Put Your Finger on the Pulse of the RFID End User

VDC Research Webcast
Put Your Finger on the Pulse
of the RFID End User
AutoID & Transaction Automation Practice
Drew Nathanson – Director of Research Operations
Tom Wimmer – Director of AutoID & Transaction Automation

Recording Available

These slides are from a webcast presented on 05/12/10

A full audio recording is available for download at:

http://www.vdcresearch.com/market_research/autoid/freeresearch.aspx

1– 2010 VDC Research Group, Inc.

VDC Research Group

Additional complimentary insights and marketing data
on the RFID market available at:

www.vdcresearch.com


Today’s Panelists

Drew has more than 15 years experience in industrial enterprise program management, general management, strategy
consulting, and business development. At VDC, Drew is responsible for the firm’s Research Operations, working closely
with VDC clients, analysts, consultants, and senior management to design, execute, manage, and deliver proprietary
research and syndicated programs. Previously, Drew managed the AutoID and Transaction Automation Practice, delivering
syndicated and proprietary research covering major AIDC, RFID, NFC, and Retail Automation markets. Prior to joining
VDC, Drew launched and served as Principal of Blue Flame, a management consulting firm focusing on the advanced
materials and sciences industry and their related tech markets. Drew is a graduate of Clark University (BS, biology and
chemistry) and Northeastern University (MBA, concentration in high-tech).

Tom Wimmer – Practice Director
Tom has more than 15 years experience directing market research studies and helping his clients to develop market-driven
business plans that deliver measurable improvements in sales and create shareholder value. His project-related
experience is diverse, including countless market and technology assessments, product and channel development
initiatives, competitive analyses, branding studies and due diligence support for M&A activity. Prior to working for VDC,
Tom directed the market research function for Zebra technologies, a global supplier of barcode printers, card printers and
RFID solutions. Tom is a graduate of The University of Illinois at Chicago (BA, Psychology), Benedictine University (MS,
Management & Organizational Behavior) and recently completed the Kellogg Management Institute at the Kellogg School
of Management at Northwestern University.


Today’s Agenda

Market Demand Levels & Makeup

Investment Drivers & Patterns

Managed Services

Select Key Changes in the RFID Markets

Implications for Suppliers & Channels


RFID Investment Plans are Being Funded
Pilot-to-deployment times to decrease; significant scaling to begin Q4 2010 or earlier

RFID Budgets • Average investment in RFID solutions in 2009 by the
70%
respondent group was approximately $1.1 million.
• This sample expects that spend to increase
60% • More than 200% per account in 2010.
• To nearly $7 million per account in 2011.

50% • Respondents currently investing more than
$250,000 are expecting to invest more in RFID
40%
over the next two years in support of scaling their
deployments and further integrating their solutions.
30% • The number of respondents that are using /
evaluating but did not purchase any RFID solutions
in 2009 are expected to dramatically increase their
20%
spend within the next 24 months.

10%
• More than 50% of respondents cited no purchases
in 2009 – a value expected to dip to less than
14% in 2011.
0%

2009 2010 2011


A Note About that Strong Near-term Growth …
More scaling of the installed base than market expansion… incumbents should have leverage, but …

Anticipated Shifts in Customer Mix • A significant share of the revenue
gains during the next 2-3 years are
100%
expected to be concentrated in the
90% ‘existing account’ community.
• These companies have been
80%
funding pilots, with partners, and
70% are expected to offer these partners
the opportunity to grow with them.
60%
• In other words, much of the growth
50% will look like brown-field demand,
not green-field.
40%
• That said, we expect that the
30% horizontal growth opportunities
will be healthy, if smaller in scope.
20%
• Account development lifecycles for
10% these next generation green-field
opportunities are not expected
0% to take as long to develop as the
2010 2011 2012 2013 2014 2015 current / latest generation of large
account / program / project
Existing New opportunities.

Note: market share = VDC estimates for illustration purposes.


