Mapping the Indoor Marketing Opportunity

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2 Offline analytics and indoor location will change the way that retailers, venue owners, manufacturers and brands think about operations, marketing and the customer experience. Opus Research predicts the market for indoor location and place-based marketing and advertising to surpass $10 billion by By Greg Sterling Senior Analyst, Opus Research with Derek Top Research Director, Opus Research Opus Research, Inc. 350 Brannan St., Suite 340 San Francisco, CA ii

3 Table of Contents Key Findings The Real World: A New Digital Frontier Sizing the Indoor Opportunities Hardware and SaaS spending... 3 In-Store Coupons and Merchandising: A Multi-Billion Dollar Pool Placed-based mobile marketing and advertising... 4 New Consumer Behavior Not Required... 5 Digital Maps Go Indoors... 8 Plenty of Technology, No Single Standard... 9 Major Indoor Location Technology Categories Digital Analytics for the Real World Online-to-Offline Conversion Tracking...13 Microfencing: Targeting in the Aisle Who will own the consumer relationship? Privacy: Opt-in or Opt-out? Privacy Code of Conduct Conclusion: An Inevitable Market Appendix A: List of Companies Table of Figures.. Figure 1: Indoor Location Technology and Services Spending Figure 2: Indoor Location-Influenced Spending... 5 Figure 3: E-commerce As a Percentage of Total US Retail Figure 4: Consumer smartphone usage in stores: Figure 5: What are smartphone owners looking for? Figure 6: Reach of retail apps vs. mobile web chart Figure 7: Bing Interior Map and Photography of San Francisco Airport Figure 8: Installed Wi-Fi Hotspots Globally Figure 9: Array of technologies graphic from the conference Figure 10: Online-to-Offline Sales 10X E-commerce Figure 11: How much do you care that only you and those you authorize Figure 12: Smartphone Users Will Trade Location for Rewards iii

4 Key Findings Brands, retailers, ad networks and publishers are starting to grasp the opportunities and potentially radical changes coming with offline analytics and indoor location. Overall, by 2018, Opus Research predicts around $10 billion in spending to be touched or directly affected by indoor location. The rise of indoor location, offline analytics and proximity or place-based marketing will impact several areas: hardware/it spending and software licensing; coupon distribution, in-store merchandising and shopper marketing; and geo-fenced mobile advertising. Several converging trends are driving the market: smartphone adoption, indoor mapping, the demand for indoor/retail analytics and the effort to close the loop between online advertising and offline sales. Third party estimates indicate roughly 1,000 retail locations in the U.S. are already using or experimenting with some form of indoor location for analytics or customer experience purposes. Currently there s no dominant indoor-technology standard; most properties will eventually utilize multiple approaches (e.g., Wi-Fi + Bluetooth) to ensure accurate indoor coverage. Value and competitive dynamics will make indoor location (and analytics) mandatory for most retailers. In addition, offline conversion tracking will become standard, changing how marketers think about the value of digital advertising. Commercial floor plans (and related geo-fences), combined with smartphone location awareness now make it possible to almost seamlessly track consumers as they move from outside to indoor spaces. While microfencing (very precise indoor marketing) is technically feasible, several considerations including organizational culture, software compatibility and coordination challenges will likely delay widespread adoption of aisle-level digital targeting for at least the 12 to 24 months. Merchants seeking to preempt the virtual intrusion of third ad networks and marketing into their stores will need to develop rich and useful app experiences to keep customers engaged. While the presence of smartphones enables merchants to monitor consumer movements without their consent, they should seek opt-in participation to actively engage in-store shoppers. Privacy will continue to be a central issue in the discussion surrounding indoor location and analytics; but a set of industry-adopted best practices will likely be established. 1

5 The Real World: A New Digital Frontier Market competition and parallel technology developments have brought us to the threshold of a new era in digital marketing and analytics. Brands, retailers, ad networks and publishers are starting to grasp the opportunities and potentially radical changes coming with offline analytics and indoor location. Smartphones, now at critical mass, are bridging the digital and physical worlds. Public Wi-Fi networks and new indoor-location technologies are enabling better location awareness indoors: in office buildings, entertainment venues, retail stores and other commercial environments. It s now possible to accurately follow consumers in and around stores, stadiums, airports, hospitals, college campuses and other physical places, just as Internet users are followed from one website to another. There are clear privacy concerns but also significant customer-experience benefits that will convince many people to share location information with merchants and brands. Marketers will increasingly be able to determine the real-world impact of digital advertising. E-commerce had a record year in Yet it remains a fraction of traditional local and in-store spending. The Internet s impact on offline spending has essentially been impossible for marketers to track on a per-campaign basis or at scale. No longer. Smartphones, geo-fencing and indoor location now make it possible to correlate digital ad exposures with physical store visits and even sales. Online to offline ad tracking (into stores) will soon become a standard metric and have a significant impact on how ROI is calculated. We might even see cost per visit become a new performance metric or new business model. Offline analytics and indoor location will change the way that retailers, venue owners, manufacturers and brands think about operations, marketing and the customer experience in general. In a few years we may look back and see the combination of smartphones and offline location awareness as a development nearly as radical and disruptive as the Internet itself has been. Sizing the Indoor Opportunity Indoor location, offline analytics and proximity or place-based ad targeting are semi-independent developments all connected or enabled by the adoption of smartphones. They are not part of a single, coherent market. Nonetheless, the convergence of these trends will have a direct or indirect impact on hardware spending and software licensing, merchant operations, shopper marketing, loyalty programs, marketing and digital advertising as a whole. Many billions of dollars are implicated across a range of channels. For example, billions are spent annually in the US by brands and marketers to influence consumer purchase behavior at the point of sale (indoors). Estimates range from $20 billion per year on the low end to $60 billion. The specific revenue potential of indoor location and placed-based marketing is quite speculative right now. Will the ability to see the real-world impact of online and mobile ads lead to more budget-shifting by large brands? Will indoor marketing capture spending currently dedicated to print coupons or more traditional in-store merchandising? And how much of future mobile advertising and marketing will seek to target people very near or inside commercial venues? There will also be new buckets of spending and revenue created. Most of these areas, however, are challenging to quantify at this early stage. Figure 1 below is a general framework for thinking about potential revenue growth and redistribution. 2

