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

France-based m.Wallet Consortium Leader Chooses Barcode, not NFC

Auchan, a leading French supermarket chain, announced plans to launch a cross-merchant m.wallet app called Flash ‘n’ Pay (FNP). The FNP app will be very similar to the one currently in development at the Merchant-Customer Exchange (MCX), which we discussed in a previous post. Like MCX, the FNP app can be used with all credit/debit card brands, supports loyalty cards and is MNO and issuing-bank agnostic. FNP also shares the same enabling technology as MCX—the app will be barcode-based, not NFC.

Whereas France is among the countries leading European NFC adoption, one might understandably assume that a retailer-led m.wallet app designed for that market would be NFC-based, not barcode. However, NFC faces many of the same fundamental challenges to mass adoption in France that it does in most other countries: 

• NFC-based apps cannot be used by many current smartphone users—barcode is accessible to virtually all
• NFC-based payment requires cooperation across multiple stakeholders—barcode does not
• Barcode-based apps are easier and less costly to support—and many B2C merchants already have the requisite 2D imagers installed at the POS

Certainly, NFC adoption in France is stronger relative to most other national markets, thanks in large part to the French government’s recent commitment to fund contactless transportation infrastructure in approximately 15 cities. However, NFC’s long-term potential as a B2C commerce enabler in France—and in most countries, save for a select few in Asia-Pacific—remains highly uncertain.

We view Auchan’s selection of barcode for its m.wallet as a particularly noteworthy development by virtue of its regional context. If an NFC m.wallet is not viable for a French retailer, in which countries is it?  From our perspective, the FNP announcement demonstrates how far NFC has yet to progress before it attains mainstream status, even in the countries/regions where adoption is relatively strong today.

AutoID Market Shakeup - VDC's Thoughts on Honeywell Acquiring Intermec

At VDC, we have now, in a way, come to expect big acquisition-related news towards the end of calendar years – case in point, Datalogic’s acquisition of Accu-Sort and SMARTRAC N.V.’s acquisitions of UPM, KSW and Neology in Q4, 2011. Throughout 2012, VDC has talked about how we expect to see leading players in the space – for both barcode scanners and printers – to consider consolidating their competitive landscape and strengthen their leadership position in existing markets while also tapping into adjacent high-growth market opportunities. On December 10th, 2012, Honeywell International Inc. (NYS: HON) did just that – announcing its acquisition of one of the global leaders of AIDC solutions, Intermec (NYS: IN), for approximately $600 million in an all-cash transaction. Intermec is the only company involved in the development, manufacture, sale and integration of all core AIDC technologies (barcode scanners, barcode printers, RFID, rugged mobile computers, etc.), thereby giving enterprises with AIDC solution requirements a “one stop shop” alternative. Our focus in this blog post will be on highlighting the impact of the company’s acquisition on the barcode and RFID markets.

From a strategic perspective, some of the key benefits that Honeywell can leverage via this acquisition include:

1. Honeywell has registered strong performance in the barcode scanning market since its acquisitions of Metrologic Instruments and Hand Held Products in the last decade. The company, however, has had an extremely limited presence, if at all, in other AIDC markets. It is only in May 2012, for example, that Honeywell’s AIDC division launched its first RFID-enabled device – the Optimus™ 5900 RFID mobile computer – capable of reading EPC Gen2 and ISO 18000-6B RFID tags. With this deal, the company has bought an immediate entry into several adjacent technology markets given Intermec’s relatively strong play in barcode and receipt printers, consumables, RFID printer/encoders, RFID readers, and other hardware. VDC considers Intermec’s strong IP (intellectual property) in the RFID market to have been a crucial decision driver for Honeywell especially as the company looks to capitalize on new, high-growth opportunities in this multi-billion dollar market – most notably in the Manufacturing and T&L verticals.
2. Intermec’s value proposition as a “one stop shop” for AIDC resonates, in particular, with warehouse and manufacturing IT professionals looking to standardize on one branded platform. The company has also been investing resources towards building out its presence in the health care services market – with new product introductions and channel alliances. This acquisition thus gives Honeywell significant leverage in these vertical markets.

Despite all these synergies, VDC expects Honeywell to face stiff challenges as it looks to revive Intermec’s financial performance in its key markets – across regions, verticals and technology segments – and minimize the revenue impact of economic volatility in Europe. The company has, however, been very active with new product introductions across its barcode scanning and printing portfolios over the past 6-12 months, showcasing a continued focus on research and development initiatives.

