DYNAMICS OF INNOVATION

Msc Computational science and engineering

CASE STUDY OF AN INNOVATIVE

START UP: TOKEN ®

KHAMLICH MOAAD
924474

Academic year 2018-2019

KHAMLICH MOAAD CONTENTS

Contents
1 THE COMPANY 3

2 INDUSTRY AND MARKET ANALYSIS 3

2.1 TYPE OF INNOVATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 S-CURVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2.1 WEARABLE TECHNOLOGY . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2.2 BIOMETRIC AUTHENTICATION . . . . . . . . . . . . . . . . . . . . . 5
2.3 COMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

3 STRATEGY and BUSINESS MODELLING 6

3.1 COMPETITIVE ADVANTAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 FUNDING AND GO-TO-MARKET STRATEGY . . . . . . . . . . . . . . . . . 8

4 INTELLECTUAL PROPERTY 8

5 RESISTANCE TO CHANGE 10

6 FINAL CONSIDERATIONS 10

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KHAMLICH MOAAD 2 INDUSTRY AND MARKET ANALYSIS

1 THE COMPANY

Figure 1: A sample of Token ring

Tokenize Inc.is an American company which develops Token, a wearable ring that provides
authentication for contactless payments and the ability to match devices such as vehicles and
computers, and home doors. The ring is based on a biometric authentication system (fingerprints
combined with optical sensors) and its great effectiveness lies in the integration with circuits such
as MasterCard, Microsoft, Visa, HID, FitPay, FIDO Alliance and the software platform HID.

2 INDUSTRY AND MARKET ANALYSIS

Authentication is the process by which people prove their identity and has been carried
out traditionally by possession(token, cards ecc) and knowledge(pin,..) .Biometrics consists in
the use of biological traits for user verification,and was historically developed in the context of
authentication. The Tokenize company aims to spread multi-platform authentication through
a single wearable device. The payments area is the driving force for large-scale adoption of
biometrics in the consumer market. Today millions of customers (over 350 million in 2015) use
biometrics on a daily basis to provide user authentication. Mobile payments have contributed
significantly to the adoption of biometric data. In this context, we are witnessing the pressing
need to improve payment security and replace cumbersome user authentication mechanisms
with solutions that are both affordable and able to reduce the risk of identity theft. Many
companies are examining the implementing biometric authentication in their digital operations.
As a matter of fact, according to Spiceworks, nearly 90 percent of businesses will use biometrics
for authentication purposes by 2020. Overall, the sector of biometric is forecast to reach 70
billion USD by 2025.

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KHAMLICH MOAAD 2 INDUSTRY AND MARKET ANALYSIS

2.1 TYPE OF INNOVATION

In order to understand which kind of innovation is carried out by this technology, it is
fundamental to segment the treatment according to the various protagonists involved:
• From the payment point of view, since contactless payments are widely used, the tran-
sition to a wearable device can be considered as incremental(Token ring lies uppon visa,
mastercard and fitpay).
• The adaptation of biometric technologies for purposes related to integration with wearable
devices will promote competence enhancing for biometric technologies suppliers.

• From the manufacturers’ point of view, with regard to cars, minimal measures are required
for integration and therefore at product level translates into peripheral innovation.
• Home security is largely entrusted to traditional locks while there is a niche market that
promotes technology-based authentication systems. So in this case we have a radical inno-
vation, which will have a disruptive business impact for incumbent companies.

2.2 S-CURVE
To conduct a first quantitative analysis, the foster model was used, whose objective is to
foresee the development of a technology with respect to the investments related to the technology
itself. In order to capture wisely the trend of biometric wearable for authentication, the analysis
has been splitted between wearable technology and biometric authentication systems.

2.2.1 WEARABLE TECHNOLOGY

A first quantitative analysis was carried out by interpolating the data relating to market
volumes using sigmoid functions so as to place the innovation associated with the wearables in
the s-curve. It was decided to operate with 2 different curves, one related to the volume of
wearable which do not belong to the main categories(such as the Token Ring) and one that
evaluates the market share of the latter category in relation to the complessive volume.

This formalize the idea that is the industry of smart wearables is assisting to an innovation within
an innovation. in fact, although the market is still dominated by categories such as smartwatches,
there has recently been a growth margin for secondary types that have almost reached 20% of
overall volumes with a growing trend. By the analysis of the trend it can be stated that secondary

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KHAMLICH MOAAD 2 INDUSTRY AND MARKET ANALYSIS

wearable field can be collocated in the critical phase, with a growth(in terms of volume) which
is more than linear.

