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Trends in the Current DAM Market and the Implications For 2019

This article has been written by Ralph Windsor, DAM News Editor and Project Direct of DAM Consultants, Daydream.

 

In this article, I want to assess some underlying trends in the Digital Asset Management software market that have been prevalent during 2018 and see if they can be used to predict what may happen in 2019.  There have been some subtle, but significant shifts in emphasis by several DAM vendors and these offer clues about where the sector will progress next year.  The context of the wider tech market cannot be ignored and I intend to analyse how that might also impact DAM.

2018 – Another Year of DAM (But Not ‘The Year of DAM’)

I have seen various articles by other commentators suggesting that 2018 was ‘the year of DAM’ and other similar pronouncements.  With due respect to those individuals, DAM being considered ‘hot’ or even ‘essential’ is a trend that has been in-play for about a decade.  I would regard 2009 as probably the point at which DAM began to acquire the kind of momentum which made it hard for enterprises to ignore, combined (on the demand side) with the on-going exponential growth in the volume of digital assets.  My recollection of that period was that while other sectors of the economy (whether tech-related or otherwise) were enduring a very tough time, the DAM software market grew significantly during that year and the trend was already becoming well established in the preceding three or four years.  If the same kind of calamitous economic event which occurred in 2008 repeated itself in 2019, I doubt whether DAM growth (in percentage terms) would match what it achieved in 2009.

The key realisation that many on the sell-side of DAM have had during 2018 is that the DAM software market lacks scalability, however, vendors partially compensate for their pedestrian growth (when compared with their peers in other tech sectors) by being relatively highly cash-generative in the form of hosting, licences and annual service revenues.  Once DAM solutions are deployed, there is limited appetite to replace them by end-users.  In part this is due to the cost and expense of migrating from one product to another, but equally it is the comparatively limited engagement end users have with DAM systems.

Based on my experience of reviewing client’s legacy DAM solutions, things have to get quite bad for an extended period of time before end users will put themselves through the pain of replacing one DAM with another.  Some vendors delude themselves that this is loyalty to their brand or product, where the reality is more that few end-users can be bothered to go through the hassle of migrating (not to mention the need to obtain the funding in order to do so).

This year I have been involved in several major DAM vendor selection exercises for larger enterprises as well as a number of niche/specialist DAM requirements.  Without exception, every client has remarked to me how similar all the candidate firms’ products appear to be.  Phrases like ‘you can’t put a cigarette paper between them’ have been mentioned more than once.  While I cannot see this changing much in 2019, somehow it will need to eventually and at a deeper and more fundamental level than user interface eye candy and gratuitous over-enthusiasm on the part of DAM software marketers.

The Rise and Rise of Digital Asset Supply Chains

Following on from the previous discussion, one consequence of the widespread adoption of DAM that has occurred over the last 10-15 years is that they are now considered an essential toolset by most enterprises.  Clearly, the marketing use-case has encouraged this and it still remains the largest single segment among corporate DAM users, but there is gradual recognition that the subject of digital assets is a more wide-ranging topic than being simply about ‘content’ (however you choose to define that term).  Nearly all major enterprises in North America, Europe, Australia and increasingly those in developing economies also now make active use of DAM technology, frequently using multiple solutions.

Simultaneous with this trend is a realisation by both vendors and users that there are significant advantages to integrating DAM technologies with other enterprise applications.  For the vendors, increased integration means their products are more embedded into the client end-user’s business (further securing their service revenues and making it harder for them to be usurped by competitors).  On the other side of the equation, end-users that widely integrate their DAMs with other solutions can potentially leverage their investment and generate a higher ROI from them.

The intersection of both these trends, which have progressed incrementally (but relentlessly) is the concept of the Digital Asset Supply Chain.  This was well in-play in 2017, however, during 2018 it has accelerated and now every single project I have been asked to consult on has been a Digital Asset Supply Chain solution.

Most enterprises have now made significant investments into DAM technology with multiple groups of stakeholders.  While there have been vague attempts at consolidated ‘Customer Experience’ platforms, none has achieved sufficient traction because the problem is multi-faceted and demanding to solve for both political and technical reasons.  The most practical approach to deal with logistical challenges where digital assets need to be accessed and have value added to them by multiple participants is to use a supply chain (or value chain) implementation strategy.  That DAM is transitioning towards a service-oriented delivery model where users might be using the features of a given product without even realising it is not new (like most things in DAM) but the digital supply chain conceptualisation is now gaining unstoppable momentum.

Rather than monolithic and costly applications being deployed with mixed success, a more flexible, best-of-breed method can be applied where the core DAM is integrated with a range of other tools that service the needs of different channels or end-users who each consume and add value to digital assets (in the form of metadata) at each stage where they are used.  This is why Digital Asset Supply Chain solutions have been in the ascendancy in 2018.  In 2019 it will be the default model used for all enterprise DAM implementations as it represents the most practical and pragmatic tactic to solving the kind of complex digital asset management problems that organisations now have to deal with.

