Retailers expected to spend billions on Internet of Things

Investment likely to hit $2.5 billion by 2020, but new technology carries new security risks

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Some Gold­en State War­riors fans step­ping off the esca­la­tors at the nose­bleed sec­tions now get a ping on their phone.

Wan­na upgrade to bet­ter seats?

The tech­nol­o­gy, devel­oped by New York-based Sig­nal360, uses strate­gi­cal­ly placed bea­cons—at cer­tain sec­tions, the team store and restaurants—at Ora­cle Are­na. Using Blue­tooth sig­nals or Signal360’s pro­pri­etary nonaudi­ble tone to detect smart­phone loca­tions, the tech­nol­o­gy is pro­grammed to deliv­er coupons and oth­er offers to fans who have down­loaded the team’s app and opt­ed to receive alerts.

Lauren Cooley, Signal360 COO
Lau­ren Coo­ley, Sig­nal360 COO

Bea­con-prompt­ed pur­chas­es at Ora­cle Are­na have 87 per­cent high­er trans­ac­tion­al val­ue than oth­er sales, says Lau­ren Coo­ley, COO of Sig­nal360. “They’ve gen­er­at­ed mean­ing­ful rev­enue in incre­men­tal pur­chas­es.”

It’s one of the ear­li­est man­i­fes­ta­tions of the Inter­net of Things (IoT) extend­ing beyond Inter­net-con­nect­ed house­hold appli­ances, auto­mo­biles and med­ical devices into the retail sector—further open­ing the lid on a Pandora’s box of unprece­dent­ed pri­va­cy issues and secu­ri­ty con­cerns.

More: How IoT has insti­gat­ed a sea change in secu­ri­ty, lia­bil­i­ty con­cerns

Retail­ers that want to cap­i­tal­ize on IoT will spend $2.5 bil­lion in hard­ware and instal­la­tion costs for such devices by 2020, esti­mates Juniper Research in its new data. That’s near­ly a four­fold increase over this year’s esti­mat­ed $670 mil­lion.

The entire IoT market—including ser­vice rev­enue, spend­ing by com­pa­nies, and cost-savings—could total near­ly $300 bil­lion by 2020, Juniper esti­mates.

The pri­va­cy and secu­ri­ty expo­sures cre­at­ed in the process are lim­it­ed only by the imag­i­na­tion of enti­ties seek­ing mon­e­tary gain or pur­su­ing polit­i­cal or ide­o­log­i­cal agen­das.

In the War­riors exper­i­ment, the “things” are the bea­cons that can detect con­sumers’ loca­tion. But retail­ers also are look­ing at oth­er types of hard­ware, includ­ing radio fre­quen­cy ID tags (RFID), sen­sors and smart cam­eras that can help reduce theft, con­trol inven­to­ry, boost sales, change pric­ing in real time, and even track employ­ees.

Liken­ing IoT in retail to web­sites in the 1990s, Guy Courtin, prin­ci­pal ana­lyst at Con­stel­la­tion Research, says the indus­try is well aware of the emerg­ing technology’s “mas­sive role” but is only begin­ning to dab­ble in the pos­si­bil­i­ties.

Guy Courtin, Constellation Research principal analyst
Guy Courtin, Con­stel­la­tion Research prin­ci­pal ana­lyst

Retail­ers are still skep­ti­cal about heavy costs involved in IoT adop­tion and, for now, are like­ly to stick to using it in more pro­sa­ic, but fun­da­men­tal parts of their business—back-room oper­a­tions. “CFOs aren’t going to fund rain­bows and uni­corns, the stuff that’s real­ly cool, but may not see a return on invest­ment for a while,” Courtin says.

The real­i­ty is that big-box retail­ers are hav­ing the same prob­lems as small retail­ers. Just go to Tar­get dur­ing busy sea­sons, and see the shelves,” he says.

Courtin pre­dicts IoT in retail ini­tial­ly will unfold in the fol­low­ing ways:

• Smart shelves: Plac­ing sen­sors, high-res­o­lu­tion cam­eras and dig­i­tal tags can enable retail­ers to mea­sure inven­to­ry on a real-time basis, allow­ing store employ­ees to avoid shut­tling back and forth to the stock room. Items can be reordered in a time­li­er man­ner as the inven­to­ry is con­stant­ly updat­ed.

An IoT device can read inven­to­ry bar­codes as they’re removed from the shelf, help­ing to reduce theft and oth­er “inven­to­ry shrink­age.” North Amer­i­can retail­ers lost an esti­mat­ed $42 bil­lion due to inven­to­ry shrink­age in 2014, Courtin says. “If (the point of sales) reg­is­ters that bar­code, you know that it’s off the books. If it didn’t get through POS, it’s in the store some­where or stolen,” Courtin says.

Food sup­pli­ers may opt for IoT devices that can ensure the right tem­per­a­ture for their trucks, ware­hous­es or stock­rooms.

Ear­li­er this year, Pana­son­ic intro­duced new prod­ucts that will be mar­ket­ed to retail­ers that want to improve back-room mon­i­tor­ing, includ­ing a 4G sur­veil­lance cam­era and a remote heating/cooling sen­sor for prod­ucts that are tem­per­a­ture sen­si­tive.

• Store traf­fic flow: Devel­op­ers also envi­sion smart cam­eras, bea­cons, sen­sors and micro­phones used in mea­sur­ing cus­tomer traf­fic pat­terns, Courtin says, cit­ing Extreme Net­works’ exper­i­men­tal part­ner­ship with the NFL’s New Eng­land Patri­ots and Gillette Sta­di­um.

Cus­tomers spend­ing too much time in one spot—say a bath­room or con­ces­sion stand—can receive a text alert­ing them of oth­er near­by options with short­er lines or a reminder that hot dogs can be deliv­ered to their seats.

• Real-time pro­mo­tions: Also known as “prox­im­i­ty mar­ket­ing,” the idea that IoT devices can sense where cus­tomers are and deliv­er imme­di­ate, rel­e­vant coupons has been dis­cussed at length at retail tech­nol­o­gy con­ven­tions in recent years. But with pro­hib­i­tive costs, find­ing a retail­er that has seri­ous­ly dab­bled in it is prov­ing dif­fi­cult.

The Gold­en State War­riors are an ear­ly adopter of this exper­i­ment. But Coo­ley of Sig­nal360 says the hos­pi­tal­i­ty indus­try also is show­ing height­ened inter­est. “Retail­ers are noto­ri­ous fast fol­low­ers,” she says. “Many are wait­ing to see how cus­tomers respond.”

There’s a lot of pooh-poohing of (IoT), like the con­nect­ed cat water­ing bowl,” Courtin says. “There’s a neg­a­tive view of some of this stuff, and right­ly so. But we have to focus on the busi­ness case. To use a base­ball anal­o­gy, we’re not even in the first inning. It’s the bat­ting prac­tice.”

More on Inter­net of Things:
Secu­ri­ty must be part of device design as Inter­net of Things evolves
Samsung’s SmartTV fore­shad­ows Inter­net of Things eaves­drop­ping
Inter­net of Things facil­i­tates health care data breach­es
Impen­e­tra­ble’ encryp­tion arrives to lock down Inter­net of Things