This article was inspired by tftf's Instablog posts which I highly recommend you read.
One of the biggest new features of iOS 7 are "iBeacons". Apple (NASDAQ:AAPL) said nothing about iBeacons in either June or the more recent September presentation. However beacons were mentioned in at least 3 WWDC sessions. iBeacons may explain why Apple has been ignoring NFC (Near Field Communication) technology.
According to gigaom.com
Beacons are a small wireless sensors placed inside any physical space that transmit data to your iPhone using Bluetooth Low Energy (also known as Bluetooth 4.0 and Bluetooth Smart).
BLE (Bluetooth Low Energy) uses the same 2.4Ghz radio spectrum as classic Bluetooth, it's not backwards compatible but Bluetooth 4.0 can support both classic Bluetooth and BLE. Apple first introduced BLE in the iPhone 4S (In mid-2011 Apple joined the board of directors of the Bluetooth Special Interest Group) and hardly anyone noticed. The difference now is that iOS 7 is introducing a new level of integration and possibilities.
This presentation is a must watch.
How it Might Work
You walk in range of a sensor (beacon) in a shop and you are sent personal notifications and actions. These might be personalised deals or coupons, or recommendations based on your past purchase history. You can then pay for your items much faster perhaps without even needing to queue. The benefits to both the user and retailer are clear.
According to Retail-Week
Joel Blackmore, senior innovation manager at mobile consultancy Somo, says: "iBeacons will be the biggest change for retailers since smartphones. Within the space of a month or so there will be 700 million iOS devices with iBeacons, enabling indoor positioning, micro-location and a new form of contactless payment."
Another useful feature of beacons is that iOS devices can act as beacons themselves. The potential for iBeacons goes well beyond retail. An iBeacon user could potentially trigger events around them such as turning lights on or opening doors. Apple's WWDC presentation showed how beacons could be used throughout a museum.
Has Apple Just Killed NFC [Watch Out NXP Semiconductor (NASDAQ:NXPI), INSD: EN Paris, Broadcom (NASDAQ:BRCM)]
iBeacon is better than NFC for two vital reasons
- iBeacon has a much longer range up to 50m (recommended range 10m) compared to NFC's meager 20cm (practical range is just 4cm). That means that iBeacons can be used for more than just payments. Retailers can also send coupons, deals and even directions to users devices. That's vitally important because it could encourage merchants to get behind the beacons something they have been reluctant to do with NFC thus far.
- Bluetooth technology is already ubiquitous on all smartphones
An iBeacon is inexpensive although more expensive than NFC - It is much cheaper (And a lot less effort) to kit a store out with a few beacons ($30 each) than place an NFC tag on every single item (at 10 cents each)
Although it consumes power iBeacon has a super long battery life - An iBeacon can run for two years on just a coin battery. One weakness of iBeacon is that it sends a lot less data than Wi-fi. This means it can't transmit audio or video files.
Whilst alot of people are excited by iBeacons there are skeptics. Einar Rosenberg, chief technology officer for Narian technologies, is skeptical of BLE. Rosenberg thinks BLE and NFC are more complimentary rather than mutually exclusive. His biggest worry is BLE's accuracy and he was also worried about cost. He says, "You might be told you're in the section next to the one you're actually in."
Something he apparently experienced multiple times in his own tests. But Apple seemed very confident in their accuracy. It was one of the things they kept mentioning in the presentation. I also expect the cost of beacons will come down quickly.
Perhaps Rosenberg's reservations explain why Apple has been reluctant to talk much about them thus far. Apple may want to do more testing. I think we will hear a lot more about beacons when the iWatch launches to which they seem ideally suited for.
Google was reluctant to make BLE work with Android because it has been pushing NFC heavily. Manufacturers were having to build in the implementation themselves. Even Google has been forced to relent in the face of heavy demand. Android 4.3 now has built in platform support for BLE. This explains why a lot of fitness tracker apps which make use of BLE don't work on older Android phones.
The key for all these systems to work is the infrastructure and the infrastructure becomes viable when you have a critical mass of users. In this respect NFC has struggled with some merchants reluctant to embrace the new technology.
As I already alluded to the great advantage of BLE is that almost every phone already has it compared to just a few with NFC. The difficulty will be getting the merchants to install the technology at their end. Paypal is already now experimenting with BLE.
PayPal is another company hoping to take advantage of the growth of BLE. Earlier this week it announced Beacon, a new payments service that lets people make purchases with their phones, but without even pulling them out of their pockets. Beacon's USB dongle plugs into point of sale terminals and informs merchants when someone checks in using the PayPal app. They can then send personalized offers, let people know when their orders are ready, and more over a Bluetooth connection. If you're buying something, you just need to tell the person at the register that you're using PayPal
I would be very concerned if I was long NFC chip suppliers such as NXP semiconductor. Many were hoping Apple would eventually adopt NFC. That now looks extremely unlikely, especially after Apples mobile development chief Craig Federighi made fun of NFC and the idea of bumping phones, in the June iOS 7 presentation.
BLE is far from proven but its potential is undoubtedly huge. I think the key point is that almost all phones today support BLE. So it just seems to make more sense to use BLE instead of NFC.
If NFC were already more ubiquitous and widely used then maybe you could make an argument to keep both services. But the reality is NFC is struggling. Gartner actually downgraded the number of mobile payments they thought would come through NFC throughout the forecast period by a massive 40%. Very few people actually use NFC at the moment and Apple's decision and the new iBeacons may have just killed it.
Part 2 - the future of mobile payments - still to come
Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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