Unfortunately, businesses and governments are not the only ones interested in RFID. Civil liberties groups, hackers and criminals are also keenly interested in this new development, albeit for very different reasons. Civil liberties groups are concerned about RFID technology being used to invade people’s privacy; RFID tags enable unethical individuals to snoop on people and surreptitiously collect data on them without their approval or even knowledge. For example, RFID-enabled public transit tickets could allow public transit managers to compile a dossier listing all of a person’s travels in the past year — information which may be of interest to the police, divorce lawyers, and others.

However, privacy is not the focus of this website and will not be discussed further below. On the other hand, we are intensely concerned about privacy in an RFID-enabled world and have built an entire sister website about a device we have constructed, called the RFID Guardian, which could potentially help people protect their privacy from RFID snooping in the future.

A completely different category of threats arises when hackers or criminals cause valid RFID tags to behave in unexpected (and generally malicious) ways. Typically, computer-bound or mobile RFID readers query RFID tags for their unique identifier or on-tag data, which often serves as a database key or launches some real-world activity. For example, when an RFID reader at a supermarket checkout counter reads the tag on a product, the software driving it could add the item scanned to the list of the customer’s purchases, tallying up the total after all products have been scanned.

Here is where the trouble comes in. Up until now, everyone working on RFID technology has tacitly assumed that the mere act of scanning an RFID tag cannot modify back-end software, and certainly not in a malicious way. Unfortunately, they are wrong. In our research, we have discovered that if certain vulnerabilities exist in the RFID software, an RFID tag can be (intentionally) infected with a virus and this virus can infect the backend database used by the RFID software. From there it can be easily spread to other RFID tags. No one thought this possible until now. Later in this website we provide all the details on how to do this and how to defend against it in order to warn the designers of RFID systems not to deploy vulnerable systems.

While we have some hesitation in giving the “bad guys” precise information on how to infect RFID tags, it has been our experience that when talking to people in charge of RFID systems, they often dismiss security concerns as academic, unrealistic, and unworthy of spending any money on countering, as these threats are merely “theoretical.” By making code for RFID “malware” publicly available, we hope to convince them that the problem is serious and had better be dealt with, and fast. It is a lot better to lock the barn door while the prize race horse is still inside than to deal with the consequences of not doing so afterwards.

Real-World Scenarios

To make clear what kinds of problems might arise from RFID hacking by amateurs or criminals, let us consider three possible and all-too-realistic scenarios.

1. A prankster goes to a supermarket that scans the purchases in its customers’ shopping carts using the RFID chips affixed to the products instead of their bar codes. Many supermarkets have plans in this direction because RFID scans are faster (and in some cases can be done by the customers, eliminating the expense of having cashiers). The prankster selects, scans, and pays for a nice jar of chunk-style peanut butter that has an RFID tag attached to it. Upon getting it home, he removes or destroys the RFID tag. Then he takes a blank RFID tag he has purchased and writes a exploit on it using his home computer and commercially available equipment for writing RFID tags. He then attaches the infected tag to the jar of peanut butter, brings it back to the supermarket, heads directly for the checkout counter, and pays for it again. Unfortunately, this time when the jar is scanned, the virus on its tag infects the supermarket’s product database, potentially wreaking all kinds of havoc such as changing prices.
2. Emboldened by his success at the supermarket, the prankster decides to unwittingly enlist his cat in the fun. The cat has a subdermal pet ID tag, which the attacker rewrites with a virus using commercially available equipment. He then goes to a veterinarian (or the ASPCA), claims it is stray cat and asks for a cat scan. Bingo! The database is infected. Since the vet (or ASPCA) uses this database when creating tags for newly-tagged animals, these new tags can also be infected. When they are later scanned for whatever reason, that database is infected, and so on. Unlike a biological virus, which jumps from animal to animal, an RFID virus spread this way jumps from animal to database to animal. The same transmission mechanism that applies to pets also applies to RFID-tagged livestock.
3. Now we get to the scary part. Some airports are planning to expedite baggage handling by attaching RFID-augmented labels to the suitcases as they are checked in. This makes the labels easier to read at greater distances than the current bar-coded baggage labels. Now consider a malicious traveler who attaches a tiny RFID tag, pre-initialized with a virus, to a random person’s suitcase before he checks it in. When the baggage-handling system’s RFID reader scans the suitcase at a Y-junction in the conveyor-belt system to determine where to route it, the tag responds with the RFID virus, which could infect the airport’s baggage database. Then, all RFID tags produced as new passengers check in later in the day may also be infected. If any of these infected bags transit a hub, they will be rescanned there, thus infecting a different airport. Within a day, hundreds of airport databases all over the world could be infected. Merely infecting other tags is the most benign case. An RFID virus could also carry a payload that did other damage to the database, for example, helping drug smugglers or terrorists hide their baggage from airline and government officials, or intentionally sending baggage destined for Alaska to Argentina to create chaos (e.g., as revenge for a recently fired airline employee).

