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

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. 

RFID Inside of Me?

Have you heard about this?  A Stanford medical researcher recently discovered that, contrary to common belief, HF frequencies actually transmit quite well within the human body. This realization prompted her to develop a micro-sized antenna which she then used to power an RF device capable of ‘swimming’ within a person’s bloodstream.  (See original article here.) On one hand, this discovery borders on being disconcertingly sci-fi, and conjures thoughts of Isaac Asimov’s ‘Fantastic Voyage.’ At the same time, an intravascular RF device is an exciting development that could eventually open a new world of possibilities for medical treatment and research, although such applications are a long way from becoming reality. Still, we believe this concept holds tremendous promise, as it could provide significant, undeniable value to all healthcare stakeholders—including the patient.

Using RFID in the human body and healthcare is not a new concept.  Sub-dermal tracking transponders have been around for a long time, medical device implants monitoring is gaining traction, and there have been a number of R&D projects pertaining to RF-enabled medication administration. Companies such as Versus Technology and Awarepoint offer patient monitoring systems, while Censis Technologies and Clearcount provide surgical tool tracking solutions (because nobody wants to find a forceps or sponge left inside of them post-operation).  However, this particular innovation is different, as it could eventually enable internalized, personal care giving. Not only would an intravascular device be capable of performing all of the aforementioned applications, it would also provide a physician unprecedented visibility into a patient’s body and make a number of medical procedures less invasive.

Several weeks ago we wrote about a recent NFC-in-healthcare event held at MIT. The majority of the solutions presented at that conference, as well as those we’ve heard about in our recent research, are intended for patient (as opposed to doctor/medical professional) use, and generally involve some kind of monitoring and/or tracking functionality. Our main criticism of these solutions is that they offer a weak value proposition to the person responsible for making sure they're used—the patient. Of course health insurance companies and doctors would love to monitor your blood pressure or adherence to a prescribed course of medicine in real-time; however, the key question is, how does using a solution that provides such visibility benefit the patient—the person ultimately determining whether it is used at all? If there is not a clear-cut, undeniable benefit, we think it is unlikely many patients will remember—or be willing—to use these solutions.

In the case of an intravenous RF device, the benefits for all stakeholders are readily apparent. Healthcare providers would have a new, versatile and valuable weapon in the battle against various ailments, while health insurance companies could potentially reduce payouts if this solution reduced the need for more traditional and complex procedures. Patients stand to be the greatest beneficiaries of all, as this technology could enable the precise treatment of ailments that were formerly addressable only by indirect or highly invasive methods.

Get a Little Closer to your Sweetheart with AutoID

Are you a Valentine’s Day procrastinator? You are not alone and it’s not too late.  AutoID is here to save the day.  In the spirit of everyone’s ‘favorite’ Hallmark holiday, we decided to blog about how an AutoID-enabled ecosystem can help ensure a romantic, love-filled day with your significant other.

OK – you’re late to the game because you’re just coming home from a business trip, but no sweat … you’ve got your NFC-enabled smartphone (which you used as your boarding pass).  As you get off the plane and sprint toward the baggage claim, you pass a flower dispensing kiosk that has the perfect bouquet.  You quickly select the bouquet, swipe your phone near the machine, approve the transaction with a tap and voilá, instant flowers for you to hand deliver.

You grab the flowers and make your way to the baggage claim.  Although you take solace in the fact that your bag isn’t lost because the airport is using RFID, you still get there before the bags come out and know you’ll be there for at least a ‘few’ minutes. During these valuable few minutes, you call to make a dinner reservation at her favorite restaurant and are told that the only reservation they have is for 10pm and the table is next to the kitchen.  But you don’t panic, because this restaurant has a loyalty program that ensures a premium table for its members and you are a longtime member.  So you go online, transmit your loyalty card information (as a tech savvy user, you already have this scanned into your smartphone) and reserve a table for two in a dark, romantic corner.   

