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
By Roger Yu, ThirdCertainty
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.
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.
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.
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