The Customisation vs Configuration Conundrum

One consequence of the steady accumulation of customers for DAM vendors is the issue of customisation vs configuration.  If you went back just over a decade or more ago, many suppliers did not really possess a proper DAM product.  Instead they used a core codebase (or often simply a bag of tricks) which they adapted and re-fashioned to suit each customer, i.e. they ‘forked’ their code (as software developers like to refer to it).  Gradually systems from this period are being replaced with generic tools that are configured using settings, APIs etc rather than being custom-built.

DAM vendors have not achieved the kind of five or six figure customer volumes they once aspired to (and for the majority of this highly fragmented market, four figures is still a distant dream).  This now places vendors in a slightly uncomfortable position.  The option to fully customise client solutions to solve all their specific problems is just not feasible any longer because they would require huge numbers of dedicated personnel for each installation (which would be uneconomic).  At the same stroke, the advanced digital asset supply chains that DAM users need to establish to meet their objectives for investing into DAM technology require the ability to fine-tune and adjust functionality.

Nowhere is this truer than when it comes to integrating DAM solutions, but metadata, governance and workflow all demand some highly granular and sophisticated configuration options also.  Asking large corporations with tens of thousands of employees to adapt their working practices to suit the limitations of the DAM platform is not likely to be well received by end users in those organisations.  Because the market is very homogeneous, even a very slight advantage one vendor has over another can be sufficient to see them gain the upper hand over their peers for a given client requirement.

The ability to integrate, adapt and re-configure platforms without creating completely custom solutions will become the key battleground for vendors.  The implication is that capabilities like API-First interfaces (where the entire User Interface is implemented using the vendor’s API), scripting, hooks and plug-ins etc will ramp up in significance.  A few firms have begun to offer ‘marketplace’ type portals where third parties can offer tools to enhance their solutions, an idea which is a commercialised form of what has been happening in the open source world for decades.  While being able to demonstrate some kind of active ecosystem is confidence building for consultants and commentators, vendors should note, however, that end users are less concerned with how configurable a product is, only that it will meet their immediate must-have needs right now.  Further, this demand for ‘Just In Time’ functionality that is available on-demand will extend outside many vendor’s own marketplaces and soon end users will ask why they can’t compose their own quasi-custom solution using components offered by other vendors.

A related issue is the supply-side scalability of many DAM vendor’s businesses.  During the course of 2018, I have encountered several vendors who turned down major opportunities which they would have won due to a combination of the perceived complexity of the client’s configuration requirements and their own lack of resources.  The firms who replaced them were (in some cases) the client’s second or even third choice.

There are two methods to resolve this human resources issue: either obtain funding to hire more people or use partners, I will cover the first route later in this article.  On the second, I discussed the issue of using professional services partners for DAM implementation on DAM News last month.  This is likely to be the only practical way that many vendors will be able to meet end user demand for complex highly integrated DAM solutions with the limited personnel they have available.  I, therefore, expect a significant increase in the use of implementation and professional services partners by vendors as they are forced to find more efficient methods to service their clients without incurring the high up-front costs that are necessary when appointing new hires.  A potential pullback or leveling off of demand for DAM in 2019 might further encourage vendors to seek flexible approaches that allow them to more easily scale down as well as up.

Killing Off the Unicorns: The Demise of DAM Lite?

The emphasis this year has evidently moved away from acquiring thousands of low-value customers and towards garnering more stable cashflows from a small number of larger implementations.  This was traditionally ground occupied by specialist enterprise DAM vendors who pointed to their scalable architectures as points of differentiation.  That is no longer considered a particularly unique or special capability, however, it would be more accurate to refer to these kind of attributes as ‘maintenance features’, i.e. you are at a disadvantage if you don’t have one, but the advantage (if you do) is relatively limited.

Two of the SaaS vendors who experimented with DAM Lite, Bynder and Widen have both ditched their DAM Lite products (the former gave up after less than eighteen months).  Widen announced this year that they were setting up a consulting division and based on what people have told me, Bynder now targeting the enterprise end of the DAM market more than they have done so in the past.  The evidence is fairly clear, there is limited demand for DAM Lite because Dropbox et al have top-sliced the major share of the low-end DAM market and most of the end users don’t care that it isn’t ‘real DAM’.

While vendor interest in DAM Lite might have waned, there is still a demand for it from a decent cross-section of users with limited budgets.  The issue is that it cannot be economically delivered by the current crop of DAM vendors because they lack the scale or funding to do it properly.  The situation with DAM Lite is roughly similar to the market for DAM tools sold to the photographer market around 20 years ago: the bottom line is you can’t profitably sell complex tools to people who have very little money.  It has taken a new(er) generation of cloud DAM vendors to come to the same realisation.

One possibility for a resumption of DAM Lite is where a commodity file sharing infrastructure is used as the core of the product with vastly simplified metadata, workflow and permissions controls (combined with a ‘fix it yourself’ attitude to end user support, to be as polite as possible).  We discussed why for conventional DAM vendors, using third party stacks might be a risky proposition earlier this year, but in the case of DAM Lite it could be less of an issue.  There are some at the low-rent end of the DAM market who use Google Drive etc now – so there is evidence that this is taking place.  At the Henry Stewart DAM New York conference earlier this year, representatives of Dropbox were in attendance so you can be assured they watch the DAM market even if they do not currently wish to make public announcements about making their moves into it.