Primary RFID Applications Still A Paradox
Adoption strong for core and emerging applications; convergence gives additional boost

Supported & Expected • Although significant growth is expected for most
RFID Application applications, adoption of the following applications
is to triple by 2011:
Inventory Control/MGMT  Anti-counterfeiting
Asset Management  WIP/ Assembly
Security/ Access CTRL/ Id  POS
Supply Chain MGMT  Contactless Payment
Sensing/Monitoring  Shop-floor Automation
Customer Loyalty  People tracking / labor management
People Tracking/ Labor MGMT
Rental-Item Tracking
• Even primary applications with more than a 30%
penetration rate (for the survey population), such
Ticketing
as supply chain, inventory control, and asset
Toll Collection/Vehicle Id
management, are expected to increase adoption,
Shop-Floor Automation
with nearly 50% of respondents expecting to use
RTLS
RFID in support of these applications by the end
Animal Tracking
of 2010.
Anti-Counterfeiting
WIP (Work-In-Process)/Assembly • The convergence of RFID with other AIDC solutions
Baggage Handling continues to express itself in an increasingly wider
Pos (Point-of-Sale) range of applications, positioning RFID as an
Contactless Payment enabling technology and further establishing a
Other (Specify) footprint within these markets and installation
environments.
0% 10% 20% 30% 40% 50%

EXPECTED SUPPORTED

So What Do We Make of the Application Landscape?
It is difficult to make accurate, sweeping statements about such a fragmented market

Anticipated Shifts in Application Mix • Meta applications such as supply chain
management, asset tracking, etc. will
100% continue to account for significant
market spend, largely due to:
90%
 Proven ROI
80%  Broad, Fluid Definition / Deployment

70% • A number of legacy point applications
could reach maturation in the next
60%
couple of years and offer little or
50% no growth
 Security / Access Control
40%
 Tolling
30%
• A new generation of applications – some
20% point, others meta – will account for a
growing share of the market
10%
 Sensing / Monitoring
0%  Contactless Payment
2010 2011 2012 2013 2014 2015

Meta Apps Legacy Point Apps Nex Gen Apps

Note: market share = VDC estimates for illustration purposes.


Performance vs. Key Investment Drivers Still Gapped
Most important drivers remain rooted in operational improvement, information accuracy and security

Importance & Level of Satisfaction • Nearly 80% of all respondents cited leading
of Primary RFID Adoption Driver RFID adoption divers that are not new.
Improved Operations/Processes • However, the same group of respondents indicated
Incr. Automation/Decr. Manual Error
that their solutions and suppliers are not fully
meeting their expectations.
Real-Time Updating/Information
• Most end users stated that adoption of sensing
Enhanced Security
solutions would increase significantly if / when
Chain Of Custody/ Pedigree/ 'End-To-End' Tracking environment monitoring technologies attain a
ROI For Specific App. Demonstrated more attractive price / performance level.
Ability to Incld. More Info Throughout Value Chain • Based upon the ‘gap’ between the levels of
importance and satisfaction, areas that suppliers
Competitive Advantage/ Competitive Differentiation
can focus on to help facilitate adoption and
Improved Performance, (Over Other AIDCSolutions) capitalize upon opportunity include:
Improved Visibility Into Value Chain  Providing enhanced, measurable, and reproducible
efficiencies and business models.
Non-Line-Of-Sight Capabilities
 Error reduction / more automation and deeper integration.
Enhanced Actionable Business Intell.  Increased visibility in conjunction with an enhanced
Product Serialization ability to port intelligence to key stakeholders.

Labor Reduction • Compliance remains a less important driver –
Compliance/Mandate most deployments are not compliance related
(i.e.: <25%), with most respondents indicating that
Envir./Conditional Monitoring
their solutions and suppliers are exceeding their
0 1 2 3 4 expectations.
SATISFACTION IMPORTANCE

Managed Service Deployment Interest Still Brewing
RFID with less risk … opening eyes and budgets

End User Expectation for Adoption • Nearly half of all respondents are either using or
of RFID Managed Services evaluating managed services for RFID, with most
Evaluated considering a SaaS or Hybrid model.
Hosted
Solution, but did
not Deploy
• Less than 10% of respondents are currently using
Currently Using 4.7% a managed service offering or provider, a figure
a Hosted
Solution
expected to more than double within 12 months.
8.4%
• Primary reasons cited for using a managed
service model include:
 Decreased capital requirement and investment risk.
No Current  Simplified deployment, scaling, and upgrading.
Not Sure/
Don’t Know
Plans to
Evaluate or
 Reduced resource requirements and management.
11.2% Deploy a
Hosted Solution • The top 5 barriers to adoption of managed
within 12
months
services for RFID include:
41.1%  Loss of Control
Currently
Evaluating
 Vendor ‘Lock-in’
Hosted  Security
Solutions
16.8% Planning to  Lack of Offerings
Evaluate and/or
Deploy a
 Limited Success Stories
Hosted Solution
Within 12
months
17.8%

10 – 2010 VDC Research Group, Inc.