6 We see the advent of indoor location, offline analytics and related proximity or place-based marketing impacting four primary areas: Hardware/IT spending, services and software licensing (SaaS) Coupon distribution In-store merchandising and shopper marketing Geo-fenced or place-based mobile advertising Hardware and SaaS Spending There are already thousands of stores around the world using indoor location in some form. However they represent a still tiny percentage of the addressable market. One could argue every mall, every airport and every medium-tolarge retail chain (including grocery stores and quick service restaurants ) are prospects for indoor location. In the U.S. alone there are roughly 1.1 million retail establishments, broadly defined, according to the most recent U.S. government data. Some of them already have indoor location infrastructure (i.e., Wi-Fi) but most that do aren t now using location analytics or place-based marketing. It s important to reiterate that indoor location isn t limited to conventional retail environments. Sports stadiums, museums, hospitals, hotels, theaters, airports, restaurants, commercial office buildings, among others, will likely adopt indoor location technology and analytics for a range of reasons. However in our infrastructure forecast below use some conservative assumptions about adoption and pricing, focusing primarily on mainstream retail categories. We believe that spending on indoor location hardware, services and license fees will amount to $1.6 billion in the U.S. by This could easily be surpassed if adoption accelerates. Indeed, anecdotal evidence from vendors indicates an acceleration in the past six months. Retail analytics provider Euclid s co-founder and CEO Will Smith said, We ve shipped more sensors in last two quarters than at any time in the lifetime of the company. Figure 1: Indoor Location Technology and Services Spending $1,800 Figure 1: Indoor Location Technology and Services Spending $1,600 $1,400 $1,200 $ millions $1,000 $800 One-time Set-Up Infrastructure Spending Location Analytics $600 $400 $200 $

7 In-Store Coupons and Merchandising: A Multi-Billion Dollar Pool Whether print or digital, coupons are one of the most familiar and effective consumer marketing tools available. Approximately 305 billion coupons were issued in the U.S. in However, according to NCH Marketing Solutions, only 2.9 billion were actually redeemed. Those were worth roughly $3.7 billion at the register. The early numbers for 2013 suggest a similar $3.6 billion in coupon redemptions last year. NCH also reports that 3.5% of all U.S. coupons were distributed in stores (vs. newspapers or other channels). Perhaps reflecting buyer openness to influence at the point of sale, in-store coupons represent a disproportionate 13.1% of total redemptions (worth $472 million in 2013). Some of this nearly $500 million will shift to digital delivery in the future as indoor location gains momentum. Outside the store, digital and mobile couponing is growing faster than the overall market. Relying on a range of third-party data emarketer estimated there were 42.1 million mobile coupon users in 2013, with 70% using smartphones to access coupons. Another indicator of mobile couponing growth: Groupon said 50% of its North American sales last year were made on mobile devices. These data make clear that digital is the long-term future of coupons and smartphones the channel of choice for many consumers. We believe that an increasing volume of coupon activity will be tied to influencing smartphone users at or very near the point of purchase. Other substantial pools of money to be impacted by indoor location include in-store merchandising and shopper marketing. Whatever the terminology, in-store marketing is a multi-billion dollar channel today. It includes physical displays, video, signage, paid shelf space, coupon distribution and so on. There are a range of estimates from various sources (Kantar Media, Booz Allen, Deloitte, Veronis Suhler Stevenson) that assert the segment is worth somewhere between $20 billion and $60 billion in annual spending by brands and consumer packaged goods (CPG) companies to influence U.S. consumers at the point of sale. t s clear that a percentage of this spending will migrate to indoor digital platforms (i.e. screens, smartphones) over time. While variables do come into play, it s not unreasonable to assume that up to 10% of the total market will migrate to digital/mobile channels over the next five years. Accordingly, that represents up to $6 billion in annual spending. Placed-Based Mobile Marketing and Advertising A closely related or overlapping area is location-targeted mobile advertising and marketing. This year mobile advertising in the U.S. will exceed $7 billion according to Opus Research estimates. Additional money is spent on mobile marketing, (i.e., , notifications, apps, etc.), defined as promotional spending that doesn t involve media buying or ad placements. Although it s growing, only perhaps 10% - 15% of mobile display ads involve any location targeting. However, as offline analytics bring greater visibility to the impact of digital on in-store sales, those numbers will go up. And some percentage of mobile marketing and ad dollars (a subset of location-based ads/marketing) will target smartphone owners near inside stores. An important source of potential revenue for retailers is the sale of digital shelf space or in-app ad inventory to manufacturers and brands trying to influence in-store shoppers. Retailers are in the early stages of determining control of indoor marketing strategies, thus making it difficult today to estimate how much revenue may be generated of this emerging inventory. Still, it is clear third-party channels will compete for these ad dollars. There are other areas of spending and promotion that will be impacted by indoor location and marketing. Those above are the most logical and significant categories obviously implicated. As indicated in Figure 2 below, overall, by 2018, we expect something on the order of $10 billion to be touched or directly impacted by indoor location. 4

8 Figure 2: Indoor Location-Influenced Spending $12,000 Figure 2: Indoor Location-Influenced Spending $10,000 $8,000 $ millions $6,000 $4,000 Place-Based Mobile Ads In-Store Couponing/Marketing Indoor Location Technologies $2,000 $ New Consumer Behavior Not Required Startups and entrepreneurs sometimes make aggressive assumptions about consumer behavior. Often they create novel products or services that are ahead of their time or not aligned with the mainstream consumer market. In the early days of the Internet, for example, many e-commerce advocates operated under the optimistic assumption that in only a few years people would be making a substantial percentage (if not the majority) of their purchases online. More than a decade later e-commerce is still just 6 percent of total U.S. retail sales according to the latest figures from the U.S. Commerce Department. Figure 3: E-commerce As a Percentage of Total U.S. Retail SOURCE: Opus Research (2014) SOURCE: U.S. COMMERCE DEPARTMENT (Q3 2014) 5