Surprisingly, your bag comes early – must be that RFID system – and you are quickly on your way home, speeding along the highway using your toll transponder to avoid the long lines – and added stress - at the toll booths.  You finally make it home, with flowers in hand, are greeted by your significant other with open arms, and are summarily rushed out of the house to make your dinner reservation.

Upon arriving at the restaurant, the hostess scans your loyalty card (displayed on your phone) to authenticate your reservation.  You sit down and enjoy a lovely meal.  When the bill comes, you pay with your NFC smartphone – at the table, with a quick and virtual ‘high five’ with the waiter’s device.  As you are walking out of the restaurant, your sweetheart sees a movie poster advertising the latest Rom-Com (romantic comedy) and says they want to go.  You quickly hold your NFC phone to the movie poster, watch the trailer and decide that this is not the movie for you both, but another movie playing at the same theater is.  You buy your tickets online and drive to the cinema.  At the cinema, you display your tickets on your phone, have them scanned (barcode) or read (NFC), make a quick stop to grab some soda and popcorn (again paying with your phone), and watch the movie. 

You’ve had a successful and romantic evening, but wait…we’re not done yet.  Keeping this blog post rated ‘G’, you get home and both of you slip into something more comfortable.  As you cuddle up by the fire with a glass of merlot, you use your NFC phone to pair with your Bluetooth speakers and play some smooth jazz to set the mood.  The rest is up to you – even AutoID has its limits.

Happy Valentine’s Day!

Trolling for Dollars

RFID technology and application patents have been a topic of industry debate for many years, particularly those tied to passive UHF EPC Gen 2 technology. Historically, RFID patent activity has centered on patent pooling efforts, consortium building and the occasional patent infringement suit between or among vendors. However, the industry is facing a new threat: NPEs (non-practicing entities), more commonly known as patent trolls. And, one in particular, Round Rock Research LLC (Round Rock), is capturing headlines by filing suit against major RFID users including Macy’s, GAP Inc, J.C. Penny, Hanes, Dole, Pepsi as well as passive UHF end users in a variety of industries.

Unlike what we have seen in the past, the intended targets this time around are not vendors and solutions providers. Round Rock is pursuing enterprise end users, including many with deep pockets, currently citing five patents which cover communication methods or passive UHF EPC Gen2 RFID. The specific patent numbers are: 5,500,650; 5,627,544; 5,974,078; 6,459,726 and RE 41,531 (with others under consideration).  Micron Technology Inc. sold these patents along with some 4,200 others to Round Rock founder John Desmarais.

Although the complaints filed by Round Rock differ in some ways, each claims that a specific defendant has infringed Round Rock’s patents by making, using, selling or importing products or systems that consist of or include passive UHF RFID EPC Gen2 tags and readers. The actions are the result of Round Rock allegedly having grown frustrated with the slow pace of licensing discussions and possible royalty collections in the passive UHF EPC Gen2 RFID arena. Therefore, Round Rock elected to bring these suits in order to provide a catalyst for what it dubs “stalled negotiations.” Round Rock has consistently asked the court to declare that a defendant’s infringement is “willful” and to award unspecified damages, attorneys’ fees and expenses incurred in litigation.

Where’s the RFID Troll Patrol?

To better understand the RFID industry’s response or plan of action to address this significant issue, VDC Research reached out to several leading passive UHF EPC Gen2 component, hardware and solutions providers as well as industry associations. Responses were relatively uniform: we are doing our homework; however, there is little the RFID vendor community can do to defend or protect customers and users other than recommending they seek legal counsel and use the procedures of the courts to extend the process, including forcing Round Rock to produce documentation. The hands of most industry associations are also tied as they operate as non-partisan entities.  They, too, are suggesting end users seek independent counsel.

The harsh reality is that those being sued are apparently left to fend for themselves with no direct assistance or defense support from vendors and industry associations at this time. VDC Research believes a collaborative response is required; however, uncertainties around the best approach remain.

