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

Epson Mobilizes to Address Rapidly Growing mPOS Opportunity

Still questioning whether consumer-grade mobile POS (mPOS) devices are a short-lived trend or a here-to-stay expansion of the broader front-end technology solutions at many leading mainstream merchants? Here is another strong point in favor of the latter: Epson, the global market leader in POS receipt printers, recently announced its Mobilink P60 mobile receipt and label printer supports Bluetooth connectivity to facilitate wireless pairing with all Apple i-devices and a diversity of other Bluetooth-equipped consumer-grade devices. The Company simultaneously introduced a new software development kit (SDK) for iOS, Android and Windows operating systems that is intended to expedite the development of mPOS and label printing applications that leverage the Bluetooth-enabled Mobilink printer.

As mPOS solutions gain stronger adoption among retailers and hospitality operators—sometimes as an enterprise’s exclusive POS system—the demand for reliable, easy-to-use printing solutions that complement the mobility and empowerment mPOS provides workers is growing increasingly strong. In response, a number of POS receipt printer vendors—including Epson—have been swift to launch portable versions of their standard, stationary POS printers. These portable printers are certainly smaller than their stationary counterparts and are “mobile” in the sense that they can be easily transported. However, while smaller in relative terms, they are not ideally sized to be wearable for the average worker.

For this reason, we believe a Bluetooth-enabled printer such as Epson’s offering will­­­­ be well-received by many mPOS deploying merchants, especially those using mPOS “within the four walls,” as opposed to in field-sales or other remote applications. The deployment of Bluetooth-enabled stationary and portable printers enables mPOS-equipped associates to fulfill any printing requirements encountered during their shift while freeing them from the burden of carrying another device on their person. Furthermore, enabling on-the-go, mobile printing via shared Bluetooth-enabled (or other wirelessly accessible) devices allows enterprises to reduce printing hardware investment by eliminating the need to equip every associate with their own mobile printer. Accordingly, in the case of many mPOS deployments, we expect this approach to mobile printing will be favored both for its lower investment costs and freeing employees from carrying additional equipment.

VeriFone Furls its SAIL

Less than a year after launching its SAIL m.payment solution, payment terminal giant VeriFone has essentially pulled the plug on the product, which is its version of a Square-style card reader dongle. Citing a number of major challenges, including fierce competition in this nascent, but rapidly-growing market and the razor-thin margins on SAIL-based payments, the Company’s CEO officially disclosed SAIL would cease operations (save for continuing to service current users) in its recent Q4 earnings call.

While it is somewhat surprising that a well-established company like VeriFone is bailing out on a new product so quickly, the closure of SAIL clearly demonstrates the cutthroat competition in this market and could portend further consolidation or business failures of other similar ventures in the near-term. Certainly there is no shortage of Square-like solutions, with numerous hardware- and software-based competitors in the consumer-grade device mobile payment market (including Intuit, Paypal, Dwolla, iZettle and Groupon, just to name some high-profile players). Perhaps even more problematic for these m.payment service providers is that the business model on which they are founded is generally a race-to-the-bottom in regards to profit margins, with the major differentiator between each competitor often being the percentage fee charged for processing payments.

Looking ahead to the future, we believe the mobile payment competitors that will be viable for the long-term will be those that successfully layer value-added applications/services such as loyalty, coupons/offers and other mobile commerce functionality on top of their basic payment processing service. To the extent that these adjacent applications drive stronger customer loyalty, larger average ticket sizes and increased footfall for merchants, m.payment service providers can leverage them to generate additional revenue streams, differentiate their offering and attract new merchant partners. Conversely, we expect m.payment providers that remain reliant on processing fees for the majority of their revenues will see fiercer competition, shrinking margins and increasingly stronger chances of failure as payment processing service becomes more commoditized.

 

 

 

Gemalto, G&D and ARM Launch Trustonic JV to Ease NFC SE Pains, but Will it Really Help?

If you frequent this blog, you already know we are generally bearish on the NFC’s near-term prospects as a m.payment and m.commerce enabler. While the technology certainly has some great features and benefits, NFC faces too many challenges—several of which are highly complex and/or expensive to address—for it to reach mass adoption at a global level for the headline applications with which it is associated, at least for the next several years. Among the thorniest issues associated with NFC-enabled secure applications (i.e., use-cases that require transmission of sensitive and/or personal information, including payment, ticketing, loyalty, etc.) are those related to the secure element (SE), the part of a smartphone where this information is kept:

• Where does the SE reside on a smartphone? (SIM, MicroSD, embedded, elsewhere?)
• What entity owns/controls the SE? (MNO, device manufacturer, card issuer, multiple entities?)