9 One current example of what might be called entrepreneurial optimism is wearable computing. Notwithstanding the early success of health-monitoring wristbands such as Fitbit and Nike FuelBand, or the broad news coverage of Google Glass, mainstream adoption of wearables will likely take years. Another area many prognosticators thought would be gaining significant traction by now is mobile wallets. While mobile payments do have momentum in specific vertical contexts, the major horizontal wallet initiatives (i.e., PayPal, Google Wallet, Isis) are still far from mainstream. In fact, by some measures, the carrier-backed Isis and Google Wallet have essentially failed. One might be inclined to lump indoor location into this category of ahead of the market technologies. However, it s quite different. The necessary, foundational consumer behaviors are already established. In particular, smartphone penetration in the U.S. reached 65% in 2013 on its way to 75% (or higher) by the end of this year. In Europe, depending on the country, smartphone ownership is similarly between 55% and 66%. Figure 4: Consumer smartphone usage in stores ( ) Pew Research Center: 72% used smartphones in stores (Q4 2012) JiWire: 80% used mobile devices in stores for shopping (Q2 2013) Google-M/A/R/C Research: 66% used smartphones for in-store shopping (Q2 2013) Opus Research: 83% use smartphones in stores at least sometimes (Q3 2013) A critical mass of consumers in the U.S. and Europe now own smartphones. A majority of them use their devices in stores for product research and other shopping-related activities, including communicating with friends and family members for advice about which products to buy. Four recent U.S. consumer surveys show that between 66% and 80% of U.S. smartphone owners use their devices in stores for shopping research, including price comparisons, product review look-ups and searches for deals and discounts. 6

10 Figure 5: Top uses for smartphones in stores: Compare/check prices Look for coupons or offers Search for product ratings/reviews Source: Opus Research, E-Tailing Group, JiWire (2013) The presence of smartphones enables merchants to monitor consumer movements for analytics purposes. As a technical matter that type of monitoring doesn t require a formal opt-in or active participation by smartphone owners. But if merchants and others want to actively engage with in-store shoppers indoors, they ll need them to willingly optin and agree to participate. Accordingly there are a variety of ways to engage smartphone consumers indoors and in stores (e.g., SMS, QR codes, search, video). The dominant indoor consumer use case will require a mobile app for optimal functionality. Yet survey data reflect that most consumers are unlikely to have a retailer or merchant app already installed on their phones. Generally speaking mobile websites have far greater reach than retail apps but significantly less engagement. Getting consumers to download an app will require education and cross-channel promotion, often requiring a download incentive. Once an app is on the user s smartphone it can deliver improved customer experiences and engagement (often via notifications). But there may be some resistance from consumers who may be wary or reluctant to download apps, especially if they re only causal customers of the particular retailer. Figure 6: Reach of Retail Apps vs. Mobile Web Time Spent Audience Reach Apps Mobile Web Apps Mobile Web Source: xad/telmetrics Mobile Path to Purchase Study (2013) 7

11 The larger point is that indoor smartphone usage has already become mainstream. This makes indoor analytics and marketing immediately viable in ways that are not true for other new-technology segments such as mobile payments or wearable connected devices. Digital Maps Go Indoors Another building block of real-world location is digital mapping. Google, Microsoft, Nokia and Apple are all involved in providing venue maps or indoor location. While Apple doesn t yet formally offer indoor maps, it s introducing indoor location in all its 250+ retail locations through Bluetooth Low Energy (BLE) ibeacons. Google, Microsoft (Bing Maps) and Nokia have actively been mapping indoor spaces airports, big box retail stores, malls, college campuses, hospitals and other categories for the past several years. Indoor maps, especially commercial environments, is the logical next step in their competition. Figure 7: Bing Interior Map and Photography of San Francisco Airport Source: Microsoft/Bing (2013) Google and Microsoft are explicitly seeking to digitally reproduce the physical world with their digital mapping products. Google says it has over 10,000 [indoor] locations around the world mapped. By comparison Nokia said in mid-2013 its HERE venue maps initiative had already captured 50,000 buildings in 45 countries for a total of 415 million sq. meters indoors. Nokia also said that it was adding 1,000 new venues quarterly. The category breakdown for venues mapped by HERE is as follows: Shopping malls 56% Grocery/department stores 15% Other 14% (sports stadiums, zoos, museums, parks, etc.) Train stations 12% Airports 3% (HERE remains part of Finland-based Nokia despite the sale of the hardware division to Microsoft.) 8

12 Google hasn t provided a similar breakdown of its indoor maps but the company is equally going after shopping malls, casinos, museums, airports, sports complexes, retail stores and concert halls. Along with Bing, Google is capturing indoor photography for these places and millions of business locations globally. Consumer comfort and familiarity with outdoor maps, especially on smartphones, makes it natural for them to use digital maps (and navigation) in large or complex indoor spaces such as big box retailers, shopping malls and airports. It s also worth noting that as of Q more people used Google Maps on smartphones and tablets than on the PC. The existence of commercial floor plans (and related geo-fences), combined with smartphone location awareness now makes it possible to track consumers (almost seamlessly) as they move from outside to indoor spaces. Google is testing this as one way to track the offline impact (store visits) of online and mobile ads. Plenty of Technology, No Single Standard There are a surprisingly large number of technologies that can deliver or determine indoor location. The majority of them are not widely deployed today. The two most common in use today are video cameras and Wi-Fi (triangulation and/or fingerprinting). Figure 8: Installed Wi-Fi Hotspots Globally 820, , , , , (Q2) Source: JiWire (Q2 2013) In the past several months, however, a number of retailers and others (including Major League Baseball in the U.S.) have begun experimenting with Bluetooth low energy (BLE) beacons. Apple s decision to install ibeacons in all its retail locations brings visibility and credibility to BLE. Other retailers will quickly follow suit. Separately ebay s PayPal introduced PayPal Beacon, which both enables contactless in-store payments and provides indoor location for geotargeted ads and offers. 9

