Widen Close SmartImage: More Proof That The Current DAM Software Market Does Not Scale

Recently, DAM vendor, Widen announced they were shuttering their DAM Lite product, SmartImage:

We are grateful for all the support we’ve received from our Smartimage customers. However, Smartimage will be ending May 25, 2018. This is a strategic decision Widen (Smartimage parent company) has made to ensure we give the best service to all of our software customers.” [Read More]

The notice period (commencing 1st March) is a little on the short side – six months might have been more polite, especially as most of the users will have limited funds available for a compulsory DAM migration exercise (and probably can’t afford an upgrade to their full edition).  In mitigation, it is longer than many tech firms offer when they end support for non-performing products, especially compared to some larger vendors (who are usually worse than their smaller counterparts for making volte-face manoeuvres of this nature).  To their credit, they have also provided a few different options for users to reclaim their data.

Turning to why Widen have decided to close SmartImage, there are two major factors: one quite simple, the other more complex to explain.  The fact a competitor (Bynder) are offering a free edition has to be contributory.  When Spencer Harris reviewed Orbit for DAM News, he described the free version as ‘underwhelming’, but it is undoubtedly going to draw customers away from any paid-for DAM Lite systems.  This is the beggar thy neighbour strategy beginning to play out, as we predicted (although you probably would not need to be much of an expert in DAM to do so).

The second reason requires a more in-depth discussion.  I think Widen were already contemplating closing SmartImage before free editions of DAM Lite systems started to get released, I imagine they have been (at best) ambivalent about their involvement in this segment for at least a couple of years already.  The reasons behind their decision have some similarities to those which led Shutterstock to sell WebDAM to Bynder last month.  The issue once again is the lack of scalability in the current DAM software market and I suspect the realisation of that fact partly lies behind this decision.

As a business model, DAM software is fairly labour-intensive.  The staff required to run an effective operation are highly-skilled and relatively expensive in terms of salaries and benefits etc.  DAM vendors also tend to have low turnover to employee ratios.  Based on my own estimates, the typical revenue of many mid-ranking DAM vendors is usually in the region of $3-4m (US) and they usually have around 30-40 staff, so the revenue per employee is around $100k each.

The above figures are anecdotal based on my own observations.  One benefit of the recent Shutterstock acquisition (and subsequent sale) of WebDAM is that because the former are a publicly quoted company, they are required to publish detailed and accurate information about what revenues they were actually receiving from their business units.  In Shutterstock’s last set of results, there is a glimpse into the economics of operating a DAM software business:

We purchased Webdam in March 2014 for $14.4 million. For the year ended December 31, 2017, Webdam revenues were approximately $16.2 million and Adjusted EBITDA attributable to Webdam for 2017 was not material.” [Read More]

As described, they made revenues of about $16m, when I checked before, WebDAM claimed to have 500 customers, a number which now appears to have increased to 700 since my article was published a couple of weeks ago.  Let’s assume that both myself and archive.org were mistaken over the number of customers and it really was 700, this means revenues per customer below the market average of around $23k each.  Using the 500 customers number, the revenue is roughly $32k each. If I ran this business, I would favour having 500 customers that I was earning $32k each from, rather than 700 that were generating $23k.  Why?  The greater the number of customers the more operating costs will increase to look after all of them, unless you can hit a critical mass (and do so before you run out of cash).  With DAM software, this is even more of a problem as the support effort required to look after DAM users tends to be far more demanding since the software is more complex and the subject itself is not an easy one for many users to get to grips with.

Astute readers might already be understanding why there could be a few fundamental problems inherent in the DAM Lite market, especially for those vendors who have a relatively small number of employees (which, as discussed, is most of them).  For those still unsure what the problem is, let’s continue the analysis.  According to glassdoor.com, WebDAM have ‘between 201 and 500 employees‘.  Bynder say they have 275 staff and I believe both firms are roughly comparable in size, as measured by both staff and revenues.  As such, we’ll say WebDAM have about 250 employees.  This means a revenue per employee figure of about $65k.

At this juncture, it might be instructive to make some comparisons with some other tech businesses:

Shutterstock themselves have revenues of $557m and 1130 employees, which is $492,920 per member of staff (although they may well have 250 less people now since the WebDAM disposal).

Compare these numbers with the $65k figure for WebDAM (or even the $100k ‘back of a napkin’ estimate I made for most mid-range DAM software vendors).  Now let’s put some DAM Lite customers into the mix.  I don’t recollect what Widen were charging for SmartImage, but the paid edition of Bynder’s Orbit is $379 per month and WoodWing’s Swivle was around $240 per month for about five users.  As such, we’ll assume a fee of $3,000 annual revenue per customer for a typical paid-for DAM Lite solution used by a small team of 5-10 people.  Let’s say that following some investment into marketing activity, the number of DAM Lite customers is the same as ‘DAM Full’.  This equates to about $300k annual revenue – although these are arguably quite ambitious estimates of what sales would actually get generated. Where before, our hypothetical Cloud DAM vendor was making around $30-$40k per customer, now they make $16,500.  The revenue per employee has only increased to $110k and it’s likely that more staff will need to be hired to cope with the fact there are double the number of customers, so assuming a 25% increase to 40 people, the revenue per employee declines to $82,500.

