EXCLUSIVE: 800-Pound Gorilla Scanbuy Speaks Out On Barcode Controversy; Why Open Is Good, But Managed Might Be Best
My last post on 2D barcodes sparked an interesting debate on the recent CTIA white paper, a work-in-progress that – though a step in the right direction – prematurely calls a winner in the barcode battle, and patently fails to detail the contribution of each company/player in the emerging ecosystem. I am pleased at the amount (and quality) of feedback I received, both in the form of comments on MSG and in personal emails asking to take the discussion off-line, and overjoyed that companies have asked me to elaborate my arguments in a white paper, a proposition I am seriously considering.
But today I can say the response to my post (and the observation that key stakeholders such as advertisers should be consulted at this stage) is finally complete. Scanbuy CEO, Jonathan Bulkeley – who has so far respectfully declined opportunities to formally respond to the CTIA white paper – has reached out to MSG to set the record straight and provide his side of the story.
My personal thanks to Jonathan for pro-actively contacting me and granting me two interviews. One is a detailed Q&A (below) addressing talk that the white paper – because it mandates that a code reader application (the application that scans the 2D barcode and actually decodes the alphanumeric data string that is encoded into a 2D barcode) includes support for EZcode – has effectively called Scanbuy’s solution a winner before the race is run. The second is a podcast interview to discuss Scanbuy’s strategy, roadmap, and larger view of market trends. (Jonathan agreed to an exclusive podcast interview a few weeks back, but important developments, including the news that Scanbuy now offers a Google Android version of its ScanLife multi-barcode reader, require us to update the material.)
Q: Let’s begin with the controversial white paper. What’s the real issue here?
A: I think the whole issue revolves around whether Scanbuy is a proprietary solution, and what proprietary means in the barcode industry. We’re labeled – or rather positioned – as a proprietary solution and that’s not entirely accurate. Let me turn the question around: Are short codes an open or closed system?
Q: They are a mechanism that allows everyone to get involved in selling and collecting payment for mobile content…
A: Right, but not anybody can create a short code. You have to register it and pay for it. So, it’s in many ways a closed system. In barcodes it gets more complicated. The codes are split and some codes are called open source, like Data Matrix, and some are seen as proprietary, like our EZcode. But both of those codes are just a series of numbers that are indexed. I think the barcode market will evolve so that all the systems and the geographies will be closed proprietary systems, like common short codes, and which code is used is therefore somewhat irrelevant. I’m glossing over one key issue, which is the direct versus indirect discussion.
Q: We’ll get to that. But let’s get back to open and closed. What is the white paper proposing in your view?
A: The CTIA white paper proposes a closed system. It has different components to it, but you begin by having to register a code. Let’s say you’re Coke. You’ve got to register a code, which means you have to buy it from somebody. You can’t create a code and put it out there. It has to work within the proposed CTIA infrastructure and system – and that’s a closed architecture. There may be various vendors and competitors that work within that system over time, but it’s controlled by the U.S. carriers, so there’s nothing open about that.
So, we then have the whole question about direct versus indirect codes. Direct codes as they exist in Asia today are open, because anyone can create one and it’s free. You don’t have to register it anywhere because the content is typically a URL embedded inside the code. The model in Japan worked because carriers were generating data revenue from consumers who were being charged for data rates to scan codes. That was the business model: Codes are free, but we’re charging consumers to scan.
Q: But that’s not the model going forward, right?
A: The whole world is going flat rate, so consumers aren’t going to pay to scan. So, the model going forward is about charging advertisers to be scanned, and to do that you need a system that, like a short code system, allows you to register and bill for that transaction.
Q: And a new model requires a new approach – even a proprietary approach to work?
A: Closed may not be the right word, and proprietary may not be the right word – but there is a need for controlled and managed infrastructures that will allow this to happen in a coordinated way that works across carriers and across handset manufacturers. It’s not free and I don’t think it should be free.
Q: So you are saying it’s about ubiquity and results. Open may not be the best route to achieving these objectives…
A: We provide infrastructure to our carriers and handset manufacturers to build this business to a specific geography. Our handset software allows you to read codes and it reads our codes. It reads [open source] Data Matrix and QR, and it also reads our EZcodes. We don’t really care what the code is – the software reads all major formats. It’s up to the carrier in that market as to which codes they want to support, but we’re not choosing or forcing anybody to pick any specific code symbologies.
