Put Your Finger on the Pulse of the RFID End User

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These slides are from a webcast presented on 05/12/10. During this webcast, Drew Nathanson, Director of Research Operations, presents findings from VDC's Q2 2010 survey of RFID end users. The webcast provides insights into the answers to the following questions: What are the primary adoption drivers for RFID? What applications are currently being supported by RFID and which ones will be deployed in the near-term? What are the estimated RFID budgets and how will these change over the next 3-5 years? How is the managed service business model evolving for RFID? What are the preferred channels and industry sources?

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Put Your Finger on the Pulse of the RFID End User

  1. 1. 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
  2. 2. 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.
  3. 3. VDC Research Group Additional complimentary insights and marketing data on the RFID market available at: www.vdcresearch.com 2– 2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice
  4. 4. Today’s Panelists Drew Nathanson – Director of Research Operations 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. 3– 2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice
  5. 5. Today’s Agenda Market Demand Levels & Makeup Investment Drivers & Patterns Managed Services Select Key Changes in the RFID Markets Implications for Suppliers & Channels 4– 2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice
  6. 6. 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 5– 2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice
  7. 7. 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. 6– 2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice
  8. 8. 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 7– 2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice
  9. 9. 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. 8– 2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice
  10. 10. 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 9– 2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice
  11. 11. 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. AutoID & Transaction Automation Practice
  12. 12. 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. 11 – 2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice
  13. 13. 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 12 – 2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice
  14. 14. 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. 13 – 2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice
  15. 15. 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. 14 – 2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice
  16. 16. 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 Drew Nathanson – Director of Research Operations andrewn@vdcresearch.com | 508.653.9000 x148 Tom Wimmer – Director, AutoID and Transaction Practice twimmer@vdcresearch.com | 630.279.7959 15 – 2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice

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