13 Below is an abbreviated discussion of the major indoor location technologies and a listing of example technology vendors. (For a more complete list see Appendix A.) There are reports dedicated entirely to analyzing the technical details and merits of each approach. In some ways, however, the technology is just the beginning of the discussion. In addition we believe most merchants and venue owners will ultimately utilize multiple approaches to ensure complete indoor coverage (e.g., Wi-Fi + BLE beacons). Figure 9: Array of Indoor Location Technologies Source: Opus Research (2013) Here are the major indoor location technology categories: Video cameras: Video cameras have been in retail and commercial environments for more than a generation. Cameras are the mostly widely deployed in-store monitoring technology. The data that these cameras capture, in combination with other approaches, can be used to provide a complete picture of instore employee and customer activity. RetailNext is the leading company to leverage in-store video but also incorporates other indoor-data technologies, including sensors and point-of-sale data. Wi-Fi: Wi-Fi is the most widely deployed indoor location technology after video. Location can be obtained through indoor triangulation (using multiple Wi-Fi hotspots), in the same way it is outdoors. Wi-Fi fingerprinting can also be used. That calls upon a database of hotspots to compare a smartphone s current location with known locations in the database.companies that currently utilize Wi-Fi triangulation or fingerprinting include Meridian (acquired by Aruba Networks), Navizon, WiFiSlam (acquired by Apple), Cisco, PoleStar and Aisle411, among others. Beacons and sensors: Beacons are generally low-cost modules or nodes that can be placed around a store. They utilize BLE or other types of signals (e.g., inaudible, high-frequency) and can use triangulation and fingerprinting, similar to Wi-Fi, to get a fix on indoor location. Sensors (including GPS) reside in the phone and are tapped by a variety of indoor technologies to locate a user. In this beacons category BLE is the most visible technology. Among the 25+ companies adopting some version of the beacon approach are iinside (formerly Wireless Werx), PointInside and Estimote. Magnetic field energy: Naturally occurring magnetic energy can be identified and associated with particular points on a map or and indoor floor plan. This is essentially an indoor compass. Distortions that might occur via building structures and materials can be compensated for. Indoor Atlas is the main company advocating this approach. Acoustic/Audio: An inaudible signal is broadcast via radio, in-store music, TV signal or other audio channel. This approach can locate users and messaging and notifications to smartphones within range of the signal, whether in a store, stadium, concert hall or other locations. Sonic Notify, which also relies on BLE beacons is the main proponent of this approach. 10

14 LED lighting: LED lights in stores can emit a visually undetectable light pulse that is picked up by the smartphone camera. These pulses can triangulate user location in a store. ByteLight is the only company that currently supports this technology. The argument in favor of the technology is that LED lighting is being installed in commercial spaces for cost-savings and will soon be in most retail environments. Indoor location will be a secondary benefit. Other approaches: These include cell-tower triangulation or low-orbiting satellites whose signals are stronger than traditional GPS satellites because of the lower-altitude. Just as outdoor mapping and navigation rely on a hybrid approach and combination of technologies (i.e., GPS, cell and Wi-Fi triangulation), it s quite unlikely that, in the near term at least, a single dominant indoor-technology standard will emerge. As mentioned, multiple technologies will be implemented, depending on the use case. Budgets and specific merchant needs (as well as organizational politics) will drive technology-buying decisions. Accuracy, cost and ease of deployment are all key considerations. Venue owners without the need for high precision may be satisfied with a more basic set-up that relies primarily on an existing Wi-Fi infrastructure. However those that want to provide aisle or shelf-level analytics and consumer engagement will need to deploy supplemental hardware and use multiple technologies. None of these technologies are necessarily mutually exclusive. They can be used in combination or layered over time for greater accuracy as needs change. And costs will go down over time. The technology vendors not surprisingly make competing claims about the relative merits of their approaches. However validating or disputing those claims is beyond the scope this introductory report. Digital Analytics for the Real World The category of retail analytics is not new. In various analog forms it has been around for decades (e.g., foottraffic counters). However the tools and technologies are now more comprehensive, more precise and more digital. Vendors are now bringing e-commerce style analytics to the real world. Euclid CEO Will Smith described digital indoor analytics capabilities as Omniture for brick and mortar stores. It was Euclid s early deployment test in Nordstrom stores that caused the initial controversy and sensational news coverage under the headline: in-store surveillance. However that and subsequent press attention has generated momentum rather than discouraged retailers from deploying indoor location. Once again demonstrating the value of publicity, the Nordstrom case has helped build awareness about the value and potential indoor analytics. Merchants and retail PR departments are just being more circumspect in their public discussion of their programs. RetailNext s Co-Founder Alexei Agratchev estimated that there are already tens of thousands of in-store deployments. However they represent less than 1% of stores globally. The Future of Privacy Forum, a think tank working with indoor location companies on privacy standards, has estimated that roughly 1,000 retailers in the U.S. are using some form of indoor location for analytics or customer experience purposes. Among them are Macy s, HomeDepot, Lowe s Walgreens, Timberland, Safeway, Kenneth Cole, Dick s Sporting Goods and Walmart. Analytics is a key market driver if not the main engine of the move to deploy indoor location. According to Euclid s Smith, it provides retailers and others with never before available data to answer fundamental questions about store operations and sales. It s a proven solution; we aren t technologies looking for a problem. One example of the new kinds of data available to store owners, indoor analytics can show the relationship between staffing levels and sales. RetailNext s Agratchev says that it all comes down to maximizing and increasing profit per 11

