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

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.

Asset Tracking with RFID is More than Tracking Assets

Asset tracking is one of the most prolific applications in the industry, with solution revenues (all hardware, software & services) exceeding $540 Million last year and expectations of that nearly doubling by 2014. 

But all that growth is not just coming from more assets being tagged; it’s also coming from the expansion of the solution.  Asset tracking is not just about tracking assets - the value proposition is becoming much broader now.  These solutions are increasingly being leveraged to provide more information about the asset, its environment, its movements and its users.  The information gathered from these solutions is highly valuable business intelligence that is being leveraged to enhance business processes, increase asset utilization, support compliance and minimize costs. 

For example, early asset tracking solutions in healthcare focused on simply identifying where an asset is located, with the main point being to ease the pain, time and expense of hospital workers looking for equipment and to act as a shrink deterrent.  Now, asset tracking solutions in healthcare are becoming deeply integrated into host and other systems and are capable of more functionality (just to name a few):

• Locating and communicating information about an asset in real time
• Ensuring cleaning/sanitizing procedures are conducted before going back into circulation
• Reducing rental requirements due to increased utilization and visibility – less need for rentals
• Pairing assets with locations, devices, employees or patients
• Providing environmental condition/monitoring of the asset and its location(s)
• Enhancing and/or automating related processes and increasing operational efficiencies
• Pushing the decision-making process to the lowest possible level (real time dissemination of business intelligence to decision makers)
• Storing information on and supporting maintenance processes

Asset tracking has acted as a foundation for many enterprises RFID systems – they adopted a solution for a highly focused application, proven the value proposition and then expanded their solution to provide more value, functionality and business intelligence in a deeper integrated environment.  Scaling of asset tracking solutions will continue and more assets will be tagged – in field and at the source of manufacture; but don’t forget that a big part of the story behind the proliferation of asset tracking is the solution’s expansion.  

New Accounts on the Rise for the RFID Industry

Approximately 80% of the total global RFID revenues in 2009 were from accounts that have been using or evaluating the technology for at least 1 ½ years, and that figure didn’t change much in 2010 (~75%).  There are several reasons behind this.  New accounts are typically pilots or evaluations that, depending upon the application, can last from days to years and use limited infrastructure (and contribute less revenue) as they design and tweak their systems.  It takes a bit of time for these accounts to evolve, expand and scale.  In addition, many established accounts were significantly expanding and scaling their deployments in 2010, so the revenue contribution from these accounts increased sharply and overshadowed the gains made in new accounts.

But this trend is changing: the revenue contribution of new accounts to the global RFID market is expected to begin to increase sharply in 2011/2012, and by 2015, new accounts will account for a majority of global revenues.  Why?

Reasons include:

• A tipping point is being reached.  A tipping point that is a function of more favorable pricing, increased packaging/bundling and availability of off-the-shelf solutions, more benchmark and performance metrics, enhanced standards and improved business models.
• Evaluation times are decreasing.  Account development lifecycles for these next generation green-field opportunities are not expected to take as long to develop as the current/latest generation of large account/program/project opportunities.
• The competitive advantage.  More early adopters are citing “competitive advantage” as a benefit of their RFID solution – a direct result of increased visibility and more actionable business intelligence.  Expect their competition to follow … and quickly.
• RFID’s penetration level is low.  There is significant opportunity out there in virtually all regions, verticals and account types.  There’s even more opportunity in many established accounts.

RFID is rapidly becoming a more sound investment and is moving from a “nice-to-have” to a “need-to-have”.  Expect the trends of scaling and expansion of established accounts we saw in 2010 to continue in 2011, and get ready for broad and facilitated adoption in ‘green-field’ accounts.  RFID is moving into greener pastures.