Some companies with a vested interest in RFID technology have said their software can withstand attacks such as the ones we have proposed. We hope that is the case. These claims would be much more believable, however, if the companies made their software available to universities and other neutral parties for exhaustive testing, along with a large reward (say, $100,000) for the first person to construct a virus that successfully infects it. If no one is able to infect the software after, say 6 months, the claim that the software cannot be infected is a great deal stronger than merely stating it without proof. The nice part of this for the company is that if the software is bulletproof, it costs the company nothing.

The World’s First RFID Chip Infected with a Virus

HAMBURG, Germany – October 23, 2007 – Strengthening its position as one of the leading solutions providers to retailers around the world, SAP AG (NYSE: SAP) today announced that German-based EDEKA-Group will implement SAP® for Retail solutions to ensure an integrated merchandise planning process, reduce IT operating costs and support enterprise growth through a flexible enterprise service-oriented architecture (enterprise SOA). With revenues of more than EUR 37 billion, EDEKA-Group is Germany’s leading grocery retailer and is currently facing a business challenge to consolidate its IT activities with its new subsidiary LUNAR GmbH.

LUNAR GmbH acts as the IT center of excellence for EDEKA-Group and will be enlarged by up to 250 employees. The company aims to complete the reorganization of its IT landscape and bundle its operational business processes within a cross-group strategy.

“The consolidation of our IT infrastructure will allow us to cut costs by several hundred million euros,” said Alfons Frenk, CEO of EDEKA AG. “We will optimize the entire process chain within the group in order to operate in a more competitive and agile manner.”

“EDEKA is at the leading edge of the highly competitive retail market,” says Léo Apotheker, Deputy CEO, SAP AG. “Their long-term, strategic approach to an integrated enterprise resource planning system will provide standardised, transparent access to mission-critical data to speed up company response times and lower costs which is ultimately of benefit to EDEKA customers. SAP is extremely proud to partner with one of the premier names in retail.”

Integrated Enterprise Resource Planning
The SAP for Retail solutions will allow EDEKA-Group to maintain consistent quality regarding item numbers, master data and product group structures. Additionally, EDEKA-Group will be able to ensure data transfer across all retail locations and regional subsidiaries. EDEKA-Group is also using the SAP® ERP application and the SAP NetWeaver® technology platform to harmonize its merchandise planning and control systems. In the future, the group’s major business areas, which comprise the wholesale and the retail business, will be managed by SAP solutions.

Flexible IT Architecture
Over the past few months, the IT experts at EDEKA and SAP worked together to complete a current-state processes analysis. The team examined enterprise resource planning processes for wholesale and retail, master data management and the cross-company reporting system and provided the basis for the implementation phase. Going forward, various business units will display their business processes in an “EDEKA business process pool,” based on a flexible enterprise service-oriented architecture. To achieve this, EDEKA will deploy the SAP NetWeaver technology platform as well as the analytical tools of SAP NetWeaver Business Intelligence (SAP NetWeaver BI), SAP NetWeaver Master Data Management (SAP NetWeaver MDM) and SAP NetWeaver Exchange Infrastructure (SAP NetWeaver XI) for integration- and interface management.

