VDC Research: RFID, Barcode, Retail Automation & Self-Service Market Blog

Getting a Local Read on the Auto-ID Market: MIT Annual Auto-ID & Sensing Expo Recap

Last night the VDC Auto-ID team was in Cambridge for the MIT Enterprise Forum’s 3rd Annual AutoID & Sensing Expo. With approximately 50 exhibitors showing off their latest Auto-ID solutions and two engaging panel discussions, this event offered a valuable opportunity to engage with the RFID, Barcode and NFC communities right in our own backyard. Whereas this event is smaller in scale relative to other multi-day Auto-ID conferences, there were not many new products debuting last night. Still, there were many innovative solutions demonstrated throughout the evening, including the following:

• Omni-ID launched its new visual RFID tagging solution, which is comprised of RFID-enabled e-paper-based display tags, routers and software. The solution, which is targeted at visual-based asset management applications in challenging, decision-driven environments such as manufacturing shop floors, provides both visual instructions and RFID tracking in real-time. We think this product has tremendous potential to improve accuracy and efficiency in manufacturing, logistics and Kanban applications. Furthermore, enterprises that deploy this solution will also benefit from savings by eliminating the costs associated with using printed labels—namely paper, ink and labor. As an added benefit, deploying enterprises also can tout the “green” benefits of moving to an e-paper based solution, which saves considerable consumable waste in high-volume manufacturing applications.

• Cognex demonstrated several of its fixed-mount and handheld barcode readers, which are targeted for applications in harsh, demanding environments such as manufacturing and logistics. The demonstration of the company’s DataMan 500 omni-directional barcode reader was especially impressive considering its ultra-fast reading capabilities (up to 90 barcodes/second). The company also offers its readers in conjunction with proprietary reading algorithms, which enable accurate reading of damaged/obscured barcodes. Whereas its earlier engines were developed in partnership with Honeywell, the engines in all of Cognex’s current offerings use proprietary, in-house developed engines.

• MIT’s Center for Mobile Learning, in partnership with NXP and UPM RFID, demonstrated a web-based Android application building program. The intent of this program is to facilitate the creation of Android-based NFC apps for the rapidly increasing number of smartphones with embedded NFC capability. Generally, application development has been confined to a limited population of developers with specialized technical abilities. Through this program, a broader range of smartphone users will be empowered to pursue their own NFC application visions. We think this program is an excellent way to accelerate innovation in NFC usage and harness the collective creativity of the most critical stakeholder group in the NFC ecosystem—the consumers.

For VDC, this great little event at MIT served as a warm-up for more Auto-ID related travels on the horizon. Starting Monday April 2nd, the team is headed to RFID Journal LIVE in Orlando, so check back soon to hear about the latest and greatest announcements from that show.

To Reach NFC Contactless Payments, Follow the EMV Roadmap...

Put EMV (EuroPay, Mastercard and Visa) migration near the top of the list of factors that could spur NFC adoption among US merchants.  VDC has been actively communicating why we believe non-payment NFC applications, such as smart marketing, loyalty and couponing will drive merchants’ NFC adoption and that contactless payments will follow. Speaking strictly in the context of NFC applications, our views on this topic remain unchanged. During our visit last week to Cartes North America in Las Vegas, however, we validated our belief that EMV migration represents another potential catalyst for merchants’ NFC adoption.

EMV, short for EuroPay, Mastercard and Visa (also commonly known as “chip and pin”) is the payment card standard used across most of the world, with the major exception being the US, where magnetic stripe cards are dominant. However, in an effort to curb fraud, both MasterCard and Visa have issued merchant migration directives that mandate support of EMV in the US. These directives are presented as “roadmaps” comprised of a series of milestone deadlines, with the first looming on the horizon in April 2013. After the final October 2015 deadline, non-compliant merchants will be held liable for any fraudulent mag-stripe transactions processed by their business. For many merchants, we think this potential liability will be a powerful motivator that spurs investment in EMV-capable payment infrastructure, most notably payment terminals.

How will migration to EMV-compliant infrastructure facilitate NFC adoption? VDC believes that merchants upgrading their payment acceptance solutions to achieve EMV compliance are highly likely to “future-proof” their solutions to the greatest extent possible in order to avoid any foreseeable upgrades or refreshes, which will result in NFC readiness (if not capability) being included in the solution specifications. Although merchants might not actually utilize NFC functionality until several years from now, the incremental cost of adding this capability will be justifiable for most enterprises if it means avoiding another solution upgrade in the short term.

