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The Implications of Covid-19 For The DAM Industry – Part 1

This two part special feature article on the implications of Covid-19 for the Digital Asset Management Industry has been written by DAM News Editor, Ralph WindsorPart Two is also now available to read.

Lockdowns and The Economic Context of Covid-19

The Covid-19 pandemic has self-evidently had a major impact on both individuals and organisations across the world.  The primary issue has been the tragic loss of life and health implications for millions of people as well as the immense pressure on health service providers.  As well as the human cost, the economics of this event are virtually without modern precedent.

As I am sure everyone reading this will be well aware, nearly all countries across the world have implemented some kind of lockdown policy.  A major section of conventional economic activity has simply ceased or slowed to a significant extent.  This lost revenue will never be recovered.  At best it will be amortised away through the passage of time and (perhaps) increased productivity.

Those businesses with a lot of debt or who have investors eager to withdraw their capital will find themselves under considerable pressure.  Defaulting on loan payments will become more commonplace, with companies being unable to cover their bills and credit periods being stretched as far as possible.  There will probably be a lot less money available and everything will have to justify its costs far more actively than it may have needed to in the past.  This is the fundamental economic context into which we are all now placed.  In this article, I want to examine the impact of Covid-19, with a particular focus on the DAM market.

The Short Term Effects of Covid-19

In contrast to physical organisations, some cloud-oriented tech business sectors have benefited from this pandemic in the short-medium term.  One consequence of so many having to work at home is the increased reliance on internet-based services and applications.  There are obvious examples like video conferencing, but also read-across to most SaaS/Cloud services, like DAM solutions.

The general consensus among the people I speak to in DAM is that where their system is accessible, it is in very active use currently, probably more so than it was prior to the pandemic.  There are a lot of users who may have ignored it before who now have no choice and a number of scenarios where DAMs are being actively used for file distribution purposes, especially.  Human Digital Asset Managers are even more essential to keeping digital asset supply chains moving than they were before (particularly in an era where their physical counterparts have been disrupted).

The 2008 Financial Crisis And Its Effect On DAM

There are few comparisons to what is occurring currently as a result of Covid-19, the closest is probably the 2008 financial crisis.  Whether or not history will repeat itself is less clear-cut, however, especially if you analyse the fundamentals behind DAM.

I would postulate that the current growth period started in 2009, arguably it was building up before then from 2004 or so onwards, but the events of 2008 were surprising catalysts for a period of significant growth.  Most of the analyst commentary around that time was dismissive of the prospects for DAM  (if it was even being discussed at all).  My firm was still selling DAM systems then and we started 2009 being quite concerned about whether we would survive given what was going on, yet we ended it with more business we could handle.  If you don’t feel inclined to accept my anecdotal evidence some public revenue reports of vendors active at the time also point to the same effect.  Why did DAM buck the wider trend in 2009?   There were two factors which led to the sudden increase in demand for DAM software:

By 2009, nearly all assets were ‘born digital’.  The vast majority of photos and videos were shot on digital cameras. so there was no need to scan or digitise very much anymore.  Most other media like brochures, documents, graphics, audio etc. were also entirely digital by this period.  The ease with which digital assets can be created has led to an exponential increase in the volume of them in-circulation.  This is one of the fundamental drivers behind the need for DAM systems.  When it rains a lot, expect some umbrellas to get sold.

Secondly, in 2009 there was a sudden and dramatic reduction in the amount of cash available.  The conventional way this gets achieved in most businesses is to sack employees and impose hiring freezes.  To pick up the slack from having a smaller workforce, everyone else has to work harder or more productively.  If you are spending an excessive amount of time trying to find all this newly created digital media and you can’t recruit anyone, it is more likely that you will seek out some software which might help.

These are the fundamental reasons DAM took off around 2008-2009, despite the economic carnage taking place elsewhere.  For the last eleven years, the software side of the industry has been riding that wave.  It is now generally acknowledged that a DAM system is an essential purchase for most medium-large size organisations.  The result is that the majority have already got one (indeed, many are on their second or even third iteration).

There is a widespread acknowledgement that the tech is unsuitable on its own and a greater proportion of the value in digital assets is created by the human beings.  More end-users have realised that they require both DAM systems and skilled people to get useful results out of them.  Simultaneously, vendors have grasped that promoting adoption and keeping friendly with the in-house Digital Asset Manager was a good way of ensuring they wouldn’t get replaced.  The vast majority of DAM solutions are delivered as Cloud applications, as such, the action has moved to reoccurring annual revenue streams.  The fragmentation of the market has not allowed anyone to get fabulously rich from DAM, but those who had a reasonable selection of solvent clients will probably have made a decent living from it.

After The Plague Comes The War

The Covid-19 crisis introduces another massive change to the wider economy (and indeed, society as a whole).  The effects are far more profound and deeper than 2008 as the impact is directly to businesses that operate in the real world, rather than as a by-product of credit drying up.  In the short term, this is unlikely to impact many DAM vendors and initially they will probably be viewed by clients as an essential service that must be retained.  The software market may even see some short term gains (a point I will cover in part two of this article).  The same is likely to be the case with Digital Asset Managers; the emphasis right here and now is on business continuity.

Eventually, however, the lockdowns will gradually begin to end and the next phase will commence: counting the cost.  This is where the outlook for DAM becomes less certain.  Many of the clients who DAM service providers depend on for their revenue are going to find themselves severely curtailed and cash-strapped.