15 shopper and these new data help do that. RetailNext uses a combination of Wi-Fi and in-store cameras to deliver metrics about consumer behavior to its luxury retail and big-box clients. Among the data it provides are: time spent in store departments, effectiveness of merchandise displays, conversion data by time and day and the aforementioned staffing-to-sales data. One of the more unexpected dimensions of indoor location is that it helps merchants optimize store layouts for improved sales. At Opus Research s 2013 Place Conference, Agratchev provided an example of a retailer that featured the identical products in both wall and floor displays. Indoor location data revealed that shoppers were largely bypassing the floor displays and visiting the wall displays. In response the retailer reduced the number of floor displays and saw a 19% improvement in sales. During the same digital analytics for the real world Place Conference panel, iinside EVP Jon Rosen discussed how retailers can use indoor analytics to combat showrooming. Rosen told the story of one of his company s big box clients and how it was able to determine the departments shoppers were visiting and then leaving without buying. The retailer could then understand the product categories and even the specific brands being showroomed. The retailer also obtained URLs that people visited in the store from its Wi- Fi provider. As a result, the store added more staffing and signage in the relevant areas and provided a more targeted response to the showrooming behavior. The objectives of the numerous analytics vendors are nearly identical: to provide new categories of data and make it accessible and actionable. However the technologies and approaches are varied. The objectives of the numerous analytics vendors are nearly identical: to provide new categories of data and make it accessible and actionable. However, the technologies and approaches are varied. Indoor location accuracy can vary depending on the utilized technology. Some vendors are trying to gain scale by minimizing deployment costs and new hardware requirements. However that can mean less precision. For example, relying entirely on existing Wi-Fi is less accurate than complementing it with BLE or another approach. Others promise greater precision (e.g., one meter accuracy) but those approaches can take longer to roll out and be more costly. Most of the vendors Opus spoke with do require at least some new or upgraded hardware to deliver their services. In the majority of cases retailers and venue owners pay for these upgrades as part of an initial fee or over time as part of a licensing or service agreement. Indoor analytics providers assert that while enterprise sales cycles can be long, the question of whether retailers (and others) will deploy indoor location is not in doubt. The data are highly valuable, offering improved efficiency, increased sales and improved customer satisfaction to venue owners. Indeed, indoor location (and analytics) will become mandatory for most retailers, in order to remain competitive with each other and leading e-commerce providers. In other words, high utility and competitive dynamics together will propel the segment forward. 12

16 Online-to-Offline Conversion Tracking Opus Research has estimated that the value of internet-influenced offline transactions is roughly 10X larger than e-commerce. Yet the majority of digital marketers have largely ignored offline transactions in calculating ROI because tracking the Internet s influence offline has been nearly impossible on a per-campaign basis until smartphones. Figure 10: Online-to-Offline Sales 10X E-commerce E-commerce: $186 Billion Offline Retail + Services: $7.3 Trillion Online-to-offline Spending: $1.83 Trillion Source: comscore, u.s. commerce Department, opus research estimates Not strictly dependent on indoor location technology, the advent of offline conversion tracking is nonetheless part of the larger phenomenon of bringing digital analytics and measurement to the real world. Overly simplifying, there are two broad approaches to offline conversion attribution: following the movements of smartphones in the real world and mapping in-store sales back to online or mobile ad exposures. Google, Facebook, Twitter and a range of others, including mobile ad networks xad, Verve, JiWire, Millennial Media, Sense Networks (now part of YP) and PlaceIQ are all implementing or experimenting with one or both of these approaches and starting to deliver data to advertisers on store visits and offline conversions. For example, Facebook, Twitter and JiWire are working with Datalogix, which collects purchase data from in-store loyalty card transactions and other sources. Purchase data of users exposed to online or mobile ads are compared to control groups who ve not seen the ads. If there s a statistically meaningful sales lift for the exposed group it s attributed to the digital campaign. Recently, Facebook announced a formal roll out of offline measurement in the context of its Custom Audiences marketing program. Here s how it works: Marketers upload hashed data ( s, phone numbers and addresses, as well as encrypted transaction information) Facebook matches a retailer s data to hashed data from Facebook s database Facebook generates a report that compares, on an aggregate user basis, the purchase behavior of customers who saw a Facebook ad with customers who did not 13

17 In-store mobile payments also hold the promise of onlineto-offline ROI tracking and attribution. However there s not enough adoption and scale yet to make it a viable approach today. At some point in the near future smartphone-based, in-store payments will become another methodology for online-to-offline tracking. Following smartphones into stores (via indoor location) or geofenced store perimeters is now being tested by a number of ad networks. Google, for example, is currently testing an approach where it monitors the movements of smartphone owners who ve been exposed to ads. With its recently announced estimated total conversions program, Google said it will track smartphone users who are signed in on the Chrome browser to provide marketers with data on crossplatform conversions and offline store visits. The company stresses this is being done only in an aggregated way to protect individual privacy. Local analytics provider Placed uses an opt-in panel to do something very similar on behalf of client brands and ad networks. Consumers are given an incentive to participate in a voluntary location-tracking panel (much like a Nielsen panel). Upon sign up, participants smartphone movements are tracked in the aggregate. Those data are reported back to Placed customers, which include many of the major mobile ad networks. It s then possible to determine what percentage of users exposed to a mobile campaign later visited stores and to develop an overall estimate of offline conversions or store visits accordingly. As indicated, all the providers in this new arena take pains to clarify that the store-visits data are only provided on an anonymous, aggregated basis. Individual actions and movements are not reported back to ad networks, marketers, brands or agencies. While they re not appropriate for every ad campaign, we believe these offline conversion metrics will become standard (even mandatory) in the next three years. They will transform conversion tracking and ROI calculations, as well as the way that marketers think about the value and pricing of digital advertising. Microfencing: Targeting in the Aisle There s considerable debate about the relative merits of the various indoor location technologies. However, there are at least a few, among those listed that provide aisleor even shelf-level accuracy. As indicated above there s considerable debate about the relative merits of the various indoor location technologies. However there at least a few, among those listed (including BLE, magnetic and LED), that provide aisle or even shelf-level accuracy. Thus the technology already exists to communicate with and target consumers in an extremely precise way inside stores and other commercial environments. How soon we ll see that level of marketing materialize is another question. Just because technology permits something doesn t mean marketers, brands and retailers will successfully deploy or utilize it. Among the various use cases in this report, what we re calling microfencing (very precise indoor targeting) is the most speculative area. As with all new areas of technology there are heady, futuristic scenarios being outlined as well as mundane practical considerations that must be addressed and overcome. Here are some of the questions regarding indoor and in-aisle targeting: 14

