Cloud DAM – Nothing Going On But The Rent?

In the past on DAM News, we used to receive details of vendor updates to their DAM products quite frequently.  For a while, we referred to it as a ‘features arm race’ where vendors competed with each other to make announcements about new functionality they were hastily adding to their platforms to out-do each other.  In the last five years, however, the frequency of these updates has reduced quite significantly.  Where there is product news, it tends to come under one of the following three categories:

• Very minor interface tweaks and highly specialised enhancements (e.g. ‘shaded beveling added to interface controls to enhance their usability’).
• Updates that depend heavily on a third party technology developed by someone else (e.g. facial recognition, AI components, or bundled combinations thereof).
• Vague, over-aggrandised and vacuous statements which don’t actually say anything tangible (e.g. ‘a disruptive paradigm shift in brand storytelling’, whatever that is).

For a period, there was a subsidiary category to the second item which you could call ‘integrations’ where vendors announced news about third party tools they had developed connectors for.  This still happens, but far less than it used to.  This is despite the fact that the biggest area of growth in DAM recently has been Digital Asset Supply Chain solutions where a DAM solution acts like a hub to manage the transformation of digital materials into digital assets and then distribute them downstream.  The need remains, but the updates from most vendors now are limited to basic mechanics of transferring data.  The level of integration is still typically at quite a facile or shallow level.

A few vendors have attempted to  implement analytics to track usage and offer users enhanced reporting, but these are limited by their inability to ‘see’ what happens to digital assets once they leave the DAM.  A big issue for many is that they cannot get too skewed towards a particular user’s use-case or they end up with what is effectively a custom solution.  This is the conundrum that many are now encountering.  To add some real value to a particular set of users requires committing development time and budget to it, but in so-doing, vendors risk spreading themselves too thin and ending up with systems which are impossible to maintain.

At the same time, there is an increasing premium being placed on DAM administrators or ‘Digital Asset Managers’.  At one time, DAM software was expected to fully replace the forerunner of the Digital Asset Manager (who probably had a job title like ‘Photo Library Manager’).  In fact, the role of DAM systems in digital asset delivery has become a bit like a database + shelving in a physical book lending library.  You need somewhere to store the stuff and it is far quicker to search for a title via a computer system than to flip through a card index, but without the human beings doing the more complex (and arguably useful) management activities, the value added by the technology is dramatically reduced.  DAM system vendors need Digital Asset Managers to get something useful out of their products, far more than the other way round (despite the excess emphasis placed on technology when it comes to discussing the implementation of effective digital asset strategies).

There is a thinning of value in DAM itself, with functionality spread across a wider range of product.  In the past, most DAM systems were focused on a narrower range of activites: cataloguing digital assets then finding, selecting and distributing them.  This set of processes could be more accurately described as ‘metadata operations management’.  That core problem still hasn’t really been fully solved (partly because it is virtually impossible to do so, but also because of the aforementioned reluctance by vendors to specialise).  Many DAM software suppliers have chosen to expand out what they offer as an alternative, so now, nearly with all the systems I get shown, the sales personnel are eager to show additional functionality like template-driven brand collateral generation, creative workflow tools etc.  A few other vendors have looked to move to adjacent sectors; with PIM apparently being the latest great white hope.

DAM vendor partners are more reticent to fill these customisation gaps than they once might have been in the early 2000s because they lack confidence in any one given provider and the field has become even more fragmented as new firms have entered the market.  Most of the established integrator VARs (Value Added Resellers) now represent multiple vendors and some appear to change the teams they back on an annual basis.  Many of them have a knowledge of the DAM market that is greater than the industry analysts who cover DAM whose information is often out of date or simply re-hashed versions of vendor’s own PR copy.

