Touch Point

With more phones now able to employ NFC, has its time finally arrived?

Last month, Google and American Eagle Outfitters held a "tapping spree" at the retailer's store in New York's Times Square. Visitors were loaned phones preloaded with Google Wallet and a $10 gift card, then let loose in the store, where special deals could be downloaded by a tap of the phones against specific signs. Shoppers then redeemed their chosen offers by the cash register with one last tap onto an NFC-enabled device.

The event was designed to spread word about Google Wallet, an app which so far is available on one phone only (the Sprint Nexus S 4G). But it also helped illustrate the wider possibilities that the technology on which it's run, near-field communications (NFC), might offer.

The promise of widespread NFC technology has tantalized the tech world for nearly a decade, and for good reason. It has the potential to transform industries as diverse as health care, banking, government, and transportation. And importantly for marketers, it could also change the way consumers buy goods and the ways those goods are marketed.

Companies, including MasterCard, Microsoft, Samsung, Sony, and Nokia, back the technology (and have board members on the NFC Forum, launched in 2004), excited in part by its use for cashless transactions. Ad agencies are exploring its possibilities as well.

In The Razorfish 5, Razorfish's recent report on five transformative technologies, vice president of mobile Paul Gelb and technology lead Heiko Schweickhardt single out NFC as something that will "open up nearly unprecedented opportunities for ad revenue and groundbreaking consumer experiences."

Chia Chen, senior vice president and mobile marketing practice lead at Digitas, adds, "Essentially, NFC will enable our industry to confidently state that this specific consumer saw and interacted with our NFC-enabled ad, in this location, and that they subsequently purchased the advertised product at this store. That's a big deal."

Indeed, Debbie Arnold, director of the NFC Forum, even notes that the "killer app" for NFC may actually be advertising.

But despite advocates claiming 2011 would be the year NFC finally takes off, actual adoption remains largely hypothetical. It's hard to find a marketer or Web company that doesn't say it's excited about NFC, but it's almost as difficult to find one that's actually using the technology in significant ways.

Based on inductive coupling–where circuits from two given devices exchange information–NFC works by touch. When an NFC-enabled phone is tapped against another NFC chip (or waved in close proximity), the two devices swap data. Because it's short range (the maximum is some 2 centimeters), it's ostensibly more secure than, say, a Bluetooth connection. The most obvious application is payments, as NFC can transform phones into mobile wallets.

In many ways, the technology, say experts, could be seen as an improvement on the QR code, a Rorschach test-looking label applied onto goods (magazine pages, packaging, posters, etc.) that swaps information–e.g., it can connect a user to a website–in only one direction.

If NFC offers such advantages, what's the holdup? The main obstacle to widespread use has been the lack of NFC-enabled devices on the market. For one thing, it's not yet available on the iPhone. Forrester analyst Thomas Husson says that until this year, the amount of phones available supporting the technology was "ridiculously small." Naturally, companies don't want to bet on a technology not yet in the hands of a large consumer audience.

It's clear that while companies are eager to explore NFC, few are ready to make a commitment. CEOs from startups Loopt and shopkick, for instance, spoke to Adweek about the possibilities NFC might create for their companies, but acknowledged they hadn't turned them into a reality due to the lack of NFC-enabled phones in people's hands.

"Once it's widespread, we will be the first to use it," says shopkick CEO Cyriac Roeding.

Another obstacle for NFC, common with new technology: the need to convince consumers that there's value in adopting a new behavior–especially when it comes to using a device as a wallet. Even those optimistic about NFC acknowledge that if people are really going to learn a new way to pay, it has to present big benefits.

"NFC has to offer something more than just convenience to take off," says Loopt founder/CEO Sam Altman. "Swiping a credit card is already really easy–easier than some NFC payment apps I've seen, in fact."

But PayPal's director of communications, Anuj Nayar, says the resistance to NFC is changing due, in part, to a larger shift in the shopping experience as retailers try to come up with mobile strategies. PayPal has announced some NFC initiatives of its own–including an Android app that allows two users to tap their phones together and transfer money between PayPal accounts–but is approaching it as an experiment.

