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

Imaging Solutions - Market Overview

Imaging vendors’ experienced strong growth in 2010 as end-users loosened their purse strings to re-invest in AutoID solutions – suppliers derived more than $417 million via sales of Linear and 2D Imagers, corresponding to a year-over-year growth of over 29%. End-user enterprises across vertical market segments (Retail and Transportation, in particular) have been allocating a greater percentage of their technology budgets toward investments in imaging solutions due to rapidly declining prices, proven ROI, improved performance and an increasing number of applications that extend barcode platforms such as signature capture, auto-forms population, age verification, mobile marketing, track-and-trace, etc. 

While increased adoption of PDF417 in logistics operations and GS1 DataBar at the grocery POS and health care, will continue to spur demand for linear imagers in the near-term, customers will increasingly turn to 2D imagers for their image capture capability and native support for more barcode symbologies. Not only is the price of these 2D devices becoming more competitive (and less cost-prohibitive), they also offer benefits such as omni-directional scanning, no moving parts (less fragile), enhanced ability to read damaged barcodes, 1D & 2D decoding and image capture.  Price is not as big a factor for businesses if they are able to future-proof and extend existing platforms.

Imager vendors are benefiting greatly from growing interest in & proliferation of 2D barcodes and are increasingly collaborating with software developers to build applications that cater to specific requirements of deploying organizations across a variety of vertical markets. VDC expects continued investment in this technology solution – the global market for Linear and 2D Imagers is slated to grow to $679.1 million by 2015 – while value-added support services help vendors differentiate their offerings in an otherwise highly commoditized marketplace.

Imaging Solutions – Applications Beyond the Retail POS

A fair amount has been written about how retail POS applications including mobile couponing and gift/ loyalty cards are driving growth in adoption of 2D Imagers. These solutions have also been deployed extensively across various other vertical markets for applications including:

• BCBP (bar coded boarding pass) – Transportation:
  • Businesses in the Transportation vertical stand to benefit significantly from the move to bar coded boarding passes by enhancing operational efficiency, reducing labor cost savings and in effect, gearing up the industry (& its passengers) for the inevitable move to contactless technology.
  • IATA’s mandate requiring all its member carriers to migrate from mag-stripe to the 2D barcode standard for boarding passes by the end of 2010, is expected to lead to industry savings of around $1.5 billion a year, effective 2011.

• Track and trace – Healthcare: 
  • In order to effectively challenge the ongoing issue of counterfeit pharmaceuticals, emerging country markets are mandating strict labeling regulations to enhance traceability over the entire supply chain – with 2D barcodes encoding unique product identification code, batch number, expiry date & serial number. This is driving significant demand for imaging solutions in these markets.
  • Additional advantages that enabling this feature offers the industry include enhanced QA/QC, Reverse Logistics and reduction in reimbursement fraud.

• Identity management – Government:
  • This application is designed to help governments build comprehensive citizen databases, easing out the ID certificates and documentation services – for law enforcement, public safety and military purposes.
  • By integrating the imaging solution with biometrics, enterprises can ensure maximum level of security possible, using it to identify both items and people.

The robustness of the 2D platform – and rapidly falling price point - is enticing end-users enterprises to skip over the linear imager generation and move to the 2D imaging technology. The solutions’ share of the barcode scanner market ‘pie’ is expected to grow significantly over the next 5 years, with the technology also having consistently demonstrated its efficacy and versatility with vertical-specific application deployments.

Demand for 2D Imagers Outpacing Forecasted Growth (again!)

If we’ve learned one thing following the barcode hardware and consumables markets for the past several decades it’s this: these niche technology markets are stable and predictable.  The B2B nature of these markets insulates suppliers from fickle consumers, and the dramatic gains and losses that seem to play out on a quarterly basis in consumer technology markets.  And we like it that way. 

But one technology segment we follow began swimming against long established growth trajectories in the 2008/2009 timeframe, when investments in virtually all of the technologies we cover contracted significantly.  Demand for 2D imagers, in virtually every form factor, vertical market and use environment we follow, outpaced competing data capture technologies during this challenging period.
We all knew there was a story there, and suppliers were likening the market conditions driving demand for 2D imagers to a perfect storm.  Declining prices, enhanced scanning performance, the proliferation of 2D symbologies throughout the supply-chain (and increasingly embedded in personal ID’s), not to mention mobile barcodes made us all pretty comfortable forecasting 2010 growth rates in the 20% range. 

Now that we have collected and aggregated 2010 unit shipment data from the suppliers, we’re finding that demand for 2D imaging technology has met or exceeded our guidance in virtually every segment we follow.  Further, we expect 2D imaging will continue to garner a growing portion of the data capture technology spend as the illustration below suggests.

Clearly, displacement of competing data capture technologies is part of the story, but laser scanners and linear imagers will also grow throughout the forecast period, albeit at a slower rate. So where’s the rest of this demand expected to come from?  
 