Market Still Eager for the Right Source of Supply
End users want a partner, not a supplier

End User Preference by • More than 50% of all purchasing by the
Distribution Channel respondent group was through a direct
Direct from
AIDC/Bar Code relationship with the manufacturer or a
Manufacturer
Other value-added provider (i.e.: SI, VAR).
2.9%
Supply Chain
0.6%  The number of Tier 1 firms that purchased solutions
Execution Vendor directly from the manufacturer decreased nearly
3.4% 10% from the previous year.
Don’t  Those moving away from a direct channel are shifting
Independent Know
Software Vendor 5.7% toward the value-add providers that are installing,
5.2% integrating, and maintaining the solutions.
 Manufacturers are strengthening and broadening their
Direct from RFID
Manufacturer
relationships with their value-add providers as a means
Consultant 27.6% to expand TAM, protect their client base, and remain
6.3% competitive.

• Use of the OEM and dealer / distributor channels
Dealer/
Distributor were down slightly due to customization
10.9% requirements and a strong need for value add
services; however, most respondents indicated
SI/VAR
OEM 24.1% a longer-term preference to source through
13.2% these indirect channels as the market continues
to mature.


In Summary, A Number of Pretty Big Changes
With these shifts come bigger opportunities, and serious implications, for RFID suppliers

Last Generation Next Generation Share Leaders

RFID • Market is not about technology, less about
information and more about applied intelligence
Technologies
• Operational needs and opportunities define
Datastreams information and intelligence requirements

• Looking across operations, and across
Point Solutions commercial value chains, for opportunities

Tags and • Operational expertise, system integration skills
and software tools to integration/ apply BI
Readers
RFID Solution • Migration from ‘RFID Businesses’ to a handful
of capabilities-defined business models
Suppliers


Implications for Suppliers
Defining target markets and defending value propositions will be paramount

• Innovation still matters. Even if the market is less interested in the specifics of certain
technology elements.
 Incremental innovation
 Applied innovation
 Process innovation
• Target market definition still critical. As market perception of RFID rapidly changes
from ‘solution’ to enabling technology, its deployment will only expand.
 Applications – horizontal / meta and niche
 Vertical markets
 Compliance markets
• Sustaining margin still a challenge. Scale is coming, that will help margins, but, the
business will still be projects, so perhaps we need to look at gross and operating
margins in parallel.
 Early commoditization in the first part of the decade.
 Recession-driven price concessions in the last part of the decade.


Implications for Channels
Developing ever-deeper market and process expertise will be critical

• More and more leverage is available. Virtually all indicators point to a market that is
sourcing RFID from an ever-expanding universe of channels that offer high value-adding
software and service support.
 Still a project-based business
 Suppliers need coverage, too
• More and more competition is coming. A persistently fragmented market will, of course,
have varied requirements and preferences – both technical and commercial.
 As RFID transitions to become an enabling technology, the channels of the enabled solutions may enter
 When, where and how distribution / value-added distribution for RFID?
 ISVs and ISIs run projects … more projects, more demand for their skills … and perhaps more share
• More and more depth is required. Even the larger RFID rollouts are often seen as smaller
IT projects – suitable, or preferred – to be contracted with an expert channel.
 Distribution of budget dollars will continue to shift to software and services in most installations
 The need to manage schedule and budget has never been higher. Got a marketable toolkit for this?
 RFID as an enabling technology will be inserted more deeply, as well as broadly. That means channels
will need more operational, and organizational expertise than ever before. To win and defend.


Q&A Session

Thank You for Attending this VDC Webcast.
For more information about the
2010 RFID BUSINESS PLANNING SERVICE,
Please Contact:

Peter Doran – Sales Executive
pdoran@vdcresearch.com | 508.653.9000 x139

andrewn@vdcresearch.com | 508.653.9000 x148

Tom Wimmer – Director, AutoID and Transaction Practice
twimmer@vdcresearch.com | 630.279.7959


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