Key Points
To state the obvious: Modern, smartphone-toting humans spend most of their time indoors. But indoor spaces often block cell signals and also make it nearly impossible to locate devices via GPS. Beacons are a solution.
Beacons are poised to transform how retailers, event organizers, transit systems, and educational institutions communicate with people indoors. Individuals might even want to deploy them around the house. Beacons are a low-cost piece of hardware that utilize low-energy Bluetooth connections to deliver messages or prompts directly to a smartphone or tablet. This technology is revolutionizing the way devices can connect and interact with each other, and physical spaces.
In-store retail and offline payments are in the first wave of beacon applications. Retail outlets are adopting beacons to provide customers with product information, flash sales or deals, and to speed up the checkout process with a completely contactless payments system.
Consumers seem receptive to beacons as a way to enhance their in-store shopping experience. Half of American adults already utilize their mobile devices in stores.
But there's a barrier to wide adoption of beacon technology: three layers of permissions. Customers have to turn on Bluetooth, accept location services on the relevant app and opt-in to receive in-store or indoor notifications.
Meanwhile, Apple is in the driver's seat with its iBeacon technology. The company recently announced that 200 million iOS devices are already compatible with iBeacon. But PayPal and Qualcomm will look to challenge Apple with hardware of their own, while smaller vendors like Estimote, Swirl, and GPShopper are entering the mix by providing beacon management and consulting services on top of hardware or software platforms.
New beacon applications will be deployed sooner than we think. Beacons can and will eventually be used for a variety of applications: delivering content at museums and music concerts, keeping conference-goers informed, enhancing in-store loyalty programs, and pushing real-time updates to travelers at airports and train stations.
Beacons: What Are They? How Do They Work?
Beacons are primarily used to locate a mobile device within a building.
Beacons interact with other devices by sending a signal over a Bluetooth Low Energy connection.
That means the receiver — say, a phone or tablet — and the transmitter, perhaps a small sensor like the one to the right, must be compatible with Bluetooth Low Energy and have software that allows them to make sense of the beacon signals.
Most beacons have a connection range of up to 200 feet.
Bluetooth LE has several advantages over other technologies. Unlike Wi-Fi, no network connection is required with Bluetooth LE. It just works (as long as Bluetooth is turned on).
Mark Modzelewski at Estimote, a beacon technology firm in San Francisco, thinks Bluetooth LE offers superior quality and more reliable connections than Wi-Fi.
"A few people have tried Wi-Fi with their beacons, but in every case, each favored Bluetooth LE," Modzelewski said.
Each small piece of hardware comes equipped with a Bluetooth LE chip, but the rest of the hardware differs from company to company.
Smaller beacons startup Estimote, for example, manufactures a wall-mounted device equipped with a small battery comparable to one found in a wristwatch. The battery can last up to two years. Estimote's beacon is housed in a soft silicone case and has an adhesive on the back.
PayPal's beacon looks similar to a standard thumb drive, and can be plugged into a wall socket or into the USB drive of a laptop.
People are confused about Apple iBeacon because it has yet to take a true physical form. In other words, Apple hasn't manufactured a physical beacon itself. Apple's iBeacon technology is built into its devices and mobile operating system. But Apple has said that every device they've manufactured going back to the iPhone 4S and the iPad 3rd generation can already become an active iBeacon, if it's running iOS 7. Meaning, nearly 200 million iPhones and iPads are ready to receive and send iBeacon signals.
It's worth emphasizing this point: An iPhone or iPad can itself serve as a beacon, and send as well as receive signals. For example, a merchant could position an iPad to transmit Blue Tooth LE notifications and information to iPhone-toting customers once they enter a store.
All Android devices that have been upgraded to Jelly Bean version 4.3 are also compatible with Bluetooth Low Energy technology. But for now, Jelly Bean 4.3 devices can only be used as a beacon receiver. Unlike Apple, Google has yet to produce proprietary beacon software for Android, relying entirely on the efforts of third-party developers.
While the hardware may differ, each beacon fulfills the same basic role.
When activated, the beacon has location-aware technology that will recognize when another beacon-compatible device is in range.
The beacon can then send a signal in the form of a push notification to that device.
That signal initiates a "conversation," or a data exchange, between beacon and device.
Take an example where a customer walks into a department store. Beacons positioned at the front entrance could locate that customer upon entry and push a notification for a flash deal with 50% off a pair of shoes (see photo, right).
One crucial wrinkle — when the beacon signal reaches the device, it is pushed through a specific app on the phone.
This means that the specific retailers' app must be installed on the customer's device.
Customers who have the retailer's app installed on their device — as long as they also have Bluetooth turned on, and allow location-sharing with that app — will be prompted to opt in to in-store notifications. Once customers decide to receive in-store notifications, the app does not need to be running for the notifications to be received. The user will receive the notification on their lock screen even if the app isn't open.
Beacons are classically disruptive in the sense that they're much simpler than GPS-powered location notifications, and very inexpensive. Even small and middle-sized retailers should find them relatively easy to implement.
In this report, we'll uncover some real-world beacon applications already in place and what future applications there may be for beacons.