 
• Application extensions at the point of sale and upstream that extend the value of an imaging investment? 
• Convergence with other AIDC technologies ranging from vision systems to RFID, ultimately enhancing imaging’s value proposition? 
• Field upgradable products that enable deploying enterprises to support their current and future requirements?       

Absolutely.  All of these factors are in play, and we’re excited by all the innovation we’re seeing in the market place as hardware suppliers, ISV’s and system integrators continue to find new applications for this promising technology.    

Smartphone-based Personal Shopping Solutions-Threat to the Dedicated PSS Market?

The concept of delivering PSS functionality to shoppers via their personal devices continues to gain momentum with retailers, as evidenced by Stop & Shop’s recent introduction of an iPhone-based version of its “ScanIt!” PSS.

This development is particularly noteworthy for Stop & Shop. To date, the company has been one of the most aggressive deployers of PSS solutions in the US. Prior to the introduction of its iPhone application, Stop & Shop delivered PSS to its customers exclusively via company-owned and managed devices.

Eventually, smartphone-enabled PSS may present a serious competitive threat to dedicated device PSS solutions.  However, in the immediate term, we do not expect smartphone platforms to displace installed PSS solutions, or severly limit PSS opportunities. 

Any major disruption driven by smartphone platforms will be at least a couple of years in the making. Smartphone-enabled PSS is still in its nascent stages. The development of this technology—and exploration of its potential—has barely yet begun.

At present, dedicated, purpose-specific PSS have several important advantages over smartphone-based solutions:

• Whereas smartphones rely on embedded cameras for scanning, PSS are built around actual barcode scanners. Adapting smartphone cameras for scanning reduces the speed, accuracy, and reliability with which customers are able to scan their purchases. For a technology whose primary value proposition to the customer is saving time, scanning related issues are the major drawback to smartphone-based PSS.

• Some customers simply will not want to use their personal devices for scanning. Their reasons will vary from the practical (low battery, expecting a phone call, forgot to bring the device) to the more complex (security concerns).
  
  
• Retailers will be concerned with the increased software demands associated with supporting smartphone-based PSS. Technology lifecycles with personal devices are extremely short—often 12 months or less—which will drive requirements for frequent and regular software updates, both for the customer-facing and enterprise-level solutions.
  
  
• Security issues will be a prominent concern, particularly for retailers, who will need to ensure their enterprise data is entirely secure, and that customer information is absolutely protected. In regards to wireless connectivity, deploying organizations will need to consider carefully how they will grant the necessary network and data access to customers, while protecting sensitive enterprise information.From a customer perspective, security concerns may also be a potential barrier to adoption.

In the near term, the biggest threat smartphone-based solutions present to PSS suppliers is giving potential deploying retailers another reason to delay their PSS investment, as these organizations weigh costs, benefits, ROI potential, and alternative technologies.

Until smartphone scanning issues are fully resolved, we expect dedicated and smartphone-based PSS will coexist. The role of mobile devices in the PSS market is an issue we have discussed in depth with both hardware suppliers and ISVs as part of our research for Volume 3 of our Customer Engagement Technologies. We will cover this topic in detail in that report—contact us for more information.

Webcast on Remote Device Management for Barcode Scanners

We will be discussing the results of a North American survey on the use of Remote Device Management (RDM) for barcode scanning solutions. RDM enables the ability to obtain, aggregate and distribute information pertaining to the status of scanning devices from a remote or centralized location.  This information can be used for a diversity of applications such as configuration, troubleshooting, commissioning software/firmware upgrades, analyzing usage requirements and maintenance – all of which provide increased visibility, operational efficiencies and cost savings.  In this webcast, we will provide insight into the end user’s value perception of RMD for barcode scanners as well as the following:

• Current usage of RMD for scanning
• AIDC devices expected to be supported by RMD solutions
• Preferred RMD capabilities
• Adoption Drivers

You can register for this webcast here.

Near Field Communication: It's not Just for Payments Anymore

Near Field Communication (NFC) technology has been receiving a lot of attention recently, often in the context of enabling contactless payments. However, NFC is well suited to a host of other applications, including contactless ticketing. We expect ticketing will be an increasingly common NFC application as more smartphones and other consumer devices incorporate NFC capability as a standard feature.

The verticals in which NFC-based ticketing could have a significant impact—public transportation, air travel, and entertainment, to name several—generally have the requisite infrastructure for accepting contactless tickets already in place, which would make the transition to NFC ticketing relatively quick, easy and inexpensive. The deployment of contactless NFC ticketing would have immediate benefits in each of these verticals, including:

• Reduced ticketing costs: accepting paperless, NFC tickets would provide strong ROI by reducing (or altogether eliminating) the costs associated with printing, distributing, and accepting paper tickets.