18 Will marketers be able to create promotions tailored to the shelf or aisle level? Or will in-store marketing be more storewide than aisle specific? Will all the data available to retailers and marketers enable Minority Report levels of in-store and cross-platform personalization? Should in-store promotions be pull or push? Will overzealous retailers or brands alienate consumers with too many in-store notifications or push messages? Who will own the customer and control the indoor digital experience? Will third parties (e.g., competitors, startups) hijack the indoor marketing experience? The ability to personalize the indoor experience and take it down to the aisle level is compelling. The following are some potential examples of how indoor marketing and microfencing might work. Imagine a retailer knows a consumer s purchase history, preferences and online shopping behavior. That consumer, who regularly uses the retailer s website signed-in, has been shopping for shoes. When he enters the store the retailer s smartphone app already knows he was looking at a specific pair of shoes. A form of offline retargeting, the app alerts him to the fact that the shoes are in-stock and directs him to the department (even the precise shelf) where he can find them. It seals the deal with a promotion to encourage the purchase. Another scenario, in a grocery store, involves a consumer in front of a cereal aisle display. She s almost unconsciously about to buy a familiar brand when an in-app notification buzzes her smartphone. She s just received a discount to try another brand. The discount motivates her to try it instead of her usual buy. This is a successor (or companion) to current in-aisle paper coupons or end caps and in-store signage. A third scenario involves interaction between smartphones and digital signage in stores. Consumers with smartphones will soon be able to interact with in-store screens to receive personalized content (based on individual purchase data and other variables) or offers on their smartphones. This doesn t rely on locating a consumer precisely because the consumer approaches the screen. Finally there are entrepreneurs who envision a future where brands bid in real time for consumer attention at the shelf or aisle level, and where ads are served based on a consumer s specific position in a store, as well as other data such as purchase history or audience segment. Shelfbucks CEO Erik McMillan believes this is a near-term scenario and his startup is dedicated to building dynamic ad inventory for brands at the shelf level. All of these examples are technically feasible today. However more mundane considerations (organizational culture, cost concerns, hesitation and inertia) will undoubtedly delay (or prevent) some the more ambitious of these from coming to fruition. So what are we likely to see then in the near term? We can certainly expect retailers, malls and commercial venue owners (e.g., airports) to include maps and layouts in their mobile apps. That already exists. In the near term, we may also gain the ability to search for and precisely locate specific products in departments, aisles or on shelves. It s much less likely that in the next 12 to 24 months that we ll see aisle-level promotional targeting. The infrastructure and coordination required are too demanding for most retailers and merchants today, while the benefits are still unproven (case studies will emerge over time). It will take considerable vision and commitment by retailers, agencies and brands to deliver against the promise of aisle-level targeting or microfencing. More likely in the next couple of years is in-store personalization and storewide promotional messaging (whether by retailers or brands). Accordingly it s more likely that consumers will receive broad store-level or brand-specific promotions on their apps than department or aisle-level marketing messages. 15

19 Who will own the consumer relationship? Retailers have historically controlled everything that happened inside their stores. However the arrival of smartphones and showrooming (in-store price comparison shopping) has changed that. As store perimeters are increasingly geofenced, ad networks and third party apps will be able to offer brand-centric marketing or competitive ads ( conquesting ) that recognize the presence of a consumer in a specific store. In other words, retail competitors or brands might advertise to consumers who are present in stores by utilizing third party apps or ad networks. Of course there may be a question around the effectiveness of, for example, Target offering a TV deal to Best Buy customers who are already in a Best Buy store. It may turn out that s not a successful tactic. There are data from JiWire and YP that indicate a distance of 1 2 miles from a store location may be the ideal geofence. Best practices will emerge over time through testing and case studies. The point we re making is that retailers will be hard-pressed to keep third parties from trying to influence their shoppers. And while enlightened retailers might recognize that they can potentially sell ad inventory and in-store notifications through their apps, third party apps may turn out to be equally viable in-store channels for brands and others. Merchants seeking to preempt the virtual intrusion of third parties into their stores will need to develop rich and useful app experiences to keep customers engaged. And they ll also need to get consumers to download and use those apps. Retailers that are complacent or that wait-and-see may find that all kinds of apps and digital marketing that they can t control are vying for the attention of their in-store customers. Privacy: Opt-in or Opt-out? In this era of domestic surveillance, the prospect of tracking or monitoring the movements of consumers, even in the aggregate, is very disturbing to many. Indeed privacy is always the elephant in the room in any discussion of indoor location. With the recent NSA scandal as subtext, the early coverage of indoor location and analytics has generally been sensational, playing up the threat to privacy rather than exploring the potential consumer benefits. For example, the lede of one of the early stories on Nordstrom s use of indoor analytics (with Euclid) began with this: Privacy advocates have an entirely new worry to keep them awake at night. It is true that privacy advocates and selected members of Congress have expressed concern about the use of smartphone location and tracking in malls and retail stores. That concern ironically ignores the fact that video cameras have been in stores for more than a generation. Consumers have become largely indifferent to the presence of closed circuit video. But because it s new and unfamiliar, indoor location is a source of concern. 16

20 Figure 10: 70% Want to Control Access to Their Location Information Figure 11: How much do you care that only you and those you authorize should have access to this information? Source: Pew Research Center (2013); n=792 Internet and smartphone users over 18 Generally speaking people want to control of who sees their location information. Data released in 2013 by the Pew Research Center showed that almost 90% of U.S. Internet users are worried about being tracked online. In addition, 70% of U.S. adults believe it s very important or somewhat important to control access to their real-world location information. Source: Pew Research Center (2013), n=792 internet and smartphone users over 18 In October, the Future of Privacy Forum, a Washington, DC privacy think tank, and U.S. Senator Charles Schumer jointly released a code of conduct to govern collection and use of indoor data to help protect consumer privacy. Signatories to the agreement include Euclid Analytics, iinside, Mexia Interactive, Nomi, SOLOMO, Radius Networks, Brickstream and Turnstyle Solutions. In addition, several major U.S. retailers were involved in drafting the document, although the National Retail Federation has yet to sign off as a trade group. The following is a brief summary of the basic principles offered in the Future of Privacy Forum code of conduct: 1. Notice (venue owners shall inform consumers that data are being collected, through, e.g., in-store signage) 2. Limited collection (limitations on the scope of data that may be collected, such as MAC addresses and unique IDs) 3. Choice (companies will provide instructions on how to opt out of data collection) 4. Limited collection and use (data cannot be used for certain purposes such as hiring, credit eligibility, insurance eligibility 5. Onward transfer (if data are conveyed to third parties, those third parties much observe the same policies/ principles as a matter of contract) 6. Limited retention (data will be deleted after a period of time, which may vary by store or collecting entity) 7. Consumer education (participating companies will support and provide access to a website that explains how the data are being collected and used and explain how to opt out 8. Exceptions (the code also outlines a number circumstances where these policies would be excluded or not apply; for example where a retailer has obtained affirmative consent from a user to monitor her indoor location) 17