About EDEKA
Celebrating its centenary this year, the EDEKA-Group, with a business turnover of over 37 billion Euros and a distribution network of 10,000 stores, is the unchallenged leader in the German groceries retail business. In 2006, the company’s market share was 26 percent accounting for 8 percentage points ahead of the second in the market. With 253,000 employees, more than in any other German company, EDEKA is also Germany’s top employer. The three distribution channels – supermarkets, self-service department stores and discount stores – provide sustainable and profitable growth. In the fiscal year 2006 the group generated an EBIT of over 1 billion Euros. By 2010, EDEKA is planning to open 1,200 new stores and increase its market share to 30 per cent on the German market.

About SAP for Retail
SAP for Retail is a solution portfolio that helps retailers understand their business, anticipate the needs of their business and inspire their customers, employees and shareholders by delivering results. The portfolio comprises an end-to-end set of retail solutions; merchandise management and planning; store operations (through the acquisition and integration of Triversity POS solutions); and base finance and HR solutions. SAP for Retail helps retailers of all sizes to create shopping experiences that their customers will want again and again, by providing the ability to make the right decisions quickly and profitably (Additional information at http://www.sap.com/retail/).

About SAP
SAP is the world’s leading provider of business software*. Today, more than 43,400 customers in more than 120 countries run SAP® applications—from distinct solutions addressing the needs of small businesses and midsize companies to suite offerings for global organizations. Powered by the SAP NetWeaver® technology platform to drive innovation and enable business change, SAP software helps enterprises of all sizes around the world improve customer relationships, enhance partner collaboration and create efficiencies across their supply chains and business operations. SAP solution portfolios support the unique business processes of more than 25 industries, including high tech, retail, financial services, healthcare and the public sector. With subsidiaries in more than 50 countries, the company is listed on several exchanges, including the Frankfurt stock exchange and NYSE under the symbol “SAP.” (Additional information at <http://www.sap.com>)

(*) SAP defines business software as comprising enterprise resource planning and related applications such as supply chain management, customer relationship management, product life-cycle management and supplier relationship management.

Any statements contained in this document that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “project,” “predict,” “should” and “will” and similar expressions as they relate to SAP are intended to identify such forward-looking statements. SAP undertakes no obligation to publicly update or revise any forward-looking statements. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect SAP’s future financial results are discussed more fully in SAP’s filings with the U.S. Securities and Exchange Commission (“SEC”), including SAP’s most recent Annual Report on Form 20-F filed with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates.

Venu Gopal owns a slightly larger store opposite another supermarket a few kilometers away. Sitting on a stool behind a glass counter topped with plastic bottles of sweets and surrounded by closely packed shelves of rice, lentils, fruit juices and other groceries, he sells two or three sweets to children, a single cigarette to another customer, and tiny tobacco sachets every few minutes. “Our customers,” he says, “come for small quantities.”

Those are hardly the dire scenarios of doom forecast by opponents of India’s retailing revolution, who have taken to the streets to defend the livelihoods of more than 12 million mom-and-pop shop owners. In May and June hundreds of demonstrators armed with stones and bamboo sticks sacked Reliance stores in three cities, including Delhi. In Kolkata merchants marched to protest a Reliance contract to redevelop their market.

But in Hyderabad, the epicenter of the revolution, where Reliance Fresh has opened 50 brightly lit, Western-style stores in the past seven months as the front edge of a nationwide rollout, the reaction has been more muted. And the evidence seems to suggest there’s room for everyone – street sellers and mom-and-pop shops, known as kiranas, as well as large chains.

“Definitely there is room for both,” says Doma Trivedi, a franchisee of one of Reliance’s most successful supermarkets in Hyderabad, whose wife and brothers continue to run the family’s kirana a few kilometers away. “Everyone will have his own business. Smaller shops give credit and cater to people shopping on their way home from work, while Reliance Fresh gives correct measured weights and guaranteed prices.”

