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Do Profit Opportunities Still Exist? – Look to the Verticals

It doesn’t seem so long ago – the early 2000’s, when displays were developed and launched with the goal of achieving at least an 18-24 month product life cycle. If a manufacturer was able to effectively market, manage and sell a product for two years, there was a good chance of recouping the R&D and manufacturing investments and generate profits, regardless of the target market. Profit could then be reinvested to develop new and better technologies and the cycle would start anew.

Since then, the cycle has become much shorter and now that markets have matured, competition has become fierce. Production has moved several times to tap into lower costs, and prices have eroded significantly. The markets for some display categories have matured and a few are in decline – even the LCD TV market fell in 2012. In order to make a profit, to say “strike while the iron is hot” is an understatement.  Today, the iron cools off much more quickly than in the past.

With the shorter product cycles, the challenge today is that many products have either become so low-priced that some traditional vendors and channel members do not want to bother manufacturing or selling them or the products themselves have become commoditized (neither option offering attractive returns on investment). Note that the products are not pure “commodities”, since there are still elements of differentiation including branding and design, amongst others.  However, pricing, positioning, and most importantly their perception in the marketplace resemble that of a commodity.

Take the desktop monitor business for instance.  There aren’t many displays available that help end users surf the Internet, e-mail, word-process, use spreadsheets, etc. any better than the next.  It is difficult to convince a buyer to pay 10-20% more for a “similar” product, especially in this economy. There are a few financial reasons including reduction in energy consumption resulting in lower total cost of ownership; however, when the corporate buyer calls the reseller for these types of products, the sale usually comes down to price (or whatever is the deal of the day). Some vendors still play in this marketplace, but their strategy is to sell to a wide range of customers and to make up profits with increased volume. Margins are thin and any disruption in the supply chain or if sales decrease ever so slightly, the margins disappear.

So where are today’s opportunities to make higher profits per unit without taking all the risk of the supply chain and without the daily pressure moving high volumes? They are in the same place they have been for years: vertical markets, consisting of customers with specialized needs, who will pay more for a product that allows them to do their job better, faster, easier, or more efficiently. These customers do not want products “off-the-shelf,” they want “customized” products, or at least the perception and performance of custom products. Sometimes, this customization only requires minor tweaks or enhancements to the product; in other cases it takes knowledge and understanding of the end user and their market to deliver a solution to their problems.

The industry is starting to pay attention to these vertical markets. At the DSE show this year, there were 40 “industry vertical discussion groups”; we can expect to see a similar focus at InfoComm13.

Many vendors have been paying attention to verticals for years, successfully carving out niches, for example by designing in specialized features and addressing unique or semi-unique end-user challenges.  Some of the recent “specialized” display trends are super narrow bezels for video wall applications, high brightness displays for outdoor and sunlight readability, touch for interactivity, and high resolution for medical diagnostics. Not coincidentally, all of these features are tracked in NPD DisplaySearch’s Monthly Large Format Commercial Displays Sell Through Report.

How can vendors and other industry participants identify vertical markets that are growing and develop strategies for entering them? At the NPD DisplaySearch FPD Conference at InfoComm on June 11 in Orlando, industry experts, end users, distributors, and integrators will present and participate on panels addressing vertical market applications and solutions, in addition to NPD DisplaySearch analysts presenting expert data and analysis of the display market.