What Alibaba’s investment in Smartrac means

Image : Smartrac, Alibabab

Earlier this year in July, Smartrac announced that the Chinese ecommerce giant Alibaba will invest in the company. The President of the Alibaba group, Michael Evans, will join Smartrac’s Supervisory Board. He commented, “We are thrilled to support Smartrac and together provide brands with innovative product authentication solutions at scale.”

The exact terms of the deal were not disclosed but the purpose of the deal was aimed at helping Alibaba in using NFC and RFID to tackle counterfeit products. Smartrac have both the ability to produce large quantities of quality RFID/NFC tags but also have an Internet of Things platform, Smart Cosmos, to manage the tags.

The Smart Cosmos platform is designed to offer more than just product authentication and identification. It’s designed to allow brand owners to deliver content via NFC tags and therefore provide a marketing channel.

Smartrac’s platform isn’t the only authentication system around. HID have a similar platform with their Trusted Tag system, Thinfilm are active with their CNECT platform and our site sponsor Seritag is launching Ixkio for NFC tag management. There’s also a number of smaller companies that are started to offer software based systems.

This move demonstrates two significant things. Firstly, the already sizable and growing problem of counterfeit goods and the requirement to deal with the problem. Secondly, the ability for NFC to be part of that solution.

The counterfeit market

The International Trademark Association estimated the global value of counterfeit goods in 2013 was around $1.1 trillion. And that’s set to double in the next five years. It affects almost every market including clothing, media, electrical goods, toys, pharmaceuticals and even aircraft parts.

However, while the size of the counterfeit market is changing, more importantly so is the attitude of many brands towards it. One of the reasons is that the quality of counterfeit products is getting better and better. And that’s changing the attitude of brands towards fake products.

If you had spoken to a luxury brand ten years ago about fake goods, the reply would likely have been that they don’t care (or care enough to do anything about it). The fake goods are clearly fake goods and the people buying them know that. If they could afford the real thing they would buy the real thing. It could be argued that it had very little brand impact.

What has changed is that the quality of fake goods is now so good that the average consumer can’t tell the difference. In fact, many are so good that many suppliers can’t tell the difference. Now, you have people buying fake goods – particularly through online stores – who don’t realise. This is now affecting the sales of genuine goods and because the products aren’t as good, it’s damaging the brands image directly.

According to Fortune, in 2015/16, Alibaba removed 380 million listings and closed 180,000 stores partly in efforts to fight counterfeit goods. When the U.S. office of the Trade Representative added Taobao, an eBay like subsidiary of Alibaba, to a list of counterfeit sites alongside others such as Pirate Bay, Michael Evans (the person joining Smartrac’s advisory board) commented, “The decision ignores the real work Alibaba has done to protect IP rights holders and assist law enforcement to bring counterfeits to justice.”

It’s likely that as brands become more concerned that their genuine products are being drowned out and damaged by the sea of counterfeits, that they will start to leave sites owned by Alibaba.

Tag issuance

It’s very easy to get hold of NFC and RFID tags in China. There’s a large number of suppliers making tags very cheaply. So why did Alibaba invest in Smartrac and not a software platform ? There’s likely to be two reasons. Partly perhaps because the quality of Smartrac’s tags and the knowledge that goes with that is among the best in the industry. Alibaba are investing in tag production experience as much as the production itself. Smartrac will almost certainly need to grow to cope with Alibaba’s demands and the experience will matter.

Secondly, and perhaps more importantly, it’s about how authentication tags are issued. A company that can issue the tags and provide the authentication/identification software as a combined process is going to be able to scale far easier than just a manufacturer or a software company. The connection between the supply of tags and the software is crucial and Smartrac, with their Smart Cosmos system have that combination.

Future changes

NFC tags and NFC tech has been around for a long time. It’s been said more than once that NFC was a solution looking for a problem. NFC.Today have long considered that authentication and identification – particularly towards the end of the supply chain through to the consumer – is the problem that NFC has been looking for.

It’s a technology that has no current equal and NFC.Today expect to see some substantial movement in this area over the next year.