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

It is all about Retail for Zebra Technologies

Company takes a big risk in anticipation of big rewards

Investors turned their heads on Tuesday, April 15th when Zebra Technologies (Zebra) announced its $3.45 billion acquisition of Motorola Solutions’ (MSI) Enterprise division. This will be an all-cash transaction, with $200 million directly from Zebra’s coffers, and the remaining being financed largely via debt. The market’s immediate reaction to this announcement was an 11 percent drop on the NASDAQ, bringing down ZBRA’s price per share to $60.77 from close to $70. Following the shock, brought about by significant upfront cost, investors seem to be now taking a look at this acquisition as Zebra seizing an opportunity to promote long-term growth.

A surface account of the deal might focus exclusively on the benefits Zebra will derive from further expanding their AIDC portfolio. This is a perfectly valid assessment; Zebra, a barcode printer market leader, to acquire MSI’s Enterprise business unit, a barcode scanner and rugged mobile device leader, creating a one-stop shop for those in need of AutoID solutions. VDC has, however, identified another, perhaps more significant, objective of Zebra’s: to further increase its retail market presence.

Zebra seems sure about where future growth will come from

As we discussed in February, acquisitions that Zebra has made over the past year have marked its first steps towards a non-printer-focused solutions play in the retail space. The company began 2013 by purchasing StepOne Systems, a small firm addressing retailers’ in-store application requirements via mobile software solutions. Zebra’s next move in this space took place in December, 2013 with the acquisition of Hart Systems, a cloud-based inventory management solution provider. The company’s “Hardware-as-a-Service” business model involves renting out self-managed inventory solutions, including hardware, to retailers rather than selling them at a fixed price. This presents an interesting solution particularly to the refresh cycle issue facing Zebra’s core hardware business. VDC wouldn’t be surprised if, in the near- to mid-term, Zebra extended this option to its printer customers as well. By implementing this model, the company can now have the opportunity to cut production costs and also boost sales by providing clients with more up-to-date solutions on a periodic basis, all for a recurring fee. Both these 2013 acquisitions clearly indicated Zebra’s push into the retail storefront.

The company successfully outlined its growth strategy in its FY 2013 earnings conference call, and that, coupled with its growing retail focus, seemed to resonate with the investor community. The stock crushed lifetime highs, going up more than 30% in 3 months. With an all-round positive response to its vertical strategy, it seems that Zebra stands firmly behind its retail expansion efforts, which brings us to the company’s latest, multi-billion dollar, acquisition. We believe that this will benefit Zebra not only by allowing them to become a one-stop shop for AIDC solutions, but by also furthering their presence in the retail vertical. In a space where brand recognition and a developed partner ecosystem are key, MSI’s (and erstwhile Symbol’s) colossal brand and strong channel connections will greatly benefit the coalesced superfirm. Additionally, Motorola’s handheld barcode scanner and mobile device portfolios will allow Zebra to simultaneously move further to the front and back of the retail store. The ruggedized component of Motorola’s data capture devices makes them an equally attractive option in logistics and direct store delivery (DSD) types of applications, while also being critical in-store – both at the aisles as well as at the POS checkout stations. Combined with Zebra’s current product offerings, we can see a more holistic end-to-end product line that can all be connected by one of their more recent endeavors, channeling the Internet of Things (IoT) paradigm, Zatar.

Given the nature of this vertical, technology vendors competing for retailer mindshare are expected to “keep up” in order to subsist. This drives us to anticipate that Zebra will update and refresh Motorola’s scanners and mobile computer hardware to keep up with the times and industry demand for next-generation data acquisition solutions. Despite the massive debt and significant toll on cash reserves, VDC anticipates an auspicious future for Zebra. As evidenced by the multitude and strength of distribution channels, broad product portfolio, and current penetration of the retail space, these technology powerhouses could together very well dominate the retail solutions space.

You can download VDC’s latest Research Note featuring a comprehensive breakdown of the acquisition, here.

How IoT Could Fuel the Next Generation of Data Capture and Asset Traceability

This past week has been all about Zebra Technologies’ acquisition of Motorola Solutions’ Enterprise business unit and what it means for the global AutoID & Data Capture industry. You can download our latest research note, featuring a comprehensive breakdown of the deal, here. Zebra’s executives have consistently cited the Internet of Things or IoT phenomenon, powered by their home-grown, cloud-based software platform, Zatar, as the bridge to tie the company’s existing product portfolio with that of MSI’s. Given the buzz surrounding this topic, at VDC, we have put together a two-part blog series where we discuss IoT as a concept and Zebra’s big bet on Zatar, and enabling Enterprise Asset Intelligence. This is Part 1.

So, what is IoT all about? Simply put, the Internet of Things (IoT), or Internet of Everything, is a web of connected devices that allows for remote monitoring and control. Sensors send off signals with information about asset location, identity, and condition that can be read by a supported device to enable enhanced visibility and monitoring. These supported devices can then relay signals in order to remotely control appliances and adjust their settings. IoT use is not restricted to supply chain traceability and monitoring; it has just as many uses in the consumer world as well.

