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

NFC Payments … Good Things Will Come to Those Who Wait

Near Field Communication (NFC) is the focus of much media attention these days, but most of this coverage is concerned more with future opportunities rather than what is happening in the present.  Evangelism and media hype have resulted in consumers who are aware of the technology perceiving it almost exclusively as a contactless payment solution that enables mobile phones to function as a credit/debit card. And with recent announcements, media coverage, and overall activity levels (pertaining to NFC payments) it’s hard not to think of it as such.  For example:

• Leading payment terminal suppliers shipped record numbers of NFC-enabled terminals during 2011.
• Credit/debit card issuers such as MasterCard. VISA and AMEX are committed to the solution and are now issuing NFC-enabled cards. 
• MNOs (Mobile Network Operators) such as Verizon, AT&T and T-Mobile are investing in and collaborating on contactless payment solutions (i.e.: ISIS)
• 2H 2011 yielded more NFC-enabled device announcements from leading smartphone and tablet suppliers than we have ever seen previously, including Motorola, Samsung, Nokia, RIM and LG (though notably, not Apple).

Although contactless payment is expected to be a significant opportunity for NFC, we believe it will likely be several years before this application is broadly embraced by merchants worldwide, and that several other applications will take hold first.  But If NFC is expected to play a major role in mobile payments and has significant forward momentum, why are contactless payments years away from broad adoption?  Based on research we just completed, there are five key reasons:

1. NFC payment solutions are expensive and offer no clear ROI at this time – they are difficult to justify.
2. Many leading retailers went through expensive post-recession refresh cycles of their core systems, and are not allocating significant budgets for new in-store technology (particularly given persistent economic uncertainty).
3. The percent of consumers with NFC enabled devices remains limited.
4. Mobile payment application development is limited, suppliers’ mobile-payment product portfolios are slim, there is a lack of a universal platform/high levels  of proprietary platforms and significant customization and integration requirements
5. The enablement of mobile payments requires extensive cooperation across a complex payment processing landscape, and many of the required relationships are still at their formative stages.

Our comprehensive study of the NFC market makes us more confident than ever that NFC will have a role in the future mobile payment landscape, but we are equally confident that it will take time for its role to be fully realized. Although we absolutely expect contactless payment to be a blockbuster application, NFC’s immediate opportunity lies outside the realm of contactless payment solutions.  To learn more about NFC and our recommendations for suppliers, download the executive brief.

 

Verifone on Point with Recent Acquisition

Payment terminal solution supplier Verifone continues to pursue accretive growth. On January 3rd, the company completed its acquisition of Point, a leading provider of payment solutions in northern Europe. Point, headquartered in Stockholm, will continue operations under the same name, but as a wholly owned subsidiary of Verifone. Point represents the latest addition to the list of Verifone’s acquisitions over the recent past, which also includes WAY Systems, Gemalto’s payment terminal operations, Hypercom’s non-US operations and Global Bay.

The acquisition of Point has significant strategic importance for Verifone. The transaction rapidly increases Verifone’s presence in EMEA, particularly in Northern Europe, where the company has historically lagged behind the regional share leader, Ingenico. Combined with Verifone’s previous acquisition of Hypercom’s EMEA operations and Gemalto’s payment terminal business, Point further solidifies the company’s status as a serious threat to Ingenico’s market-leading position.

Furthermore, the addition of Point further extends Verifone’s portfolio of alternative payment solutions, including those for supporting NFC contactless payments and mobile commerce. EMEA is a particularly important regional market in the context of NFC payments, as historically stronger availability of NFC-enabled devices and a more robust installed base of contactless infrastructure could drive faster adoption of more advanced NFC solutions in this region.

Personal Shopping Systems-There's an app for that, too...

Stop & Shop is scaling its Scan-It Mobile initiative, an Android/iPhone-based version of its original handheld Personal Shopping System (PSS). At the end of October, the supermarket extended the app to 42 more stores throughout Massachusetts, Rhode Island and Connecticut. Leveraging a smartphone’s embedded camera as a scanner, the Scan-It app allows customers to scan & bag their groceries as they shop, thereby expediting the checkout process. As a regular Stop & Shop customer and iPhone user (not to mention analyst covering PSS), I was interested to test the Scan-It app first hand. I got that opportunity this past weekend while doing my weekly grocery shopping.

Overall, the performance of the Scan-It app on my “old” iPhone 3GS is impressive. In most cases, the camera scanned with approximately 90-95% of the efficiency as compared to the dedicated Scan-It solution, which I have been using on a weekly basis since it was introduced several years ago.