We'll also discuss how consumers are already responding to the idea of enhanced indoor mapping, and what some of the major players are already doing with this new technology.
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How Are They Being Used Right Now?
Many deployments of beacons are in the experimental stage, but here's a rundown of the applications that are being tried out or being seriously contemplated.
RETAIL: From in-store coupons delivered via beacons to customer phones, to collecting data to run personalized loyalty programs and ad campaigns, retailers are the first obvious market for beacons. Because the retail applications are by far the most developed, we'll discuss them at more length below.
PAYMENTS: This application links up to retail, but also has the potential to become extremely pervasive. The idea is that beacons can trigger an automatic payment when a person leaves a specific location, so that payment becomes effortless. That could be immensely useful for managers of crowded public transit systems and stadiums, even parking garages.
EVENTS: Beacons can be used at music and sporting venues, to communicate information, to point people to complementary content, or promote sales. In fact, a number of Major League Baseball stadiums tested Apple's iBeacon technology at their ballparks this past season, in order to alert fans about offers on food and drinks. Further down the road, the technology might even incorporate a feature that will help users find friends who are also attending the event.
CONTENT DELIVERY: As we hinted above, music concert attendees might be offered the opportunity to buy the album of a band they just watched on stage, or soccer fans might be able to watch replays of a critical sequence in the game they're attending. A cafe in London has already implemented beacons to deliver content: They've teamed up with digital publishing company Exact Editions to push free digital magazines to their customers.
TRANSPORTATION: Expect beacons to be deployed all over airports, train stations, and urban transit hubs to alert travelers of delays, changes, and weather conditions. Eventually, beacons may be able to push add-on travel services to passengers, such as ordering a car for pickup at the final destination.
HOMES: People might deploy beacons to send them reminders when they're in a certain part of their home, for instance, asking whether they've remembered to turn off the basement light, or to let one another know when they've arrived home.
But retail industry proximity targeting is the most obvious application and the incorporation of beacons into bricks-and-mortar storefronts has shown promising results so far.
Here's a rundown of how they're being used, and might be used in retail:
In-store maps: Beacons can direct a user to different parts of the store based on interests and offers.
Flash sales: Beacons might inform customers about time-sensitive sales, which would help retailers manage their inventory and discounting.
Coupons: The same technology can be used to push coupons to customers in-store, which we'll describe in more detail below.
The most common deployment of beacons involves using them to send in-store shoppers quick-fire notifications while they are walking around a store.
Take this diagram from Estimote (see photo, right) outlining a typical retail store's sales floor.
A customer walks into the store, and beacons immediately recognize his or her mobile device. In this case, the shopper starts browsing around the denim section. A specific beacon placed in that section of the store then pushes a notification to that individual customer, alerting them of a special promotion on jeans for that day.
"The benefit to consumers is that they receive highly relevant and valuable content and offers at exactly the time when it is most useful — while they are shopping in the store," Swirl CEO Hilmi Ozguc was quoted as saying in Street Fight Magazine.
"Shoppers loved the fact that the content and offers were automatically delivered based on the store they were shopping in, and many commented that it made their shopping fun."
One of the biggest advantages of beacons is the small, inconspicuous nature of the hardware.
Having a number of unique beacons across one or more establishments will become more common as larger enterprises begin to embrace this technology.
The other beacon application currently being deployed involves mobile payments.
The idea is that beacons would assist shoppers in checking out with a completely contactless payment method that allows them to circumvent register lines and the traditional point-of-sale process.
A payments beacon "corrals" a shopper and its device within the confines of the establishment as the Bluetooth LE connection forms an invisible boundary. Once that boundary is crossed, the customer is automatically checked out.
Of course, a barrier to this implementation is the need to authenticate the user's identity.
In the case of PayPal's beacon, customers are checked-in upon arrival and a photo is displayed on the merchant's point-of-sale system. When ready to check out, the customer gives a merchant employee a verbal confirmation of their payment, and their identity is verified thanks to the photo displayed on the point-of-sale system.
In the future, Apple might use its fingerprint sensors to verify a user's identity for a beacon-powered contactless payment.
If the wrinkles are ironed out, the use of beacons for payments could revolutionize the offline retail experience, and help bricks-and-mortar stores fend off the e-commerce threat. Imagine walking into physical stores, browsing at leisure, and never having to wait in a long line again. Instead, you scan items as you go with your phone, and you are checked out virtually automatically on your way out.
But Mark Modzelewski of Estimote thinks it will take more time before payments beacons reach wide-scale deployment, especially in larger retailers. Early adopters will be small stores that sell high-value items, where sales staff is already in close proximity to customers, meaning there's less risk of intentional or accidental fraud and theft.
"Stores that sell luxury goods are the first to move in that direction initially, but it may take a lot of testing for something like a grocery store to be comfortable with it," he says.
How Are Consumers Responding?
Most beacon providers are acquiring new clients and deploying this new technology at a gradual pace in order to get the general public accustomed to the idea, and to convince clients there's a return on investment.
Early results seem favorable, although a minority say they find in-store alerts annoying, and there's a need to fine-tune alerts to make them more relevant.
