After my 1,200 mile road trip from Florida to Pennsylvania in August, passing many billboards on the way, I noticed a significant increase in digital billboards over last year's road trip. With many hours to ruminate, it became apparent to me that the direction in which the outdoor advertising industry is going - will inevitably be similar to Internet advertising.
This is purely my conjecture as I have not heard this notion elsewhere propounded, nor have I any rumors to lend piquancy to the subject. Basic intuition - convinces me there is going to be a convergence between the two industries because of the synergies now present. The new synergies are due to the quantum leap in Smartphone technology and dynamic digital billboards that can be immediately and remotely updated without sending humans up a scaffold to essentially wallpaper ads to them.
It probably has not occurred to them yet, but I envision the leaders in Internet advertising - Google (GOOG) and Yahoo (YHOO) making a play for the leading outdoor advertising companies such as Lamar (LAMR) and Clear Channel Outdoors (CCO).
The quantum leap in smart phone technology will enable Google, with the help of their billions of Android phones in use - to pinpoint the location of millions of consumers on highways around the globe at any given moment. For those unaware of the capabilities, just enter a Google search using the words "GPS tracker for iPhone and Android" and you will find about 16 million results, many of which offer free Android and iPhone apps that promise "Pinpoint your son or daughter's location; find a friend, colleague, coworker or loved one, faster than a phone call or a text message."
Because of their unique relationships with hundreds of millions of users who use their search and their smartphones, they will be able to show them ads on outdoor billboards pertinent to recent searches. Because of this, they can sell ads to their advertising clients in a way similar to the way they do online, by showing ads that "relate" to the traffic.
What made Internet ads revolutionary is that search engines know what the people using them want and they have them captive at that moment. The billboards wouldn't show ads that relate to recent searches of every single driver that sees the billboard, but Google could identify areas where higher concentrations of specific searches are driving and isolate them with much higher probabilities of the ads being viewed by consumers likely to drive by the billboard as they are on the freeway or turnpike.
For example, they might identify roads that currently host some drivers who just searched for potential new or used automobile purchases minutes or hours prior, then present them with a car sale ad while they are on the road. Statistically, that ad would be much more effective for a car dealer that could pay for customized ads targeting those people who were searching for specific makes of automobiles and make the ad appropriate to their desires.
Another example would be to catch consumers on their drive to dinner by running ads for local restaurants, movies, casinos and other forms of entertainment immediately after they searched for deals, menus, phone numbers etc. Again, not everyone who drives by the billboard would have been searching for those products or services but advertising is about ratings - and the smartphone allows them to better target with GPS features.
Google would have the obvious advantage in this race because they already own the Android operating system and there are billions of them out there. With the leading outdoor advertisers trading with market caps of approximately $1-$2 billion each, a complete cash acquisition made by Google would be pocket change to them. Of course, with Google having made all the right moves, their stock is a strong currency that could be used as well.
There would be another winner in such an advertising convergence. Clear Channel Outdoors and Lamar both own many digital billboards but as they are finding the digital billboards more profitable, they are only at the very beginning stages of upgrading their outdoor portfolios.
The global leader, Daktronics Inc (DAKT), designs, manufactures and sells the digital billboards to these companies and others around the world. Daktronics is a company trading at a tiny market capitalization of $330 million in what is projected to be an $80 billion dollar industry.
With their approximate $45 Billion in cash, Google could purchase the leading manufacturer of these billboards with pocket change and outright own their own outdoor advertising companies while essentially manufacturing the billboards with their Daktronics unit, further increasing the overall profits. Such a consolidation would greatly expedite the financial ability of these companies to convert their properties to digital.
It would be a coup d'état for the Google advertising sales department to be able to offer clients large and small - the ability to purchase packages that would include billboard ads on websites and outdoor billboards.
Although Google has an advantage over Yahoo in such a race, Yahoo could easily team up with Apple on such a project as Apple obviously has the technology in their phones to accomplish the same thing. Apple obviously could buy Yahoo, Lamar, Clear Channel Outdoors and Daktronics without the diminution in cash even registering on the radar.
Again, this is my conjecture, but it is logical that with outdoor advertising becoming more dynamic thanks to digital capabilities, the merging with GPS technology and Search are a "basic sense" decision because improves accuracy makes the ads more valuable and could further enhance the sales of that medium by making it attractive to a larger customer base.
This investor envisions a future of outdoor billboards featuring the name of Google and Yahoo below the ad where most of them currently read Lamar, Clear Channel and CBS.
Disclosure: I am long DAKT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.