The app is not flawless, however. On several occasions I noticed the camera struggling to focus, delaying the scan. That said, I also experienced scans that occurred with the same speed as the purpose-built Scan-It solution. The only other shortcomings I noticed were the ergonomics of using the iPhone as a scanner and the hassle (relative to the dedicated Scan-It solution) of repeatedly scanning multiple purchases of the same item. I suspect this latter issue could be addressed through the addition of some kind of quantity-input feature in an updated version.

Considering the solid performance of the Scan-It Mobile solution, PSS apps such as Scan-It could represent a threat to the business of dedicated, purpose-built PSS hardware suppliers. By offering PSS via a smartphone app, retailers essentially eliminate the hardware investment required to deploy PSS, thereby enabling PSS to be deployed across a store chain with relatively little added expense. While ensuring data security—both for the customer and the enterprise—remains a critical issue, we expect more retailers seeking PSS will evaluate smartphone apps in addition to dedicated solutions.

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.

NFC-based Mobile Payments Gain Visa's Support, but are Far from Reality

Visa recently reaffirmed its commitment to support NFC-based payments by announcing measures that will increasingly move U.S. merchants and consumers away from magnetic-stripe based cards to next-generation payment types, including EMV/chip and pin and NFC.  This is an exciting development for the NFC community, as the transition of NFC-based mobile payments from concept to reality will create significant demand for NFC-based payment solutions.

In order for this transition to mobile payments to occur, there are a number of stakeholders that must cooperate, including banks, merchants, payment processors, mobile device manufacturers and cellular network operators. Card issuers such as Visa are also among this critical mass.

While other card issuers, including Mastercard and AMEX, also are embracing NFC technology, having signed on to various mobile payment networks, the transition from magnetic stripe cards to NFC-enabled mobile payments will not happen overnight.

There are many other pieces to the NFC mobile payment puzzle beyond gaining the support of card issuers. Merchants, banks, and wireless network companies will also need to buy-in to the idea of mobile payments and work through potentially sticky issues including interchange fees, security, and which stakeholder bears responsibility in the event of fraud. Equally as important, mobile device manufacturers will need to facilitate consumers’ adoption of this technology through broader offerings of NFC-enabled smartphones. At present, a limited number of smartphones available in the US market support NFC.

NCR Acquiring Radiant Systems, Inc.

On July 11, NCR (NYSE: NCR), one of the largest global technology vendors for assisted- and self-service solutions, announced its intention to acquire Radiant Systems, Inc. (NASDAQ: RADS), a leading technology solutions provider to hospitality and specialty retail establishments. NCR extended a cash tender offer of $28.00 per Radiant Systems share, with the equity purchase price of $1.2 billion having been approved by the boards of directors of both companies. Subject to regulatory approval, this transaction is expected to close during the 3rd quarter of 2011.

NCR’s traditional stronghold has been on the Financial Services and Retail vertical markets. This acquisition gives the company an immediate leadership position in the hospitality and specialty retail verticals, with a well-known, highly regarded and broadly installed brand.  Radiant expands NCR’s total-available-market by approximately $8 billion – this large expansion of addressable market for both organizations has led them to set a long-term business model goal of more than $7 billion in revenue and growth margins in the mid-30s.

In VDC’s opinion, this deal is a very strategic move by NCR to expand into core industry verticals – horizontal integration in order to enhance market share, increase revenue growth rates and improve margins by expanding mix of software & services – offering more complementary adjacency than the Entertainment vertical. While both companies offer software and solutions, Radiant’s growing subscription-based offering will enable NCR to build more software into the overall revenue mix resulting in substantial financial benefits.

To learn more about VDC’s analysis of the deal and the implications that we expect this acquisition to have on the global competitive landscape for retail automation solutions, click here.

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.

Retail Technology Convergence

Consumers today are increasingly leveraging the incredible depth of information available to them and exercising total control over the purchase process. By necessity, retailers are embracing this shift in control, taking the checkout to wherever the customer may be (case in point: large-scale mobile device deployments in Home Depot and Nordstrom). Suppliers of customer engagement technologies have, similarly, had to be agile and learn the importance of channeling their customers’ input into device functionality and solutions set. A recurring theme across many, if not all, of the technologies that we cover here at VDC has thus been mobility. Be it a mobile POS, transaction terminal, receipt printer or a personal shopping device. 

The need to expedite the check-out process and effectively engage today’s increasingly mobile customer while also presenting a technology-forward image in order to strengthen loyalty seems to be the driving factors for growing adoption across all strata of technologies. What is even more interesting is the degree to which the form factor is being patterned according to consumers’ personal handhelds – never before have consumer products influenced enterprise-grade technologies to such an extent.

