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

SATO’s Marketing Teaser – Is That a Thermal Color Label Printer?

SATO’s recent slew of marketing emails has piqued my curiosity. The company looks all set to announce its new industrial printer model during MODEX 2014. This is pure speculation, but to me, it looks like they are launching a thermal color label printer. That would certainly be a most interesting addition to their existing line of barcode label printer offerings. While interest is building in color thermal printing technology, vendors have largely refrained from dedicating R&D dollars to it because of associated challenges and costs involved – both from their own perspective as well as that of their customers’. Engineering complexities typically make such projects cost prohibitive. Users looking to incorporate color into their traditional label designs, either due to industry compliance regulations or for aesthetic appeal, have the following investment options:

• Two-color thermal printers from the companies mentioned above
• Two-color label stock from consumables vendors
• Traditional on-demand color inkjet label printers

In the past 18-24 months, GHS (Globally Harmonized System of Classification and Labeling of Chemicals) labeling compliance regulations have opened up the use of color label printers in chemical manufacturing environments. My conversations with leading vendors in the thermal barcode printing market indicate that this is certainly an opportunity worth pursuing, especially for those that already have color printers as part of their portfolios. Vendors such as cab Produkttechnik and Carl Valentin GmbH, both based out of Germany, are among the only ones that can boast of dedicated thermal, two-color label printers as part of their existing product lines. However, their use is restricted to fairly niche applications today where they also face stiff competition from the more established (and cost-effective?) inkjet alternatives. Will SATO’s potential entry into this space be a game changer? Stay tuned for updates.

Zebra’s Acquisition of Hart Systems – Battling Commoditization in the Hardware Market

Global barcode label printing leader, Zebra Technologies, has recently been subjected to flat revenues in its core business, an issue that has been impacting the entire specialty printing market. This has resulted in significant pressure from the company’s stakeholder community to innovate and find new avenues for growth and business sustainability. Though there has been a lot of talk among AutoID market participants of penetrating new verticals to increase sales, we at VDC think that Zebra’s response to these pressures presents an interesting alternative.

Zebra started 2013 with its acquisition of StepOne Systems, a company focused on addressing retailers’ in-store application requirements via mobile software solutions. This acquisition marked Zebra’s initial push toward the store front, and their recent acquisition of Hart Systems (for $94 million cash) has further strengthened their retail presence. Hart Systems is a provider of cloud-based solutions in the retail space. Their core business is driven by a self-managed inventory system that operates on cloud-based solutions and barcode scanning technologies to help retailers conduct inventory without third-party assistance. VDC believes that Hart’s solutions will help Zebra make a splash in the retail space that will usher them along the way to becoming a one-stop shop for retailers. Such acquisitions will serve to fulfill Zebra’s vision of shifting focus from being a printer hardware vendor to a solutions provider.

Both companies are excited about this acquisition and the mutual benefits they anticipate it will afford. Hart Systems’ CEO Edward Tonkton noted that he is excited to become a part of Zebra’s “industry leading solutions and global reach”. Zebra’s size and strongly established distribution channels will certainly provide an excellent place for Hart Systems to expand, especially in relationship-centric verticals like retail.

Zebra also finds Hart Systems’ business model to be particularly attractive. Hart Systems has adopted a “Hardware-as-a-Service” (HaaS) business model similar to software solution providers’ SaaS strategy. Rather than sell their self-managed inventory solutions (hardware included), Hart rents them out according to retailers’ needs. This helps enterprise end-users significantly cut down on their fixed costs. It also provides them with the most up-to-date technology at the time of their need; this will become increasingly more important as innovations in the solutions and hardware fields continue to rapidly advance. We anticipate that in the future Zebra will incorporate this HaaS strategy into its primary sales model to cut costs and entice customers in a similar way.

Long product lifecycles, market saturation, and high penetration rates paint a gloomy future for AutoID hardware vendors that disregard the need to revise their go-to-market strategies. At VDC, we believe that Zebra’s decision to further penetrate the retail vertical will allow for accretive revenues that will appeal to the company’s investor community. Zebra serves as an example to the AutoID community that penetrating new markets with traditional product lines is not the only viable strategy for growth and market expansion. We fully expect Zebra to continue expanding their retail presence and, as the leading vendor in its space, set an example for its peers and key competitors.

(By Edmo Gamelin, Research Assistant)

The Legislative Future of Cyber Security

Federal security requirements for merchants and credit cards are imminent. Privacy and cybercrime was the topic of a Senate hearing on February 4 that featured testimonies from representatives of Target, Neiman Marcus, Symantec, and the Consumers Union. As stated in an earlier blog, over 1000 million customers have had their credit card information stolen from Target and Neiman Marcus’ brick-and-mortar stores in the past few months. Cyber attacks have been bombarding a multitude of markets including retail, leisure, and even government, as evidenced by the recent breach of the healthcare website, exposed to attackers searching for registrants’ personal information. Up to this point, there is very little legislation concerning standards of security that businesses dealing with personal information must adhere to. The Senate committee centered the hearing around a few specific aspects of security that retailers would have to focus on. Malware prevention standards will be the primary laws enacted. These standards will be strong but flexible, in order to make them robust against attacks while also being able to change with the ever-evolving nature of cyber attacks. Senators also pushed for a breach notification law that would require organizations that have undergone a data & security breach to swiftly contact any consumer whose information may have been compromised. There are currently no laws requiring the company to do so.

