News of the cancellation of the Digital Signage Expo East, previously scheduled for September in Washington, DC, comes as a welcome non-surprise. The paucity of activity at the inaugural fall event last year in Philadelphia has been well documented, as has the seeming glut of shows trying to leverage the growth of our industry. We will proudly wear our 7-years lapel pins next year at the DSE show in Las Vegas, which remains as the de facto big show in this side of the pond. We shed no tears for the euthanasia performed on DSE East.
It is easy to assume that the show organizers simply read the tea leaves and determined that it was not going to be a success, and to be sure those signs were probably quite evident. Many exhibitors simply did not reserve space; others committed to smaller spaces; the economy points toward less travel budget for potential attendees; and no doubt a payment deadline loomed from the convention center. On that level it seems like an easy business decision for Chris Gibbs and his team. On another level, it is actually a strategic decision to protect their brand.
DSE has become an acronym with meaning to everyone associated with the digital signage industry. The mention of those letters evokes images of a bustling, buzzing, busy exhibit hall and packed session rooms. The fact that a name can evoke an image and even an emotional response makes it a strong brand. The foray into a second show was essentially a brand extension for Exponation, and it can only be compared to Starbuck’s soon-to-be-failed attempt at instant coffee. It degrades the image of the flagship brand and big breadwinner… never a good thing. By shuttering the DSE East show and rethinking its strategy, Exponation is able to create a bit more scarcity and urgency around the big show, and should expect further growth in 2010. It is a very good decision for their company and for the industry.
Exponation’s comments on the cancellation indicate that they are noodling over a second show with a different format for 2010, and Dave Haynes’ reliable spidey sense has indicated that a show around content may be the ticket. I can hear the groans of my fellow technology vendors as they contemplate an exhibit hall stalked by creatives and not technology buyers. My two cents worth is that a five-city autumn road show of focused (and possibly varied) seminar content coupled with a limited vendor/sponsor area would be useful, and would leverage the DSE brand beyond giant expo hall venues. Just a thought.
Friday, May 29, 2009
Thursday, May 28, 2009
Attack of the Zombies
Disclaimer: As a practice, I do not use this space to directly promote RDM and our solution. This post discusses a real life example of a topic of technical interest, using an RDM-specific experience. For more heavy-handed self-promotion, feel free to call or email.
Like most software companies, RDM is loud and proud in proclaiming our solution to be scalable. Nothing we have seen in the field has led us to believe anything otherwise, but we have always pondered what the load capacity of a single NEOCAST Media Server should be pegged at. We have our own selfish reasons for wanting to understand that number. First, to establish a clear threshold at which we would add another server to the rack, thereby avoiding any potential traffic jams or degradation in service. Add it too soon, and you have expended capital unnecessarily. Add it too late, and you have disappointed customers. Second, providing a scalability test framework would allow the team to test the impact of any new feature on server performance without having to take a “put it in production and wait” approach.
Until recently, we had set an arbitrary and comfortably conservative number for our threshold, and held to it. We had also designed capacity test plans, but did not have an efficient way to execute them. Even the design was tricky, because it is nearly impossible to design a generic network customer. Every customer’s size, content strategy, update frequency, content types, reporting requirements, usage of features such as SpotSwap and other important criteria vary as much as snowflakes.
Recently, we were challenged by a potential customer to produce and run a capacity test that could be replicated and verified by a third party if need be. In this case, we were able to use that network’s key parameters as the gold standard for testing capacity. So what remained was the method for creating an army of “zombie” media players and the method for having them “attack” a production server until it cried “uncle”. Since our infrastructure is replicated exactly between our primary and disaster recovery sites, we were able to temporarily recommission the DR site to serve as the target for the zombies. To the engineering team’s credit, they devised a way to create the army of simulated players utilizing a customized OS image deployed to virtual servers in Amazon’s EC2 cloud. What they did was write a simulated NEOCAST Media Player that could spawn any number of zombie players with the exact network characteristics of the potential customer. Tests were run to find out what the maximum number of simulated players each virtual server could handle, so we would know the natural increment of players we would add with each server. The simulated players were then programmed to begin their cycle of call-ins, status reports, log dumps and content updates randomly over a 15-minute period, and to continue running until the test ended. Then the fun began, as more and more virtual servers were deployed from the EC2 cloud to communicate with the server. We had defined a number of “fail” conditions that would be indicators of having reached capacity, and kept adding players to the zombie army until we got to a fail condition.