Q: It sounds a little like semantics. But let’s get past that. Let’s accept that we need a managed infrastructure that gives carriers more of a say, and let’s accept that Scanbuy is therefore not proprietary. Now let’s get to the concerns of companies worried there’s not really a clear path on how to interact with you, because you are more closed than open.
A: I understand the question, but there are a number of vendors selling codes in the U.S. and none of them is open. These companies – whether it’s a NeoMedia or someone else – are part of a closed system because of the model here. The carriers are deciding on what the structure is going to be, and they’ll pick vendors which will fit into that structure. Effectively, all of those vendors will be working within that closed system.
Q: What about the brands and advertisers? In my post, companies voiced a concern that their customers would be doing campaigns on your system allowing your company too much visibility into their client base and their results.
A: Coke comes to us and creates a code, the code exists in our database, and whenever a scan happens, it comes and hits our database and we will forward that information to Coke.
The way the CTIA white paper is set out, you can see that they expect to have multiple campaign managers at some point in time, maybe within the next year. So Coke, or their agency or whoever is running the campaign for them, has to go to one of those campaign managers. It might be us, it might be somebody else. The point is, that campaign manager will provide the data to the agency or to Coke, so I don’t see how Scanbuy is any different from other campaign managers.
Q: But you are effectively mandated by the white paper, so that does make a difference.
A: Right now, we’re the only one that’s authorized to be out there. But there will be more. Maybe not 50, but there will likely be another two or three companies, and we’re not going to have an advantage over them. Each will collect data and provide it to whoever created the barcode.
Q: Let’s get back to the direct versus indirect discussion.
A: Most of the markets that are developing around the world right now are going to be indirect. Direct codes don’t provide the ecosystem with a revenue model that justifies bundling software and pushing this in a major way. It did in Japan, because they were charging consumers to scan, but that is not what’s going to be the model going forward. Now it’s ‘advertisers pay’, and they will pay because they want to pay to reach consumers.
Q: What about the hybrid model that I suggested in my post?
A: Well, it’s quite close to the model the CTIA white paper outlines. In it there’s a registry and there’s a clearing house function. Both the registry and the clearing house are separate entities, and there are campaign managers. So, there is no one company or one entity that controls everything. It just so happens we’re the first one picked.
Q: To be clear: You are saying there is room for more and you just happen to be first. You disagree with charges that the paper calls the outcome of the race before it has been won. In other words, we have to start somewhere and you just happen to be among the first.
A: Exactly. How did this happen? We drove the market in the U.S. We had all the carriers together for a pilot, we implemented the pilot, we got lots of advertisers to use codes, and we gave them a system that supported that pilot. We were the first ones to act, but there will be four, five or six companies that work actively in the space and support this ecosystem. We won’t be the only one and that’s OK. You don’t really want 20 companies trampling all over each other doing the same thing. It’s early days so you want to keep it fairly simple to start and make sure it all works – figure out pricing and get that right with advertisers and marketers and media, and then build it over time.
Q: Where’s the market and where’s the money?
A: I think it will be slow over the next couple of years but it will be huge long-term. A recent [Pew] study tells us the mobile device will be the primary way we access the Internet by 2020. So, the question arises: How do you get to content quickly, particularly if that content is hyperlinked to what’s around you? You’re not going to want to either type in a URL or navigate to it from the Web. You will want to point, click, and go. That’s a huge market and opportunity for barcodes.
Q: What about fragmentation. You talk about the U.S. carriers calling the shots, but their objectives may not line up with how operators elsewhere are approaching this.
A: Actually, we’re seeing markets deploying a system that is consistent geographically. Take our commercial launches in Spain and Mexico. Carriers in those markets are deploying an infrastructure that’s going to work – one code symbology typically embedded handset software that will work with the registry and clearing house function within the market, and also work for advertisers. These geographies are deploying their own solutions and they will – at some point – interoperate. But right now that’s not the focus, so each market is developing its own structure. As it happens, most of the structures look fairly similar and will allow those to interoperate with other geographies as they grow.