Senators also debated with the business representatives about the future of payment. The current trend in America is a standard credit card with a magnetic strip that identifies the card when swiped through a machine. The Senate and business representatives came to a consensus that this technology needs to be updated to a chip-based solution as soon as possible. Chip-and-PIN or EMV technology is already integral to daily life and transactions in Europe and several other countries, where magnetic strip credit cards are obsolete. The EMV technology requirement that the US Senate is now proposing based on feedback from retailers, banks and the consumer union on inherent costs involved, is a chip-and-signature solution. The reason for choosing this technology over chip-and-PIN is rooted in the fact that it is very similar to the current mode of payment here in the United States. Chip-based cards, by themselves, provide more advanced security and prevent cloning of cards. PINs are an additional security layer that can potentially become a part of the solution at a later date, to minimize initial investment costs. Europe has seen a significant drop off in cyber attacks on brick-and-mortar stores since the introduction of the chip-and-PIN system. However, by making a clear distinction between what is desirable and what is possible in the near term, the aim is to, at the very least, upgrade to a payment option that is much ahead of the current, outdated magnetic stripe-based alternative.

At VDC, we believe that the future of payment will go beyond EMV technology to include mobile wallets. These digital wallets allow the consumer to pay directly from their personal handheld device, usually a smartphone or tablet. We expect the solution to be consumer-friendly because they help store information for multiple credit cards in a single device while also being retailer-friendly since these can be scanned by camera-based 2D imagers already in place at many stores. A MasterCard representative recently told the Wall Street Journal that they are developing the idea of a tag that could be attached to phones for mobile payments. The Senate considered this technology too underdeveloped to take immediate action on. The security of mobile wallets was called into question because this connected device is just another potential target for cybercriminals. As discussed in the hearing, layered security – featuring network segmentation, two-factor authentication, sophisticated network monitoring, and chip-and-pin technology – is no longer synonymous with consumer information protection and a secure transaction future. Increased sophistication of attackers today helps them evade all best practices and industry benchmarks. Retailers firmly believe that sharing intelligence across communities and the entire ecosystem will help them stay close to, if not get ahead of, these attacks and security breaches. That said, it will be interesting to see if retailers, banks, merchant processors, card issuers and the federal government are able to come together in the near term and work towards a common objective of adequately protecting consumer data and enforcing security.

(By Jake Ferry, Research Assistant)

Is Amazon All Set to Challenge Apple in the Mobile POS Market?

According to a recent Wall Street Journal story, Amazon.com Inc. (AMZN) is in the process of building a Kindle tablet-based point-of-sale (POS) checkout system. This is, in part, fueled by the company’s desire to be exposed to brick-and-mortar retail operations and gain an acute understanding of consumers’ in-store buying behavior. AMZN acquired mobile payments startup GoPago Inc. back in December with an aim to leverage their mobile payment technology for POS applications. Now, by seamlessly integrating GoPago’s credit card reader (like Square) with their Kindle Fire HDX tablets to create a complete transaction-enabling solution, the company aims to make it easy to use for small businesses. Amazon is toying with the idea of giving free Kindles and credit card readers to businesses in order to collect their sales data. If this were to happen, businesses that could not previously afford the switch to mobile POS solutions might find the offer enticing enough to take the plunge. Kindle’s price point will make it particularly attractive to small businesses. Stationary POS solution vendors in North America, including behemoths like NCR and Fujitsu, are at a distinct disadvantage with the lower revenue tier retailer community. Competitive pricing and the more desirable form factor of these mobile alternatives could take business away from these companies’ core stationary product offerings.

Amazon already has a wealth of knowledge pertaining to online shopping trends and instituting its presence in the physical world will help the company further its retailing ambitions. This is especially important given that a significant percentage of consumer spending today continues to happen offline. A potential upside for retail establishments is that Amazon is considering partnering with them to allow promotions and discounts to be offered through the Amazon.com website. Another benefit to an Amazon POS system is the company’s already established customer database. Amazon.com holds credit card information for more than 230 million users, which could potentially help make the checkout process fast, efficient, and convenient.  Customers would now have the option of completing their in-store transactions without taking out their wallets. By capturing information on their customers’ offline shopping habits, AMZN will hold an unparalleled advantage over its retail peers – invaluable competitive insight that will help enhance cross-selling and up-selling efforts on their website.

VDC believes this very advantage could also prove to be one of the primary barriers to adoption of the Kindle-based POS system. While this new solution can ease the checkout process and help retailers elevate overall service levels, they will, possibly, be wary of the fact that they are giving valuable customer-related information directly to their competition. With this initiative, AMZN will gather data from a variety of different retail stores and gain a much broader perspective of overall market trends and consumer buying behavior, and will be able to use that data to divert additional shopper traffic to its own website. The recent data breach at Target also begs the question - how secure will this new Amazon solution be. As we stated earlier, Amazon.com has detailed credentials for more than 230 million credit cards in its databases and this new system will, potentially, increase those numbers. This wealth of customer information will only serve to attract the attention of hackers and identity thieves.

Amazon is attempting to break into a field that is currently dominated by Apple. With its many apps and accessories that allow stores to turn iPads and iPhones into mobile POS devices, Apple products are the solution of choice for a large number of retailers, across tier levels. This most recent report only reaffirms AMZN’s sales and marketing strategy over the past several months, declaring itself to be a better, lower priced alternative to AAPL’s iPads – case in point, the Kindle Fire commercials. If AMZN takes a more proactive approach to positioning its tablets as a suitable alternative to existing stationary and mobile POS solutions in the market today, the company can achieve considerable success. For retailers, a competitive market simply means more in-store technology options to choose from. Whether AMZN’s potential entry into the POS market wreaks havoc in the retail industry remains to be seen, but this consumer device adoption trend most definitely is real. We will be sure to keep our readers updated on this developing story.

(With significant contributions from Jake Ferry, Research Assistant.)