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 PracticeDrew 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.

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

VDC Research Group

Additional complimentary insights and marketing data

on the RFID market available at:

www.vdcresearch.com


AutoID & Transaction Automation Practice

http://www.vdcresearch.com/

Today’s Panelists

Drew Nathanson – Director of Research OperationsDrew 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 DirectorTom 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



0%

10%

20%

30%

40%

50%

60%

70%

RFID Budgets

2009 2010 2011

• Average investment in RFID solutions in 2009 by the

respondent group was approximately $1.1 million.

• This sample expects that spend to increase

• More than 200% per account in 2010.

• To nearly $7 million per account in 2011.

• Respondents currently investing more than

$250,000 are expecting to invest more in RFID

over the next two years in support of scaling their

deployments and further integrating their solutions.

• The number of respondents that are using /

evaluating but did not purchase any RFID solutions

in 2009 are expected to dramatically increase their

spend within the next 24 months.

• More than 50% of respondents cited no purchases

in 2009 – a value expected to dip to less than

14% in 2011.

Pilot-to-deployment times to decrease; significant scaling to begin Q4 2010 or earlier

A Note About that Strong Near-term Growth …



• A significant share of the revenue

gains during the next 2-3 years are

expected to be concentrated in the

‘existing account’ community.

• These companies have been

funding pilots, with partners, and

are expected to offer these partners

the opportunity to grow with them.

• In other words, much of the growth

will look like brown-field demand,

not green-field.

• That said, we expect that the

horizontal growth opportunities

will be healthy, if smaller in scope.

• Account development lifecycles for

these next generation green-field

opportunities are not expected

to take as long to develop as the

current / latest generation of large

account / program/ project

opportunities.

More scaling of the installed base than market expansion… incumbents should have leverage, but …

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015

Existing New

Anticipated Shifts in Customer Mix

Note: market share = VDC estimates for illustration purposes.

Primary RFID Applications Still A Paradox

0% 10% 20% 30% 40% 50%

Other (Specify)

Contactless Payment

Pos (Point-of-Sale)

Baggage Handling

WIP (Work-In-Process)/Assembly

Anti-Counterfeiting

Animal Tracking

RTLS

Shop-Floor Automation

Toll Collection/Vehicle Id

Ticketing

Rental-Item Tracking

People Tracking/ Labor MGMT

Customer Loyalty

Sensing/Monitoring

Supply Chain MGMT

Security/ Access CTRL/ Id

Asset Management

Inventory Control/MGMT

Supported & Expected RFID Application

EXPECTED SUPPORTED

• Although significant growth is expected for most

applications, adoption of the following applications

is to triple by 2011:

Anti-counterfeiting

WIP/Assembly

POS

Contactless Payment

Shop-floor Automation

People tracking / labor management

• Even primary applications with more than a 30%

penetration rate (for the survey population), such

as supply chain, inventory control, and asset

management, are expected to increase adoption,

with nearly 50% of respondents expecting to use

RFID in support of these applications by the end

of 2010.

• The convergence of RFID with other AIDC solutions

continues to express itself in an increasingly wider

range of applications, positioning RFID as an

enabling technology and further establishing a

footprint within these markets and installation

environments.



Adoption strong for core and emerging applications; convergence gives additional boost

So What Do We Make of the Application Landscape?



• Meta applications such as supply chain

management, asset tracking, etc. will

continue to account for significant

market spend, largely due to:

Proven ROI

Broad, Fluid Definition /Deployment

• A number of legacy point applications

could reach maturation in the next

couple of years and offer little or

no growth

Security / Access Control

Tolling

• A new generation of applications – some

point, others meta–will account for a

growing share of the market

Sensing/ Monitoring

Contactless Payment

It is difficult to make accurate, sweeping statements about such a fragmented market

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015

Meta Apps Legacy Point Apps Nex Gen Apps

Anticipated Shifts in Application Mix

Note: market share = VDC estimates for illustration purposes.

Performance vs. Key Investment Drivers Still Gapped

• Nearly 80% of all respondents cited leading

RFID adoption divers that are not new.

• However, the same group of respondents indicated

that their solutions and suppliers are not fully

meeting their expectations.

• Most end users stated that adoption of sensing

solutions would increase significantly if / when

environment monitoring technologies attain a

more attractive price /performance level.

• Based upon the ‘gap’ between the levels of

importance and satisfaction, areas that suppliers

can focus on to help facilitate adoption and

capitalize upon opportunity include:

Providing enhanced, measurable, and reproducible

efficiencies and business models.

