Software vendors control smart card market, says study

Software vendors have wrested the market away from manufacturers of smart cards, putting more options into the hands of smart card users, according to a new study which compare the changes in the smart card market to those in the PC market in the late 80s, when Microsoft overtook IBM. 'The strategic decision for implementers and adopters lies not in which card technology to deploy,' it concludes, 'but in the selection and development of applications.'

Software vendors have wrested the market away from manufacturers of smart cards, putting more options into the hands of smart card users, according to a new study.

The findings are published in a recent report called "The Balance of Power: Uncertainty and Opportunity in the Smart Card Market," published by Ovum Ltd.

The emphasis in the market has moved from smart card technology to its possible applications, driving a market which Ovum estimates will grow to 2.7 billion units shipped in 2003.

"The software suppliers are driving the smart card market forward," according to Duncan Brown and Mark Stevenson, the report's authors. "The strategic decision for implementers and adopters lies not in which card technology to deploy, but in the selection and development of applications."

The emergence of two rival smart card standards, JavaCard and MultOS, is enabling card suppliers and users to develop their own smart card applications, independent of card manufacturers, the report said.

JavaCard enables users to download Java applets into segments of the chips on their smart cards, whereas MultOS is a special operating system for smart cards with an emphasis on security.

Ovum predicts that the two competing smart card standards will coexist rather than having one win out over the other, however. "There are few barriers to JavaCard applets running on a MultOS card," the report said.

Separating these applications from the card means that each may be supplied from a different source. While previously, card manufacturers such as Gemplus SA or Schlumberger Ltd. supplied the card, operating system and application to the customer, now each of these may be obtained by a different provider.

The result is that application developers can team up with other card issuers, rather than issuing their own cards, and applications can be distributed after the cards are issued to cardholders, reducing the cost of updates and adding new functions to existing cards, the report said.

"Hardware vendors have lost the driving seat to developers of smart card software and associated management systems," the report also concluded. While hardware vendors will see volumes rise, the report predicted, operating margins will fall as cards and card readers become commodity items.

The report compared the changes in the smart card market to those in the PC market in the late 80s, when Microsoft overtook IBM in the PC market.

"Similarly, card fabricators in the smart card market have created a technology which is moving beyond its control, and have willingly granted custodianship of the market to independent software suppliers," the report said.

Although the market now offers users more options, it could prove a "nightmare" to manage, according to the Ovum analysts.

Users face a bewildering number of choices as to which suppliers they should choose, and identifying the right supplier, said the report, is more important than the card's supplier. In response, the report said, a new market is also developing for software to help users manage their cards and applications.

The Ovum report is available for 1,495 pounds in European $US2,775 in the rest of the world. For a white paper based on the report, see http://www.ovum.com.

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