2.2.2 BIOMETRIC AUTHENTICATION

Figure 2: Paradigm shift in payment industry

To place biometric authentication in the development curve, we can consider the application
that is most promising: payments. In fact, a first qualitative analysis makes it possible to identify
a change of paradigm in biometric payments, which in this sector was first represented by cash
and then by electronic payments. In recent years, however, a new spectrum of technologies is
emerging, including biometrics, which seeks to overcome previous problems, managing to provide
better performance in terms of ease of use, safety and speed.

If we want to go into the merits of performance, we can use interpolation of payment speed data
using fingerprint recognition, as shown above. Also in this case the trend suggests that we are
witnessing the beginning of the diffusion phase.

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KHAMLICH MOAAD 3 STRATEGY AND BUSINESS MODELLING

2.3 COMPETITION

Since the Token Ring is proposed as a multi-platform authentication device, the competition
concerns each of the sectors in which it operates:
• Zwipe, a Norwegian biometric authentication company, has recently established a partner-
ship with Tappy Technologies, a Hong Kong-based specialist in wearable payments and
authentication for access. Towards the end of 2018, Zwipe has risen a € 2.3 million grant
under the Horizon program while in January 2019 has received $ 14 million to add to an
earlier Series B funding.
• A competition on the authentication workplace front is carried out by the Nymi company
(founded in 2011 with a total funding amount of $ 36.3M) which proposes wearable device
with persistent authentication.
• McLear has recently established a partnership with Visa and Gemalto in order to release a
contactless payment ring. McLear have registered patents in the worlwide for contactless
payment rings and has recently received $23 million by MTG Company.

• Strong companies, such as Alipay, ApplePay and SamsungPay, have been invested in bio-
metric payments since the early phase. These companies have the possibility of imple-
menting multi-platform solutions that operate in the same way of Token ring. This has not
yet occurred, although Samsung has entered the home security sector through the Smart
Doorlock product .

3 STRATEGY and BUSINESS MODELLING

Token is using all the resources granted by the Internet of Things to create and deliver
value. Generally the smart wearable sector is trying to move from a product model to a hybrid
model that conceives the device as a service. For instance, Token business modell relies on
Cross Selling( token ring requires Token Home Kit, Token Car Kit and integration with the HID
SEOS). Furthermore, Token allows establishing a connection between real life and digital life of
the consumerand this translates into a data sharing model. Jochen Meyer distinguished data
collected by wearable devices in ”captured media, context and mobile activity data, computer
activity, biometric information and behavioral related information”. Hence the data collected
can be used for product and service improvement but also sold (anonymously) to increase profits.
If we want to categorically define the components of the Token business model, we can proceed

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KHAMLICH MOAAD 3 STRATEGY AND BUSINESS MODELLING

by putting together the Business Model Triangle by Gassmann and the Nine Building Blocks
and Business Components by Osterwalder and Pigneur.
Business Model Triangle The Nine Building Blocks Business Model Components
Who Customer Segments mass market, diversified

Customer Relationships automated service with first

installation and personal
assistance
What Value Proposition higher security and a more
advanced technology, multi-
platform support, Newness,
performance,
customization, desig,
usability

How Distribution and Marketing Direct sales force and web

sales

Resources intellectual

Activities Production and platform

service

Partnership MasterCard, Microsoft, Visa,

HID, FitPay and the FIDO
Alliance.
Value Revenue Streams Asset sale, licensing

Cost Structure Value Driven

3.1 COMPETITIVE
COMPETITIVE ADVANTAGE ADVANTAGE
The biggest advantage of Token compared to other companies operating in the sector is
That all sounds nifty in theory, but without any real cooperation from the third parties that
the cooperation with a list of prestigious partners including MasterCard, Microsoft, Visa and
enable those authorizations, Token is all but useless. The good news is that its makers
HID. In fact, a device like Token ring would be useless if the authorization was not available on
managed to get support from an impressive list of partners including MasterCard, Microsoft,
the platforms on which it is based. In particular, HID is a leader in the keyless security sector,
Visa and HID.
managing around 80% of the market in terms of company protocols. Therefore, the integration of
Token is facilitated both at company and domestic level. At the level of design and functionality
hat last company is responsible for 80 percent of the keyless security systems in the market,
Token has always been strong on the fact that its use results in an extension of natural gestures,
according to Token's makers. Even if the physical readers at your office aren't made by HID,
like taps and knocks and therefore the ease and spontaneity of use are intrinsic to its design.
the protocol behind them most likely is. Setting up your Token to work as an entry card is
therefore as simple as getting a keycard issued, except your profile is stored on your ring
instead of a physical card.