These questions are of material importance to the above-mentioned stakeholders (and others), especially in the context of m.payment, ticketing and other contactless applications where funds are transferred between parties (e.g., customer-to-merchant, person-to-person). Just as credit/debit card companies generate billions in fees annually from processing “plastic” payments, so too could NFC SE owners generate handsome interchange revenues (as well as “rental” fees if a third party entity requires use of a SE for its own app) for NFC-enabled contactless payment. As a result of the high stakes and multiple, self-interested entities jockeying for position, no clear, broadly-accepted determination has been reached on either of these SE-related issues—nor do we expect one to emerge anytime soon.

In the meantime, NFC market players ARM (a smartphone chip vendor), Gemalto (a TSM provider) and Giesecke & Devrient (a payment security solution provider) have launched a joint venture called Trustonic to create a semi-secure alternative to NFC SEs called Trusted Execution Environments (TEE). Essentially, the TEE resides in the main processor of a smartphone, which positions it to execute transactions and other processes more expediently relative to a standalone SE. However, since a TEE is not entirely isolated from the rest of the device, this increased speed comes at the expense of security—meaning that it is unlikely credit/debit card providers and other credential issuers with high security requirements are unlikely to grant approval to TEEs like Trustonic.

While it is promising to see the emergence of new and innovative solutions to address some of the challenges hindering NFC adoption, we do not expect the emergence of Trustonic or other SE alternatives to have a material near-term impact on the NFC ecosystem. VDC views NFC’s great potential as an enabler of B2C applications as being a “package deal,” where payment, loyalty, couponing and other functions are united by one contactless application. Unfortunately, in maneuvering around the sticky SE issues, Trustonic also has diminished the SE’s value as a vault-like safeguard for the most sensitive credential types, meaning the TEE only can support semi-secure NFC apps. In our opinion—one we suspect is shared by many B2C merchants—this approach limits NFC’s value proposition and Trustonic’s potential to drive broader adoption of the technology.

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.

NCR Continues to Diversify with Acquisition of Retalix

NCR formally announced this past Wednesday an agreement to acquire Retalix, an Israeli vendor of retail, marketing, supply chain and logistics software solutions. The transaction is valued at $30 per share, or approximately $650 million and is expected to close sometime during Q1 2013. NCR intends to finance the acquisition via a combination of cash and an existing debt facility. Via the acquisition of Retalix, NCR strengthens its competitive position in several respects:

• Expanding its retail automation and customer engagement hardware offerings to include a more diversified range of software solutions, both for customer- and employee-facing applications
• Broadening its services portfolio to include additional professional/integration and managed services options
• Solidifying its status as a go-to vendor for end-to-end solutions that meet the specific, unique requirements of retail end users

We view the Retalix acquisition as a well-advised strategic move that furthers NCR’s diversification into the enterprise software market. While it has historically been known for high-end customer engagement and retail automation hardware (in addition to kiosks, ATMs, etc.), during the past 18 months, NCR has made a concerted effort to broaden its software portfolios—especially those geared towards retail and hospitality end users—via strategic acquisition and organic development.

For example, in August 2011, NCR acquired Radiant Systems, a specialized provider of hospitality POS software and solutions, for approximately $1.2 billion. The addition of Radiant materially strengthened NCR’s competitive position within hospitality, where the company had historically been weak relative to its status as a retail leader. In retail, the company recently launched its NCR Silver product—which enables merchants to integrate POS-enabled iPads, iPhones and iPod touches with stationary POS terminals—to address the rapidly growing demand for consumer-grade mobile device use in the enterprise. While Silver is geared towards SMBs, we expect the Retalix solutions that will soon be part of the NCR portfolio will appeal to a broader range of retailers, including Tier 1 leaders like Home Depot and Walmart, where the company has a well-established installed base.

Furthermore, we believe NCR’s efforts to diversify its software and service capabilities are indicative of a broader interest among end users (merchants and hospitality operators especially) to leverage technology platforms for a set of applications well beyond those with which they are traditionally associated. In the context of POS systems, for example, requirements now often include applications besides typical sales and payment functions. In hospitality, operators also need to accept/administer loyalty programs, manage digital menu boards, accept mobile payments/coupons and potentially support a range of back-of-house functions as well. Retail has similarly diverse requirements—and the acquisition of Retalix will enable NCR to meet these needs more consistently across a broader range of merchants. 

The growing importance of specialized merchant/hospitality solutions is a topic we will explore further our upcoming MCET research—contact us for details.

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.

Think Self-Checkout is Dead? Think Again.