Error reduction / more automation and deeper integration.

Increased visibility in conjunction with an enhanced

ability to port intelligence to key stakeholders.

• Compliance remains a less important driver –

most deployments are not compliance related

(i.e.: <25%), with most respondents indicating that

their solutions and suppliers are exceeding their

expectations.



Most important drivers remain rooted in operational improvement, information accuracy and security

0 1 2 3 4

Envir./Conditional Monitoring

Compliance/Mandate

Labor Reduction

Product Serialization

Enhanced Actionable Business Intell.

Non-Line-Of-Sight Capabilities

Improved Visibility Into Value Chain

Improved Performance, (Over Other AIDCSolutions)

Competitive Advantage/ Competitive Differentiation

Ability to Incld. More Info Throughout Value Chain

ROI For Specific App. Demonstrated

Chain Of Custody/ Pedigree/ 'End-To-End' Tracking

Enhanced Security

Real-Time Updating/Information

Incr. Automation/Decr. Manual Error

Improved Operations/Processes

Importance & Level of Satisfaction of Primary RFID Adoption Driver

SATISFACTION IMPORTANCE

Managed Service Deployment Interest Still Brewing

No Current Plans to

Evaluate or Deploy a

Hosted Solution within 12 months41.1%

Planning to Evaluate and/or

Deploy a Hosted Solution

Within 12 months17.8%

Currently Evaluating

Hosted Solutions

16.8%

Not Sure/Don’t Know

11.2%

Currently Using a Hosted Solution

8.4%

Evaluated Hosted

Solution, but did not Deploy

4.7%

End User Expectation for Adoption of RFID Managed Services

• Nearly half of all respondents are either using or

evaluating managed services for RFID, with most

considering a SaaS or Hybrid model.

• Less than 10% of respondents are currently using

a managed service offering or provider, a figure

expected to more than double within 12 months.

• Primary reasons cited for using a managed

service model include:

Decreased capital requirement and investment risk.

Simplified deployment, scaling, and upgrading.

Reduced resource requirements and management.

• The top 5 barriers to adoption of managed

services for RFID include:

Loss of Control

Vendor ‘Lock-in’

Security

Lack of Offerings

Limited Success Stories



RFID with less risk … opening eyes and budgets

Market Still Eager for the Right Source of Supply

Direct from RFID Manufacturer

27.6%

SI/VAR24.1%OEM

13.2%

Dealer/Distributor

10.9%

Consultant 6.3%

Independent Software Vendor

5.2%

Supply Chain Execution Vendor

3.4%

Direct from AIDC/Bar Code Manufacturer

2.9%Other 0.6%

Don’t Know 5.7%

End User Preference by Distribution Channel

• More than 50% of all purchasing by the

respondent group was through a direct

relationship with the manufacturer or a

value-added provider (i.e.: SI, VAR).

The number of Tier 1 firms that purchased solutions

directly from the manufacturer decreased nearly

10% from the previous year.

Those moving away from a direct channel are shifting

toward the value-add providers that are installing,

integrating, and maintaining the solutions.

Manufacturers are strengthening and broadening their

relationships with their value-add providers as a means

to expand TAM, protect their client base, and remain

competitive.

• Use of the OEM and dealer / distributor channels

were down slightly due to customization

requirements and a strong need for value add

services; however, most respondents indicated

a longer-term preference to source through

these indirect channels as the market continues

to mature.



End users want a partner, not a supplier

In Summary, A Number of Pretty Big Changes



With these shifts come bigger opportunities, and serious implications, for RFID suppliers

• Market is not about technology, less about information and more about applied intelligence

RFID Technologies

• Operational needs and opportunities define information and intelligence requirementsDatastreams

• Looking across operations, and across commercial value chains, for opportunitiesPoint Solutions

• Operational expertise, system integration skills and software tools to integration/ apply BI

Tags and Readers

• Migration from ‘RFID Businesses’ to a handful of capabilities-defined business models

RFID Solution Suppliers

Last Generation Next Generation Share Leaders

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.

Thank You for Attending this VDC Webcast.

For more information about the

2010 RFID BUSINESS PLANNING SERVICE,

Please Contact:

Peter Doran – Sales [email protected] | 508.653.9000 x139

Drew Nathanson – Director of Research [email protected] | 508.653.9000 x148

Tom Wimmer – Director, AutoID and Transaction [email protected] | 630.279.7959

Q&A Session



mailto:[email protected]