VDC Research supports the right of organizations to derive value from the intellectual property that they own. But, when done in this fashion, questions about blackmail and the inadequacies of our patent protection system arise.  In this particular case, passive UHF EPC Gen2 RFID end users had no knowledge, no advance warning and were essentially blindsided.  The fear is that the issue will balloon if not controlled or addressed soon, and that largest accounts – which are the most attractive to both RFID technology vendors and Round Rock – will delay further investment in RFID.

VDC Research continues to monitor the situation and will provide additional commentary and analysis as more information is gathered.

NFC at NRF

NFC was a pervasive theme at the 2012 NRF show held this week in New York City. Technology vendors of all types were talking about their plans for integrating NFC into their product portfolios and, in many cases, displaying their latest NFC-enabled solutions. Whereas NFC is a nascent, still-developing technology, its presence remains somewhat confined to a few key product categories, but as consumer adoption of NFC smartphones scales in 2012 and beyond, we expect to see an increasingly broad range of customer engagement/retail automation solutions incorporate NFC into their design. What follows is an overview of some of the notable NFC activity at this year’s NRF.

• ViVOtech introduced its ViVOtouch NFC solution, which is mobile marketing software platform that allows merchants to deliver targeted/personalized content, offers and loyalty programs to customers via their NFC-enabled mobile devices. This solution also allows for interactive shopping and NFC-enabled information retrieval on the store floor, further enhancing the shopping experience. Contactless payment is certainly a hot topic, but as a standalone application its ROI potential probably is not strong enough for most enterprises to justify investment. We believe solutions such as this will drive the adoption of contactless payment NFC solutions in retail.

• NFC payment terminal leader VeriFone introduced its PAYware Mobile Enterprise for Tablets, a secure payment acceptance solution that is compatible with the company’s GlobalBay Mobile POS solution. The solution is designed to run on Apple’s iPad 2, and provides the same functionality offered by the original iPod-touch based PAYware solution. PAYware for Tablets has the same fully secure encryption as previous versions of the solution, and enables the acceptance of traditional payment cards, PIN/EMV smartcards and NFC contactless payments. The solution adds further utility for merchants via a built-in 2D barcode scanner for item scanning, coupon acceptance and inventory management.

• INSIDE Secure demonstrated its NFC-based solutions for consumer and product authentication in retail. The solution enables shoppers to verify the authenticity of high-end/luxury goods and allows merchants to confirm the identity of customers. Whereas mobile devices, particularly smartphones, are becoming an increasingly prevalent element of retail marketing strategies and consumer shopping behavior, we expect that solutions leveraging NFC for brand and user authentication will become increasingly popular among retailers of luxury and other high-end goods.

Mobility and customer engagement have been pervasive themes with retail for some time now. NFC offers retailers a way to achieve both of these strategic objectives in a manner that is reliable, fast and easily-scalable. As consumer adoption of NFC gains momentum, we expect to see an increasingly diverse range of retail technology solutions support this technology.

VDC Research’s RFID Takeaways from NRF Big Show 2012

At this year’s NRF show, RFID technology made the strongest showing VDC Research has seen yet.  From RFID vendors and their solution partners showcasing innovative end-to-end application offerings to big retailers and brands reaffirming their  RFID adoption plans, rollouts and program extensions it was clear that RFID is increasingly being positioned as a core technology that enables enterprises to “engage and evolve” (the theme of this year’s show).    