That's not surprising given that it's a fairly new form of business-to-consumer communication and fairly intrusive.
Already some 67% of retail shoppers have received an in-store alert, and of those shoppers, 81% opened or read the alert and 79% made a subsequent related purchase, according to data from mobile marketing firm Swirl.
A 65% majority of shoppers in the same survey said they would trust their favorite retailer with handling their location data.
Of the one-fifth of shoppers who did not open in-store alerts, 41% said they ignored the alert because it was not relevant to their shopping experience while 16% claimed the alerts were annoying.
Of course, many in-store alerts encountered by consumers might currently be powered by Wi-Fi, GPS, or other technologies, not Bluetooth LE beacons, but the principle's the same.
The bottom line, we believe, is that customers will likely come to view in-store notifications and alerts as just a variant of location-based services.
They will likely be just as willing to share location with a retailer's app that does in-store beacon-powered notifications, as they are now to share their location with other apps.
Pew has found that in the U.S., only one-third to one-fourth of people in their twenties, thirties, and forties turn off location tracking.
Who Can Challenge iBeacon?
Apple is in the pole position currently in this new market.
The tech giant debuted its iBeacon technology in a somewhat muted manner at a media event in September.
But in early December, Apple updated its iOS 7 App Store app, and announced that it had turned the iBeacon feature on at 254 individual retail stores in the U.S.
Already, some Apple stores have as many as 20 Apple iBeacons deployed.
Most importantly, every iOS device since the iPhone 4s and the third-generation iPad is already capable of being either an iBeacon receiver or transmitter. That equates to roughly 200 million active iPhones and iPads that can serve as nodes in any iBeacon system.
Beacons can also be used to send offers to Apple's Passbook app. Already, about 8% of all U.S. smartphone owners use Passbook, which means about 20% of iPhone owners use Passbook.
Meanwhile, already some 75% of active mobile devices being used at small to medium-sized businesses are made by Apple, and as we've said, beacons are being deployed more rapidly at SMBs, while larger businesses and institutions may take a little longer to get onboard.
With that kind of presence within the current target market for beacons, it's clear that Apple has an advantage in this market.
Nonetheless, other companies, both large and small, are entering the mix with their own hardware, software, and services that may appeal to retailers and other institutions over Apple's iBeacon ecosystem.
Two massive technology companies followed on the heels of Apple's announcement with beacon technology of their own.
PayPal has already led the charge in the use of beacons for offline mobile payments with their proprietary beacon technology, PayPal Beacon. PayPal already boasts a robust network of more than 17 million active monthly users of its app. And in addition to providing access to this massive mobile payments network, PayPal Beacon merchant clients can utilize an "always on" feature that allows them to target customers in-store.
Qualcomm recently announced the launch of its own beacon hardware, the Gimbal Beacon. Gimbal will function similar to the way iBeacon and many other beacons can, primarily by providing the ability to recognize and connect with an active device within its proximity.
And there are a number of smaller startup firms that have been working to launch beacon technology. Some of the largest include Swirl, Estimote and GPShopper. They offer the devices, but also beacon system management and consulting services.
Ideally, according to Modzelewski, Estimote will become a software platform that helps developers build apps and services, rather than remain focused on the beacon hardware itself.
One inherent disadvantage that Apple's iBeacon has against these companies is that Apple devices and iBeacon technology are dependent on the iOS ecosystem.
Many of the other beacon manufacturers, including PayPal and Qualcomm, have developed technology that moves across iOS and Android platforms with room to expand to other mobile platforms as well.
Swirl, for example, claims that its beacons will be "fully compatible" with iOS and Android.
What's Next?
The future of beacons will come quicker than we initially imagine, and it's likely that we'll see a flurry of large-scale deployments in 2014.
The next step for beacons would be to become a common technology in global- or nation-spanning retail chains.
Personalization is the buzz word of the day in mobile retail — showing people mobile ads and offers for things they already want.
Maya Mikhailov, co-founder of GPShopper, believes beacons can be a key for making that happen.
"This is the real power of beacon integration into a mobile application," she was quoted as saying in Mobile Marketer. "It can be used for content, personalization and tailored messaging."
Already people are using their phones in stores. Pew found that 46% of American adults place calls for purchase advice in stores, and over 25% use the phone to look up pricing and reviews.
THE BOTTOM LINE
Beacons are poised to transform how retailers, event organizers, travel businesses, and educational institutions communicate with audiences indoors. Individuals might even want to deploy them in their homes.
In-store retail and offline payments are among the first wave of beacon applications.
Consumers are ready to embrace beacons as a way to enhance their in-store shopping experience. Sixty-five percent of consumers claim they trust their favorite retailers with their in-store location data.
Apple is in the driver's seat with its iBeacon technology. The company recently announced that 200 million iOS devices are already compatible with its iBeacon system. But PayPal and Qualcomm will look to challenge Apple with hardware of their own.
New beacon applications will be deployed sooner than we think. Beacons can and will eventually be used to deliver content at museums and music concerts, keeping conference-goers informed, and pushing real-time updates to travelers at airports and train stations.
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