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

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.

Reading Between the Lines: What Convergence Means for AIDC Suppliers

Historically, many companies invested in barcode technologies to comply with customer, industry or regulatory requirements.  Once external compliance mandates were met, companies began to extend their barcode investments by pursuing internal process improvement initiatives.   For many of these companies, barcoding became a viable source of competitive differentiation, improving margins and operational efficiency. 

Now, the quest for business improvement is driving increased investment consideration for complementary AIDC technologies.  These technologies are enabling a new breed of applications, and when used in tandem with barcode labels, many provide the data redundancy required to combat fraud and make data capture investments failsafe, all while enabling greater visibility and increasing the ability to leverage business intelligence. 

Data recently gathered from end-users deploying AIDC technologies suggests that a significant number of companies are investing in multiple technologies to meet their unique application requirements and enhance their existing solutions.  When asked, “What automatic identification/data collection solutions does your company use,” respondents suggested that they are complementing their use of barcode technology with a growing list of alternative technologies.
 

The questions are not which of these technologies will supersede barcodes, in what timeframe, or at what cost.  The questions are where AIDC technologies are converging today, where they are likely to converge next, and what suppliers must do to capitalize on their convergence. 

Learn more about VDC’s coverage of barcode users and their emerging requirements here.

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.

Customer Empowerment: Rising Star in 2011 Retail Automation Technology Market

During yesterday's webcast, we discussed retailer technology investment priorities and plans.

The retail and transaction automation market is evoloving—customers are more powerful than ever before, forcing B2C operators to realign with a rapidly changing customer base and their ever-expanding scope of demands. Customer empowerment, along with cost savings and operations improvement, will drive more technology investment in 2011; this strategic requirement barely registered in our survey returns five years ago.

This investment trend is the trend we believe all retail and transaction automation suppliers will need to address in the coming years. Customer empowerment is leading to rapidly growing investment in self-service and mobility solutions. The next generation of these solutions is requiring more complex planning and integration support.

To learn more about our thoughts and expectations on the retail automation technology market and customer engagement technologies, we encourage you to listen to the webcast recording and scroll through the slides below.

Keeping Pace in the Retail Automation Technology Market Through 2011 and Beyond

View more presentations from VDC Research Group.

The Many Faces of Personal Shopping Systems

One of the more exciting in-store retail technologies we study as part of our Retail practice is Personal Shopping Systems (PSS), a handheld or cart-based self-scanning device that enables retailers to personalize promotions and the in-store experience while also allowing the shopper to scan-and-bag items on the go. Although suppliers have long touted the value proposition of this solution, it is only over the past couple of years that global retail conglomerates have moved from pilots to larger scale deployments, particularly in Europe.

One of the more interesting trends for the PSS market is that just as the solutions are beginning to gain traction and scale, a new threat is beginning to emerge: Smartphones and tablets. These devices have the potential to integrate many of the same functionalities and values that PSS solutions offer, primarily through applications.  For example, smartphone applications such as AisleBuyer™ (currently available on Apple and Android phones) have the potential to convert the shopper’s personal handheld device into a PCI-compliant self-checkout solution while also supporting the personalization of content and highly targeted advertising and promotions.  Retailers could potentially refrain from investing in this solution given the high upfront costs for procurement & installation, lack of an established market for personal shopping systems and the threat of early obsolescence posed by emerging mobile applications.

Suppliers of PSS solutions are increasingly embracing this trend, with market leaders such as Motorola and Datalogic offering highly functional PSS devices that resemble ergonomic, touch-enabled mobile device solutions such as a smartphone.  Not only are these devices well-aligned with the highly intuitive graphical user interfaces and applications that today’s customer base is comfortable with, but they are also increasingly resembling and being marketed as mobile kiosks or compact digital signage solutions.  

Continued evolution in this direction could eventually enable retailers to bring the advantages of an e-commerce shopping experience to their brick-and-mortar stores as well as converge the benefits of multiple technologies into one device.  

For example:

• In a recently concluded end-user survey of retail automation technology users, a primary adoption barrier for kiosk deployment was the high price of the hardware and the extensive integration required. PSS solutions could offer a more cost effective solution as well as minimize the installation/integration pains.

• Retail in-store digital signage deployments are currently transitioning from a more traditional ad-based model to a more specific and highly personalized platform – which is aligned with the multi-dimensional value propositions as offered by a PSS.

Our research indicates that hardware for personal shopping systems accounted for nearly $27.4 million in global revenues for suppliers in 2009 and has the potential to grow to more than three times that number in five years’ time.  Learn more about VDC’s coverage of the personal shopping system market at: http://vdcresearch.com/_Documents/tracks/t1v7brief-2625.pdf