Modern DAM software vendors are essentially integrators of other people’s technologies now.  Nearly all the core functionality they provide is developed by someone else, their role is more of an assembly-oriented one.  To use a comparison I have made in the past, they are like automobile manufacturers (another sector which is heavily dependent on optimised and integrated supply chains).  Prior to 1920 there were hundreds of firms involved in the supply of motorised vehicles, but by 1930, the field had reduced dramatically.  Some were acquired or merged, but many just simply became uneconomic and ceased to trade.  It strikes me that either the same will need to happen in DAM software, or the whole sector might simply grind itself out of existence.  The DAM market right now doesn’t offer a lot for anyone: users don’t get tools they can get very enthusiastic about and vendors don’t make very much money servicing them, certainly not the amounts suggested by some.  The market continues to exist because the end users reluctantly just about agree they need the products and the vendors have typically invested many years of time into creating their platforms so they are as much emotionally invested as they are financially.  Collectively, the DAM software market has reached a kind of quasi-stalemate like some Soviet-era Russian steel mill that keeps operating because no one knows what else to do with themselves.

Recent trends (and even more recent events) could potentially be catalysts for change, however.  The first is the trend towards Cloud-based DAM which is essentially a done-deal now.  There are lots of positives about Cloud DAM solutions which are frequently mentioned, such as scalability, the ability for staff to work from anywhere etc.  Those are all great points and have been made by numerous other commentators in the past, so I will not labour the point here.  One fact which is discussed less frequently is the nature of the way they are paid for by end users and what implications this has for vendors.  In nearly all cases, they are subscription-oriented and the end-users need to keep paying the bill once per month or annually etc.

I would contend that the repeat billing element of Cloud DAM has contributed significantly to enhancing the financial stability of many DAM vendors.  My estimation is that as much as 80% of their annual revenues now come from these sources.  The ongoing costs of the platform are divided across multiple customers (which provides an element of scalability) and expenditure on keeping them up to date can be amortised providing nothing too ambitious has to be attempted.  Astute readers might be now beginning to grasp why there could be less motivation to carry out substantial upgrades that potentially involve disruption and risk.  As a business model, this is far easier and less volatile than the old days when revenue might oscillate wildly from one year to the next based on the success or failure of a few key pitches.

Unfortunately, if a business is a great one for the seller, the buyers tend to be more predisposed to the opposite opinion.  Most business owners (or the financial managers they employ) do not like fixed costs.  Effectively, a regular bill is a like an advert or reminder that you are paying for a service, so it becomes a cue to regularly assess what value it offers you.  If you aren’t seeing much in the way of improvements (see my points at the top of this article) then you might start to wonder what you were getting in return for being required to pony up your rent every month.  Unless the rollout has been a complete disaster, this usually happens less where a DAM has been deployed (either new or as a replacement) over a period of around one or two years, but beyond that point, the people responsible for commissioning it and selecting a vendor may well have moved on and their replacements have far less attachment to the incumbent provider, primarily because it wasn’t their decision to hire them in the first place.

The more recent event I referred to is COVID-19, which I discussed at length last month.  Two inter-related factors here are a) that more end-users are going to be far more hands-on with their DAMs than they probably were before  and b) orders to trim budgets will soon be arriving from senior management (if they have not already been issued).  If end users had problems with their DAM before and didn’t perceive that they were getting dealt with by their current vendor, it seems quite likely there will be far higher interest in replacing them now.

The price/value relationship in DAM is more or less nonexistent further, the sources of help and advice to help end-users choose an alternative are plentiful (and sometimes, very cheap).  When I work with new clients who have limited experience of the DAM market, it is frequently mentioned how similar products are and there is a widespread lack of understanding as to how one firm can charge several times more than their peers but without presenting very much in the way of an advantage.  Naturally, there are mitigating circumstances and some finer points of differentiation, but these are far more marginal than many realise.  The DAM market is a lot less price-elastic than is widely understood (on both the buy and sell sides) but COVID-19 and the fact DAM software has now become a fixed business cost could change all that.  DAM end-users have always sought to get value from their DAM investments and avoid carrying expensive dead wood, but now they have no choice or they face being dismissed themselves.

To put this more succinctly, in the coming months and years, DAM software vendors are going to need to do a lot more than tweaks, minor changes and issuing platitudes with buzzword-laden pronouncements, otherwise they may find their own ‘brand story’ sustains far more of a disruptive paradigm shift than they had bargained for.

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