• Increased security/reduced fraud: The counterfeiting of tickets, especially those for popular sporting and entertainment events, is a common problem. By adopting NFC-based ticketing, organizations can limit their exposure to losses related to fraudulent/counterfeit tickets.
  
  • In entertainment applications, the ability to track tickets precisely from purchase to admission has an added benefit: by restricting the transfer of NFC tickets between parties, ticket issuers can effectively manage scalping and illegal ticket reselling.

The impact of NFC ticketing will reach beyond those benefits it provides to deploying organizations. NFC ticketing will emerge as an alternative—and direct competitive threat—to other ticketing technologies, including mobile barcode. How will the market to respond to NFC ticketing? To be certain, only time will tell, however, we expect NFC will cause disruption in the market for mobile barcode readers.

Looking for New Markets? They’ve Got an App for That!

Smart phones have been a boon to the application developer community, and this community will be instrumental in cultivating demand for AIDC suppliers.  With nearly a half million apps created for smart phones, and downloads eclipsing 10 billion at Apple’s App Store alone, the implications of this mobile revolution are clear for AIDC suppliers participating in the retail and hospitality markets.

Mobile shopping applications are scaling rapidly.  The number of consumers using mobile barcode scanning is conservatively estimated at 15 million, and scanning applications are being downloaded at unprecedented rates.  A recently released Mobile Barcode Trend Report issued by ScanLife suggested 16X% growth in the fourth quarter of 2010, doubling the activity reported in Q3. 

Clearly, the capability to display and scan barcodes with consumer grade devices will create opportunities for data capture suppliers, their channel partners and the customers they serve.  Case in point: mobile coupon redemption.  Providing a transparent link between the brand owner and the consumer responding to the offer, achieving higher redemption rates, and reducing coupon fraud while taking costs related to printing and distribution out of the equation makes for a pretty compelling value proposition. 

Here’s what we think: the proliferation of mobile devices and couponing apps will drive demand for 2D imagers at the point of sale, devices that may enable a host of complementary applications ranging from age verification to auto-forms population.  That’s the value proposition for data capture companies, and one that has product managers giddy with the prospect of a wholesale technology refresh at the point of sale. 

But retailers and the customers they serve are only enamored with new technology when it works, and the proliferation of mobile software application developers presents a challenge for suppliers of 2D imagers.  The high-touch ISV partner recruitment and collaborative selling techniques historically deployed by these suppliers must be complemented by broader product marketing and training initiatives designed to address the needs of this exploding and increasingly diverse channel segment.  Webcasts, whitepapers and symposia are cost effective mechanisms to address some of the leading issues addressing this community, and these issues include:

• The benefits and drawbacks associated with proprietary and non-proprietary barcode symbologies
• The role of standards bodies such as GS1 will play in the codification and proliferation of best practices
• How to optimize symbology design and placement to improve scan rates
• What’s next: application extensions enabled by image capture 

Those suppliers who address these issues and make it easier for developers to collaborate and bring solutions to market will benefit most by securing brand loyalty with an increasingly influential channel segment. 

 

New Kid(s) On the Payment Block

Around this time last year, we introduced you to mFoundry and its digital wallet & vCard solutions, heralding an entry into the plastic-less future of commerce. Starbucks (SBUX), one of mFoundry’s premier customers since 2009, recently announced a nationwide rollout of its consumer mobile payment initiative, extending to all of its 7,500+ stores/outlets. Loyalty card holders with Smartphones can now pay for their purchases at these locations via a 2D barcode displayed on the mobile screen that is scanned at the point-of-sale using Honeywell 2D barcode scanners. This new scan-and-go capability at these stores promises to quicken the check-out process while potentially lowering investment in point-of-sale peripherals such as payment terminals. And most importantly, this alternative payment method manages to effectively engage today’s increasingly technology-savvy consumer base and enhance their overall experience while also pitching SBUX as a technology-forward organization.

Mobile barcoding has been around for a while. For instance, one of the nation’s largest retailers, Target, rolled out a scannable mobile couponing initiative in 2010 allowing its customers to receive exclusive offers directly on their mobile phones and redeem them by scanning a barcode on the phone at checkout. Barcode technology suppliers are increasingly targeting this emerging, high-growth market segment with optical scanners designed to effectively read barcodes from a mobile (eg. Motorola's DS4208 & DS9208 and Honeywell's Genesis™ 7580 & Xenon™ 1900).