Here are a few highlights we picked up during the course of the event:

• RFID-tagged Apparel Items are the 1% – 200 billion apparel items. This was the estimated total number of apparel pieces globally that was communicated to VDC by several vendors and retailers attending NRF. So, assuming roughly 2 billion RFID tags, that translates to approximately 1% penetration.  The good news is that the percentage (penetration rate) will only increase in 2012 and beyond.
• RFID is Fashion Forward, but Going Backward (a good thing) – Retailers and brands using RFID consider themselves early innovators, positioning them as “fashion forward” versus their peers; however, RFID tagging is most meaningful when you tag at the source, or further “backward” in the supply chain.  Some exhibitors at NRF were predicting a surge in apparel source tagging by the end of 2012 and into early 2013. As a result, source tagging was major theme being identified by vendors this year.  This included strong messaging from Tyco Retail Solutions and Avery Dennison’s RBIS team on RFID source tagging solutions (including offerings that combine RFID with EAS/LP capabilities/functionality) and the announcement of a new solution called ViziT™ from SML Group Ltd.  SML works along with the Impinj STP™ source tagging platform and is able to offer high-speed RFID chip encoding and label printing through SML’s own global network of service bureaus.
• The Magic of Macy’s RFID Message – Macy’s leadership was very vocal once again about its RFID program and plans, offering highlights during a panel. Macy’s Chief Administrative Officer, Tom Cole, reportedly stated that it will only be a matter of time before RFID tags become as common as barcodes, especially for apparel.  He also indicated that while Macy’s, their competitors’ and their suppliers’/brands’ approaches may vary, it is important that we move RFID forward as an industry. We agree with Mr. Cole that RFID will be a competitive advantage and differentiator in the beginning for those that support it, but it will come down to which retailers and brands can put the technology to the best use – just like with barcodes today. 

While most NRF attendees come for what’s new in “traditional” retail solutions, many left this year’s conference with a greater appreciation for the “modernizing” retail solutions (including both RFID and NFC technologies). We expect the 2013 NRF event to carry this trend forward, showing us the next wave of innovative solutions and users of RFID and its related technologies. In fact, we think it would be interesting to see an “RFID Pavilion” or "RFID Showcase" of sorts at a future NRF conference - a dedicated area in which attendees can see how RFID, contactless and NFC technologies can be leveraged to enhance retail operations and the customer experience.

Why the Zebra and OATSystems/Checkpoint Partnership is a Good Fit

Zebra and OAT/Checkpoint – two established leaders in their respective markets - announced that they entered into a “cooperative relationship and licensing agreement”.  The non-exclusive arrangement affords Zebra with an OEM license for OATxpress™, a middleware platform used for capturing, filtering and managing data from AutoID systems.  I say AutoID here – not RFID – because the OAT product is a true AutoID platform, not only capable of supporting a host of AutoID and sensor solutions, but also capable of supporting further application development.

Why this is a good fit:

• Zebra adds a proven middleware solution that complements its industry leading location, RFID and barcode solutions, enabling the company to add more value and contribute more to their customers’ installations … as well as the evolution of that deployment.
• Zebra adds a tool to their portfolio that adds functionality, promotes future proofing and supports controlled migration to other/emerging AutoID solutions.
• OAT/Checkpoint gains a ‘heavy weight’ partner in the AutoID industry that not only has one of the strongest brand names in its core markets, but also has a very strong channel that can/will be leveraged to extend footprint and capitalize on emerging opportunities.
• Both companies have overlapping footprints in their target markets (i.e., Asset tracking in Manufacturing), thus each offers the other further reach in core markets with a bigger ‘tool box’.
• The OAT/Checkpoint platform is built on Java which makes it a highly flexible, forward looking platform with a complete set of APIs for distributed applications, enables programs to run anywhere on networks, and runs on top of existing platforms. These and other Java-based capabilities made the OAT/Checkpoint software very attractive to Zebra.   

While the early focus of the OEM relationship will be in Zebra’s and Zebra channel partners’ location products and solutions that leverage the OAT/Checkpoint software platform, we expect rapid integration into other application and technology solutions. This will enable Zebra’s customers (users and partners) to mix and match AutoID technologies based on business process improvement requirements (which drive technology selection/change). 

The complementary nature of this relationship along with the benefits for each firm makes this a win-win in our book.  VDC will be monitoring the maturation of this relationship, the resulting bundled solutions and watching to see if other companies collaborate in a similar fashion.