Changewave Research: Smart Cards and Biometric Ids

ChangeWave Research: Smart Cards and Biometric IDs

ChangeWave Research Report:

Smart Cards and Biometric IDs

Growing Use of Smart Cards/Biometric IDs in Workplace –

Future Lies With Fingerprint IDs and Advanced ID Cards

Overview

During the week of May 9-12, 2006 we surveyed ChangeWave Alliance members on key industry trends in Smart Cards and Biometric IDs, including who stands to win and lose in the homeland security marketplace. A total of 104 members participated who work for companies directly involved in providing homeland security products/services – along with 490 other members knowledgeable about the industry.

Bottom Line: We asked respondents if their own company currently used a Smart Card or Biometric ID system and nearly four-in-ten (38%) said yes – 9-pts more than our April 2005 survey and a clear sign that Smart Card & Biometric ID usage is growing in the workplace.

Contactless Proximity Access Cards (52%) is the number one system currently being deployed by Alliance member companies, with Standard Swipe Cards (35%) second.

When we focus on the future, however, a far different picture emerges. By a wide margin, industry respondents report Fingerprint IDs and Advanced ID Cards are the leading technologies of this rapidly expanding market. Below is a snapshot of key trends reported by respondents who work directly in the Homeland Security industry.

Key Technology Trends

(A) The Most Fingerprint IDs 38%

Technologically Advanced ID Cards (Smart Cards + Digital IDs) 30%

Advanced Retina Scans 30%

(B) Best Suited to Fingerprint IDs 57%

Meet Current Advanced ID Cards (Smart Cards + Digital IDs) 43%

Market Demands Facial Recognition 21%

(C) Will Attract Advanced ID Cards (Smart Cards + Digital IDs) 50%

the Most Spending Fingerprint IDs 36%

Over Next 12 Months Facial Recognition 22%

Key Company Trends

We also asked industry respondents to identify the companies they think most stand to win in key Biometric ID areas. Here is what we found:

Fingerprint IDs: Identix (IDNX)

Facial Recognition: Identix, Viisage (VISG)

Iris Recognition: Identix, Viisage

Industry respondents also say Identix (16%) is the company most likely to pick-up market share over the next year, followed by Cogent (10%), Nortel Government Solutions (9%) and Viisage (8%). We note that Identix and Viisage expect to complete a merger during 2nd quarter 2006, creating a potential powerhouse in the Biometric ID space.

Key Smart Card Trends. Respondents rank Access to Financial Transactions (19%) as the most important Smart Card trend today. FOR82248 writes, “Smart cards are benefiting from the realization that more secure means of conducting transactions are required…”

ActivIdentity (ACTI) (13%) is seen as the company most likely to gain share in the Smart Card market over the next year. We note that privately owned HID Corporation (36%) is the current leading vendor/supplier of Smart Card/Biometric ID systems in use by respondent companies.

Biggest Growth Markets. Industry respondents think the National Government (39%) will experience the biggest increase in demand for Smart Card and Biometric ID Systems in the next two years, followed by the Military (24%) and Financial Services (23%) markets.

When Will We See a Global ID Management System? One-in-four (24%) respondents believe a global identification system will be implemented within 4 years; another 39% see it happening in 5-8 years. Only 4% think a global identification system will never happen.

Other Future Trends. Multifactor Identification was also found to be a key trend in both the Smart Card and Biometric ID space. As T_R1976 writes, “In the past, a smartcard was combined with a simple personal pin for security entrance. Now … we are seeing multiple layers of security – personal smartcard with a pin plus a host of other layers – personal combinations of information, a second digital smart card, multiple/changing combinations with an updated code that shows up on a pager, etc.”

Summary of Key Findings

The ChangeWave Alliance is a group of 7,500 highly qualified business, technology, and medical professionals in leading companies of select industries—credentialed professionals who spend their everyday lives working on the frontline of technological change. ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, and converts the information into proprietary quantitative and qualitative reports.

Helping You Profit From A Rapidly Changing World ™

www.ChangeWave.com

Table of Contents

Summary of Key Findings 2

The Findings 4

I. Smart Cards and Biometric IDs in the Workplace 4

II. Biometric IDs and Smart Cards 5

A. Overall Industry Trends 5

B. Biometric IDs 10

C. Smart Cards 11

III. Specific Contract Opportunities 13

ChangeWave Research Methodology 15

About ChangeWave Research 16

I. The Findings

Introduction

During the week of May 9-12, 2006 we surveyed Alliance members on industry trends in Smart Cards and Biometric IDs, including who stands to win and lose in the homeland security market place. A total of 104 members participated who work for companies directly involved in providing homeland security products/services – along with 490 other members knowledgeable about the industry.