For payment solution suppliers like Verifone and Ingenico, the upcoming migration to EMV technology in the US presents a great opportunity to drive NFC adoption/readiness via education and “future-proofing” messaging. Respondents to VDC’s 2011 NFC Enterprise End User Survey cited “lack of awareness/understanding” as one of the top barriers inhibiting enterprise NFC adoption, with the need for information being particularly acute among lower-tier, less technologically-sophisticated enterprises.  Payment terminal suppliers and channel organizations, take note: it’s time to prepare your NFC lesson plans.

Better Late Than Never...Apple Gets Involved with NFC

Apple may be arriving to the party fashionably late, but if its recent patent activity is indicative of its future plans, the company is readying itself to join the list of device manufacturers offering NFC smartphones. Last week Apple was granted a patent for “Parental Controls,” which initially sounds like a fairly innocuous, ho-hum development. Upon closer examination, however, this patent is actually related to a virtual wallet application, which, not surprisingly, is called “iWallet.” This patent, in conjunction with many others similar in nature granted to Apple over the recent past, indicates that the company is establishing groundwork to enter the contactless payment game.

In typical Apple fashion, no definitive announcements have been made, but this most recent development suggests that the company could formally launch its NFC entry with the iPhone 5 expected to reach the market later this year. While a new entrant to the NFC smartphone market is generally not groundbreaking news at this point in time, a NFC-enabled iPhone is a clear exception that would generate considerable media buzz.  If Apple does in fact include NFC in the next generation iPhone, we believe it has potential to be a watershed in the evolution of contactless payment and e-wallets for several reasons:

• Apple has clout with the MNOs (AT&T, Verizon, etc.) unlike any of its competition due to the desirability and hugely successful track record of the iPhone.  While other tech giants such as Google have faced considerable headwinds in their early attempts to bring NFC payment to the masses, Apple will likely encounter fewer barriers because of the significant recurring revenue its devices bring to MNOs. For example, it is difficult to imagine AT&T or Verizon will block iWallet from operating on devices using their networks, a tactic both operators used with Google Wallet—as doing so could jeopardize their relationship with Apple.

• The iPhone is the top-selling smartphone in the world. While robust shipment volumes alone will not precipitate enterprise investment in/consumer adoption of contactless payment, establishing a critical mass of NFC devices is an important part of this evolutionary process. As the saying goes, there’s “strength in numbers,” and an NFC-enabled iPhone has potential to sell 80+ million units in its first year on the market.

• Apple announced its iTunes store had over 200 million registered users as of Q1 2011. Each of these accounts has a credit card tied to it, which Apple could theoretically leverage to facilitate an introduction of a mobile payment solution.

• An important factor impacting consumers’ willingness to use contactless payment is the ease and intuitiveness with which they can pay with their smartphone instead of their wallet. A well-designed, intuitive-to-use software solution and graphical user interface are key variables in the ease-of-use equation, and are areas where Apple has traditionally excelled. If Apple does ultimately offer a contactless payment solution, we expect it will be as intuitive and easy to use as its other products.

As NFC industry observers, we believe Apple’s entry into the NFC smartphone market will be the kick-start that the NFC industry needs. Not only does the company represent the last major manufacturer yet to support NFC, it also has a fiercely loyal user base that would significantly increase awareness for the technology almost instantly. Taking into account all these factors, we think Apple has the potential to bring NFC and contactless payment to the masses like no other company possibly can.

Join Us for a Hot Topic Webinar with RFID Journal: Real-World Solutions for RFID Security and Privacy

This Thursday, March 8, from 2-3 PM EST, VDC’s Vice President of Auto ID, Drew Nathanson, will be participating in a webinar moderated by RFID Journal’s founder, Mark Roberti, focused on the critical issues of security and privacy in RFID implementations.  RFID systems and applications consistently gain in maturity, become increasingly automated and continually enable new heights of process sophistication. The consequence is an improved and more convenient world in which logistical streams of goods become transparent, individuals and objects can be uniquely identified and transactions take place at high speeds.

With these new and innovative capabilities, however, come threats to privacy, denial-of-service and replay attacks specifically designed for RFID, and other dangers. Imagine attackers cloning your tags to pose as you when entering your office, or possibly even your home. Likewise, there would be consequences of someone reprogramming your 96-bit EPC Gen 2 tags so that each unique serial number was erased or changed. Even in a regular distribution warehouse, the consequences could be devastating.

During this webinar, presenters will discuss this new environment and its ever-changing landscape of vulnerabilities, in the light of specific applications to identify a number of real-world solutions currently available on the market.