Incorporating IoT and device connectivity in the enterprise world enables a wealth of new possibilities. Organizations’ networked IT infrastructure is no longer limited to PCs, laptops and data centers. Large-scale employee adoption of internet-connected mobile devices for personal consumption (smartphones and tablets, among others), has opened up the floodgates. With companies increasingly embracing the Bring Your Own Device (BYOD) trend where employees can use these personal devices for business purposes, this concept becomes integral to the IoT phenomenon. Specialized applications and websites give employees’ devices access to all of their company-specific needs. There is growing interest in deploying, managing, and securing these always-connected devices. Internet pervasiveness and the ability to embed sensing technology into all types of assets are helping drive IoT investments.

However, with IoT adoption comes concerns surrounding network security and data integrity. BYOD can be detrimental to employee productivity and many companies are skeptical of integrating it into their current business methods.  Security is another main concern, deterring organizations from fully committing to the “enterprise IoT”. Employee devices will have access to sensitive information and are more likely to be stolen or lost than devices that never leave the company premises. Personal devices are also likely to come in contact with insecure internet connections outside of working hours making them more susceptible to cyber attacks. Cyber security is a hot button issue, especially after the recent attacks on Target and Neiman Marcus, which prompted a Senate hearing on the subject. Companies will be wary to open themselves up to more attacks until IoT can be proven to have sufficient security measures in place.

IoT has already been integrated into our everyday life where security is viewed to be less of an issue. Smart devices can be turned into universal remotes for almost every device around the home. Consumers can start their car, brew a pot of coffee, change the temperature in their house, and turn on the news, all from their phone, for example. This form of IoT is viewed as less of a security risk, at least for now, because of the nature of devices (mostly household appliances) communicating with each other. Google’s $3.2 billion acquisition of Nest, a home automation company, is the biggest indication of growing interest and investments in the “in-home connected devices” paradigm.

From VDC’s vantage point, IoT has the potential to completely change enterprise as we know it on all levels – from source to consumption. It broadens the sphere of control for managers so they can see the real-time status of products as they make their way to the retail storefront. IoT can be a profitable investment for companies with its ability to improve inventory management lowering losses due to lost or misplaced goods, and by leveraging the BYOD trend to trim CAPEX. It is important for organizations to start strategizing on their vision for future growth and business sustainability, and how investments in IoT and device interconnectivity enablers can help them achieve their goals.

(With significant contributions from Jake Ferry, Research Assistant)

Are We Getting Closer to a Scanner-less World?

Scandit, a mobile image processing and cloud computing software vendor headquartered in Zurich, has developed a platform that enables smartphones and other consumer mobile devices to facilitate enterprise-grade barcode scanning. The performance level of applications developed on Scandit is comparable to dedicated scanning devices, with respect to speed and in their ability to scan damaged and blurred barcodes. This platform has already been tested in Europe where several companies use applications developed on it. The company also recently announced that it has raised $5.5 million with its latest round of funding – an investment made by a small group of high net worth technology entrepreneurs.

Scandit’s SDK and its blurry barcode scanning capabilities are part of the company’s own intellectual property. What also sets Scandit apart from the other companies that have created barcode scanning platforms for mobile devices is the extent to which it is mobile OS-agnostic, its cloud capabilities, and the 24/7 total support that the company offers. Scandit’s platform can be leveraged for developing applications for every type of mobile hardware including wearable devices such as Google Glass and Samsung’s Galaxy Gear smart watch. Scandit’s unique data capture and storage makes it appealing to retailers. Applications developed on the Scandit platform can help retailers keep track of consumer shopping behavior, including what is being bought at home versus in store, top categories, top products, and the number of scans over a multitude of variables. All of this data can be uploaded to the cloud so it is immediately available for retailer use.

The versatility of mobile devices gives Scandit the possibility to work in all verticals. Scandit partners with app developers and integrators to provide businesses with applications designed for their needs, meeting their specific requirements. We see Scandit as having maximum impact in the retail vertical, serving customer-facing and employee-facing applications with a single device. This platform will be particularly beneficial to small business owners who can now build readily available consumer device-based point-of-sale applications without having to invest in expensive POS systems (and added peripherals) when they already own a smartphone. Businesses with low volume barcode scanning needs that want to give themselves a modern appearance will flock to consumer devices running apps built on the Scandit platform for in-store, customer-facing operations. Since this is essentially a software-based barcode scanning and data capture platform, retailers do not even need to invest in accessories like sleds and sleeves, which tend to alter the appearance of these devices.

Although there is potential for Scandit to rival existing barcode scanning solutions, we believe that this platform will be both complementary as well as competitive to them. VDC expects consumer device application developers to drive Scandit licensing. Retailers are keen to elevate customer engagement and service levels; by enabling customers to download in-store applications and use it for price checks, inventory management, and self-checkout, they achieve just that. While the existing range of self-checkout stations require customers to wait until the end of their shopping experience to unpack their bags and scan items, applications built on the Scandit platform will enable them to scan products right as they take them off the shelf, and before they place them in their shopping baskets, eliminating the process of unloading and reloading altogether.

From VDC’s perspective, the Scandit platform and others like it are a distinct threat to the dedicated enterprise device market. By empowering users to leverage the smartphone camera to scan barcodes and capture images just as efficiently as enterprise-grade scanners would, these application development platforms can also help business owners, regardless of revenue tier, to be part of the ongoing big data revolution. Success in the data capture market will henceforth be determined by vendors’ ability to be adequately agile in their sales and marketing strategies especially as demand shifts to historically untapped segments in today’s evolving enterprise environment.