NOTE: I have provided both sides of the argument, and now it’s your turn. I welcome your comments, and I invite you to submit questions for my upcoming podcast interview Jonathan. I can’t guarantee that I can cover them all- but I will do my best!
Tags: 2D barcodes, Android, Google, Mobile Marketing, NeoMedia, Scanbuy
January 21st, 2009 at 1:00 pm
What I think is interesting is that Jonathan assumes that barcodes will be used mainly- even solely- by advertisers. Advertisers being charged to have their codes scanned. Advertisers will be the focus because advertisers are willing to play.
This is lunacy and is the fatal flaw of the closed model. The possible range of applications for barcodes are vast, and safe to say that we haven’t even thought of half of them yet. Advertising is only a small possible use for barcodes. If barcodes are driven mainly- again, even solely- by advertising they will not take off. By and large people will not be inspired in the long term to use barcodes to help advertisers get their message across even if barcodes are providing a significant value add.
For barcodes to reach critical mass and for revenue to then accrue from that mass they have to be as open as possible. It’s the difference between Google being free and neutral, and Google being free but only indexing PPC content.
According to Crunchbase Scanbuy has investment of $21 million. No wonder developing a cast iron revenue stream is so imperative with this kind of massive burden. Yet that burden is threatening to strangle the life out of barcodes before they even have a chance to take off.
The argument for revenue is intriguing. As I understand it: codes have to be closed, so advertisers can pay, so carriers can absorb the costs of increased mobile web usage because plans are flat rate.
Most phone users use no where near the amount of bandwith they are paying for- there is slack in the system. If having barcode functionality offers genuine utility to the consumer, which would come through widespread adoption, then it would incentivise them to add the software. At this stage, with low levels of take up, they can afford to play hard ball and ask for concessions. Secondly as smart phones drift to apps it puts the lie to how expensive or difficult getting barcode software on to devices need be. Anyone can download barcode readers for free.
In short JB says ” I think the barcode market will evolve so that all the systems and the geographies will be closed proprietary systems,”. Bad for consumers, bad for the growth of barcodes, based on assumptions I would argue are untrue.
The internet flourished because of open, interoperable standards and the same holds for barcodes. Companies eager to own a space end up throttling it.
January 22nd, 2009 at 6:58 am
I find JB’s position to be rather insensitive to market realities. I have yet to hear an advertiser or user say that they like the idea of a proprietary ecosystem controlled by a single vendor who is going to assure that they pay yet to be determined amounts for code scanning. It is not without good reason that Scanbuy has so little to show for the investment of most of $21 million. The market does not want what they are peddling.
The big player in this space is GS1, who define the barcode standards for industry. All of the worldwide CPG companies are members. GS1 has come out strongly against proprietary code formats to assure that code formats used widely are based on openstandards.
Another point that Scanbuy wont tell folks is that their EZcode format is inferior to open standard code formats in many ways. It only has one code size and can only contain up to 14 Hex characters. thus the code cannot contain the data necessary for many of the emerging mobile transactions. For example it has far less data than the numbers on a credit card, a gift card PIN, Coke Rewards program, and many other things.
This approach will not succeed. But Scanbuy probably will manage to slow things down and force some folks to take a detour on the way to real solutions.
January 22nd, 2009 at 9:09 pm
I won’t address all the questions or inaccuracies in the last two posts, but two things worth pointing out are:
1) In all of Scanbuy’s markets, it is free to create codes for personal use. Only commercial users are charged.
2) You can not register a domain name without paying for it, so the internet is not an “open” model. It is a closed system. And personal URLs are not provided free of charge.
Jonathan
January 23rd, 2009 at 7:21 pm
To Mr. Bulkley’s point that you need to pay to register a domain name, I don’t think that is a valid comparison. Companies and individuals will also have that domain name when used for mobile too. However, with any other linkage method, the person or company creating that link does not need to pay each time someone clicks on it. If we had been charged for each hyperlink that got put on a web page the internet woudl have never happend.
