Tuesday, September 30, 2008

Revisiting the make-buy argument for digital signage software now that Coolsign is for sale...

If Adrian's DailyDOOH update is to be believed (and hey, why not?), one of the more established digital signage software packages out there -- Coolsign -- is to be sold:
Just over a month ago Planar engaged an investment banking and asset management firm with instructions to sell its Coolsign division.

Planar remember is primarily a high end screen manufacturer (and very much struggling itself at the moment) but in July 2006 it bought itself into the software arena with the acquisition of Clarity Visual Systems (Coolsign) for the not insignificant sum of USD 46 million in cash and Planar stock.

Coolsign is not surprisingly running at a loss at the moment but has revenues of USD 6.6 million. The folks looking after the fire sale are looking for a price of 3 times revenue - i.e. USD 20 Million or so.

We doubt if there will be many takers even at that price.

Yeah, I'd definitely have to agree with that last part. But the fact that Coolsign is even on the block indicates a larger problem, for Planar and perhaps for the industry at large.
First off, Planar has been hurting for a while. Their stock has taken a pummeling, and now they're trying to raise cash by any means possible. While at one point they might have been able to go back to the market and sell some new shares, the current climate on Wall Street makes that close to impossible, even for a company with good financials.

However, Coolsign, with over $6M in revenue (which is pretty good for digital signage software vendors), is still running at a loss. With smaller firms like Localvision signing off, Focus Enhancements's recent bankruptcy (with more on the way), and bigger players like Broadsign and Enquii either announcing new private capital raises or admitting to having done them in the recent past, we're starting to see several factors come together in a perfect storm of digital signage doom and gloom:

1. Too much competition, not enough innovation: We track over 300 competitors -- firms that claim to sell digital signage software. Seriously, 300. There isn't enough differentiation between them, and I'd be surprised if the vast majority had fewer than 100 sites installed by now. But they suck up capital and add hype and confusion to the market.

2. Tightening credit markets mean less capital to work with: It seems like too many digital signage software companies spend WAY more than they actually make, which is a big problem now. Panicked VCs are tightening down and parent companies have less to spend on their digital signage subsidiaries. Plus, with access to credit now all but out-of-reach, fewer networks can lease equipment for new installations or factor advertisement revenue streams to stay afloat.

3. It costs a boatload to make this stuff and keep it up to date:
WireSpring probably has one of the more sane cost structures out there, and we can easily spend over a million bucks a year on R&D and basic QA and support. When you consider the number of competitors I mentioned above, plus all of the guys that are building their own software to "save money" for their internal network (which is how Coolsign started, actually), you can imagine that there are very few software guys out there that are actually turning a profit, and thus very little software that generates a positive return.

So, what has to happen?

Simple. First off, there will be more messy bankruptcies and quiet "going out of business sales." Just like after the dot-com bubble, lots of companies will try to sell their half-finished, never-quite-worked-right software and other "intellectual properties." Hopefully, nobody will buy them, and they will die quiet deaths.

Next, there will be consolidation. Some industry players will band together to form better-capitalized entities with bigger customer bases. Others will choose vertical integration, forming full-service companies that can count on revenue from more than just technology.

Finally, the "builders" will eventually go away, and the "buyers" will at last win the make-buy argument. Just as practically nobody builds their own inventory or accounting systems anymore, more people will realize that making in-house digital signage software is a losing proposition. More people will turn to off-the-shelf solutions and customize them instead.

I know what you're thinking: this sounds self-promotional. After all, my company stands to win if this happens. But point out a flaw in my logic above that would suggest otherwise and I will happily debate it with you.

The bottom line: if Coolsign, with a significant revenue stream and excellent market presence, is going down, rest assured that many more will follow.

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DailyDOOH said...

Bill, as usual, a great article, insight and a lot of common sense. Our take is that the industry needs half a dozen good s/w vendors rather than the 300 you see now. There's more software solutions which are going to disappear.

Jeremy G said...

I think you are right on. My company looked at creating some content software to bring to market a year ago and decided not to. Turns out to be a good decision - at the recent Digital Signage Expo East it seemed that every other booth was a software vendor claiming to be THE solution - and they were all the same - except that some looked like that had polished interfaces, while 80% just looked plain bad and hard to use.

Since, we have been contracted to build an "in house" solution for a digital advertising network. It works for this company because they have some very unique needs.

We intend to get in on a very low end, low features option later on and we are seeing a number of very small companies coming in at the low end that will service the smaller venues and further cut into the pie.

Anonymous said...

So, which s/w vendor do y'all suggest one use?

Bill Gerba said...

Well, obviously I recommend WireSpring's FireCast software :)

Bill Gerba said...

Adrian: I'm with you. With a dozen vendors there can be real innovation - clear distinctions between what they do, who they serve, etc. Getting there is going to be ugly though, I suspect. And have you ever noticed how nobody actually goes out of business? They just hang on for long stretches, not doing anything.

Jeremy: Great story. I'm sure there are more guys like you out there who have taken the plunge, only to discover that there's no market for their new offering. I'd so much prefer to see innovation take place by starting with an off-the-shelf solution and adding the bits and pieces that address key/unique requirements for different industries. That's why we put so much effort into our APIs. I wish others would do the same.

Anonymous said...

Fair enough...I should have seen taht one coming. :)

I've looked into Planar's CoolSign software and it's pretty impressive. I especially like their DataWatcher module. Does FireCast have a similar application?

Anonymous said...

We've been looking into various solutions and have been amazed at the number of software companies offering content management software. The other day we were on a site called Digital Signage Universe and were browsing their directory, there were a lot of vendors listed there. It's hard to know who to go with, and we don't want to make the wrong choice and pick something that may not be supported down the road. We looked into CoolSign as well, but with this news...I think it's off our list for now.

Bill Gerba said...

anonymous #1: I'm not too familiar with Coolsign's system, so I'm not sure exactly what you're talking about. Your best bet would be to give our sales department a call if you're interested.

anonymous #2: thanks for the comment, and the thinly-veiled ad for DS universe ;)

Anonymous said...

Does anybody know who might be interested in buying Coolsign?