Click here to register

The New Read on Metal Tag Market

Its basic physics: liquids and metals cause interference and distortion with RF waves..  And if RFID is to be used pervasively throughout the enterprise and value chain, it needs to work in the presence of these materials.   Awareness of this problem and the opportunity available to those who can address it aren’t new - companies have developed transponders designed specifically for this purpose and that market continues to grow (see our previous blog on the Read On Metal (ROM) Market).  What is new is that the ROM market is now suddenly about to change. 

The words “Read-on-Metal transponders” have been synonymous with durable, bulky plastic housed tags leveraging materials designed to reduce RF interference (RFI) … but all that changed a few weeks ago when two leading ROM tag producers – Xerafy and Omni ID – introduced label form factors.  The label form factor is preferred in many instances due to footprint/size, flexibility and cost, as well as already being the form factor of choice for many high volume industries (i.e.: CPG, Retail, Pharmaceuticals). 

Of equal importance is that these labels will be available on rolls. This means that the label conversion community can leverage their high volume, roll-to-roll production lines to produce these tags - rapidly realizing economies of scale and boosting manufacturing capacity – and that the rolls of converted media can be used in RFID-enabled printers and applicators be used in the field. 

The origins of the ROM tag market are rooted in the desire to use a passive Gen2 label. The introduction of the ROM label form factor is a game changing event and we expect it to dramatically impact the Total Available Market (TAM) for ROM transponders, as well as the revenues of those vendors capable of producing them.  The current ROM market that is served by ruggedized tags will continue to grow at a respectable rate; however, VDC expects the label will rapidly become the dominant ROM form factor as there are a significant number of applications requiring ROM performance that have either been unable to cost-justify the solution or use the ruggedized form factor (i.e.: IT asset tracking, tool tracking).

What’s the bottom line?  The ROM tag market is about to be opened up and the pent up demand is about to be released.  Some readers may recall the early years of the RFID industry, when rugged, plastic-housed tags accounted for the vast majority of all transponders until the Gen2 label was introduced.  We expect history to repeat itself, this time in the ROM market.

Cartes North America: Day Two in Review from Las Vegas

Today was day two of Cartes North America in Las Vegas. The VDC AutoID team had another full day of meeting vendors, listening to panel discussions and strolling the show floor. EMV migration and NFC again were the dominant themes, as we met with a number of services, hardware and end-to-end solution providers catering to every stratum of the payment value chain. Before we catch the redeye home to Boston, we wanted to share some of the most interesting offerings we saw during the day:

• Payment terminal leader Verifone demonstrated its entire portfolio of payment solutions, which encompasses a spectrum of products ranging from traditional stationary payment terminals to compact mobile payment sleds that enable payment processing via consumer devices like the iPhone, iPod Touch and Android smartphones. These mobile offerings, which are called Payware Mobile and Payware Mobile Enterprise, are the result of Verifone’s recent acquisition of Global Bay, a payment application provider. We were impressed by both Payware solutions and believe Verifone could expand its addressable market further by bringing this product directly to customers, as companies such as Square have done already.
• NXP, in its usual fashion, demonstrated its NFC ICs by showing off all the great applications their partner companies have created using their chips. Our favorite application featured at the booth was a NFC-enabled mini kiosk that allows university students to order and pay for their food remotely prior to arriving at the dining hall. We’ve been talking about the significant opportunity NFC has to improve service and throughput in QSRs (quick serve restaurants) and think this solution could be adapted easily for such applications. Imagine being able to order and pay for your morning coffee via a single tap of your smartphone—service speed and throughput could be increased dramatically, which translates into a stronger bottom line for the operator and better service for the customer. Sounds like a “win-win” to us…
• The US is a laggard when it comes to EMV migration, but if the activity Oberthur has been seeing in its EMV card business is any indication, momentum is starting to build in the US market. Oberthur has partnerships with a number of card-issuing financial institutions within the US, and during 2011, shipped approximately 2.5 million EMV-enabled cards to these organizations. While 2.5 million cards is a proverbial drop in the bucket in the context of the global EMV card market, we think this data point is an encouraging sign that some US financial institutions are beginning to take a proactive stance on EMV migration. Now it’s time to get to work on the merchant side of the equation…
• For Mastercard, 2010 and 2011 were dedicated to getting its NFC initiative, PayPass, up and running—in other words, establishing actual commercial deployments at major Tier 1 merchants. For 2012, the company is focused on scaling its existing deployments and spreading adoption of its PayPass solution to smaller regional and independent merchants. Mastercard, like Visa, has issued merchant guidelines that detail its expectations in regards to compliance with EMV migration initiatives. The company believes that as these deadlines loom increasingly closer, merchants that have been unwilling to migrate proactively will be likely to upgrade their infrastructure to EMV/NFC all at once in an effort to “future proof” their investments.