The process was eye-opening in many respects. During initial dry runs of the test plan, we were able to uncover and patch a few bottlenecks that were not obvious when not running a server to the “max.”. We also came up with several potential code optimizations based on analysis of the load test data, but actually ran the official test without implementing them, as we wanted to report “as-is” metrics to the customer. We could have tweaked up the results quite dramatically by quietly introducing the code optimizations, but we carry this millstone called integrity around our necks, and we chose instead to disclose the optimizations as potential upside. Hopefully, that did not go unnoticed, because that is how we roll. And we had some fun internally by having all the employees post their guesses as to the final capacity number, with the winner picking the restaurant for our next team dinner.
As a result of the process, we ended up with an improved capacity test plan, a great method for executing the test, clear direction for throughput optimizations going forward, a nice benchmark number for server capacity, and a baseline against which to measure the impact of new features. The potential customer was able to assess our claim of scalability against competitors based on a test that they had a hand in designing. It was a process well worth the investment of time and money. From the cloud we got some clarity. And it doesn’t look like I will get off cheaply on that team dinner, but at least I won’t have to invite all those zombies.
Like most software companies, RDM is loud and proud in proclaiming our solution to be scalable. Nothing we have seen in the field has led us to believe anything otherwise, but we have always pondered what the load capacity of a single NEOCAST Media Server should be pegged at. We have our own selfish reasons for wanting to understand that number. First, to establish a clear threshold at which we would add another server to the rack, thereby avoiding any potential traffic jams or degradation in service. Add it too soon, and you have expended capital unnecessarily. Add it too late, and you have disappointed customers. Second, providing a scalability test framework would allow the team to test the impact of any new feature on server performance without having to take a “put it in production and wait” approach.
Until recently, we had set an arbitrary and comfortably conservative number for our threshold, and held to it. We had also designed capacity test plans, but did not have an efficient way to execute them. Even the design was tricky, because it is nearly impossible to design a generic network customer. Every customer’s size, content strategy, update frequency, content types, reporting requirements, usage of features such as SpotSwap and other important criteria vary as much as snowflakes.
Recently, we were challenged by a potential customer to produce and run a capacity test that could be replicated and verified by a third party if need be. In this case, we were able to use that network’s key parameters as the gold standard for testing capacity. So what remained was the method for creating an army of “zombie” media players and the method for having them “attack” a production server until it cried “uncle”. Since our infrastructure is replicated exactly between our primary and disaster recovery sites, we were able to temporarily recommission the DR site to serve as the target for the zombies. To the engineering team’s credit, they devised a way to create the army of simulated players utilizing a customized OS image deployed to virtual servers in Amazon’s EC2 cloud. What they did was write a simulated NEOCAST Media Player that could spawn any number of zombie players with the exact network characteristics of the potential customer. Tests were run to find out what the maximum number of simulated players each virtual server could handle, so we would know the natural increment of players we would add with each server. The simulated players were then programmed to begin their cycle of call-ins, status reports, log dumps and content updates randomly over a 15-minute period, and to continue running until the test ended. Then the fun began, as more and more virtual servers were deployed from the EC2 cloud to communicate with the server. We had defined a number of “fail” conditions that would be indicators of having reached capacity, and kept adding players to the zombie army until we got to a fail condition.
