Wednesday, December 5, 2012

NFC Pessimism Grows, and Might be a Good Thing

Juniper Research has revised its forecasts for the global near field communications market, significantly scaling back its growth estimates for the North American and Western European markets. In some ways, that might be considered a "good" thing, to the extent that it follows a common pattern of technology adoption.

What is "good" about deflated hopes is that such periods seem "always" to happen, and are just a milestone on the way to eventual adoption on a fairly wide scale. So the argument is that dashed initial hopes mean the market is moving in the way one should expect: high hopes, disillusionment, and finally adoption.
The most significant change to the Juniper Research forecast is the amount of transaction activity NFC devices will drive, as the new forecast reduced the number of NFC devices in use only slightly.

By 2017, global NFC retail transaction values are now expected to reach $110 billion in 2017, significantly below the $180 billion previously forecast. 

Such revisions are not unusual in the predictions business, especially not for a brand new market that depends on many changes in the ecosystem.

Apple’s decision to omit an NFC chipset from the iPhone 5 has reduced retailer and brand confidence in the technology, leading to reduced point of sale) rollouts, for example.
This in turn will lead to lower NFC visibility amongst consumers and fewer opportunities to make payments, threatening a cycle of “NFC indifference” in the short term, Juniper Research believes.

“While many vendors have introduced NFC-enabled smartphones, Apple’s decision is a significant blow for the technology, particularly given its previous successes in educating the wider public about new mobile services” says Dr. Windsor Holden, author of the study.

The report found that Apple’s move would impact most dramatically on markets in North America and Western Europe, where transaction values would exhibit a “two year lag” on previous forecasts as retailers delay POS investments.

Conversely, retail transactions in NFC’s heartland in Japan and Korea are likely to experience little or no impact from the Apple decision.

None of that is terribly surprising. Though the 2011 KPMG Mobile Payments Outlook, based on a survey of nearly 1,000 executives primarily in the financial services, technology, telecommunications, and retail industries globally found that 83 percent of the respondents believe that mobile payments will be mainstream by 2015, even the moset astute industry observers tend to overestimate early adoption of a major new technology, while underestimating long term impact. 

Analysts at Gartner, for example, use a model of how expectations for significant new technologies running in a predictable cycle. What the cycle suggests is that expectations nearly always (always, according to the model) run ahead of marketplace acceptance.

What the Gartner hype cycle suggests is that expectations for mobile payments using near field communications are at a point where we can expect five to 10 years to elapse until NFC actually begins to make serious inroads as an adopted mainstream technology. The emphasis probably is important to note: “begins.”

In fact, Gartner's Hype Cycle now expects it will take five to 10 years before NFC is in widespread and mainstream use. Gartner's latest expectation likewise is that cloud computing and machine-to-machine applications will not be mainstream for another five to 10 years as well.

But new technologies historically take some time to reach 10 percent, then 50 percent, then virtually ubiquitous adoption. To be sure, there has been a tendency for new technologies based on digital and electronic technology to be adopted faster. But a decade period to reach perhaps 10 to 20 percent adoption is hardly unusual.

That is not much of an issue for point solutions like computers that can be used without lots of additional change in infrastructure. That is not true for highly-complex ecosystems such as payments, though.

ATM card adoption provides one example, where "decades" is a reasonable way of describing adoption of some new technologies, even those that arguably are quite useful.

Debit cards provide another example. It can take two decades for adoption to reach half of U.S. households, for example.

If Gartner analysts are right about the near field communications "hype cycle," we should continue to see "disillusionment" expressed about near term prospects for NFC. The reason is that Gartner now sees NFC at the "top" of its hype cycle, the point at which overly-optimistic projections face the reality of an extended period of development, before something "useful" actually emerges.

Internet TV, NFC payment and private cloud computing all are at what Garner calls the "Peak of Inflated Expectations," which is always followed by a period where the hype is viewed as outrunning the actual market. That suggests NFC soon will enter a phase where expectations are more measured.

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