There will be a black hole in most firms’ budgets which will require them to take swift action.  Large companies are currently cutting or scrapping their dividends to shareholders or cancelling share buyback programmes.  This is not a position their boards will be able to sustain without getting fired themselves.  As such, they will want to be seen to be cutting costs and restoring dividend payments.  Even in those firms who do not have dividends to worry about (or where they are already sufficiently covered by earnings) there will be a lot of pressure to conserve cash and reduce spending.  Initially, non-essential expenditure will be scrapped, but once all the easy targets have been taken out, attention will be diverted towards possibly using lower cost alternatives.

The kind of questions that CFOs, Financial Directors and their ilk are going to ask are along these lines:

  • Why do we need this, exactly?
  • How many people use it?
  • Can we get a reduction in our fees?
  • Can we delay paying our bill?
  • We’ve been paying this vendor for n years, what are they going to do for us?
  • Is there an alternative that costs less?

ROI cases for DAM have tended to get glossed over by many buyers up to this point.  They are aware that not having a DAM was probably costing them money, but the exact amount is something that is virtually impossible to accurately calculate, especially as it depends so much on adoption and culture changes.  The ROI calculators that vendors come up with tend to get treated like the paintings which people’s kids bring home from school.  They might get placed up on the wall and complimentary noises are made by parents when first presented, but they rarely get taken as genuine evidence of prodigious artistic genius.  That may well change now and vendors will be expected to demonstrate ROI far more effectively than they have done previously.  Not only might this apply to new clients, but existing ones also may challenge the necessity to keep paying the vendor any currently agreed annual fee.

The business impact of the virus is very much like the thing itself.  If there is any form of weakness in either the DAM or the vendor who offers it, this is likely to get found out.  This includes any of the following:

  • High levels of debt.
  • Nervous investors who are eager to withdraw their capital.
  • Poorly integrated acquisitions where there is a lot of duplicated cost.
  • Revenue based on a small number of key clients.
  • High concentrations of clients in a small number of at-risk sectors.
  • High fixed costs (wages, offices etc.)
  • High annual fees (relative to peer competitors).
  • Expensive professional services charges.
  • Inflexibility and inability to adapt solutions to client requirements.
  • Isolated ‘warehouse’ DAMs that are not very well integrated with other solutions.
  • Lack of differentiation (especially where there is no price advantage).
  • Lack of user adoption or declining numbers of users in one or more clients.

A number of vendors reading the above list of points above, might begin to feel quite secure and perhaps even a little smug.  That kind of complacency needs to be fully disinfected from anyone’s thinking, however.  The definitions of ‘high’ (especially as it relates to anything to do with cost) are going to get comprehensively tested. Note also that many of the points on the above list apply also to a vendor’s clients (and those of consultants too).  If they suffer from similar issues like high levels of debt, they will be under pressure also and that might have consequences for their DAM initiative.

Nearly all DAM vendors suffer from a lack of differentiation.  The dearth of innovation in the sector is a subject we have written about for many years on DAM News.  The result is that there are now numerous suppliers who offer highly homogenised systems.  I hear claims that this only applies to the low-medium cost end of the market, however, I don’t believe those are accurate.  The so-called ‘higher end’ is still quite marginal in terms of its advantages – certainly amongst each other, but the cheaper competition are closer behind them than many of the former are willing to accept.

Some vendors will point to their scalable architectures and use of SOA, microservices etc.  I talk to a few who want to tell me “no one else has this”, however, they are wrong.  Lots of firms either have already worked on this side of their offer or have plans in-place to do so.  Even where they do not, explaining ‘scalable architecture’ to the aforementioned corporate bean counter is not going to get a  positive reception.  There will be a lot of comments like “xyz says they have feature abc too, and they are 63% cheaper”.  If you are a DAM vendor, now is the worst time to be relaxed about your client relationships and revenue position.  The key two questions that will be asked are:   Can we scrap this thing? If not, is there a cheaper option?

The Differences Between 2008 and Covid-19

The biggest difference between Covid-19 and 2008 from a DAM perspective is that most prospective clients have already implemented a DAM solution.  The business opportunity is replacement oriented (i.e. migration from a legacy system).  The fundamentals are not entirely the same as 2008; there is still an ever increasing amount of digital material in circulation, but there has been a corresponding increase in the number of solution providers also.

It seems likely that Digital Transformation projects will continue because there is a case to be made for continuing with them (which has been made stronger by Covid-19).  Expenditure will have to become a lot more focused, however.  This could go two different ways.  On the one hand, there could potentially be an opportunity now for some lower cost vendors to get included in evaluations where before they were discounted as not being sufficiently ‘enterprise’ or because they didn’t have the right connections in purchasing decision committees etc.   Taking the other perspective, many clients could decide to combine updating DAM requirements into wider Digital Transformation projects where a single large vendor is appointed to supply everything on the basis that this is cheaper to manage than lots of ad-hoc arrangements.  Something like this occurred about 15-16 years ago (and it was another catalyst for the development of dedicated DAM solutions).  This era may eventually see that emerge again, however, as should be clear, there will be a lot less money available to fund it.

An entire generation of marketing people are now familiar with DAM and many will have seen good and bad examples of it.  The novelty factor has gone and the priorities will be: How much does this cost?  What makes this better or worse than what we have now?

One factor which might reduce the amount of replacement activity is a knowledge of the upheaval required to migrate from one system to another.  A lot of the prospective purchasers of DAM systems will be very mindful of their own job security and anything which involves risk and drawing attention to themselves could be deemed not worth doing.  Perhaps above all else right now, this is the time when DAM vendors need to focus on adoption and ensuring their clients get maximum utility from their DAM.  Stability and continuity of both the service provided and the revenues from it will become very important.

Part Two

In part two, I will examine whether DAM Lite might make a resurgence including looking at Dropbox and other lower cost DAM alternatives.  I will also consider the implications for Digital Asset Managers, Consultants and Analysts as well as a number of other related topics.

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