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The True Cost Of Retail - Digital Signage: Where Bill Gerba Gets It Wrong
by Terry Scannell, founder, ipSigns - 7 Nov 2006

I am a big fan of Bill Gerba and his blog. There is no question that he has added to education, understanding and debate in the networked-digital-signage (NDS) industry. His 3 November update of his earlier blog of 2004 in which he describes a comprehensive budget for a single-site digital-sign system over three years is no exception. (There’s a link to the blog at the end of this article.)

On my first read of the blog I agreed with it. But after I was able to really analyze it I found myself in disagreement with not only the budget it proposes, but also how it was calculated. I conclude that the 2006 budget understates costs by at least $1800 and possibly as much as $2600 over the three years.

Here are the numbers from the 2004 article and the 2006 article, followed in each case by my comments in bold. All figures refer to a three-year, one-location installation.

·                     2004: 42-inch plasma screen $2500

·                     2006: 40-inch LCD $2500

·                     I agree: $2500

·                     2004: player hardware $1500

·                     2006: player hardware $1500

·                     PC or Apple $1000

·                     2004: ceiling mount $500

·                     2006: ceiling mount $250

·                     I agree: $250

·                     2004: player software $500

·                     2006: player software $500

·                     Budget is too low: $900

·                     2004: management software (three years) $1800 ($50 per month)

·                     2006: the same: $1800

·                     Included in tech support: $0

·                     2004: 24/7/365 tech support (three years) $3600 ($100 per month)

·                     2006: not included this time – moved to client so $0

·                     Not realistic to push on to client: $3600

·                     2004: installation $1400

·                     2006: installation $1400

·                     Too high: $1000

·                     2004: project management $300

·                     2006: project management $300

·                     Too low: $800

·                     2004: total $12,100

·                     2006: total $8250

·                     My total: $10,850

Let’s take a look at each item.

Display hardware
I agree that today the price of a 42-inch LCD ($2500) is about the same as that of a 42-inch plasma screen two years ago. And the use of large-format LCD screens in NDS installations is in most cases the best practice today.

The main reason for this is that plasma screens start to degrade and lose brightness as they are used. This has led some installations to look good when they are new but then look tired and worn out after two years or less. LCD screens, on the other hand, either work or they do not. The backlight burns out like a lightbulb.

The only exception to this general rule is where the NDS system owner or operator wants to run full-motion, full-HD content. There is nothing better than this type of content played on a new plasma screen. The image is brighter and the motion more fluid than on an LCD screen. You can also buy a plasma screen for $1200.

Media-player hardware
Next the article discusses the price of the media player. This is where I start to quibble. Bill states: “Media player and software costs have remained relatively static over the past few years (though the quality and capabilities of both have gone up), but the cost of ancillary equipment like mounts and stands has dropped sharply.”

The fact is that the price of player hardware has dropped significantly if you are using a standard PC or Apple player as opposed to a dedicated player like WireSpring’s. In addition, the power, functionality and small form factor you can get for this price are truly amazing. For that reason, I would reduce the budget allocation for player hardware to $1000 as opposed to $1500. So I have a saving here of $500.

Installation hardware
We are in agreement about the $250 allocation for wall or ceiling mounts. This is a supposedly small detail that some operators or owners have forgotten. When this small item is multiplied by a thousand or more locations it can add up to real money.

Player licence
Again, this is an area where I have a different perspective. The article places the price of one software player licence at $500. While some technology companies are reducing their prices for a single licence to $500 this is not the norm. A one-off player licence can run from a low of $450 to a high of $2000 (e.g. CoolSign), which frankly is too high. Keep in mind that some companies do not want to sell just one software licence and price their products accordingly.

When discussing price, one important question to ask is: “for what?”. There can be a vast difference in the functionality of software platforms. Some are simple digital-sign systems that do a great job of playing content and controlling it. Others provide full interactive functionality and full back-end integration with your CRM, inventory and other systems.

I am going to call this price $900 for a single-player licence. Obviously if you order in larger quantities suppliers are more than happy to discount. Now I have given back $400 of the savings I showed above. I am still ahead by $100.

Network operations and support
Bill goes on to state that many companies are deciding to take network management and monitoring in-house. To some degree this is true. But I always want to ask a company that does this what business they are in – the retail business or the digital-signage business?

What I have found is that many clients say they want to do this until they start to understand the work required to actually do it.

This area is where I really start to have a fundamental disagreement with Bill’s budgeting. What he is saying is that the clients can pick up first-line network support. This of course saves money - in this case, $3600 over the three years.

Remember, though, that when talking price the next question should always be, “for what?”. I have not talked to a lot of CTOs in recent years who feel their staffs do not have enough to do; few of them feel that what their IT organization needs is to run a private broadcast network in their copious free time.

So to me this is really not a reduction in price at all. It is simply moving a rather large budget item from the NDS provider’s scope of work to the client’s. So I adjust Bill’s budget upward by $3600.

Next, Bill places management software and technical support at $1800, installation at $1400 and one-time project management at $300. This brings these three items to $3500, 42 percent of the total budget.

Let’s take a look at each one. In my mind, ‘management software and tech support’ is just another way of saying ‘network operations’. We already paid for that above. I take that out and save $1800.

Installation costs
As for installation, I have talked to one rollout specialist which says a budget for the physical installation of the hardware and hooking it up to an Internet cable should be as little as $500. Maybe Bill is thinking about a different scope of work where it is necessary to install broadband and configure it on-site.

Again, this is an area where numbers can change fast depending on scope and site conditions. So maybe Bill is being conservative. I have decided to be a little less conservative, reducing the budget to $1000 and picking up a saving of $400.

Project management
I really disagree with this one. The 2004 and 2006 blogs budget the costs for a one-location project management fee at $300. In fairness, if it is only one location $300 may be right. We also know that clients hate to see a line item for this.

But this is one of the areas where many projects go wrong – way wrong. Let’s face it: it is as disruptive having the installers come to your store a day early as it is having them come a day late. Oh, and did we mention the fact that we need to get written landlord approval to put that satellite dish on your roof? And on and on it goes.

I raise the one-time project management budget by $500 to $800. I think that’s realistic. Obviously, there are many exceptions, and just because it costs $800 to do one site does not mean you can take $800 and multiply it by 1000 locations.

There are some economies of scale but fewer than you might think. Someone still has to make sure that the installers have communicated with the store managers and that the schedule is locked. A large part of this industry is service.

The elephant in the room
The one item that is not budgeted for is content. Bill’s 2006 blog talks about this, but there is no way to have a low number for this, especially if you are not spreading the content costs over multiple locations.


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