The deal is a very strategic move by Honeywell and certainly shakes up the competitive landscape in the AutoID market. The addition of Intermec’s large installed base of customers and channel partners to its own positions the company for continued success in increasingly difficult and demanding operating conditions. Questions remain on what this means for Intermec’s employees, product lines and channel. And we will have the answers for you once this acquisition closes out in 2013.

VDC Heads to the Big Apple for CET World 2012

The VDC AutoID team was in the Big Apple on Wednesday for the 2012 edition of Customer Engagement Technology World (CETW). Despite the recent hardships caused by Hurricane Sandy last week, this year’s show went on as scheduled and drew the usual, diverse crowd of vendors and end-users that attend CETW. Although the show floor was somewhat dominated by vendors of kiosk and digital signage hardware, software and solutions, other areas of the CET spectrum—including POS/mPOS terminals, consumer-facing mobile apps and customer analytics—were also well represented. Our observations at CETW 2012 left us with a several takeaways:

• Self-service solutions are alive and well. As we discussed in a recent post, during the past 12-18 months we have observed a certain level of anti-self-service sentiment among some end-user verticals, including restaurants/dining and retail. While there are definitely examples of enterprises that are moving away from self-service solutions, including self-checkout, kiosks and some forms of interactive displays, these particular instances are not indicative of any mass migration away from these technologies. In fact, these self-service solutions continue to evolve and progress in regards to their functionality and ease-of-deployment. Companies such as NCR are developing more capable and more easily-integrated self-service technologies, such as their NetKey offering.
• Merchant/retailer interest in mobility solutions continues to build. The concept of mobility—whether in the context of m.POS, m.payment or any other enterprise application—continues to build momentum. In regards to m.POS and m.payment especially, it seems these concepts have become so trendy as of late that some end-users are evaluating investment in them simply due to the buzz surrounding them. Several mobility vendors we spoke with at the event noted they are hearing from an increasing number of merchants who want to invest in m.POS/m.payment solutions—but have not defined the objectives for their deployment of the same. While these cases may be more of an indictment of the technology strategy—or lack thereof—at the merchants in question, we also see it as a strong indicator that retailers have generally acknowledged the value mobility provides in many applications.
• Personalized communications/offers that cater to individual preferences are a good start, but there is still a long way to go. For example, to engage a customer and maintain his/her loyalty it is equally important—if not more so—to avoid suggesting things that a customer may dislike or find offensive. Similarly, context and timeliness of communications are also important dimensions to consider—as events such as birthdays, anniversaries, or (to cite a timely example) storms and other natural events may have important implications for what a consumer wants—or does not want—to hear from a merchant. Clearly, tailoring communications to this level of precision is far more complex and challenging than simply making add-on sale suggestions or deal offers based on past purchase history—but with the increasingly advanced capabilities of analytics and other data-management tools, it is not an impossible task. 

For VDC, CETW 2012 was an informative, interesting and timely event, particularly as we prepare to launch its new MCET research program in the upcoming months. Contact us for more information about that research, in which we will discuss the above trends and many others impacting merchants and the technology providers that serve them.

Urban Outfitters CIO Says Its Checkouts are Going Fully Mobile

In a recent post, we discussed the impact mobile POS adoption is having on the broader POS market, particularly in the context of stationary POS heavyweights like NCR, IBM, Wincor-Nixdorf and the like. Long story short: m.POS has proven itself to be a valuable retail tool during the past 18-24 months, and has reshaped the POS competitive landscape as a result. An increasing number of merchants are investing in mobile POS, and in doing so, are disrupting some long-established conventions in retail automation technology. Urban Outfitters (UO) is among the latest examples of retailers that have committed to m.POS—and this particular apparel retailer has done so in a big way. The Company’s CIO announced last week that its stores will abandon stationary checkouts and go fully mobile in the near-term.

Urban Outfitters is no m.POS newcomer, having used mobile POS in its stores for approximately two years. However, its shift to a fully mobile checkout strategy marks an unprecedented level of commitment to the technology for the company. Until now, UO deployed mobile POS only as a complementary solution alongside its traditional, stationary terminals. As with its earlier deployments, UO’s chain-wide m.POS rollout will use iPad and iPod touch devices running an application that supports returns/exchanges, stocking, inventory inquiries and special orders—in addition to standard checkout and payment functions, of course.