“We wanted to curb the dropout rate in schools in the tribal areas, so we decided to start this project in Jawahar taluka. We are also trying out the system in the Ambernath taluka which has both urban and rural areas,” said Subhash Hazare, Chief Executive Officer of the Thane Zilla Parishad which has allocated Rs 69 lakh for the project that will cover 352 schools.

The dropout rate in the primary division is nearly 10 per cent and in the upper primary division, the rate is around 40 per cent, he said.The musters in these tribal area schools, he said, had been manipulated. “There is hardly any scope of manipulation in the biometric system. Teachers have to register their attendance twice a day while students have to do it once a day,” he said.

Jawahar and Ambernath Zilla Parishad schools have 23,000 students who have to register their fingerprints.

The Independent cites TNS data that shows Asda boosted its first-quarter online sales by more than 70% compared to the equivalent period last year.

The performance catapults Asda over its UK rival to become the second-largest online retailer after Tesco.

The news will be regarded a blow to Sainsbury’s, which has wrestled with a number of technical issues over its website in recent weeks, causing the temporary closure of the site.

In the Netherlands, Capgemini has been selected to manage the IT activities for Maxeda, the largest non-food retailer in the Netherlands. This five-year Outsourcing agreement is for both infrastructure and application management services. The purpose of this agreement is to help Maxeda in achieving its international growth objectives. Tony DeNunzio, Chairman of the Board of Maxeda, stated: “Transferring our activities to Capgemini means that we now have a collaborator with true global expertise and experience, which helps us to achieve our international growth objectives. Moreover, outsourcing our IT activities is consistent with Maxeda’s strategy, which is to concentrate more on our core business which is retail. Another benefit is that the transfer has opened up new career opportunities for our IT staff.”

Also in Outsourcing in the Netherlands, Capgemini helped supermarket chain Albert Heijn, the market leader in the grocery business in the country, to improve its supply chain through responsiveness to customer behaviour, a high level of automation and cost control. According to Tony Vendrig, VP Supply Chain, Albert Heijn: “A true collaborator, Capgemini supported the replenishment project with excellent people in important roles. Capgemini brought in the right IT and retail knowledge, but even more importantly, the right skills and attitude. This determined the actual success.”

For Beam Global Spirits & Wine, Inc. in North America, the world’s fourth largest spirits company, Capgemini has used its full breadth of transformational consulting capabilities to re–engineer Beam Global’s international operations providing improved synergies and growth enablement. Beam selected the SAP Business Suite as its global ERP platform and Capgemini US LLC drove the technology transformation with an onsite team at Beam’s offices in Chicago, supported by key functions through a global delivery model.“Beam Global now has an IT platform and business processes that match the globally interconnected nature of our business. Capgemini and SAP were instrumental in helping us to achieve that,” said Keith McLeod, Chief Information Officer, Beam Global Spirits & Wine, Inc.

Finally, in the United Kingdom, Capgemini has been awarded a 100% rating for all key success criteria at the conclusion of an 18 month IT outsourcing contract with UK-based DIY company, Wickes. The purpose of the contract was to ensure top quality service whilst all of Wickes’ IT systems were migrated to a new site. Under the agreement, Capgemini UK plc was responsible for maintaining computer operations and technical support for all core IT systems including stock-control, daily store polling and support for all 180 Wickes stores across the UK. Graham Malpas, Service Delivery Manager of Wickes’ parent company Travis Perkins, said: “The leadership and management provided by Capgemini was outstanding and was a major factor in keeping services at peak levels, retaining key staff and maintaining staff morale, eliminating risks and helping us ensure a smooth migration.”

Brian Girouard, Leader of Capgemini’s Global Consumer Products and Retail Sector, said: “Being chosen by these four consumer products and retail companies is further evidence of Capgemini’s ability to integrate innovative business processes by leveraging emerging technologies to help our clients meet their own strategic objectives.”

