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

RFID Gets a Bit of Consumerization via Alien Technology’s iAlien App

The concept of the “consumerization of IT” generally refers to the increasingly common dynamic whereby consumer grade devices—from various perspectives including form factor, features, and software, just to name several—play a highly influential role in guiding enterprise IT development and adoption strategies. Consider the case of smartphones and tablets. These are two key device categories driving this trend as of late—not just in the sense that enterprises are increasingly using consumer-grade smartphones/tablets for applications where rugged/semi-rugged enterprise-grade devices would previously have been the only choice—but also from the vantage point of their sphere of influence. For example, witness the numerous enterprise-grade device manufacturers that have integrated features—such as touch screens and simple, highly intuitive GUIs—whose popularity can be traced to consumer-devices.

Compared to other enterprise IT markets, such as mobile devices, customer engagement solutions and barcode, consumerization has had a relatively limited impact on traditional RFID technology. Still, slowly but surely, this trend is influencing the development of (and enterprise investment in) RFID solutions, especially passive UHF.

The latest manifestation of this trend in RFID emerged from a partnership between Alien Technology, a leading passive UHF supplier, and Turkish RFID company Teknopalas. The two companies cooperated to develop iAlien, an iOS application that enables users to manage RFID readers and view reading activity via an Apple iPhone or iPad. The app is compatible with Alien’s ALR 9900+ reader and enables the aforementioned Apple devices to view interrogation activity, monitor reader and antenna status, change reader settings and passwords, and write data to tags. While the app is only available to iOS device users at present, that will soon change. In September 2012, the companies plan to introduce a version of iAlien for Android devices as well.

We think consumerization has had little effect on RFID largely because it is often deployed in harsh environments—such as freight yards, manufacturing floors and distribution centers—where rugged, commercial-grade devices are a non-negotiable requirement. While the need for ruggedization is not likely to change in these application environments, we believe yard supervisors and floor/warehouse managers will leverage the iAlien app on their personal devices for remotely monitoring their enterprise's RFID “vital signs” when they are off-site.

Furthermore, RFID is gaining traction with Tier 1 retailers—and these same enterprises are increasingly leveraging consumer-grade devices for customer service, mobile POS and inventory applications. We expect the iAlien app will be well-received by retailers already using consumer-grade devices, as layering RFID reader management/monitoring capability on top of existing functionality will further increase the utility and ROI their mobile device investment delivers.

Bird’s Nest Farmers Find RFID Hard to Swallow…

When the concept of retail item-level RFID tagging was in its nascence, conspiracy theories abounded among privacy and civil rights activists, who believed that merchants such as Wal-Mart and the government would leverage these nefarious devices (dubbed “spy tags”) to track every movement of their customers/citizens as they went about their daily routines in their new Levi’s. With RFID technology well-established in many vertical markets at this point in time, the privacy fervor surrounding its use, particularly in retail, has diminished considerably. Still, RFID technology occasionally ruffles some feathers. Case in point: the ongoing protests among Malaysian bird’s nest farmers, who are strongly resisting ongoing government efforts (both on the part of Malaysia and China, the major importer of nests) to mandate RFID-enabled tracking of the nests during farming and processing in order to prevent counterfeiting and to protect consumers.

Why would anyone want to track bird’s nests? Certain swiftlet species build nests that are used to make bird’s nest soup, which is a delicacy in parts of Asia-Pacific, especially China and Hong Kong. The nests vary in cost depending on various factors, including their color and place of origin, with certain varieties fetching up to $10,000 per kilogram—which provides a strong incentive for counterfeiters to pass off inferior nests as high-end product. Furthermore, health and safety are major issues in this trade, particularly because of bird flu outbreaks in certain areas of the Asia-Pacific region. Therefore, not only is there a need to ensure authenticity of the product, there is also a requirement to trace it back to its point of origin.

Protesting nest traders cite concerns that the RFID tracking initiative is simply an example of bureaucracy and that complying with such regulations would unnecessarily disadvantage smaller-scale operations while benefiting a select group of major nest producers. While these concerns are understandable, we wonder whether these protesters have considered the potential upsides of adopting RFID-enabled tracking and authentication solutions, which have proven valuable in a range of other vertical applications including pharmaceuticals, consumer electronics and luxury goods.

Although investment in an RFID tracking and authentication solution may be a challenge for certain enterprises, the ROI these systems can potentially deliver oftentimes makes doing so a “no-brainer” decision, especially in scenarios such as the one in Malaysia where the current supply chain lacks transparency. From supplier’s perspective, not only would industry-wide adoption of tracking/authentication level the playing field against counterfeiters, it would also reduce the risks of inventory shrinkage as well. For consumers, tracking and authentication would provide better food safety and increased confidence that these products are safe for consumption.  All of these benefits could drive significant ROI in the near term for legitimate nest farmers. Only time will tell if RFID authentication ultimately will fly with them…(pun very much intended).