The process was eye-opening in many respects. During initial dry runs of the test plan, we were able to uncover and patch a few bottlenecks that were not obvious when not running a server to the “max.”. We also came up with several potential code optimizations based on analysis of the load test data, but actually ran the official test without implementing them, as we wanted to report “as-is” metrics to the customer. We could have tweaked up the results quite dramatically by quietly introducing the code optimizations, but we carry this millstone called integrity around our necks, and we chose instead to disclose the optimizations as potential upside. Hopefully, that did not go unnoticed, because that is how we roll. And we had some fun internally by having all the employees post their guesses as to the final capacity number, with the winner picking the restaurant for our next team dinner.
As a result of the process, we ended up with an improved capacity test plan, a great method for executing the test, clear direction for throughput optimizations going forward, a nice benchmark number for server capacity, and a baseline against which to measure the impact of new features. The potential customer was able to assess our claim of scalability against competitors based on a test that they had a hand in designing. It was a process well worth the investment of time and money. From the cloud we got some clarity. And it doesn’t look like I will get off cheaply on that team dinner, but at least I won’t have to invite all those zombies.
Thursday, May 21, 2009
Touching on a Trend
Kudos to David Weinfeld, who examined last month's news of the termination of the TouchTunes-Victory Acquisition merger in a recent blog post. Well worth reading. David took the time to examine the proxy statement, something I was guilty of not doing in assuming the deal was all but done. He points out that Victory had spoken with several other companies in unrelated businesses before settling on TouchTunes as a target. This is not surprising, as the purpose of a Special Purpose Acquisition Company (SPAC) like Victory is to find the best potential acquisition(s) possible. It appears that Victory’s door to TouchTunes was opened through a relationship with a friend of Red McCombs, who had invested in Barfly prior to its acquisition by TouchTunes. McCombs is one of America’s wealthiest people, having made millions in the car business and as a co-founder of Clear Channel Communications. He has the kind of wealth that allowed him to own three professional sports teams at one time or another, and to endow the Business School at the University of Texas. Red is no slouch, and it is easy to see why having his track record associated with TouchTunes, even indirectly, made it more attractive to Victory.
Weinfeld goes on to examine the risk factors listed in the proxy statement. While the risk factors are very scary statements, they are fairly boilerplate and designed to cover the rear ends of the company making the offer and its investment bankers by making an investor aware of every possible thing that could cause their investment to go south. Those statements are probably not enough to scare off someone who had already invested in a SPAC with no declared target.
However, Weinfeld’s post does review the three daunting things that probably did sour the Victory voters. First, that the hockey stick revenue projections presented in the proxy require a significant leap of faith. Second, that TouchTunes has yet to generate any ad revenue from either Barfly or its massive network of jukeboxes, which relates back to the first item. And third, the astute observation that its PlayPortTT wireless product may have been better deployed as a smartphone app. Of the three, it is the ad revenue dilemma that resonates as an industry-wide challenge.
TouchTunes has over 35,000 video jukeboxes installed that are by any measure a great example of how the internet and digital technology can effectively disrupt and displace entrenched solutions. Their digital screens are seen by millions of people every month, which would presumably be attractive to potential advertisers. But the devices were designed to be digital jukeboxes, and the S-4 filing indicates that TouchTunes expects to make substantial expenditures to continue “its expansion into additional revenue channels, including digital advertising”. So it appears that there is some work to be done to provide the scheduling, distribution, playout and reporting to support that expansion. The proxy statement makes it clear that TouchTunes has that expansion as a priority. Its 2008 acquisition of Barfly, which uses the oft-seen “L-frame” to wrap promotional messages and advertising around a live TV feed in bars, may or may not provide the foundation for some of that work. What is clear, however, is that the same conundrum that has slowed the flow of capital to the industry may well have impacted the TouchTunes/Victory deal: advertising sales.
There is an ongoing circular exercise going on between network owners, advertisers and sources of capital that has been seriously impacted by the fallout of the recession. Network owners need capital to launch their networks. Investors want to mitigate their risk more than ever before and are asking for evidence of revenue (advertising dollars) before investing. Media buyers want to see locations and independent assessment of reach and impressions. Network owners can’t provide that without capital.