The facility is complete with shopping carts, aisles stocked with goods, and Altierre’s flagship product—a wireless LAN based on a system of RF tags, LCD displays, servers, access points and wireless stations, which controls and updates prices for each item.

Replacing the low-tech paper display tags used by grocery stores to display prices and marketing messages with electronic shelf labels may seem at first glance like an unnecessary—and expensive—application of technology. But Altierre executives say supermarkets and other large retail operations invest thousands of man hours in the inefficient process of manually replacing paper tags on store shelves to reflect updated prices. Using Altierre’s platform, a supermarket employee can update prices throughout the store in a matter of minutes with a few keystrokes, according Sunit Saxena, the company’s chairman and CEO. He argues that the system saves time and labor costs, reduces human error and is “green,” saving billions of sheets of paper each year. Altierre has a shopping cart in the demo room overflowing with paper price tags, a compelling visual that attests to the amount of paper that can be saved in a single supermarket.

The system also brings a whole new potential for marketing advantages, according to Saxena. Pushing a shopping cart through the demo room, he notes that potential for a readout mounted on the cart which could display advertisements, alerts about what items are on sale or nutritional information about products in the immediate vicinity of a shopper’s current location.

“People today are so pressed for time,” Saxena says. “They are rushing through the store to pick up a few things for dinner on their way home for work. The system could give them the information they need to allow them to get in and out faster.”

With the ability to dynamically change pricing and sale information tags much more quickly, supermarkets could also run different specials on products in a store at different times of the day, enabling them to appeal to target demographics, according to Saxena. In the middle of the day on weekdays, when more senior citizens tend to shop, stores could run specials on items they tend to buy for a few hours, he notes as an example.

Altierre says it has been co-developing its wireless dynamic pricing solution under signed agreements with several of the top 10 grocery chains in the U.S., reportedly including Safeway Inc. Altierre has raised a total of $60 million in venture funding, including an $8 million Series C round last May that included the D. E. Shaw group and Labrador Ventures.

Saxena boasts more than 27 years of experience, much of it in the semiconductor industry, including high-level executive positions at Alliance Semiconductor and Sandcraft Inc. He co-founded Altierre in 2003 with veteran software engineer Anurag Goel, now Altierre’s chief technology officer and vice president of software development. But Saxena says the two men conceived of the idea years before.

Initially, the two men sought to purchase the hardware needed to implement their plan from third parties. But they quickly realized that the type of high-reliability, low-power, low-cost chips they required were not available as an off-the-shelf solution.

“We realized pretty quickly that we were going to have to make everything from scratch,” Saxena says.

So, tapping into his experience in the semiconductor industry, Saxena put together a design team to create Altierre’s own communications controller and display driver chips. Both devices are implemented in 0.18 micron CMOS with operating voltage of 3V and clock frequencies of less than 1 Mhz.

The chips were designed to require a minimum number of external components, resulting in lower bill-of-materials cost and smaller board area, according to Altierre. Using a mature process technology also saved costs and offered higher yield, the company said.

With a goal of five-year battery life for the devices powering dot matrix LCD display screens, the Altierre team applied power-saving criteria at all hierarchies of the design, including clock gating, dynamic voltage switching, dynamic frequency scaling, low-power SRAM compiler, low-voltage operation and low power standard cells, according to the companies. Clock frequencies were intentionally kept as low as possible, and Altierre uses a proprietary LCD addressing scheme that consumes very low power.

Saxena says the past five years for Altierre have involved a “steep learning curve and a lot of water under the bridge.” But, he says, the company is now poised to capitalize on the technology it has developed. It estimates that the potential market for supermarket chains alone could be worth $10 billion, and the company believes it will eventually garner interest from other verticals. Down the road, it plans to migrate its chips to 0.13 micron technology.