As is typical with m.POS deployments, UO cited improving customer experience and empowering employees as key factors driving the transition to a 100% mobile POS solution. Interestingly, UO also acknowledged the cost advantage of mobile vs. stationary terminals—something most retailers do not mention when discussing their mobile investment. According to the Company, its iPad-based terminals are approximately 1/5^th the cost of a standard stationary terminal, while iPod-touch based units are only 1/10^th. Obviously, the lifecycle of consumer-grade devices will not match that of the more robust enterprise-grade POS terminals, but we wonder exactly how much more frequently the iPad/iPod touch will be need to be replaced.

While VDC believes in the value, utility and long-term viability of mobile POS in retail and other types of merchants (especially hospitality, including QSRs, fast casual and table service restaurants) we are not sold on the notion that mobile POS is a universal replacement for traditional, stationary checkout. Certainly, some brands and store formats (e.g., Apple Stores) are well-suited to going fully mobile. Conversely, such a move could be entirely disastrous in other merchants for a variety of reasons, including large average basket sizes, store size and layout, for example. That being said, we think Urban Outfitters’ store size, layout and brand image bode well for a successful transition to an all-mobile POS strategy. Mobile POS is one of the markets VDC will be tracking in our 2013 MCET research. Click here to learn more.

Happy 60th Birthday to the First Barcode Patent Filing!

This week marks the 60th birthday of the first patent filing for a technology that is very close to our hearts here in the VDC AutoID practice: barcode. To most people, a barcode is nothing but a bunch of black and white lines on the products they purchase at the store, but for us—the AutoID professionals and enthusiasts of the world—the barcode is an efficient, elegant and cost-effective way of storing and accessing data that has stood the test of time.

In the technology world, 60 years is an eternity. Reflect briefly on the devices/ technologies that seemed cutting edge just 10 or 15 years ago, and we bet you will smile reminiscing about the simpler days of dial-up modems, Zack Morris-style cell phones and good old PDAs. Now consider that barcode existed for decades before all of these things, and that it is still alive and well today. In many ways, it is a notable achievement. While barcode is certainly a mature technology, we see a strong future ahead for the barcode market, thanks to its ongoing evolution and the development of vertical- and application-specific uses. VDC sees a other indicators of barcode’s vitality:

• Increased consumer use of mobile barcode for a range of commerce-related applications including couponing, loyalty, information access and even payment. Demonstrated consumer interest in scanning barcodes via their smartphones is driving retailers, hospitality providers, CPG brands and other consumer-facing enterprises to invest in solutions that engage these shoppers.
• The US FDA’s Unique Device Identifier (UDI) mandate will increase barcode adoption (and other AutoID solutions) in healthcare: The federal UDI mandate, set to take effect in 2014 for high-risk (i.e., implantable) medical devices (and subsequently for lower-risk categories) requires all medical devices to be marked with a unique code containing critical information including manufacturer, model number and expiration date. While we expect barcode will not be the only solution used to comply with this regulation, it is highly likely to play a prominent role.
• New symbologies have recently emerged, and others are in development. Han Xin Code and Ultracode, for example, are two of the most recently introduced barcode types. Han Xin codes were developed to encode large numbers of Chinese, numeric and ASCII characters, and can be printed in multiple sizes, while Ultracode was designed for printing on uneven surfaces that are poorly-suited to standard symbologies. We expect additional symbologies could emerge in the future to address specific requirements, particularly for consumer-facing applications.

Some NFC and RFID evangelists claim these technologies will ultimately lead to the demise of the barcode. VDC does not expect that to happen, nor do we expect any major market shift away from barcode to occur anytime soon. Barcode has a lot of momentum and will be extremely difficult to displace:  it is universally supported, highly cost-effective (from both a printing and hardware/solution perspective), familiar to consumers and enterprises and boasts 40 years of proven experience in retail—barcode was first tested by Kroger Supermarkets in 1972, 20 years after its invention. The “scanless”/contactless future NFC and RFID promise could very well become reality someday far from now, but for the time being, we expect barcode to remain dominant in most applications. Happy birthday, barcode…

A Quick Scan of the 2012 AIM Summit Conference

Last week the VDC Auto ID team visited Chicago for the 2012 AIM Summit. AIM (Association for Automatic Identification and Mobility) is an industry standards and education organization dedicated to all AutoID and Mobility technologies—including barcode, RFID, RTLS and mobile devices. VDC was pleased to participate in this year’s event—both as attendees and presenters. AutoID VP Mike Liard delivered the opening keynote address during which he discussed current trends impacting the barcode and RFID markets. With a broad focus encompassing all AutoID technologies, there was a lot to take in during the event. Here are some of the key highlights:

• We believe the US FDA’s Unique Device Identifier (UDI) initiative could have a major impact on adoption and usage of Auto ID solutions in the healthcare vertical: Essentially, UDI is a federal mandate that will eventually require all medical devices to be individually marked with a code containing important information including manufacturer, model number and expiration date. Complex, high-risk (i.e., implantable) medical devices will be the first class of product to be effected by this new regulation (in 2014), but over the course of the following 5 years, the mandate will extend to other device classes as well. While the major objective driving the UDI legislation is improving patient safety and the effectiveness of medical device recalls, VDC believes the initiative could benefit healthcare enterprises by improving insight to their supply chains and supply inventory levels as well. Of course, realizing these adjacent UDI benefits may necessitate healthcare enterprises to augment current AutoID systems, but if the opportunity for strong ROI is there, we expect investment to follow.
• The barcode market is no longer just about linear and standard 2D barcodes: New 2D symbologies such as Han Xin code are emerging, and could have an impact on certain segments of the market. Han Xin code, introduced about a year ago, is a new two-dimensional matrix symbology. Han Xin codes are particularly effective at encoding large numbers of Chinese, numeric and ASCII characters, and can be printed in 84 different sizes. However, since this symbology is largely designed to encode Chinese characters, we expect its impact to be mostly limited to China and other parts of the Asia-Pacific region.
• Another relatively new symbology, called Ultracode, is also gaining traction: Ultracode was designed for printing on uneven surfaces/materials that are generally poorly suited to printing standard symbologies (e.g., stone, fiberboard, wood and other irregular surfaces). Also, thanks to its ability to be read even when damaged, Ultracode is also favored for applications where barcodes are highly susceptible to being damaged, such as supply chain and T&L.

In addition to being a great forum for engaging with the entire AutoID community, this year’s AIM Summit also provided a special opportunity to remember Bert Moore, a longtime industry advocate and AIM member, who passed away earlier in the year. Bert was given a heartfelt tribute during the post conference dinner and awards program—a fitting gesture considering his contributions to both the AIM organization and the broader AutoID industry for many years. VDC thanks AIM and its constituents for another great event and we look forward to next year’s show.

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.

Remembering Bert Moore, AutoID Industry Veteran

We are deeply saddened by the passing of Bert Moore, a 25+ year veteran of the AutoID industry and a recognized expert on the subject, who passed away on July 6, 2012. His tremendous contributions to this community will be missed, but Bert will live on through the legacy of his stewardship and educational efforts on behalf of the entire AutoID ecosystem.

For many years, Bert served the AutoID community in a host of different capacities. As the director of IDAT Consulting & Education, Bert provided educational and consultative services to companies evaluating investment in/deployment of various AutoID solution types.

As the Director of AIM's (Association of Automatic Identification and Mobility) Technical Communications and Media Relations, Bert wrote and edited AIM's newsletters "RFID Connections" and "AIM Connections." In his role at AIM, he also served as the recording secretary for the Association’s Technical Symbology Committee (TSC) and RFID Experts Group (REG) and was a member of the RFID Emblem maintenance committee. 

In addition to his work with AIM, Bert also served on ANSI’s (American National Standards Institute) Data Identifier maintenance committee and chaired the CompTIA RFID+ Certification cornerstone committee.

During his years of service to the AutoID ecosystem, Bert received a number of honors and awards in recognition of his outstanding work, including the AIM USA "Industry Service Award" in 1992 and the 2010 recipient of the AIM "Excellence in Journalism" Award. In 1997, Bert was selected as a charter member of the AIDC 100 organization, an association of individuals who have made significant contributions to education within the AIDC industry. We thank Bert for his years of service to the Auto-ID community and send our thoughts to his family and loved ones.

LevelUp Levels the Payment Playing Field against NFC via Barcodes/QR Codes

Among the barriers NFC contactless payment faces on the road to broad adoption, none may be as challenging as identifying and proving sufficient value to merchants and other B2C enterprises that justifies their investment in such a solution. However, the Cambridge-based company LevelUp, an offshoot of the startup company SCVNGR, has found a way to justify merchants’ investment in a contactless payment solution. However, there is a small catch—it’s QR code-based, not NFC.