Respondents Working in Companies Providing Homeland Security Products (n=104)

Other Respondents (n=490)

I. Smart Cards and Biometric IDs in the Workplace

Along with Industry trends, the survey also focused on the type of Smart Cards/ Biometric IDs, Alliance member companies currently use in their work locales.

(1) Question Asked: Does your company currently use any type of smart card or biometric ID system?

Current
Survey
May ‘06 / Previous
Survey
Apr ‘05
Yes / 38% / 29%
No/ Don’t Know/ NA / 62% / 71%

Smart Card/Biometric ID Usage. Smart Card and Biometric ID usage is growing in the workplace. A total of 38% of survey respondents now report their company uses a smart card or Biometric ID system – 9-pts more than in our April 2005 survey.

(2A) Question Asked: What type of smart card or biometric ID system(s) does your company/work locale currently use? (Check All That Apply)

Current
Survey
May ‘06
Contactless Proximity Access Cards / 52%
Standard Swipe Cards / 35%
Dual Access Cards (Combination Contactless Proximity & Swipe Cards) / 19%
Fingerprint ID System / 15%
Advanced Active Cards (Contactless from up to 4 Feet Away, "Hands Free") / 5%
Hand Geometry Reading System / 5%
Retina Scan System / 2%
Facial Recognition System / 1%
Other / 4%

Smart Card/Biometric ID Systems. Contactless Proximity Access Cards (52%) was the number one system currently employed by Alliance member companies, followed by Standard Swipe Cards (35%).

(2B) Question Asked: Who is the vendor/supplier of the equipment and/or service for your company's smart card or biometric ID system(s)?

(n=76)

Current
Survey
May 2006 / Previous
Survey
Apr 2005
HID Corporation / 36% / 30%
RSA Security / 4% / 0%
ActivIdentity / 4% / 0%
Motorola / 4% / 7%
Honeywell / 3% / 11%
Other / 51% / 56%

HID Corporation Remains Top Smart Card/ID System Supplier. Thirty-six percent (36%) of respondents say HID Corporation is the vendor/supplier of their Smart Card/ Biometric ID system, 6-points more than in April 2005. On the down side, only 3% say Honeywell, an 8-point decline from previously.

II. Biometric IDs and Smart Cards

(A) Overall Industry Trends

(1) Question Asked: Which of the following Biometric ID and Smart Card technologies do you believe are currently the most technologically advanced? (Please Choose No More Than Two)

Respondents In Companies That Provide Homeland Security Products / Other Respondents
Knowledgeable
About Smart Cards and Biometric IDs
Fingerprint ID / 38% / 38%
Advanced ID Cards (Smart Cards, Digital Identification) / 30% / 29%
Retina Scan / 30% / 30%
Iris Recognition / 21% / 17%
Facial Recognition / 19% / 14%
Voice Recognition / 6% / 6%
Hand Geometry / 5% / 4%
Signature Recognition / 1% / 3%
Don't Know / 10% / 15%
Other / 0% / 1%

Fingerprint ID Considered Most Advanced Technologically. Fingerprint ID (38%) was identified by industry respondents as the most advanced Biometric ID/Smart Card technology, followed by Advanced ID Cards (30%) and Retina Scans (30%).

(1A) Question Asked: And which of the following technologies do you believe are best suited for meeting the demands of the current market? (Please Choose No More Than Two)

Respondents In Companies That Provide Homeland Security Products / Other Respondents
Fingerprint ID / 57% / 50%
Advanced ID Cards (Smart Cards, Digital Identification) / 43% / 42%
Facial Recognition / 21% / 14%
Retina Scan / 12% / 16%
Iris Recognition / 9% / 10%
Hand Geometry / 6% / 5%
Voice Recognition / 5% / 7%
Signature Recognition / 3% / 4%
Don't Know / 5% / 9%
Other / 2% / 1%

Best Suited for Meeting Current Demand. Fingerprint ID (57%) is also considered best suited for meeting current market demands. Advanced ID Cards (43%) ranked second.

(1B) Question Asked: Which of the following technologies do you believe will attract the most spending over the next 12 months? (Please Choose No More Than Two)

Respondents In Companies That Provide Homeland Security Products / Other Respondents
Advanced ID Cards (Smart Cards, Digital Identification) / 50% / 44%
Fingerprint ID / 36% / 32%
Facial Recognition / 22% / 18%
Retina Scan / 12% / 14%
Voice Recognition / 9% / 9%
Iris Recognition / 9% / 9%
Hand Geometry / 2% / 3%
Signature Recognition / 1% / 3%
Don't Know / 12% / 16%
Other / 1% / 0%

Advanced ID Cards Attracting Most Spending – Next 12 Months. Importantly, Advanced ID Cards (50%) is the technology respondents believe will attract the most spending over the next 12 months. Fingerprint ID (36%) came in second and Facial Recognition (22%) third.