Wipro Retail, the specialist division of Wipro Technologies, will support to achieve the core objective of delivering effective planning, management and delivery of large scale systems and process change based on an Oracle ERP platform. Wipro Retail will deliver an operating model that supports the retailer’s strategic and commercial objectives. The details for the size of the deal were not disclosed.

Yet Richard Pennycook, CFO, Morrisons, said, “Morrisons is making a major investment to give us the systems and processes to drive our business forward. Wipro Retail brings technology and retail business expertise to help us in the process.”

Added Bhanu Murthy BM, senior vice president, retail, CPG transportation & services, Wipro Technologies, said, “Morrisons has made a major investment in Wipro and we are delighted to have been chosen as a strategic partner. We recognise the unique requirements of their business and how IT can play a major role in their transformation. We welcome the challenge of helping them to prepare for further success in the competitive UK grocery market.”

Morrisons owns 375 stores and has an annual turnover of £13 billion.

Source:  IndiaRetailing Bureau

WITH the economy performing below normal, many retailers who preferred having a physical presence are looking to go online at minimal costs and keep the cash registers ringing. Compared to a traditional brick and mortar storefront, an e-commerce store is a relatively small, convenient and lowcost startup. The only costs involved in the e-commerce platform include the monthly hosting and ISP bills. With a website, an e-tailer has the capability to gauge the market condition and make alterations accordingly. Taking into account all its benefits, e-commerce can be considered ideal during a recession as it helps retailers to stay globally competitive.

Serving retailers and consumers
Today leading global e-commerce retailers earn more than 10 billion in revenue on every portal they own, and this shows the shifting trend towards e-tailing. Affirming this, Pawan Gadia, VP, Ferns ‘N’ Petals (FnP), says, “We are achieving 60 percent growth year-on-year, thanks to e-commerce. In fact, 10 percent of the total turnover of the FnP Group comes from online sales.”

Videocon is also aiming big on e-biz. “In 2009, our target is to earn online sales of Rs 10 crore, and our current sales are very much in line with our targets,” adds Arindam Bose, VP–IT, E-biz and Exports, Videocon.

Consumers today are more open to the online medium. This trend is further catalysed by various product and price comparison websites that enable users to perform research on products that they intend to purchase. Moreover, increasing fuel costs, large mall crowds and low disposable incomes are motivating buyers to shop online. Mr Gadia says, “Contrary to a physical store that has issues of timeline, visibility, etc, an online store is more flexible. An FnP store closes at 8 pm every day, but the online store runs 24×7, thereby giving us more customers. We serve more than 2000 clients everyday on our online site.”

The e-commerce option caters to customers in the current economy because it offers products at lower costs. “E-biz reduces the logistics cost as the goods go directly to the end consumer. Any business model that removes layers and brings the consumer nearer to the manufacturer benefits all,” agrees Mr Bose.

Choose intelligently
Despite its potential, many people don’t know how to get started with e-commerce and are often confused about the numerous options available. Several solutions allow retailers to sell items online, but it is always advisable to approach retail-specific vendors who can customise solutions according to customers’ business needs. “Each customer has a different requirement. Some want a pure Web shop, while some want integration with CRM or ERP, and yet others seek telephonic booking. Each requirement should be considered individually before offering a solution,” says Manu Agarwal, CEO, ANMsoft and Naaptol.com.

Though most solutions may differ, some are fundamental for every online business enterprise, and these are listed below:

Design customisation solutions: Setting up a business involves considerable time, energy and money. It is necessary to create a brand that customers find familiar. Many ecommerce solutions force retailers into a particular site layout, template or theme, making them just another cookie-cutter, faceless, online store. An e-commerce service provider must understand the objectives of an e-tailer to equip the latter’s website with aesthetic solutions.

Scalability solutions: Retailers do not want solutions that limit the number of products on display or the amount of traffic that the site can generate. Therefore, e-commerce solutions must equip retailers to add dynamic features to his existing site.