During the past 18 months or so, we have observed a decidedly negative attitude towards the future viability of Self-Checkout (SCO) solutions in US retailers. Throughout 2011 and 2012, a number of large grocery chains—including Kroger and Albertsons—announced SCO lanes will be replaced with old-fashioned staffed lanes instead. The retail technology blogosphere has also joined the anti-automation bandwagon, with articles frequently bemoaning the clunky operation of early solutions and their perceived job-killing effect. Despite this anti-SCO sentiment, many store chains across all retail sub-verticals continue to offer SCO as a checkout option. In fact, some merchants are actually increasing SCO investment. This week, NCR announced it will deliver 10,000 additional SCO stations across WalMart’s 1200 US stores during 2013. Financial terms of the deal were not disclosed, but, based on VDC’s most recent AFSP data, we estimate the value of this contract to be approximately $150-160 million.

Notwithstanding its abandonment by certain retailers, SCO remains a useful technology when deployed in appropriate retail settings. Like any other solution, it has certain vertical/sub-vertical applications to which it’s well-suited, and others it’s not. While certain early SCO systems were buggy and difficult to use (we have experienced them ourselves), modern offerings have largely addressed these shortcomings, offer time-strapped shoppers an attractive alternative to waiting in line and often complement other retail solutions such as Personal Shopping Systems. VDC therefore believes SCO will remain an important component of many retailers’ broader front-end technology solutions, particularly in grocery/supermarket, mass merchants, wholesale clubs and home improvement stores.

In regards to WalMart’s upcoming SCO rollout, we expect its investment decision was motivated in part by the retailer’s ongoing experimentation with customer-operated mobile shopping apps. Specifically, WalMart is one of the founding members of the Merchant Customer Exchange (a consortium of more than 20 US merchants working cooperatively to develop an interoperable, cross-brand mobile wallet) and also recently announced small-scale pilots of a smartphone-based self-scanning app. As these two initiatives progress—and if/when they move towards full-scale deployment—we expect self-service technology like SCO will play a key role in their day-to-day use by customers. Convenience and time savings are two of the key value propositions these mobile apps offer, and both are strengthened by the presence of SCO as a checkout option. Accordingly, we expect to see SCO defend its established place within the retail automation spectrum, especially among technology-embracing merchants like WalMart . Furthermore, by virtue of its recognition as a retail sector leader, WalMart could give its SCO-doubting peers reason to reevaluate their own automation strategies.

Trick, or Treat? ISIS (Finally) Launches , But Will Consumers Notice?

ISIS, the NFC-enabled m.wallet joint venture between three major US MNOs (AT&T, Verizon and T-Mobile), has officially launched its pilot test in Salt Lake City and Austin. Despite facing a number of challenges and setbacks during the past 18 months, with the most recent being a delay in its planned Summer 2012 launch (which itself was a rescheduled date), on Monday, October 22^nd ISIS finally went live.  While ISIS (along with Google Wallet and NFC-enabled payment in general) has been massively hyped by the general media, we, quite frankly, doubt that ISIS is the solution that will drive the average person to adopt mobile payment.

Certainly, it is promising to see continued interest in NFC (and investment dollars behind it) within the US, but in this case the final product suffers from many of the same issues that have hamstrung Google Wallet. In general, each of these problems boils down to making the m.wallet too complex, cumbersome and restrictive to use. To have any chance of unseating cash and cards as the payment incumbents, a mobile payment solution—NFC based or otherwise—must be absolutely effortless to use. Convenience and ease-of-use are among the top evaluation criteria cited by consumers in VDC’s most recent mobile payment survey. If an m.payment solution requires more customer effort than taking out a wallet, we see little chance of it being successful.

In regards to being convenient and easy-to-use, ISIS is anything but.  Adopting the m.wallet requires a consumer first to visit one of their MNO’s stores to obtain a special SIM card—regardless of the fact that many of the handsets supported by the pilot have embedded NFC chips. This handset discussion conveniently segues to another significant problem with the ISIS pilot—handset support, or more precisely, lack thereof. Currently, between the three JV partners, about 10 smartphone models are supported, limiting the choices of prospective ISIS users—although that number is (supposed) to double by year’s end. Perhaps even worse than the limited device choices is the inconsistency across the JV partners—for example, ISIS is available on the Samsung GS3 with AT&T, but not Verizon. It doesn’t make sense to us, and we suspect the average consumer will also be confused.

While VDC believes in the concept of mobile contactless payment, we see the long-term viability of any m.payment solution being dependent on its ability to add value—both for the consumer and the merchant—relative to incumbent payment methods.  If an m.payment app simply seeks to replicate cash or cards—or worse yet, makes payment more complex or restrictive—we see no chance of it gaining adoption.

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…