Tier 1 Merchants Want You to Open Your (Mobile) Wallet

If you thought there was no room for yet another m.wallet competitor, think again. More than a dozen of the largest Tier 1 retailers in the US have joined forces to create the Merchant Customer Exchange (MCX), which will develop a mobile wallet app that enables consumers to pay, redeem coupons and receive personalized offers via smartphone at participating merchants. Founding members of the MCX consortium include Wal-Mart, Target, 7-Eleven, Best Buy, CVS, Lowes, Shell and Sunoco (among others), but if the MCX m.wallet is well received among consumers, we expect other merchants will be likely to join in the future.

No definitive statement has yet been made regarding which technology will enable transactions conducted with the MCX m.wallet, but announcements made by MCX member companies suggest the app will work on most smartphone types. While we cannot say for certain, the fact that this app will be available to most common smartphones implies that it will be 2D barcode- or QR code-based, not NFC. Although NFC is becoming increasingly common in higher-end smartphones, it is far from the level of adoption these major Tier 1 retailers would require in order to rely on it as the exclusive enabler of the MCX wallet. Perhaps the MCX app will take a dual technology approach (i.e., QR/barcode and NFC) to enabling payments, but based on early statements made by MCX member companies and the fact that US NFC adoption is extremely low, we believe it is extremely unlikely that NFC will play a significant role in the early days of MCX.

For early entrants to the m.wallet game, such as Google Wallet, we believe the emergence of the MCX could present the greatest challenge yet in building towards a critical mass of consumer and merchant users. While Google Wallet has been available for over a year now, adoption has been weak and hamstrung by various factors, including attempts by MNOs to block the app from phones using their networks, limited merchant participation (it can only be used where MasterCard PayPass is accepted), security concerns and (until version 2.0 was released earlier this month) the fact that only one payment card type could be linked to the app.

We think the most formidable challenge this new competitor will present to Google Wallet and other m.wallets (e.g., ISIS, if its alleged summer pilot ever happens) will be in their efforts to build a robust base of participating merchants. If MCX adoption ramps up more quickly than Google Wallet has to date, we expect merchants evaluating the acceptance of an m.wallet will be more inclined to join the MCX consortium instead of Google. Furthermore, several of the founding merchants behind the MCX initiative are currently involved with Google Wallet—so this new joint venture could also potentially erode what progress Google has made so far.

The Rumors of ViVOtech’s Demise are Greatly Exaggerated

Well, maybe not greatly exaggerated…but certainly overstated, according to the most recent statements from the Company. The past week has brought a flurry of doom-and-gloom rumors surrounding payment terminal and solution provider ViVOtech, one of the more prominent NFC payment solution providers. While there does seem to be an element of truth to the preliminary headlines, it now appears that the outlook for the Company is somewhat less dire than the original rumors indicated. According to official Company statements, ViVOtech is not planning to cease operations, but is indeed restructuring its business to focus on mobile commerce software solutions. As part of the restructuring efforts, the company is working to divest its payment terminal/NFC reader business.

Early this past Friday, July 27th, reports (attributed to “unnamed sources”) that ViVOtech would “cease operations” circulated online, but the Company quickly issued an official statement indicating that its “business fundamentals are strong,” and that “orders and contracts are building in both its reader and software” businesses. However, despite claims that its reader/payment terminal business is growing, ViVOtech indicated that it working to divest the same. Ultimately, should it come to pass, this divestiture would be part of a broader restructuring effort via which ViVOtech will exclusively focus on mobile commerce software.

From a certain strategic perspective, the divestiture of ViVOtech’s payment terminal business is logical. Thinking strictly in the context of the cutthroat competitive forces in the payment terminal market—specifically, constant pressure on margins, increasing entrenchment of giants like VeriFone and Ingenico and proliferation of low-cost suppliers, particularly in APAC—focusing on more profitable software at first seems to be a well-advised move.

However, from a broader standpoint (one that includes sales and end-user perspectives), we believe abandoning hardware altogether is a risky strategy for ViVOtech. When it comes to payment solutions, most merchants prefer one-stop, end-to-end solution providers. Thus, by moving away from hardware entirely, ViVOtech could alienate a significant percentage of its installed base and prospective customers that may look to the Company as a payment solution provider in the future. If ViVOtech does ultimately divest its hardware business, we think the Company would be well-advised to establish partnerships, either with the acquirer, channel resellers, or other hardware-only providers, in order to maintain at least a certain degree of end-to-end capability.

Update, 8/6/2012: ViVOtech announced today that it has completed the sale of its reader business to ID Tech, a US-based supplier of contactless, magnetic-stripe, and bar code readers and related POS peripherals. No details regarding the terms of the transaction were disclosed.