he kiosk business is booming. A report from BCC Research shows growth in self-service, which BCC Research analyst Francis Duffy predicts will more than double from $11.3 billion in 2005 to exceed $24 billion by 2010.

The report details growth in three self-service industries: kiosks, ATMs and vending machines. Though BCC will not release exact details from the report, which the company sells, SelfService.org Editor Bryan Harris interviewed Duffy about his findings:

SelfService.org: Of the total revenue growth of self-service until 2010, how much of it (by percentage) will be developed by ATMs and vending machines?

Francis Duffy: Kiosk-specific technology will account for 6% of total global machine shipments and 3% of total global sales in 2010. In dollar terms, that translates into kiosk segment sales of over $700 million in 2010 alone.

SSO: Can you tell me a little about your own background and interest in this field?

Duffy: I earned a B.A. and M.A. in English from Columbia and an M.B.A. in information systems from New York University. This is my 14th major market research study to be published. As an analyst, I have always been drawn to the subject of new retail technologies' profit potential. I researched and wrote six major studies on credit and debit cards, smart cards and ATMs in the late 1980s and early 1990s and then moved on to research and write another handful of major reports in the telecom field during its boom times.

SSO: Why did you study self-service?

Duffy: I perused the ATM field again in 2004, with an eye toward doing another study, only to discover that in the years since I last looked into the subject that this entire new, related, but distinct technology market - the self-service kiosk - had established itself.

That discovery got me thinking: Almost 70% of the U.S economy is now service-related. ... I realized that the self-service field was the most technology-intensive in this respect. I was also struck by how the field was still conceived of, largely, as a set of different vertical markets. I thought the time had come to base a study on these separate markets' commonalities, to take a more horizontal, analytical perspective.

SSO: What did your study of the ATM and vending industries teach you about self-service? What lessons can the self-service industry as a whole learn?

Duffy: Well, the most obvious but least discussed breakdown is by age. Vending as a market first made waves in the 1920s selling cigarettes. Then Coca-Cola in the 1930s saw the concept for what it was: a highly profitable alternative distribution network.

War production plants in the 1940s found the vending machine to be a very cost-effective, scaleable and readily adoptable means of feeding thousands upon thousands of shift workers. Franchising, cheap credit and wholesale-equipment suppliers also made it possible for almost anyone to become a [vending] operator. For nearly 50 years after, the vast majority of owners and operators were small, mom-and-pop outfits.

ATMs on the other hand were at first viewed with great skepticism and considerable resistance by bankers when the technology found its sea legs in the mid 1970s. Only when the gamble of pioneering banks like Barclay's in the U.K. and Chemical in the U.S. paid off in increased customer satisfaction and more new account openings, did the industry as a whole come onboard. Even then it took most of the 1980s before the ATM was a common feature in bank vestibules and lobbies.

One reason for the foot-dragging was the fact that the ATM was and still is a cost, as opposed to a profit center, for most banks. It became the retail banking industry's loss leader, in effect, a technological lure to attract and retain new customers. Remarkably, few bankers realized that the automatic teller machine is the self-service technology sine qua non, because it dispenses a commodity literally everyone needs: cash.

In the mid-1990s, it dawned on entrepreneurs that the way to maximize the market value of the ATM was to think of it as a kind of vending machine. Essentially, the more readily the user could find one nearby, day or night, the more transactions the machines collectively would generate. All that was missing in this updated business model was a revenue stream.

Banks unwittingly provided this missing link by starting to charge a processing fee for a "foreign" ATM transaction, incorrectly assuming it turns out, that the surcharge would encourage customers to remain loyal users of their ATMs. Consumers liked the added convenience of more ATMs to choose from, so much so that they were perfectly willing to pay for the privilege.

So began the "commoditization" of the ATM. ISOs sprang up overnight almost everywhere. Key to their profitability was, according to the thinking at the time, ever widening their network reach.

Unbridled expansion has a downside, however. Within several years, urban and suburban high foot-traffic areas were riddled with competing ATMs. Many ISO margins shrank to the vanishing point, and yet another self-service industry learned the perils of market saturation the hard way.

What is perhaps most fascinating about the 35-year history of the ATM industry is that the full cycle already shows signs of repeating itself in the "BRICs" [Brazil, Russia, India, China], the dominant high growth markets over the next five years. European banks, meanwhile, seem to have decided the lower-cost cash dispenser is the way to go.

So far, the hoopla surrounding adding non-banking features to enhance the attractiveness of the full-service ATM has yet to attract many consumer converts.

What it has done, though, is hasten the prospect for "virtual convergence," where the dividing line between self-service kiosk and ATM blurs more and more. The kiosk is an amazing amalgam of technologies: touchscreen, networking, PC and dedicated audio-visual board.

Ironically, the kiosk industry today is a prima facie case of the vertical market myopia that has, to date, caused the entrepreneurial tunnel vision afflicting the self-service industry as a whole.

I say this because I think the future of the kiosk industry lies in convergence, and only a broad vision of how a common technological platform can serve so many different industries efficiently and cost effectively can lead the way forward.

SSO: Why is the vending machine industry growing? Does it relate to automation, like cashless vending?

Duffy: Cashless vending has helped to reinvigorate the vending industry's waning sales in the U.S., much as the introduction of the bill-accepting mechanisms in machines did in the 1980s.

The cardinal rule of vending is: Make the entire purchase experience as easy and convenient for the customer as possible. Credit, debit and stored-value card payment options do exactly that; Bluetooth extends this principle even further.

Electronic transactions also appreciably lower operators' costs, so they are happy to oblige. In the developing world at least - and in the U.S. the vending-operator industry - outsourcing has shrunk its largest money-making market segment: the manufacturing sector. ... Real growth in vending will occur in the places the outsourced manufacturing and service jobs of the developed countries migrate to.

SSO: What is most important about this research?

Duffy: If I had to choose the single most important idea I came away with after a year and a half's worth of research and analysis, it would be the following two-part observation:

1. All self-service technologies are alike, in that each is a purposely built device a person on his or her own can, for a fee, use at any time and any place.

2. The underlying value proposition of any self-service technology is its proximity, autonomy, timeliness and, above all, the unparalleled convenience the device uniformly offers to the consumer.

Link to original article: www.atmmarketplace.com/research.htm?article_id=25666&pavilion=117&step=story