That concludes our visit to the inaugural Cartes North America show. It has been an interesting, informative and well-attended event. Hopefully we will be back for the 2013 edition.

Cartes North America...Recap from Day One in Las Vegas

Greetings from Cartes North America here in warm and sunny Las Vegas! The VDC AutoID team is here at the conference to learn about the latest and greatest in the smartcard solutions market and will be blogging regularly during our visit to keep you abreast of what we have been seeing and hearing at the show. Today was a busy first day of vendor meetings and panel discussions. Not surprisingly, many vendors were talking about solutions and services related to NFC and EMV migration, two of the hottest topics in the US (and in the case of NFC, worldwide) payment ecosystem. Here are several of the interesting solutions we saw on the show floor today:

• Datacard, a leading provider of payment card printers debuted two new printer models today. Its CR500f and CE870 printers are intended for non-centralized printer card creation (i.e., in a local bank branch as opposed to a card printing center). Both solutions accommodate both magnetic stripe card printing as well as EMV/smartcard printing and encoding. Each model sports relatively compact footprints for deployment in branch locations with limited space availability.
  
  
• Device Fidelity, a provider of NFC bridge solutions that bring “smart” NFC payment capability to Android and iOS smartphones lacking native NFC capability, demonstrated its SD card and sled-based products. We were impressed by how seamlessly the company’s product incorporated a host of e-commerce related NFC applications into phones such as the iPhone 4 and 4s which lack embedded NFC chips. At present, Device Fidelity only offers applications related to commerce, including payment, loyalty and promotions, however, the company is looking to other use-cases such as transportation as potential points of expansion. Furthermore, the company recently announced a partnership with Datacard, whereby Device Fidelity will leverage Datacard’s significant installed base of financial institutions to cultivate new clients.
  
  
• 3M is leveraging its expertise in materials engineering and development for smartcard applications. Specifically, the company showed off a new range of non-metallic foils that enable smartcard manufacturers to offer the same eye-catching design their magnetic stripe counterparts have offered for years. Historically, smartcard manufacturers have by necessity had to avoid incorporating flashy foil-based graphics into their card designs as this material interferes with RF signals. Using materials technology borrowed from a TV-screen image enhancement product the company already offered, 3M developed this material with all of the shiny, eye-catching benefits of foil but with none of the RF interference-related downsides. It’s certainly a basic product, but one we think has tremendous market potential considering the majority of the world is using EMV—and the US seems to be drifting (albeit slowly) in that direction.

We have another big day tomorrow filled with panel presentations and vendor meetings, so stay tuned for more from Cartes in Las Vegas.

"Marvell-ing" at the Competition in the NFC IC Market

Could commoditization already be looming on the horizon for the NFC hardware market? VDC thinks it is closer than many industry participants realize. The competitive landscape of the NFC chip market is becoming increasingly crowded, with Intel entering the market in January 2012, Texas Instruments following suit in mid-February, and earlier this week, Marvell Technology Group announcing its entry.

With competition in the NFC chip market heating up, device manufacturers will increasingly be presented with a host of new products offering new/varied feature sets, enhanced performance and aggressive pricing structures.  Increased IC competition is a good thing for the NFC market, as it will surely facilitate innovation and price reductions, but we caution device manufacturers not to be seduced by heady specs and low pricing and to remain focused on providing the best performance for their target device and application markets.  We’re not just saying don’t buy technology for technology’s sake—we are saying that the applications first have to work in a fundamental sense before you can consider adding the “bells and whistles”.

The NFC market, although garnering significant media coverage and growing rapidly, is still nascent.  There are a limited number of installations, consumer devices and applications.  In instances where NFC is currently used, the applications it serves are generally less complex (e.g., ticketing, access control, and marketing) and do not require high performance ICs with robust feature sets.  At present there is no real need for a highly advanced, feature rich IC – the market needs to get off the ground before such requirements emerge. As the old adage says, you have to walk before you can run.

At this relatively early stage of NFC’s technology lifecycle, device manufacturers should be looking for a chip supplier that not only has a portfolio that delivers best-in-class performance for targeted devices and applications, but that is also willing to partner to continually develop and deliver premium solutions for current AND future markets.