The leap of faith to make the DOOH buy has been harder for media buyers to take even though we know they are moving toward out-of-home buys, because advertisers are cutting budget as well. It’s the old trickle down theory, and it is not fun to be the one getting trickled on. The result of all of this is that potential breakout deals like TouchTunes/Victory get shot down; terrific network concepts get delayed or never leave the incubator; and others can’t get past a pilot despite good performance.
The winners in this environment are the networks with existing footprint and advertiser relations and networks being launched by entities that don’t need other people’s money (corporations). I would advance the theory that forward thinking investors will invest in the best new network deals ahead of a recovery, and at advantageous terms. There won’t be a better time to get in than now. When the economic cycle recovers, ad budgets will expand, leaps of faith will be made, deals will be struck and capital will flow like its 1999. That can’t happen soon enough.
Weinfeld goes on to examine the risk factors listed in the proxy statement. While the risk factors are very scary statements, they are fairly boilerplate and designed to cover the rear ends of the company making the offer and its investment bankers by making an investor aware of every possible thing that could cause their investment to go south. Those statements are probably not enough to scare off someone who had already invested in a SPAC with no declared target.
However, Weinfeld’s post does review the three daunting things that probably did sour the Victory voters. First, that the hockey stick revenue projections presented in the proxy require a significant leap of faith. Second, that TouchTunes has yet to generate any ad revenue from either Barfly or its massive network of jukeboxes, which relates back to the first item. And third, the astute observation that its PlayPortTT wireless product may have been better deployed as a smartphone app. Of the three, it is the ad revenue dilemma that resonates as an industry-wide challenge.
TouchTunes has over 35,000 video jukeboxes installed that are by any measure a great example of how the internet and digital technology can effectively disrupt and displace entrenched solutions. Their digital screens are seen by millions of people every month, which would presumably be attractive to potential advertisers. But the devices were designed to be digital jukeboxes, and the S-4 filing indicates that TouchTunes expects to make substantial expenditures to continue “its expansion into additional revenue channels, including digital advertising”. So it appears that there is some work to be done to provide the scheduling, distribution, playout and reporting to support that expansion. The proxy statement makes it clear that TouchTunes has that expansion as a priority. Its 2008 acquisition of Barfly, which uses the oft-seen “L-frame” to wrap promotional messages and advertising around a live TV feed in bars, may or may not provide the foundation for some of that work. What is clear, however, is that the same conundrum that has slowed the flow of capital to the industry may well have impacted the TouchTunes/Victory deal: advertising sales.
There is an ongoing circular exercise going on between network owners, advertisers and sources of capital that has been seriously impacted by the fallout of the recession. Network owners need capital to launch their networks. Investors want to mitigate their risk more than ever before and are asking for evidence of revenue (advertising dollars) before investing. Media buyers want to see locations and independent assessment of reach and impressions. Network owners can’t provide that without capital.
The leap of faith to make the DOOH buy has been harder for media buyers to take even though we know they are moving toward out-of-home buys, because advertisers are cutting budget as well. It’s the old trickle down theory, and it is not fun to be the one getting trickled on. The result of all of this is that potential breakout deals like TouchTunes/Victory get shot down; terrific network concepts get delayed or never leave the incubator; and others can’t get past a pilot despite good performance.
The winners in this environment are the networks with existing footprint and advertiser relations and networks being launched by entities that don’t need other people’s money (corporations). I would advance the theory that forward thinking investors will invest in the best new network deals ahead of a recovery, and at advantageous terms. There won’t be a better time to get in than now. When the economic cycle recovers, ad budgets will expand, leaps of faith will be made, deals will be struck and capital will flow like its 1999. That can’t happen soon enough.
