Opportunities and Challenges for the NFC Tag Market

The Near-Field Communication (NFC) tag market is once again becoming a key topic of discussion following last year’s move by Apple to enable iPhones running iOS 11 to read NFC tags for the first time. The move came at a critical juncture in the NFC tag market as 2017 witnessed a further decline in the gaming segment due to weak sales and product discontinuations. For example, Disney Skylanders has not unveiled any new products since 2016, while LEGO Dimensions was discontinued in October 2017 due to its disappointing performance. The year 2018 is expected to see a further decline in the NFC tag gaming segment as these discontinuations continue to hit the market, though there is hope looking forward that new product announcements will be able to revitalize the gaming segment and achieve a semblance of its 2015 success. Furthermore, new growth opportunities are expected in the connected products market over the next few years. Tag vendors are all hoping that this will finally allow NFC tags to flourish and reach their true market potential, though there are a number of challenges ahead for the tag ecosystem in the near future.

ABI Research’s latest NFC Tag forecasts highlight the global opportunity across a number of market segments including gaming, Bluetooth pairing, connected products, brand protection, and emerging Internet of Things (IoT) applications among others. In addition, they are based on the following assumptions:

• Broad drop in gaming and toy shipments in recent years with the potential for some new opportunity in 2018 with Hasbro DropMix and other new entrants to the market
• Despite negativity surrounding the gaming market, it is still considered a dynamic market with potential for the future, with success likely driven by interactive playing cards from a traditional tags perspective and interactive toy sets from an embedded tags point of view.
• Continued steady growth for Bluetooth pairing in headsets and some speaker devices—however, the increasing speed of Bluetooth pairing could impact future and/or continued support for NFC tags
• Steady growth in connected products and brand protection applications—some seven-figure products but mostly smaller scale trials and pilots. Luxury goods will continue to be a niche and low-volume market. However, other brands (outside of the high-end luxury market) increasingly understand the value of NFC and the ability to use it as a new media platform to improve and increase brand to end-user touch points. However, this side of the market largely remains in the evaluation and pilot phase as brands look to better understand what application types and functions will drive use and ultimately interaction.
• Potential stronger growth from 2019 onward as Apple’s opening up of tag reading capabilities begins to translate into increased product interest. Overall, Apple’s move continues to be viewed as a positive market sign, but was not met with an immediate surge in tag uptake.
• Limited growth in electronic shelf labels, beverages, access, and emerging IoT applications—these have potential but do not represent a large portion of the market currently.

Despite recent dips in the NFC tags market, mainly attributed to a considerable fall in the gaming segment, vendors are confident that there is still tremendous opportunity for NFC tags. In particular, the industry expects the connected product category to grow rapidly over the next couple of years as the first larger scale deployments of NFC tags help to pave the way for others to follow, and trials and pilots begin to scale up to larger deployments. While this represents only a small portion of the market today, some vendors hope that the connected product category will soon dwarf the current size of the NFC tag market as a whole, based on key partnerships with leading brand names. The primary use case here is for consumer interaction and to drive additional value for the customer after having purchased a product.

There is also likely to be considerable opportunity for anti-counterfeiting measures and brand protection. NFC tags can be used to guarantee the authenticity of various high-cost products including protein powder, alcohol, tobacco, and luxury items, in addition to digital seals or anti-tampering in medical and pharmaceutical applications. In the longer run, we will also see tags increasingly shipping with sensor functionality to help monitor variables such as temperature and pressure.

Another common use case for NFC tag technology is the seamless pairing of Bluetooth and other connected devices, including wireless headphones, wireless speakers, and automotive infotainment systems. This functionality has been around for several years, driven by other smartphone vendors like Sony, which has also made standalone customizable NFC tags for use between smartphones and different devices. Certain Bluetooth chipsets already available from vendors such as Nordic Semiconductor include an on-chip NFC tag incorporated into the System on a Chip (SoC) for these, as well as other applications. In the longer run, secure provisioning of many headless IoT devices such as smart bulbs, motion sensors, and door locks among many others that come without displays or buttons, may be a key opportunity for NFC tags.

While there has been limited immediate impact from Apple’s opening up of tag reading on its iPhones, it has the added benefit of removing one key obstacle from vendors previously considering the technology but that were hesitant about losing out on iOS customers.

As the previous forecasts highlight, ABI Research believes that some of these markets will take some time to scale up and translate into real end market products. However, ABI Research offers a number of recommendations for tag vendors to help take advantage of these new opportunities, including:

• NFC tag technology is here and has been for several years; however, brands are struggling to understand what applications functions will result in the best returns. Effort needs to be placed on the creation of an application ecosystem, where tag vendors support brands.
• Tag-to-cloud applications are where the true value lies and could enable complete end-to-end visibility throughout the supply chain and end users.
• The ability to move communication beyond the physical retail environment is a powerful driver behind brand interest in tags; however, the ability to increase touchpoints needs to be paired with improved brand stickiness and Return on Investment (ROI).
• Many end users are still not aware of the NFC capabilities on their smart device, so greater education and promotion around the technology and capabilities is needed. Ideally, NFC needs to become a household name in a similar way to Bluetooth and Wi-Fi. Increased penetration in the mobile space can help build recognition over the next few years.

Ultimately, ABI Research expects steady growth for the NFC tag market, though there may be some fluctuations depending on the success of certain larger scale deployments of connected products over the next few years.