 

Nayar, in fact, warns against betting too heavily on using NFC as a payment method. Pointing to the self-service checkout machines that became a fad in some supermarkets and drugstores a few years ago but has met with some consumer resistance, Nayar says that stores risk investing in expensive hardware and then finding that most people don't use it. "We're watching the NFC space very closely," he says, "and we're implementing it where it could have a use, but we're not betting the farm on any one technology."

But NFC isn't just about shaving off seconds in line at the cash register. By being a bridge between the online and physical worlds, it might also transform the way consumers engage with stores and marketers.

The NFC Forum's Arnold divides NFC uses into "transactions" (i.e., mobile payments), "pairing" (connecting two NFC-enabled devices), and "sharing" (where phones and other devices can interact with NFC tags). It's the last piece that provides the biggest opportunity for ads, she says. Brands, for instance, can use tags to embed additional content or deals on out-of-home ads like posters. A recent campaign at BART stations in the San Francisco Bay Area, for example, had users tapping their phones against Jack in the Box posters to receive discount coupons.

Razorfish notes that one of the key opportunities with NFC is the ability to create a detailed profile of every consumer with a technology-enabled phone. After all, "NFC can connect a consumer with the physical world in ways that generate an infinite number of interactions or valuable profile data points," Gelb and Schweickhardt write. These profiles, in turn, could be combined with ads, coupons, product databases, and payments: "The ability to see a consumer's full behavioral pattern will allow marketers to reach a whole new level of analysis and optimization of marketing programs."

As for actual campaigns, Gelb tells Adweek that Razorfish is currently running a few NFC pilot programs and plans to do more as the technology is adopted more widely.

Shopkick's Roeding, like Chen at Digitas, says knowing if a product was actually purchased is a huge plus. In fact, he says, it's been the missing link in the app's mission to full store/brand engagement. While shopkick's app can tell when users enter into partner stores like Macy's and Best Buy, and when they're looking at products (customers scan NFC tags of specific goods), there's no way to tell whether that activity actually led to a purchase. With NFC, he notes, shopkick can get that missing information, which makes it easier for brands to see the value of these programs.

As for Google Wallet, launched in September (and which currently supports Citi MasterCards and Google prepaid cards), the program's potential becomes clear when it's paired with Google Offers, the deals program that encourages people to go into the brick-and-mortar stores to redeem offers. It's a way to go beyond "the novelty factor" of mobile payments by helping businesses attract and retain customers, says Google Wallet business product manager Marc Freed-Finnegan.

NFC chips also allow businesses to load their loyalty cards into devices so that purchases are tracked and redeemed automatically. For example, instead of carrying around a loyalty card for Jamba Juice or Toys"R"Us (two of Google Wallet's initial partners), consumers can just tap their phones to automatically earn rewards based on their purchases.

Such integration can also create new analytics services for businesses, giving them a clearer sense of which offers are reaching which customers when.

Other possibilities are being jump-started. Think&Go, a company that develops NFC programs and is based in Meyreuil, France, launched a system in E. Leclerc supermarkets where people can swipe NFC-enabled phones on NFC tags in the aisles. These work in part like interactive labels and help users in a variety of ways, from offering deals to giving allergy alerts. It also monitors consumer behavior.

While NFC has had a slow start here, it's made far bigger inroads in tech-savvy Japan. The main reason, according to Forrester's Husson, is Japan relies heavily on mass transit, so it's become a common way to pay for transportation. That's an unlikely path to mass popularity in the car-centric U.S., but Husson predicts that mass transit could become "a trigger for wider adoption."

One of the remaining questions in the U.S. is if and when Apple will embrace NFC. There have been hints that it's interested. It's filed patents related to NFC and hired an NFC expert a few months ago. And other companies are jumping in. It was reported this summer, for instance, that Vodafone and other wireless operators in the U.K. have agreed to develop a shared platform for mobile payment systems, which may speed up adaptation of NFC, according to a Vodafone executive.

And the numbers are starting to shift. U.K.-based Juniper Research predicts that the value of mobile retail marketing will reach $15 billion globally by 2012, representing a growth of 50 percent over 2011. It also estimates that 300 million NFC-enabled smartphones (one out of every five) will be available worldwide by 2014.

Says Arnold, "We're at the cusp right now."