Friday, May 15, 2009
Hunters and Gatherers Choose Sides
The current economic climate, coupled with the rapid acceleration of interest in the benefits of digital signage has produced a number of interesting indicators of change. We have long anticipated an industry consolidation, both on the network and the solution sides. A little bit of that has started on the network side, notably with the creation of Outcast in the U.S. network space (the merger of Bhootan and Fuelcast). We have also seen some network failures, both in North America and Europe, while at the same time new network launches continue unabated.
Perhaps the most significant change has occurred on the solution side, where it appears that the field has evolved into two groups: elephant hunters and gatherers of nuts and berries. New and large deals are out there to be had and scores of smaller deals pop up every month. There are advantages and disadvantages to pursuing each. “Elephants” typically take longer to close, are more competitive in every respect, and operate on corporate time (i.e., not fast). “Nuts and berries” deals are greater in number, smaller in size, less competitive, and bring generally higher prices, along with proportionately higher support costs and risks. The evident split between hunters and gatherers is even more apparent when one looks at the signals from two of the more visible entities on the solution side: BroadSign and Wireless Ronin.
The actions of BroadSign, formerly a prodigious hunter of elephants, are remarkable. The company recently abandoned their direct sales force, moved toward a reseller channel model, and now recently announced a turnkey SaaS offering with Bell Micro. This represents a 180-degree turn in strategy, and it is fair to say that they are betting the farm on this approach. As a competitor, I couldn’t be more pleased, as it signals that BroadSign will be less able to control its market messaging and will encounter challenges in competing for and servicing the elephants. It also signals a move toward a generic and mass market approach that takes them closer to the folks starting new businesses in garages and incubators, and away from the differentiated, focused and lucrative market where elephants are known to graze. Wearing a more impartial hat, I would assume that their own analysis indicated a large enough installed footprint (and recurring revenue level) to make an attack on the mass market that VARs can sell into more cost-effectively.
Another signal comes from the public face of the solutions space, Wireless Ronin. Rather than join the chorus of those critiquing Ronin’s financial performance, it may be more useful to understand what they now consider to be “big”. The company had put its chips on Chrysler and KFC, and it now seems apparent that the Chrysler gambit isn’t going to work out very well. As for KFC, after years of work, there are 124 locations live, and a thin promise of more to come, but only in new and remodeled stores. The elephant in this deal is the retro-fit of existing KFC stores, but after sifting through the answers to softball questions lobbed by their own investment banker, it doesn’t sound like a retro-fit is on the radar. It sounds more like the Colonel’s secret recipe now includes nuts and berries. Finally, Ronin has been relegated to trumpeting a deal that will never leave the domain of granola: 33 installs at 76-location Sun Tan City. That is less than one install for each remaining Ronin employee. It is interesting to see that the two biggest spenders at digital signage trade shows have shifted gears: in one case rethinking sales strategy and in the other changing the threshold of what is “big”.
Another highly visible industry veteran, Bill Gerba of Wirespring, recently introduced a stand-alone, repackaged version of the company’s FireCast software, dubbed EasyStart, designed to attract smaller deals for “just a few screens in a few locations”. Given the cost and time required to produce a new product, it would seem to be a hint that Gerba sees more opportunity (or less competition) at the low end of the deal spectrum. A line extension at this stage is an interesting indicator of one person’s assessment of market dynamics.
A final clue to impending change in the solution space comes in a recent blog post from Nate Nead. In his post, Nate contemplates the emergence of “white label” and “private label” digital signage programs, as well as the benefits and issues with such an approach. The clear implication of these programs is that new companies will emerge as solution/service providers, without the need to invest in intellectual property by developing their own solution. Rather, they will repackage existing solutions, which may be easier to come by as existing providers search for new revenue opportunities. This type of business model, which could be termed SESaaS (Someone Else’s Software as a Service), is clearly geared toward the mass market of smaller networks, where pricing can support the required overhead.