This new universal form factor is blurring the lines between some of these customer engagement technologies, which have in the past had their suppliers enjoy distinct boundaries encompassing target markets/verticals, feature & functionality sets, and expectations that were more or less set in stone. For instance, POS Terminal bellwethers such as NCR, IBM and Wincor Nixdorf are today directly competing for tighter retail IT budgets with vendors such as Motorola, Honeywell, VeriFone and Ingenico who have each, to varying extents, expanded their portfolios or device functionalities to include mobile POS solutions. Consumer-grade Apple products with integrated barcode scanners and card readers are also in very high demand especially amongst fashion retailers. While these are currently complementary to their stationary counterparts, VDC’s latest research on the POS market indicates a much higher annual growth rate for mobile devices which will eventually come at the expense of this traditional form factor.

At what pace is investment on these mobile devices taking place? How is this tussle between traditional and next-generation form factors shaping up? How are suppliers enhancing their software solutions portfolio to run seamlessly across a plethora of disparate technologies? For answers to all of these questions and more, stay tuned to our continued coverage of Customer Engagement Technologies (CET).

 

Kiosks – Ringing in a New Age

Interactive Displays & Digital Signs and consumers’ personal handheld devices (including smartphones and tablets) have been steadily converging with kiosks and increasingly changing the market’s landscape.  These devices have caused kiosk vendors to rethink and re-engineer their traditional applications such as product/service information lookup and wayfinding, particularly for consumer-facing organizations. While these applications continue to be popular, organizations are constantly looking for solutions that effectively align with and engage their increasingly technology-savvy consumer base, enhance their in-store experience and improved customer loyalty. Kiosk suppliers are responding to this increased convergence by:

- Enhancing the software solutions set for self-service kiosks – Kiosk suppliers are leveraging relationships with ISVs and SIs to capitalize on the boon of application development in the mobile device and digital signage markets as a means to extend their own platforms. Popular applications include:

    o Smartphone applications (e.g.: RedBox mobile)

    o Online portals (e.g.:  JC Penney’s “Endless Aisle”, Toys ‘r’ Us “Wish List”, Coinstar “Face Cube”)

- Leveraging the same user experiences as some of these next-generation devices - User experience is not just about flashy imagery and music anymore … it’s more interactive.  Retailers are increasingly demanding multi-touch capabilities, particularly for kiosks and digital signage solutions, leveraging the same type of interface many consumers already use. The enhanced capabilities are enabling retailers to further interact with their customers as well as create new sales and marketing opportunities. Examples include Beyond Kiosks & iBracket (build kiosk enclosures for iPads) and IN Media (recently launched IPTV technology based HD kiosk running on an Android platform).

How is the growing surge in tablet sales expected to impact the market for traditional kiosks? Are dynamic software solutions that enable seamless in-store and cross-channel technology integration a must-have for end-users today?  We expect to answer these questions and learn more trends in our coverage of the Kiosk market as a part of the 2011 Customer Engagement Technologies Market Intelligence Service (CET). Stay tuned.

Tablet Computers: A Key Point of Convergence for Customer Engagement

The emergence of tablet computers, such as the iPad, Motorola Xoom, and Samsung Galaxy has many businesses thinking about ways to integrate these devices into applications that compliment their existing customer engagement solutions. Tablets are a cost effective, flexible, and easily scalable addition to a variety of enterprise hardware devices such as POS terminals, self-service kiosks, and interactive displays.  In the near term, we expect these devices to become increasingly common in enterprise deployments, as businesses seek to extend the value of existing systems via the integration of tablets.  VDC’s 2010 Mobile and Wireless study forecasted 130% revenue growth in 2011 for tablet devices used within the enterprise. During the next several years, VDC expects growth in this category will continue to accelerate as more hardware suppliers and ISVs offer integration and application development support.
Examples of tablet integration into the enterprise include:

1. A number of Arby’s locations are piloting programs that integrate an iPad with their existing POS terminals, using the tablet as a mobile POS terminal as a means to scale POS bandwidth on an as-needed basis and for queue busting during peak hours.
2. Larger retailers such as Nordstrom, Sephora, J.C. Penney and Converse are conducting iPad pilot programs in stores across the US.  These retailers are experimenting with tablets as electronic catalogs, informational kiosks, social media platforms and interactive displays, as well as leveraging them for payment processing and inventory management.   Examples include:   
   
   • Converse has developed an application that allows customers to design and order customized sneakers while in store.
   • Sephora has created an interactive program that enables customers to test various makeup and color combinations on a virtual model.

Tablets possess tremendous potential for both the enterprise and the customer.   The enterprise will benefit from operational efficiencies, improved margins, increased customer loyalty, and new opportunities to reach consumers. On the other hand, customers are expected to benefit from greater access to information, which will result in enhanced decision making and an improved in-store experience.

VDC expects that adoption of tablets will scale rapidly, as they increasingly become a center of convergence for a diversity of customer engagement technologies.