Payment solutions: Many e-commerce solutions force customers to register before making a purchase. Forcing customers to leave a site when they are ready to purchase products is not a smart business practice. If a customer finds the payment options in the website too cumbersome, he/she may switch to another shopping site. Therefore, a retailer must ensure that customers are hooked on to the website until they have completed their transaction.

Order processing solutions: These solutions are specifically designed to save operating costs. In the absence of these automated solutions, a retailer has to maintain the inventory and keep a track of orders and process them.

Search engine optimisation (SEO) and Search engine marketing (SEM) solutions:
To drive traffic to the website, a retailer must employ an SEO or SEM. SEO is more popular because of its low costs and better results. However, a retailer must ensure that the SEO uses the right keywords to improve his website’s page rank. The website must contain the right keywords so that when a user searches for a particular product, the retailer’s website appears at the top.
According to Mr Agarwal, “A majority of the people who go online end up buying nothing or may not even visit a particular website. This is because the retailer and the service provider may have not set up means to direct traffic to the site.”
Coupon solutions: In the face of rising prices, consumers have once again begun clipping coupons. Giving away gift coupons serves to increase sales. People are always looking for discounts and freebies, and a site that offers similar incentives often sees repeated visits. E-tailers can send coupons as an SMS with unique promotional codes that shoppers can use on their e-commerce website, and receive discounts on online purchases.

Shopping Cart and Delivery Solutions: A customer should be given a free hand to add products to his/her shopping list, remove products, change their quantity, recalculate the order before processing and even come back to the same after logging out. On the delivery front, most clients prefer websites that offer free home delivery and, therefore, e-retailers must have a user-friendly delivery solution in place.

Innovations to help you save
In lieu of the ongoing recession, retailers have started exploring innovative ways to cut costs. Many e-tailers are outsourcing their retail operations to specialised retail vendors for reducing labour costs. One of the affected areas during this slowdown is advertising, and very few retailers seek to manage advertising costs. Retailers should ideally adopt online advertising tools like e-mailers, newsletters, etc. “Retailers can send e-mailers, promotions, gift coupons to their existing customers at a very low cost, and still enjoy sales benefits,” admits Mr Gadia.

In order to grow in the existing scenario, a retailer should place his merchandise where his potential customers are most likely to be. Going by this, the retailer should view e-tailing as a cost-effective channel to lure sales.

One of the earliest signs of this shift came Apr. 1, when AT&T began selling small laptop computers in Atlanta and Philadelphia for as little as $50 to people who also signed up to get at-home and mobile broadband services for two years. It was no April Fool’s joke. AT&T, the biggest U.S. phone company, is “very pleased with the early results” and is considering introducing the offer nationwide, says David Haight, vice-president of business development for emerging device organization at AT&T. He wouldn’t provide details on the results so far. Rival Verizon Wireless plans to offer small, inexpensive laptops called netbooks to customers this quarter. Other carriers are expected to follow suit.

With the market for cell-phone service saturated, the PC market represents a way for mobile-phone carriers to get more people to buy monthly wireless Internet-access service plans. Consumers who buy wireless Web access can save money on the up-front purchase price of a computer and, in some cases, the price of monthly access to high-speed Internetservices. But the shift in who sells PCs could also mean lower revenue for computer makers if it lures buyers toward lower-priced netbooks and away from big-ticket machines. It could also crimp demand for smartphones.

Bundling Netbooks with Service Plans

Wireless service providers are already emerging as big PC vendors in Western Europe, where companies like Vodafone and Deutsche Telekom’s T-Mobile International began selling netbooks last fall. Carriers already account for 20 percent to 25 percent of all small laptops sold there, estimates Richard Shim, a research manager at consultant IDC. The U.S. may not be far behind. PC maker Dell and retailer RadioShack began selling netbooks for use with AT&T’s wireless network several months ago.

Carriers are willing to absorb $200 or more of a netbook’s cost to get more people to sign up for related wireless data-service plans as well as other offerings. AT&T, for instance, offers discounted netbooks to people who also sign up for a $60-a-month bundle of its at-home Digital Subscriber Line Internet access and its on-the-go broadband service. In one of several deals, AT&T sells the Acer Aspire One netbook, which normally retails for $300, for $100 up front.