Scanbuy does not seem to have been open aobut their business model pricing, or how their software works. Why should we want them as middle man? I’ll stick with QR for now.
January 23rd, 2009 at 10:12 pm
Jonathan:
Congratulations on your new deal with LG!
Preloading of software is essential for mass adoption.
That’s 100 million more phones in the marketplace that can start scanning.
Now we want to the codes out in the real world!
January 24th, 2009 at 12:56 pm
Congrats for the great interview and the well answered responses by Jonathan.
There is so much mis-information as well as very general information, that issues can be misconstrued.
As to the CTIA white paper and any advantages it gives one company or another, the white paper stresses both models to be tried going forward, open and proprietary. Scanbuy was chosen for the proprietary as they were the ones getting things moving forward as Jonathan points out. Remember this white paper is for the US only originally.
As is pointed out each country or region will go forward with what they feel works for them, and in the end all these different forms will merge into one through standards etc.
There is too much emphasis placed on open versus closed, with comments like vendors do not want to pay for a closed system, or comments about how GS1 leads the standards setting in bar codes etc. The fact is the GS1 standard 1D barcode format, they set the standards for is not an open system, and yet it has been widely adopted by the industries worldwide. Yes, thats right, 1D bar codes are not free, and must be purchased through registries all leading back to GS1, who also has their fees in order for you to obtain your unique ID so your bar codes point back to your company. The fact is also retailers have been willing to pay for exposure in every type of medium to date, in an effort to reach consumers. Internet advertising has made billions in profits to date for companies like Google, because advertisers and vendors are willing to pay for prime real estate to publish their ads on, such as popular web sites etc.
The 2D structure proposed by CTIA is not that different then the 1D structure that is now in place through the efforts of GS1, where codes are purchased and then registered in a data base and point to a specific company and their specific products. I have read somewhere, that GS1 charges $750.00 for a company to acquire a unique ID to use with their codes, and then of course there is the price of the codes themselves, which varies depending on how many a retailer needs based on the number of their products.
So, 1D bar codes is essentially a closed system, where the retailer has to pay for the codes and yet it has achieved worldwide global support and adoption over the years. And now, the claim is this can not be achieved with the 2D versions?
As to the comments about the internet would never happen if fees were charged every time a link was clicked, that is an unreasonable comparison. The consumers are paying for all those links they click on as we speak, and here in the US broad band internet providers are now looking at restructuring their packages, to limit band width usage or charge by the usage. Trials are already underway by some of the largest providers. Mobile will experience the same issues, when mass adoption of using the mobile for internet occurs, and the flat rate packages we here about today will also go by the way side. And the average consumer in the USA is not going to pay the current flat rate charges of $99.00 a month for internet access on their mobile. So the notion that providers going to a flat rate model will drive up the usage is limited to the middle to upper class markets, and that will not produce mass adoption, since here in the US the lower income families make up a large part of the market, and they will not pay the high fees for a data plan on the mobile. And its these lower income families, who are looking for the discount coupons etc., that this technology is intended to generate.
So it is my view, that commercial use should follow the foot steps of the predecessor 1D codes as in a closed system, yet the user application should be able to accomodate both the commercial and personal reading of these codes, so the user can use the codes for free for personal uses like a web site promotion of theirs etc. This way the masses will get on board by employing the best of both models, the open source for personal use and the closed system for commercial use.
January 24th, 2009 at 3:09 pm
A little more information on this supposed open source standard GS1 Established for 1D bar codes, after I did some more research on the issue.
It appears there are two ways for a company to obtain a 1D bar code or UPC for their product. Either they register with GS1 to become a member of their partner connections program or you buy the bar code from a reseller.
By registering with GS1 you receive a unique identifier code specific to your company which makes up the prefix of your bar codes, so each bar code identifies that product as yours. By going to a reseller, you do not receive this special code and all your bar codes point to the reseller as the product owner.
Now lets look at the costs involved in this so called open system. Through GS1 your cost is calculated using your annual gross revenues and the number of codes you will need for your different products. I did a little trial and filled out their application, and stated my annual gross revenue was $200,000.00 and I needed to tag 500 items. The fees I was quoted were $1,575.00 initial fee, and a $500.00 per year renewal fee. There was an option to increase the number of items to cover 1001-10,000 items and that option quoted a price of $3200.00 initial fee to register, and an annual renewal fee of $950.00.