It may be premature to assume that digital signage penetration is high enough to support a global shift toward the smaller deals of the mass market, although evidence seems to indicate that such a shift, if not underway, is at least on the minds of many industry players. There still appear to be many elephants left to hunt, and it is likely that the ranks of the hunters will narrow in coming months.
Perhaps the most significant change has occurred on the solution side, where it appears that the field has evolved into two groups: elephant hunters and gatherers of nuts and berries. New and large deals are out there to be had and scores of smaller deals pop up every month. There are advantages and disadvantages to pursuing each. “Elephants” typically take longer to close, are more competitive in every respect, and operate on corporate time (i.e., not fast). “Nuts and berries” deals are greater in number, smaller in size, less competitive, and bring generally higher prices, along with proportionately higher support costs and risks. The evident split between hunters and gatherers is even more apparent when one looks at the signals from two of the more visible entities on the solution side: BroadSign and Wireless Ronin.
The actions of BroadSign, formerly a prodigious hunter of elephants, are remarkable. The company recently abandoned their direct sales force, moved toward a reseller channel model, and now recently announced a turnkey SaaS offering with Bell Micro. This represents a 180-degree turn in strategy, and it is fair to say that they are betting the farm on this approach. As a competitor, I couldn’t be more pleased, as it signals that BroadSign will be less able to control its market messaging and will encounter challenges in competing for and servicing the elephants. It also signals a move toward a generic and mass market approach that takes them closer to the folks starting new businesses in garages and incubators, and away from the differentiated, focused and lucrative market where elephants are known to graze. Wearing a more impartial hat, I would assume that their own analysis indicated a large enough installed footprint (and recurring revenue level) to make an attack on the mass market that VARs can sell into more cost-effectively.
Another signal comes from the public face of the solutions space, Wireless Ronin. Rather than join the chorus of those critiquing Ronin’s financial performance, it may be more useful to understand what they now consider to be “big”. The company had put its chips on Chrysler and KFC, and it now seems apparent that the Chrysler gambit isn’t going to work out very well. As for KFC, after years of work, there are 124 locations live, and a thin promise of more to come, but only in new and remodeled stores. The elephant in this deal is the retro-fit of existing KFC stores, but after sifting through the answers to softball questions lobbed by their own investment banker, it doesn’t sound like a retro-fit is on the radar. It sounds more like the Colonel’s secret recipe now includes nuts and berries. Finally, Ronin has been relegated to trumpeting a deal that will never leave the domain of granola: 33 installs at 76-location Sun Tan City. That is less than one install for each remaining Ronin employee. It is interesting to see that the two biggest spenders at digital signage trade shows have shifted gears: in one case rethinking sales strategy and in the other changing the threshold of what is “big”.
Another highly visible industry veteran, Bill Gerba of Wirespring, recently introduced a stand-alone, repackaged version of the company’s FireCast software, dubbed EasyStart, designed to attract smaller deals for “just a few screens in a few locations”. Given the cost and time required to produce a new product, it would seem to be a hint that Gerba sees more opportunity (or less competition) at the low end of the deal spectrum. A line extension at this stage is an interesting indicator of one person’s assessment of market dynamics.
A final clue to impending change in the solution space comes in a recent blog post from Nate Nead. In his post, Nate contemplates the emergence of “white label” and “private label” digital signage programs, as well as the benefits and issues with such an approach. The clear implication of these programs is that new companies will emerge as solution/service providers, without the need to invest in intellectual property by developing their own solution. Rather, they will repackage existing solutions, which may be easier to come by as existing providers search for new revenue opportunities. This type of business model, which could be termed SESaaS (Someone Else’s Software as a Service), is clearly geared toward the mass market of smaller networks, where pricing can support the required overhead.
It may be premature to assume that digital signage penetration is high enough to support a global shift toward the smaller deals of the mass market, although evidence seems to indicate that such a shift, if not underway, is at least on the minds of many industry players. There still appear to be many elephants left to hunt, and it is likely that the ranks of the hunters will narrow in coming months.
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