U.S. retailers are moving quickly to adopt beacons, inexpensive pieces of hardware that use battery-friendly Bluetooth signals to trigger location-based actions in apps. We expect the beacon installed base to see a five-year compound annual growth rate (CAGR) of 287%. There will be about 4.5 million active beacons overall by year end 2018, with 3.5 million of these in use by retailers.
Beacons are the most important retail technology since mobile credit-card readers. Large retailers will adopt beacons the fastest amid intense competition by brick-and-mortar chains for traffic and sales. Half of the top 100 retailers in the U.S. are testing beacons this year, and we expect them to have this new technology installed in one-third of their stores by the end of 2015.
Beacons are compatible with about one-third of active smartphones globally and nearly all iPhones. Globally, we estimate that 570 million Android and Apple smartphones are compatible with Bluetooth low energy (BLE), the signal emitted by beacons to wake up smartphone apps, which translates to roughly one-third of the smartphone installed base. The proportion of BLE-compatible phones would be even higher in markets like the U.S. where Apple devices are more common. All iPhones running iOS 7 (90% of iPhones) are compatible with BLE.
Apple is still in the lead, and ahead of Google, when it comes to beacon technology. Its iBeacon implementation means that iPhones running the latest version of iOS 7 can scan for beacons in the background, even when the relevant apps are closed. Android L, the upcoming new version of Google's mobile operating system, is working to match this capability. But for now, Android users must have apps running at least in the background for them to detect beacons.
Retailers should allow third-party apps to hook into their in-store beacon system. Consumers don't usually download apps for most of the retailers they visit. It makes sense for retailers to open up their beacons so that outside apps can use them to [...]