Now on the other hand, if you chose to go to a reseller to buy your bar code, you do not get the advantage that the bar code will point to your company, and if that reseller goes out of business, it is difficult to prove you are the owner of the latter half of that bar code number. Their fees appear to be about $75.00 per bar code requested, and companies like UPCODE charge $89.00 per code. I put in a request for 100 and was quoted a price of $8,900.00.
So in this GS1 system, it appears the standard body themselves is the clearing house that stores all the numbers, and they are collecting from every retail vendor who wishes to label their products to meet the global standards so their products bar codes are readable world wide. When the retailer is using a reseller instead, GS1 is still profiting, because that means the reseller is having to buy more codes from GS1 and therefore, the reseller is being charged higher annual renewal fees, because their revenue is higher due to more codes sold by reseller, or the fact that the reseller needs more codes from this national registry system, to meet the customers demands.
And you say the same type of system which CTIA is advocating will not work for 2D bar codes? Hmmm
January 25th, 2009 at 6:10 pm
Vlad:
That’s a fair point when you are talking about the two models (barcodes and the internet) combined. My reference was really only focused on the internet (independent or barcodes) and the fact that it is in essence, a “managed” system just, as I expect, codes will be.
As far as codes and the internet are concerned, if you expect 2D and 1D readers to be shipped on all phones then someone needs to make some money to allow that to happen. Yes, maybe all consumers will mirraculously download the app to their phones, but that’s going to take a long long while. Japan worked because ALL the carriers bundled the reader on most phones. The carriers did it originally because they were MAKING MONEY from data consumption. If data is going flat rate, which I expect it is globally (just as internet access went flat rate from 1996-2002)then why should they put a reader on the phone now? If there is revenue, it will happen. If there isn’t then my guess is the app won’t see much light of day except for a few people who will download it. Firefox is a wonderful browser, but IE is on most machines.
As far as QR goes, it depends what geopgraphy you are in. If you are in Japan and most of Asia then QR is definitely the code to use right now. In the U.S. and Europe you should use DM or EZ depending on the geography. Latin American is definitely EZ. But you probably will need to pay something to do use DM or EZ in those markets just as you would pay to use a common short code in any of those geographies today.
January 26th, 2009 at 1:32 pm
[...] before comments feature on the MSG home page, but the debate is too good to miss. Check out the discussion here and the post that started it all here. BTW: I’m collecting questions for my upcoming podcast [...]
January 26th, 2009 at 6:35 pm
Johnathan,
I can understand the interest in a registry for indirect codes. And if that is going to happen, I agree that that has to be managed other wise chaos would occur. GS1 does that for 1D. But the world needs everyone to be able to read 2D codes for this to work. To get mass adoption you need open standards, not proprietary technology.
Brewski says that companies are paying for 1D code. That is true but a company does not pay each time their code is scanned at retail and every retailer company can build their own system to read and use these codes. The specs are open and understood.
With your EZCode, what is the strategy for opening up the code format so others can integrate it? I have never heard anything about others building it in to non-Scanbuy readers. It seems that the only benefit of the code is it locks in Scanbuy as the central hub of the ecosystem. We have not even seen any pricing. What happens when you get a monopoly? we are nervous….
January 28th, 2009 at 12:32 am
Vladimier:
The key to mass adoption is to get software on all handsets in each geographic market. If that happens, then codes will be ubiquitous in those markets. Which type of codes is somewhat irrelevant (EZ, QR, DM) at this point.
The pricing will need to be structured so that there is value and clear tangible benefit for those using codes. Too high and codes won’t be used. As for what the right pricing model is, I’m not sure yet. I think a pay per scan model can be viable but perhaps it becomes a per code created model at some point. The market will clearly decide. There are other alternatives to using codes (short codes, mobile urls, etc) so codes will need to be competitive or differentiated to get traction.
We haven’t yet made any decision on opening up the EZcode format to other readers, but are open in principal to discussing it over the coming months.