21 This document is non-binding and has no legal authority. It s a set of voluntary guidelines. However, it s a reasonable framework that may see widespread adoption by merchants, venue owners and technology providers. While consumers are concerned about being tracked they are also willing to share location information when they understand the benefits. For example, a U.S. consumer survey by indoor-location startup Swirl found that 50% [of female in-store shoppers] would willingly share their mobile phone s location and other personal information with a retailer in return for an in-store credit, gift, flash sale or early access to new styles. That survey had 1,000 respondents and was conducted in March An October 2013 survey by Opus Research, among 1,033 smartphone owners in the U.S., found that 60% of smartphone phone owners (under 53) had publicly check in somewhere offline. Among those who had, over 70% said they re willing to share location for a deal or loyalty rewards; and 50% said they would share location for exclusive or personalized content. Figure 12: Smartphone Users Will Trade Location for Rewards Under which of the following circumstances would you be willing to share your location? For points and rewards 71% For deals 72% For personalized/exclusive content 40% Woudn't share location 12% Source: Opus Research (2013), n=536 smartphone owners who had ever checked in (multiple answers permitted) As these consumer survey data indicate, the generalized fear of being tracked gives way to a willingness to share location (opt-in) when tangible benefits are offered or presented by a merchant or brand benefits such as: A promotional offer or discount Loyalty points or rewards Product location information in stores Indoor mapping and navigation Enhanced customer service or improved in-store shopping experiences Personalized content 18

22 This is not to argue that consumers should be bribed to give up their location information, much in the way that brands and retailers initially bribed users to like their Facebook pages. Instead, there should be real value offered in exchange for consumer location data. Privacy will continue to be a central issue in the discussion surrounding indoor location and analytics. But as the Future of Privacy Forum code of conduct suggests, a set of industry adopted best practices will be established. Far from an intractable problem, indoor location and privacy can and should be reconciled in the relatively near future. Conclusion: An Inevitable Market While some scenarios involving indoor location are more remote in time or speculative, such as bidding for consumer attention at the self-level, indoor location and marketing are inevitable. Indeed, there s already significant momentum. Once they re exposed, the value of indoor analytics is self-evident to merchants. And consumers are already using their smartphones in stores as discussed. The value that indoor location can bring to them help finding products in stores, targeted offers, improved loyalty programs and an overall better in-store experience will motivate high levels of opt-in participation. Furthermore, the ability to track the impact of online ads to the point of sale will be a revelation for everyone in the digital marketing ecosystem. The data sets that will be captured from this holistic view of online and offline consumer behavior will also be invaluable. The single, major driver of indoor location adoption is analytics. Yet that same infrastructure will very quickly enable new consumer experiences in the store and other commercial environments. Unlike other novel technologies indoor location is not a solution in search of a problem. And as evolutionary as it appears today several years from now we will see how revolutionary it actually was. 19

23 Appendix A: List of Companies A summary of technology and solutions providers shaping the indoor location and place-based advertising and marketing ecosystem. COMPANY NAME TECHNOLOGY/SECTOR OPUS CATEGORY WEBSITE 9Solutions BLE / Indoor Positioning Software --> Infrastructure AINSI Intertial/Compass Positioning Software --> Infrastructure ainsi.pro AIONAV Systems Ltd Inertial Positioning Software --> Infrastructure aisle411 Wi-Fi Fingerprinting / Sensors S aisle411.com/ AisleFinder Supermarket App aislefinder.com/ Apple Bing Maps Wi-Fi Fingerprinting (WiFiSlam) / ibeacon Indoor Mapping Software --> Infrastructure Mapping BlinkSight (France) Chip set, real-time location systems (RTLS) Hardware --> Infrastructure Boingo Wireless Wi-Fi Network Provider Hardware --> Infrastructure BrickTrends (Shelfbucks) In-store analytics Advertising/Marketing Broadcom Chip & wireless technology Hardware --> Infrastructure BuildingLayer Crowdsourcing indoor maps Mapping buildinglayer.com/ ByteLight Indoor Positioning / LED Software --> Infrastructure Catalina Marketing mobile, purchased-based targeting platform Advertising/Marketing --> In-Store Cisco Network & wireless technology Hardware --> Infrastructure Combain Mobile Positioning Software --> Infrastructure Critigen Indoor Mapping Mapping CSR Sensor-fusing chip Hardware --> Infrastructure Ekahau Real-time Location System (RFID over WiFi) Software --> Infrastruture Ericsson Labs Indoor Positioing platform Mapping labs.ericsson.com/apis/indoor-maps-and-positioning/ ESRI Indoor Location, Tracking & Routing Mapping video.esri.com/watch/2767/indoor-location_comma_-tracking_ comma_-and-routing Estimote Beacons Hardware --> Infrastructure estimote.com/ Euclid Data-driven Analytics Technology Software --> Analytics euclidanalytics.com/about/ EveryFit (Qmedic) Wi-Fi Fingerprinting, Sensors Hardware FastMall Indoor Mapping Mapping / Consumer app fastmall.com/ FloorPlanMapper Interactive mapping platform Mapping floorplanmapper.com/index.html GISi Indoors Indoor Positioing & Location Analytics Software --> Mapping & Analytics gisiindoors.com/ Glopos Indoor Positioning Software --> Infrastructure Google Guardly Indoor Mapping & Positioning Wi-Fi Fingerprinting Software/Hardware --> Analytics Software --> Infrastructure maps.google.com/help/maps/indoormaps/ Guidebook Mobile App Platform Consumer App guidebook.com/ HW Communications Location technologies Hardware --> Infrastructure cyber.hwcomms.com/cyber/ iinside Indoor Location Analytics Software --> Analytics iinside.com/ Incomm Shopping Experience / Mobile Payments Software --> Analytics Indoo.rs Wi-Fi Fingerprinting / Magnetic Field Software --> Infrastructure indoo.rs/ Indoor Atlas Magnetic Field Software --> Infrastructure hwww.indooratlas.com/ IndoorGo Indoor Navigation systems Software --> Infrastructure IndoorOSM Indoor Mapping Mapping indoorosm.uni-hd.de/ 20