The emergence of carriers as computer distributors could spell changes, good and bad, for PC suppliers. On one hand, consumers who may not have bought a $500 PC may be tempted by a $50 one. “It’s about getting the next billion people online,” says Anil Nanduri, director of netbook marketing at chipmaker Intel . “We see this as a definite opportunity for additional volumes,” especially in emerging markets, he says. Researcher IDC expects netbook sales to rise from 19 million units this year to 32.6 million units in 2012.

Mobile-phone service providers and their marketing muscle could also help their computer making partners grab market share quickly. T-Mobile, for instance, has sold 60,000 netbooks since making them available in September. “You could get quick market share, provided you work well with a telco provider,” says Shim. Such companies as Acer, Dell, Samsung, Hewlett-Packard , and LG — which have announced wins with AT&T, T-Mobile, and Vodafone — could end up climbing the market-share charts.

Downward Spiral of Prices and Margins

The deals with carriers could also make it easier later for PC makers to market other electronics, such as smartphones and mobile Internet devices [MIDs, which are slightly smaller than netbooks] through the carriers. Already, Acer and several other PC makers have announced smartphone models, and Dell is rumored to have developed one. “They’ll establish some brand presence and then slowly introduce a smartphone [in the following 12 to 18 months],” says wireless consultant Chetan Sharma. “This gives them expertise in the ecosystem.”

By the same token, faster sales of netbooks could mean diminished demand for more expensive computers. “The [PC] industry overall gets pulled into this downward spiral of [lower average selling prices] and margins,” says Roger Kay, founder of consultant Endpoint Technologies Associates.

And as netbooks take off, what happens to demand for smartphones made by such vendors as Nokia and Research In Motion? Some consumers may opt for a netbook — or its smaller cousin, the MID — instead of high-end smartphones that cost about as much. A netbook offers greater battery time of 10 to 16 hours, while a phone typically conks out after five. MID screens are larger and more conducive to watching video. The category could receive a boost if, as expected, iPhone maker Apple releases a MID-like device with video capabilities.

Why Not Multiple Mobile Devices?

Carriers also may wish to steer consumers away from smartphones and toward netbooks or MIDs. Today a smartphone brings more profit to carriers because it uses data as well as voice services; a netbook merely gobbles data. But this might change: Users of netbooks or MIDs may be willing to pay more for access to additional bandwidth so they can surf the Web and watch movies online. T-Mobile believes consumers may also pay for such extra services as a subscription to Microsoft Office and Norton AntiVirus software or to virtual storage services. Some users may buy display insurance and additional tech support from carriers.

Handset vendors such as HTC don’t foresee danger. “We see netbooks as being a new and emerging segment that’s expanding the pie,” says Steven Seto, executive director of marketing for HTC North America. After all, people buy multiple TVs for their homes. So they may buy multiple mobile devices. “It’s the inspiration for what one day might happen in our industry,” he says.

Carrier-sold netbooks are bad news for traditional electronics retailers such as Best Buy and Wal-Mart. “They are undercutting Best Buy by several hundred dollars [in up-front costs],” says John Spooner, an analyst with Technology Business Research. “Companies like Best Buy and Wal-Mart are under some pressure because now they have a competitor.” Best Buy did not respond to a request for comment.

Cable companies such as Comcast, which did not return a request for comment, could suffer as well. Instead of hooking up to fixed broadband from a cable company, some consumers may opt for wireless or bundled wireless-home offerings from a telecom provider instead. What’s more, some 5 million to 10 million Americans already connect wireless notebooks to the TV and stream movies from Hulu.com and video from Google’s YouTube, says Phil Leigh, president of consultant Inside Digital Media. “The cable TV operators will discover their audience is using mobile video and will, over time, begin to cancel their cable subscriptions,” he says. “Beyond a shadow of a doubt, it’s going to have big impact.”