ensuring quality, and they allow for efficient information exchange by reducing search costs associated with finding the right avenue for consumer messaging.
 
Finally, intermediaries provide a mechanism for increasing market trust by monitoring and preventing opportunistic behavior by buyers and suppliers. Because intermediaries typically have to participate in the market in the long-term across various transactions, they have high incentives to ensure that market transactions are completed. Intermediaries are hence seen as increasing market trust, where they act as trusted third parties that limit opportunistic behavior. They are able to assess suppliers and their services, and by placing that information into a comprehensive system, assist buyers by ensuring quality market transactions.
 
The availability of such a platform resolves the key issues that are faced today by the digital signage industry. This includes enabling immediate access to a global set of networks for advertisers, and increasing revenue potential for network operators. Furthermore, an intermediary provides other important functions such as reducing transaction costs, aggregation of supply and matching demand, introducing pricing efficiencies, serving as an information repository, and making markets more dependable.
 
Biography: Brian W. Carnell is the product strategy leader for emerging technology initiatives in the advanced services organization at Cisco Systems, where he is responsible for setting the overall direction for product development and creating the long-term vision for new platforms. Mr. Carnell has been a digital advertising industry advocate for over 10 years. He came to Cisco in 2006 from the United States Postal Service where he architected the digital video and communications platforms and served as the Section 508 program manager responsible for creating and setting technology accessibility standards. Prior to the USPS, he served as CEO of Dzeel Clinical Healthcare and CEO of Practice Stream Media, one of the early pioneers in the digital out-of-home market. Mr. Carnell holds a BS in Management Information Systems and has completed advanced management training at Stanford University and the Wharton School.
 
This article originally appeared in the Platt Retail Institute's Journal of Retail Analytics, and is published with permission.