It is true that  operating costs amortised across each customer will diminish simply by virtue of having more customers and (to an extent) the vendor will be able to obtain volume discounts on storage capacity etc, however, initially, operating costs will increase at a faster rate than revenue.  DAM vendors offering DAM Lite need to be acquiring customers at a very high levels before it becomes economic.  Even at 1,000 sign-ups, they only just equate to what vendors achieve with DAM Full (i.e. $3m assuming the figures used before) and the revenue per customer drops to just $6,000.  In addition, this is going to involve an immense amount of effort for the sales personnel concerned and most current DAM vendors would need to dramatically scale up their sales teams to be able to hit these numbers.  DAM Lite customers will require (on average) a lot more than 10% of the time it takes to get DAM Full clients, yet they only contribute 10% amount of top-line fee income.   This is the crux of the problem with DAM Lite for vendors, but there is more bad news.

Those who have pursued this strategy now also have 1,000 additional customers to support, i.e. run backups, provide user assistance, write training materials, fix bugs, deploy releases and all the other activity that accompanies the feeding and watering of DAM systems.  If any of these activities fail to get carried out, the customers may leave and some might do so complaining loudly to anyone who will listen, so there is brand/reputational risk to contend with which could impact on the vendor’s ability to win more lucrative clients.

The one group who get a comparatively good deal out of DAM Lite are the customers who sign up for them.  As we have observed before about DAM Lite products, to keep them competitive, the feature list consistently has to bite at the heels of their more expensive DAM Full counterparts, but at vastly lower cost (or none at all in some cases).  There is an argument that DAM Lite sales can act as a gateway to convince some users to upgrade.  I don’t believe this happens as much as many vendors who offer DAM Lite hope it will and in fact it might be the other way round; if users of a more expensive edition of a product find out there is a cheaper option, they are more likely to consider downgrading rather than upgrading.

Although DAM Lite customers do get a very good deal in terms of cost/features, there are hidden risks for them too.  As should now be clear to SmartImage users, the key one is whether the vendor might pull the plug because they have worked out that the product offer isn’t something they can sustain.

To make DAM Lite economic, vendors need far greater capacity than most of them possess,  certainly firms with less than 50 staff should consider carefully how exactly they will do better than the figures I have outlined above before they get involved in it.  Even if DAM software vendors are larger or have access to some kind of external funding, it might not be enough and there is the ever-present risk that Dropbox, Box etc will come along and say  ‘nice idea, we’ll take it’ (and the fact they still have not might tell you something).

The key issue which underpins all this is the lack of scalability of the Content DAM software business model, by which I am referring to the ability for at least some  participants to achieve the same kind of revenue per employee metrics that other tech firms enjoy.  The current DAM software market is characterised by commercial naivety, a lack of imagination and an incomplete understanding of how to go about achieving critical mass.

An overhaul of the Content DAM delivery model is now overdue.  The fact that most vendors essentially waste huge amounts of time (and their investor’s money) rebuilding what everyone else has already created renders the whole market structurally inefficient, hampers growth and makes genuine innovation very difficult to achieve.  The revenue/employee ratios described in this piece are facts which support my thesis and I challenge anyone to provide an alternative perspective which does not reach a similar conclusion.

I realise this is a Cassandra-esque argument which I have made on numerous occasions for many years, however, now the soldiers are getting out of the wooden horse and preparing to sack Troy.  Product brands being closed down and vendors merging with each other, rather than innovating to win customers are both not very positive signs.  In a technology context, they are symptomatic of a business model that either has become broken or (I would argue) was unfit for purpose to start with.

Is DAM Lite dead and should we all go back to the old approach where DAM systems were a niche tool with a minimum five figure price-point to match?  I would not agree with that perspective either.  Revisionism is rarely a good answer to any complex problem (especially not technology-related ones) for the obvious reason that whatever people did before had a hand in generating the issues that now manifest themselves.

If not winding back the clock and pretending we’re still in 2006 or so, then what?  There are two divergent visions of how to address these fundamental issues with the current DAM market, one can be roughly summarised as an integrator/channel approach and I gather some articles have been written about it recently.  The other is to completely re-engineer the DAM software delivery model in a way that has not been imagined before.  Needless to say, I favour the latter approach.  The former is lower-risk, but low-reward (and still poses existential risks for DAM).  The other option is more radical (and therefore has greater risk) but would give Digital Asset Management the kind of positioning required to achieve genuine scalability and therefore ensure it has longevity as an independent discipline.

It is beyond the scope of this article for me to get into that discussion here, but there has been a ‘dry-run’ for this debate already and I plan to continue it on DAM News (and elsewhere).  If a significant emotional and/or financial investment into Digital Asset Management is a defining characteristic of your professional career, then you are going to be required to make a choice about which direction you think will be the superior one over the next 5-10 years.

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