Historically, the adage “if it’s not broken, don’t fix it” certainly has applied to most merchants’ payment acceptance strategies. While credit/debit cards and good old-fashioned cash work well enough, each has material costs associated with its acceptance—namely, interchange/processing fees for cards and handling/management expenses for cash, not to mention the risk of shrinkage.

What makes LevelUp an attractive option for merchants is that the company eliminates (or, more accurately, entirely subsidizes) credit/debit card processing fees, which generally represent 2-3% of a given transaction amount. That small percentage may not sound like much, but it adds up—transaction fees are estimated to drain approximately $50 billion (that’s billion, with a B) from merchants’ bottom lines annually. LevelUp only makes money when it delivers a new customer, or generates a repeat business (i.e., loyalty) from a specific customer at a particular merchant.

Barcode/QR code based payment applications are not a new concept—in fact, Starbucks’ payment app, provided by mFoundry, sets the gold standard for success when it comes to mobile payment apps. However, what distinguishes LevelUp is the type of merchants that are adopting the solution—in particular, independent retailers and other SMBs whose limited IT budgets typically preclude them from evaluating contactless solutions. To date, most contactless payment deployments (barcode, QR code, or NFC-based) have been at major Tier 1 enterprises, such as Starbucks. LevelUp is working to change this paradigm, and early indicators suggest it is succeeding, as the company has 3000 participating merchants across 10 regional markets and just secured an additional $12 million in VC funding. Perhaps QR codes/barcodes will be the technologies that bring contactless payment to the masses after all, not NFC—only time (and the actions of consumers, merchants and financial institutions) will tell.

MBTA Gets Onboard With Mobile Ticketing

The MBTA, greater Boston’s public transportation system, just announced plans to deploy a mobile barcode-based ticketing solution across its entire commuter rail network. This solution, which will operate on Android, iOS and Blackberry devices, is expected to be operational by year’s end and will facilitate the ticketing process both for passengers and conductors. While passengers will benefit from an additional, always-accessible fare purchasing option, conductors’ jobs will be facilitated by reduced ticket punching and cash collection duties.

Mobile ticketing is not a new concept, despite that its relative nonexistence in the US suggests otherwise. In fact, mobile ticketing solutions enabled by mobile barcode and NFC have existed for years in other regions, including Europe and Asia. As is often the case with the adoption of new technologies (or, in this case, technology applications) the US is simply a laggard. In fact, some media sources claim that the MBTA initiative is the first of its kind in the country.

From a technology selection/system specifications perspective, we are not surprised the MBTA selected a mobile barcode-based solution rather than one that leverages NFC. Although NFC is certainly gaining traction as an enabling technology for contactless ticketing applications, the fact is that most consumers, particularly in the US, are not yet familiar with the technology—never mind own an NFC-enabled smartphone. Mobile barcode scanning, however, is a technology that is both highly accessible and very familiar to consumers.

Keep in mind, however, that mobile barcode has its limitations, with a key issue (in the context of transportation ticketing) being throughput speed. In the case of this MBTA solution, throughput is a non-issue, because the system will be used exclusively on commuter trains, where there are no turnstiles and fares are collected onboard. However, should the MBTA evaluate mobile ticketing for its subway and/or bus networks in the future, we think a mobile barcode-based solution would be a poor choice.

Whereas subway/bus networks have higher ridership volumes and passenger queue points (i.e., turnstiles on the subway, door-based readers on the bus), a mobile barcode-based solution would considerably slow throughout and create longer queues. Just imagine the time required to take out a smartphone, open up the MBTA app and then display and scan a barcode—relative to the contactless and paper tickets currently used, this would certainly reduce throughput, not to mention create a requirement for barcode imagers/scanners at all ticketing portals. In the case of subway and bus ticketing, NFC-based solutions, which can leverage the existing HF contactless ticketing readers in place throughout many public transport networks (including the MBTA), are a more logical choice.

Early NFC ticketing pilots are already underway here in the US (and the rest of the world), such as the one led by New York City’s MTA in partnership with Nokia. As NFC smartphones increasingly reach the hands of consumers over the next 24-36 months, we expect NFC ticketing activity will gain momentum. In the interim, however, considering the respective strengths and weaknesses of mobile barcode and NFC, we expect ongoing mobile ticketing opportunities will exist for vendors utilizing both of these technologies.