24 COMPANY NAME TECHNOLOGY/SECTOR OPUS CATEGORY WEBSITE InMarket In-Store Shopping Platform / ibeacons Software/Hardware --> Analytics Insiteo Indoor Positioning Software --> Infrastructure InvisiTrack Beacons / Positioning over LTE Software/Hardware --> Infrastructure iway Indoor Positioning Software --> Infrastructure www2.iway.nl/nl/index.php Jiwire Mobile Advertising & Data Platform Advertising Lighthouse Signal Wi-Fi Fingerprinting Software --> Infrastructure lighthousesignal.com/ Systems Locata Indoor GPS Mapping Loctronix GPS & Positioning Systems Software --> Infrastructure MagicPlan Indoor Floorplaning app Mapping / Consumer app floorplanner.com/magicplan Mappedin Indoor Wayfinding Software --> Infrastructure mappedin.com/ Maptive Geo-analytics Mapping Meridian / Aruba Indoor Positioning / Mobile-Location Software --> Infrastructure Networks platform Micello Indoor Mapping Mapping micello.com/ Microsoft (Bing) Motorola Solutions Indoor Mapping Mapping bing.com/ Wireless Network Solutions Software/Hardware --> Infrastructure Movea Motion Sensor & Data Fusion software Software --> Infrastructure Navisens Motion Sensor Data Software --> Infrastructure navisens.com/ Navizon Wi-Fi Triangualtion Tech Software --> Analytics NearBuy Systems Location-based Wi-Fi Analytics Software --> Analytics (RetailNext) NewAer Proximity Platform Software / Mobile Apps NextNav Indoor / Urban Positioning Hardware --> Infrastructure Nokia/Here Indoor Mapping Mapping here.com/ Omiimii Indoor Location platform Software --> Infrastructure Path Intelligence Data-driven Analytics Technology Software --> Mapping & Analytics Placecast ShopAlerts for retailers & brands Advertising/Marketing placecast.net/ Placed Location Analytics Advertising/Marketing PlaceIQ Location Intelligence & Analytics Advertising/Marketing Point Inside Product Locator app Software --> Mapping & Analytics Pole Star Indoor Positioning Software --> Infrastructure Proximus Mobility Hyper-Local Marketing Software --> Analytics proximusmobility.com/ (MobileBits) Qbengo Mobile Indoor Navigation Mapping app Qualcomm Atheros Location Based Services - Hardware/Software --> Infrastructure qca.qualcomm.com/mobile-connectivity/location/ Qubulus Indoor Positioning - radio fingerprinting Software --> Infrastructure Quuppa Indoor Positioning - Bluetooth/Sensors Software --> Infrastructure quuppa.com/ Radius Networks Mobile Proximity Platform Software --> Mapping & Analytics Razorfish Mobile Marketing Agency Advertising/Marketing Redpin Open Source indoor positioining Software --> Infrastructure redpin.org/index.html Retailigence Point-of-purchase Ad Solution Advertising/Marketing --> In-Store RetailNext In-Store Analytics Software --> Analytics Senion Lab Indoor Positioning & Navigation - sensor fusion Software --> Infrastructure Sensewhere Indoor Positioning Software --> Infrastructure 21

25 COMPANY NAME TECHNOLOGY/SECTOR OPUS CATEGORY WEBSITE Shopkick shopbeacon / BLE Software/Hardware --> Analytics Skyhook Cell plus Wi-Fi triangulation solution Software --> Infrastructure Sonic Notify Propietary Beacon technology Software --> Mapping & Analytics sonicnotify.com/ Swirl In-Store Mobile Marketing platform Advertising/Marketing --> In-Store Technion Indoor Map Screener Crowdsourcing indoor maps Mapping index.html The Primacy Digital Agency Advertising/Marketing TruePostion Hybrid wireless location technology Software --> Infrastructure Trusted Positioning Sensors/Wireless Positioning Software --> Infrastructure TRX Systems Indoor Navigation systems Hardware/Software --> Infrastructure UbiSense Real-Time Location Systems Hardware/Software --> Infrastructure Verve Location Mobile Marketing Advertising/Marketing VisibleBrands Advertising and data network Advertising/Marketing --> In-Store Visioglobe Indoor Mapping Mapping visioglobe.com/ WalkBase Next generation retail analytics Software --> Mapping & Analytics Wanderful Media Local discovery shopping platform Advertising/Marketing wanderful.com/ WhereLab Indoor Location platform Software --> Infrastructure where-lab.com/ Wifarer Indoor Positioning Software --> Infrastructure WiFiSlam / Apple Indoor GPS Software --> Infrastructure Wilocate Wi-Fi Triangualtion Tech Software / Mobile Apps wilocate.net/ WiseSec Wi-Fi Triangualtion Tech Software --> Infrastructure xad Location Intelligence & Analytics Advertising YFind Technologies Wi-Fi Networking Hardware/Software --> Infrastructure (Ruckus Wireless) ZOS Communications Wi-Fi Triangualtion Tech / Geofencing Software --> Infrastructure ZuluTime Wi-Fi Triangualtion Tech Software --> Infrastructure 22

26 About Opus Research Opus Research is a research-based advisory firm providing critical insight and analysis of enterprise implementations of software and services that support multimodal customer care and employee mobility strategies. Opus Research calls this market Conversational Commerce with tailored coverage and sector analysis that includes: Self-Service & Assisted Self-Service, Voice & Call Processing, Web Services, Personal Virtual Assistance, Mobile Search and Commerce and Voice Biometrics. For sales inquires please [email protected] or call +1 (415) This report shall be used solely for internal information purposes. reproduction of this report without prior written permission is forbidden. Access to this report is limited to the license terms agreed to originally and any changes must be agreed upon in writing. The information contained herein has been obtained from sources believe to be reliable. however, opus research, inc. accepts no responsibility whatsoever for the content or legality of the report. opus research, inc. disclaims all warranties as to the accuracy, completeness or adequacy of such information. Further, opus research, inc. shall have no liability for errors, omissions or inadequacies in the information contained herein or interpretations thereof. The opinions expressed herein may not necessarily coincide with the opinions and viewpoints of opus research, inc. and are subject to change without notice. Published January 2014 opus research, inc. All rights reserved. 23