Peter O’Neill is the President & CEO of findBIOMETRICS.com, a biometrics security resource guide that provides information on biometric identification and identity verifications systems and solutions. Peter has been involved in the biometrics industry for the past five years and in that time has interviewed most of the industry leaders in biometrics. These interviews have ranged from the Department of Defense to the CEO’s of over 80 different biometrics companies worldwide.

Peter is also actively involved in the International Biometrics Industry Association, IBIA, in both the marketing and membership working groups. Additionally, through findBIOMETRICS.com, Peter partners with most of the major security and biometrics conferences globally.

findBIOMETRICS.com also conducts a yearly industry review where they receive input and feedback on a number of industry topics from over 40 biometric companies in 12 different countries.

Finally, findBIOMETRICS.com also receives daily about 40 different press releases, all specifically biometrics related, which are then reviewed and culled to 5 or 10 important announcements every day. All of this gives Peter a very strong overview of what has and is happening in the biometrics industry.

Frost & Sullivan: Financial service clients often struggle to understand the biometrics value chain. Can you walk me through from software to systems integration?

Peter O’Neill: There are five different areas to the value chain starting with the basic technology. Included in the basic technology area are sensors, templates, algorithms, software, etc. So a swipe sensor for example would be included in this first area.

Next along the value chain you move into actual products. These would include fingerprint door locks, storage devices, logical access peripherals, mobile ID devices, etc. These are classified as off-the-shelf devices.

Then it really starts to get interesting because you start to move into solutions. Typically the next area along the value chain would be a simple low-end solution. This is where all the integration activity would be included in the product…a plug-and-play scenario. The functionality and instillation is very easy and includes all the core technology.

Moving on from there you start to solve specific problems. Both of the last two areas in the value chain have full consulting, deployment services, and backup support. The difference between the last two areas in the value chain really depends on the size of the deployment. At the very high end of the value chain you are dealing with large-scale projects that may be enterprise-wide logical access control or physical access, large-scale ID programs and things like that. In addition to all the things already mentioned above, large-scale projects would also include a fair bit of design development and consulting and on going maintenance service contracts. In other words, a complete integrated solution.

Frost & Sullivan: Where is the value being derived in the value chain? Is it possible to look at the value chain another way; for example, maybe from sensors through to systems implementation?

Peter O’Neill: I would say that eventually a lot of the big money will be with the systems integrators and the government contractors. But let’s go back to the beginning of the value chain and start with sensor companies like Lumidigm, UPEK, AuthenTec and Fujitsu. The cost is dropping for these sensor products but what you see is that the units deployed have dramatically increased. AuthenTec recently announced that they are up to several million units in the field. As computer and mobile phone companies start to place sensors into their mobile devices you are into a mass-produced scenario and that’s where a company like Lumidigm or AuthenTec wins. Algorithms will always be a very important part of the business because it is one clear way to differentiate you from others in the market. When you look at the devices area, finger scanners and products like that, it’s harder to differentiate yourself so it might become more commoditized. Patents for some biometric areas are starting to expire so that will open up the field and perhaps drop prices and create more interest in some biometric types. Middleware is the interesting one and is open for interpretation to see where it heads. It could be a strong differentiator; some companies are very successful at creating unique products to stay ahead of the competition. This is especially true in incorporating new standards for example. Then you have application solution providers. This is an area where the large systems integrators and government contractors may come in and acquire, or create very strong partnerships, with companies. For things like value-added resellers and OEM’s, they can often move into a vertical market and incorporate biometrics that can create a real winning strategy.

Frost & Sullivan: On a ladder type of approach would you say then that the value chain would start with Sensors, go to Software, then on to Middleware up through the Application Solution providers and end with the Systems Integrators and Contractors?

Peter O’Neill: Yes that’s correct. Also certain companies are evolving into something else besides just a core technology provider. Companies are now being created that are not being put together by engineers or technical people like many were when the industry started. Companies are being created by industry professionals that have tried to solve a need or a problem in their own verticals and in the process of trying to solve a particular problem, became aware of biometrics. They then became frustrated because the solutions that were available were not quite a perfect fit; they didn’t just plug-in; maybe they required an adjustment to the backend legacy system, or something like that. This is where I really see winning companies being created. An example of this is a company by the name IdentiMetrics. Jay Fry and Ann Marie Dunphy started this company a couple of years ago. Jay was the principal of a school and he was looking for a solution for enrolling students in the cafeteria and the library. They had a card system that just wasn’t working because the students were losing them. So he turned to biometrics but when he did he found that he had to purchase the entire system instead of something that could just plug into his existing legacy system. He looked at this for a while and decided to start his own biometrics company. He and Ann Marie got together and created this biometric because they saw a need and created a solution that addressed a specific vertical. So that’s one example of a company moving up the value chain. Another company, BIO-key, in the last year or year-and-a-half acquired AMG and Public Safety Group Security. These acquisitions had existing sales channels focused on mobile technology. BIO-key is now bringing their biometric expertise to this mobile area and in the last six months they announced a product that integrates public safety solutions sets with advanced biometric fingerprint technology. So that’s another way… a biometric company acquired a sales channel in the mobile first responder area and blended the two together to create a winning scenario. That’s just two examples of how companies are starting to break out of that value chain.