Investment In DAM Technology And The Wider Tech Sector

Without a doubt, there has been a downturn in investment into the technology sector during 2018.  To an extent, regulatory concern over privacy issues with firms such a Facebook have contributed to this along with the precipitous collapse in the valuations of crypto digital assets that has been a feature of 2018.  The major factor, however, is a combination of lack of innovation across the entire tech sector and over-valuation.

During 2018, the technology market has seen a shift in power: where previously sellers were in control, now the buyers are gradually acquiring the upper hand.  Whether they want to or not, most DAM vendors are likely to be compared with Dropbox by prospective investors.  The chart of their stock price in 2018 is not confidence inspiring.  For further anecdotal evidence, during 2017 and the early part of 2018, I was contacted relatively frequently by venture capital and private equity companies for advice on taking positions in the DAM market; that activity has slowed substantially heading towards the middle and end of this year.

The implication of all this is that if vendors haven’t got funding already, they probably won’t get it in 2019.  Similarly, the alleged consolidation trend in DAM market (which I never entirely believed in) has signaled a potential reversal with the WebDAM acquisition earlier this year when a larger firm sold their DAM division to a smaller counterparty.

Conclusion

In 2018, demand for DAM technology has remained robust and continued the upward trend that has been in-play since around 2005.  The expression ‘gravity-defying’ has been an apt one to describe DAM for a few years now.  I am less convinced that this will remain the case in 2019.  For those who remember that far back, the current market feels a lot like it did just prior to 2001.

While there is not necessarily a direct read-across from technology investment trends into the market for DAM solutions, if technology marketing budgets decline, there will be an impact on enterprise technologies of all kinds – an ebbing tide lowers all boats.  This could take some time to work itself through to end user purchasing decisions, so demand for DAM technology might continue to remain robust, but there is likely to be a plateau effect which at least begins to occur during 2019 and accelerates into 2020.

These factors would tend to lead one to a more negative assessment of the DAM market next year as compared with 2018.  With that said, my interest is twofold:

  1. Getting good value DAM solutions for my clients.
  2. A resumption of DAM innovation so the sector which my livelihood currently depends on survives and prospers over the longer term.

From the perspective of both of these objectives, a market where vendors (and consultants) have to try a lot harder than they have needed to hitherto is a positive development.  It is a frequently observed phenomenon about technology that more value gets created when funds (from either clients or investors) are not readily available and those concerned have to make more of an effort to apply themselves to both finding points of differentiation and solving end-user problems.  Of course, it might not feel very positive while we all have to contend with the consequences, but it could also be the breath of fresh air that is required raise the DAM market out of its current soporific and semi-comatose state which has been a defining characteristic of the last few years.


{ 1 comment… read it below or add one }

Murat H. Korkmazov December 18, 2018 at 5:36 pm

Hi Ralph, thanks for nice article!

As a co-founder of a Lite DAM solution (Daminion) I would like to put my 2 cents and share my vision of why large DAM vendors failed to enter into the DAM Lite market.

DAM Lite is a dead path for many DAM vendors because this business requires a completely different economic and another approach. Sales/Marketing efforts that work for a DAM with 50k/year price doesn’t work for 3k/year product.

User acquisition cost, user support costs, deployment costs should be minimal for Lightweight DAM vendor.

Deployment of DAM isn’t as simple as the deployment of Adobe Creative Suite, Office suite or a CAD system. In 99% cases implementing a DAM system is a complex and long process that requires a lot of time. 5% of our clients who invested in Daminion could not get started using it because they couldn’t find time/resources to consolidate/ingest/annotate their digital assets.

The process of DAM integration is much easier, though, for large organizations that can allocate people for this job and even have a digital asset librarian position in a company.

In Daminion, we provide a deployment service, including help with migration from other DAM systems or from file-servers. But we can’t afford it for small orders, because this process might take 1-2 months and lots of our resources.

Another problem is that a demand for DAM system is correlated with the company size and a number of DAM system users. A value of a DAM investment for large companies is huge, while small companies expect less demand and might stay with file sharing services or file structure for a long time. I am not talking about ROI but about a product value for clients.

Marketing efforts for a lite DAM should be completely different because it requires to use sales/marketing channels with very low customer acquisition costs.

Third-party integrators also are not interested in Lite DAM systems so clients in most cases need to go through the deployment path by themselves.

It is also much harder to offer an on-premises DAM Lite solution, that requires more resources for deployment in comparison to a cloud deployment. Plus vendors must deal with thousands of different platform configurations, and thousands of technical support requests.

What helps Daminion to be profitable and grow each year is that we had started our business with a focus on small teams, although we’ve also recently started selling Daminion to mid-sized companies to add extra buoyancy to our business. Plus we launched a cloud version in a test mode to address a demand for a lightweight simple DAM solution for small teams.

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