(2) Question Asked: What company do you think most stands to win in each of the following areas? (Simply skip any areas in which you are not knowledgeable).

Identix was the company cited as most likely to benefit in several areas of the Biometric ID/Smart Cards market, including Facial Recognition, Iris Recognition and Fingerprint ID.

Regarding Fingerprint ID, JTO2813 writes, "Identix - They are the largest tenprint manufacturer and can combine their fingerprint technology with facial recognition." LBE41999 concurs, "Identix - Superior technology. Below the radar."

Viisage was also mentioned as a top company in Facial Recognition and Iris Recognition. It expects to complete a merger with Identix during the second quarter of 2006, which would create a Biometric ID powerhouse. As respondent TMO19071 puts it, "Viisage can take advantage of the best of their technology and that of Identix due to their merger."

A sample of Alliance Member Responses can be found in Appendix A.

(3) Question Asked: What do you think are the biggest barriers to more aggressive adoption of Smart Card and Biometric ID Systems by governments and private industry? (Choose No More Than Two)

Respondents In Companies That Provide Homeland Security Products / Other Respondents
Affordability of ID Systems / 37% / 37%
Issues Concerning Standards / 33% / 31%
Lack of Interoperability / 29% / 23%
Problems with the Technology / 24% / 20%
Don't Know / 13% / 17%
Other / 9% / 10%

Barriers to More Aggressive Adoption. The biggest barrier to more aggressive adoption of Smart Card and Biometric ID Systems is Affordability of ID Systems (37%), followed by Issues Concerning Standards (33%) and Lack of Interoperability (29%).

(4) Question Asked: Which of the following Smart Card and Biometric ID Systems applications do you believe will experience the highest rate of growth during the next 12 to 24 months?

Respondents In Companies That Provide Homeland Security Products / Other Respondents
Access Control / Attendance / 31% / 21%
Device / System Access / 21% / 11%
Civil IDs / 14% / 12%
Consumer IDs / 10% / 16%
Surveillance / 7% / 9%
Criminal IDs / 1% / 4%
Don't Know/No Answer / 16% / 25%
Other / 0% / 1%

Top Applications. Nearly one-third (31%) of industry respondents believe that Access Control/Attendance is the application that will experience the highest rate of growth during the next 2 years. Another 21% say it’s Device/System Access.

(4A) Question Asked: Why?

Access Control/Attendance. Respondent EPA8608 writes, “With the increased attacks and threats on our networks, strong authentication is a priority in most commercial and military systems.” LES6490 adds, “As people get further away from 9/11, it becomes more difficult to get them to invest in surveillance and other security areas which pertain to terrorist activities. Access control covers much broader requirements, and is not so obtrusive.”

Device/ System Access. Respondent ART98385 writes, “There is a need to safeguard data content - hence, the need to prevent unauthorized access to computers is important.”

And TYB96602 writes, “As network security protocols improve, the weak link in network security turns out to be authenticating users.”

A sample of Alliance member responses can be found in Appendix B.

(5) Question Asked: Which of the following markets do you believe will see the biggest increase in demand for Smart Card and Biometric ID Systems during the next 12 to 24 months? (Choose No More Than Two)

Respondents In Companies That Provide Homeland Security Products / Other Respondents
National Government / 39% / 25%
Military / 24% / 15%
Financial Services / 23% / 31%
Health Care / 18% / 22%
Law Enforcement / 14% / 15%
High-Tech and Telecom / 14% / 9%
Transportation / 8% / 7%
Retail / 6% / 9%
State and Municipal Government / 9% / 7%
Industrial Manufacturing / 3% / 3%
Hospitality and Gaming / 2% / 2%
Don't Know / 12% / 15%
Other / 0% / 1%

Biggest Growth Markets. Industry respondents think the National Government (39%) will experience the biggest increase in demand for Smart Card and Biometric ID Systems in the next two years, followed by the Military (24%) and Financial Services (23%) markets.

(B) Biometric IDs

(6) Question Asked: What is the most important trend today in the Biometric ID space? Which company(s) do you think is best positioned to capitalize on this trend and why? (n=60)

Fingerprint ID / 17%
Facial Recognition / 12%
Multifactor Identification / 12%
IT Security / 7%
Retina Scans / 5%
Passport Security / 5%
Terrorist Countermeasures / 5%
Identity Theft / 3%
Smart Cards / 3%
Other / 31%

Top Trends in Biometric ID Space. Once again, Fingerprint ID (17%) was identified as the most important trend in Biometric ID. Respondent MAC12873 writes, “Fingerprint scanners on laptops for user authentication will become mandatory for users with access to sensitive data.”