The general consensus among many of the payment processing and telecommunication industry stalwarts has been that NFC (Near-Field Communication) is poised to be the next evolutionary platform for contactless payment. Why then did SBUX choose 2D barcodes over NFC? There are several reasons:
• SBUX already uses a mobile couponing program, so the extension to another mobile barcode application is not a significant undertaking
• Barcode scanners are readily available and at a much lower price point – these are less capital intensive and scanners can be used to support multiple applications
• There are a very-limited number of consumers with NFC-equipped devices (especially in the US)
• Deploying NFC infrastructure into each store would require significant capital and serve a very limited customer base

But let’s be clear – SBUX does not appear to be writing off NFC. Their decision to use a barcode system is most likely an interim alternative until NFC adoption gains traction … and it’s well on its way. Support for NFC is foremost on the minds of most of today’s leading Smartphone and mobile device developers. For example:
• All Nokia Smartphones shipped in 2011 will be NFC-equipped
• Google’s next version of Android is expected to include NFC-based tap-and-pay functionality
• The next-generation of the Apple iPhone and iPad are rumored to have integrated NFC
• RIM is evaluating NFC for the possible inclusion in one or more of its BlackBerry models
• Contactless payment infrastructure – which NFC can leverage – is being deployed at a rapid rate and end users are becoming more comfortable with the solution. VDC predicts that revenue from contactless payment hardware deployments will grow in excess of 40% over the next 3-5 years.

And this bodes especially well for payment terminals suppliers who now have their task cut out for them. The need to rapidly innovate and future-proof product offerings to reflect changing end-user requirements are expected to drive development initiatives for this automation technology in 2011.

Barcode and RFID Convergence is Not About Technology

Tom Wimmer and I gave a presentation on this topic yesterday in support of the white paper we just published for GS1/EPCGlobal US, the crux of which can be summarized by the following:

• Technologies are being integrated with each other because the end user wants to leverage the information and attain the benefits from each independent system.
• Gathering and sharing information from independent systems can be attained by creating consistency within common architectures.
• This consistency can be accomplished by developing a single, unifying platform that will ensure that the information being used is essentially the same … a standard.
• Although technologies continue to be integrated with each other and leverage a diversity of carriers, the real convergence is occurring at the data level.
• Convergence is not about technology, it’s about commonality.

The PowerPoint presentation for this webcast is provided below.  If you’d like to listen to the audio recording, it can be found on the GS1 website at:  http://www.gs1us.org/epcglobal_us/education

Barcode & RFID Convergence: Enabling Greater Visibility Through Standards

View more presentations from VDC Research Group.

Mobile Marketing: The Next Battleground for Retail Automation Suppliers

Retail Automation suppliers preparing for NRF’s 100th Annual Convention & EXPO are working with VDC to position their products and services for this key event.  One topic has dominated many of these conversations: mobile marketing. 

Today’s consumers have access to more information than ever about the products and services they intend to buy, and mobile devices are increasingly delivering this information at the point of decision. 

Translation: smart phones with embedded scanning capabilities present unique challenges and opportunities for technology suppliers, integrators, brand owners and retailers alike.  

The promise of mobile marketing is well understood.  Consumers will increasingly have the capability to access information about the products and services they are considering purchasing via their mobile phones.  These devices will in-turn become a platform for coupon redemption, brand re-enforcement, and when managed holistically, will become a key consideration in the multi-channel marketing and CRM initiatives of retailers and their trading partners. 

The reality of applying mobile marketing is not so well understood.  While the promise of the technology is fairly easy to grasp, significant technical and commercial hurdles remain for each stakeholder community in the mobile marketing arena.

Any early adopter who has downloaded assisted shopping applications and tried to put them to work has experienced first hand many of these shortcomings.  Scanning accuracy/reliability, logo recognition, content formatting/delivery and coupon redemption are by no means “solid state”.  But the stakes are high, and application developers are working feverishly with mobile and POS device manufacturers, all investing tall dollars in an effort to develop this opportunity.  Although ROI is unclear, many operators are bought into the possibility of first mover advantage.

We’ve seen a short list of developers who are taking a holistic approach to their mobile marketing suites.  One of these developers, Augme Technologies, stands out for us because of the time and attention they have given to each step in the mobile marketing process.  Augme’s comprehensive web-based marketing platform provides marketers, brands and advertising agencies the means to create, deliver, manage and track mobile interactive marketing campaigns. 

Augme stands out because they have effectively addressed each step in the mobile marketing process, creating an end-to-end platform.  Further, their utilization of ScanLife’s content formatting and device detection technologies enable content to be instantly formatted for all common devices and operating systems.  What does this mean?  Improved time to market, reduced integration complexity, and clearly defined ROI models that support multiple stakeholders.  Neither Augme nor ScanLife are VDC clients.  We offer them as examples of thought-leading developers who are thinking holistically about mobile marketing, its application and promise. 

And that promise is becoming too compelling to avoid.  ScanLife will be offered on more than eight million phones by the end of the year, and another 15 million reader downloads are anticipated.  How is your company thinking about mobile devices and the probable impact they will have on retailing in the years ahead?  How are you scaling your investments in product, channel and market development to secure your place at the table?  Please post a comment and share your perspective with us!