Frost & Sullivan: Looking at sales channels for biometrics applications; what is the normal way that biometrics are finding their way to market now? What do you see as the dominant channel now and do you envision this changing?

Peter O’Neill: We are seeing a significant increase in market queries from global companies trying to gain access to North America and North American companies trying to gain a foothold into the global markets. If you can get a foothold into existing sales channels it is a great way to enter into profitable relationships that have established and proven results. This is a wonderful way to grow a business. Also, I would say that there are a lot of companies seeing success in the B2C scenarios or direct B2B areas. This is where companies are in that second-level in the value chain…products. Again, this includes door locks, PC peripherals, safes and mobile ID devices that are then sold directly to consumers. This is possible because consumer awareness of biometrics is starting to grow. You are seeing them in TV shows, office renovations, sports clubs and other areas. Gun safes for example represent a solid vertical channel. How does a biometric company gain access to this market? You talk to an existing safe company and add your product into a proven, successful sales channel.

Also you are starting to see companies like L1 bring Identix, Viisage, SecuriMetrics and AFIX together. That forces other players to react and start to compete with this large-scale new player. Cross Match did it by acquiring Smith-Heimanns in Germany. That truly made Cross Match an instantaneous global player because Smith-Heimanns had a strong global network. Cross Match also just announced the acquisition of the face recognition company from Germany, C-VIS GmbH. There are a number of different ways companies are looking to increase their dominance and their sales channels but acquisition is really a good one.

Frost & Sullivan: So is it safe to assume that a lot of biometrics companies are finding their way to market through RFP’s still?

Peter O’Neill: Many companies are still focused on large-scale government RFP projects where the rewards are very significant.
However, as a biometrics company you have to understand where you fit in the value chain and how to develop a strategy that can leverage your position in that value chain. A lot of companies now are changing the way they talk about and market their company. They are no longer just talking about how great their technology is; speed, error rates, etc. and are moving more toward a solution or customer focused approach. The focus is on providing a true working solution…you have to assume that the technology works and is great, now you have to stress what it does for the end-user customer. When you think of all the verticals yet to be tapped in the biometric area, like financial, health care with HIPAA, logical access, physical access at home, the office, hotels, health clubs, the mobile ID area, time & attendance, etc., these are just starting to take off right now. There are lots of ways for biometrics to get into the supply chain besides RFP’s. Time & Attendance is a great supply chain example. Fingerprint biometrics solves the significant problem of “buddy punching”. Manufacturers of time & attendance units were able to incorporate biometrics into their units and then go back to the market place and say, “Here we have a solution that creates a wonderful answer to the buddy punching problem.” That is a great way for biometrics to be used and incorporated into an existing sales channel.

Frost & Sullivan: Recent conversations with biometrics executives has given me the impression that there is a change to what a profitable business model for the industry is looking like, do you think this is accurate, and if so how?

Peter O’Neill: For many companies, just chasing the large-scale government deployment contracts is not a business model that will allow them to survive. The amount of time it takes for many of these large government projects to unfold can be very lengthy. Most small to midsize companies in the biometrics area have to have something else happening during that time. You are seeing companies, like again BIO-key for example, acquiring another company that allows them to immediately produce a sales channel that is not relying on the big government contracts even though they may or may not still be interested in government work. What they have done is come up with solutions that have allowed them to produce revenue as longer sales cycle projects unfold.
As far as the per-seat or recurring revenue business model goes, obviously it is beneficial to have this type of revenue stream and is a good way for some companies in the industry to move.

Frost & Sullivan: Do you see new business models emerging in the market as these large government contracts continue to draw out over the years?

Peter O’Neill: Definitely, like with any technical industry, people with technical or engineering backgrounds started the first companies. They have produced tremendous technology. Now it is evolving into a sales and marketing focus and an end-user solution focus where you look at the market place and talk about what benefits and solutions you can give to the end-user. Companies are telling end-users that they can have a secure and easy means to do things…open doors, log on to their computers or punch in at work. By focusing on the end-user they see the benefit to them as opposed to knowing how wonderful the technology is. A lot of companies now are looking at the market place with those eyes and seeing unending applications for biometrics.

Please view the September issue of the Electronics newsletter for the second edition of the Q&A.