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KHAMLICH MOAAD 4 INTELLECTUAL PROPERTY

3.2 FUNDING AND GO-TO-MARKET STRATEGY

According to information found in Crunch
Base, Token has totally raised $8.3M by a
3 rounds funding. After the latest funding,
the CEO of Token, Melanie Shapiro wrote in
her official blog:”We will be using the money
to continue our go-to-market efforts, specifi-
cally with key hires across our executive team
and our hardware, software, platform, part-
nerships and marketing teams.” This effort
is well witnessed by the participation to the
Token staff by Eric Mogil, who had recently
led the brand innovation of Michael Kors and
the launch of smartwatch in partnership with
Google. He will probably try to apply a strat-
egy based on extensive use of social media,
apps for sales, partnerships with other star-
tups to create emerging platforms and adver-
tising through tech-events. The aim of Token
is to scale up in order to deliver its brand,
products and platform worldwide. In fact
sales outside the US will be available by the Figure 3: Timeline fo funding rounds
end of 2019. According to Steve Dunkel - To-
ken Marketing Manager, the plan is “ to roll out more densely populated cities first, followed by
a quick expansion into more rural areas.” From the Public transit point of view, nowadays 80
cities are being integrated by Mastercard and therefore the use will be compatible in the near
future. For the moment the company is not planning to go public and is still manufactured near
Rochester, NY.

4 INTELLECTUAL PROPERTY

Figure 4: Worlwide distribution of patent in biometric authentication systems

The use of Patentinspiration has allowed to analyze the trend relating to patent in the field
of biometric authentication wearable. In particular, the United States is a hotspot for this new

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KHAMLICH MOAAD 4 INTELLECTUAL PROPERTY

field with around seventy patents. The time trend is growing, reflecting the strong interest in
this expanding sector.

Figure 5: Time trend of registered patents in the biometric authentication field

The most affected codes (CPC classification) are H04L63 / 00 which refers to network archi-
tecture and G06F21 / 00 concerning security arrangement.

Figure 6: A drawing from Tokenize inc. registered patent

No wonder then that Token has moved from the beginning to protect its intellectual property.
This has been done since September 2016 with the patent identified by U.S. Ser. No. 62
/ 384,257. A new patent was registered less than a year after which claims priority to the
provisional. The process then ended in March 2018 with the patent ”SYSTEM AND METHOD
FOR SUPPLYING SECURITY INFORMATION” which completely incorporates the former
one of 2016. Also in 2018 (according to United States Patent and Trademark Office) Token has
registered its own trademark in the ’Scientific and electric apparatus and instruments’ class.

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KHAMLICH MOAAD 6 FINAL CONSIDERATIONS

5 RESISTANCE TO CHANGE
The most critical aspects of biometric authentication systems is security due to hacker attacks
as demonstrated by the computer scientist Jan Krissler, who managed to break Apple’s TouchID
the day after its release. This has repercussions in terms of mistrust: according to a January
2018 IBM study in the United States, Europe and Asia, a third of respondents do not trust
biometric payments.
On the privacy front, since the smart wearable sector is linked to the Big Data field, the
success of solutions like Token is indirectly influenced by problems of the latter sector. In this
sense, 2018 has been a dark year for global digital privacy because of Facebook scandal. For
weeks the published attention has been focused on the fact that large industries sell personal
data to third parties. This meant recognition of realities like Big Data, but the misinformation
associated with the inherent technicality of computer security solutions has led to an increase in
data protection concerns.
It is interesting to note how Melanie Shapiro, Token CEO, expresses in a recent interview
(released by Samsung Next) two of her major concerns regarding the future of Token. On the
consumer front, Melanie says “the first danger is that we never find the killer use case or the
thing that convinces people that decentralization is important” while on the incumbent’s one
she says: “My second fear of this future is that in the adoption of decentralized systems, the
message of portrayed to large companies and to governments is to take control away from them,
to take away their position and to take away their position as a government”.

6 FINAL CONSIDERATIONS
Wanting to highlight the strengths and weaknesses of Tokenize inc. based on the over exposed
analysis we can say:

STRENGTH:
• collaborations with prestigious partnerships;

• team composition (Eric Mogil, Token Cmo, figured as Forbes 30 under 30);
• data relating to the pre-sales of the previous series;
• excellent strategy to protect intellectual property;
• forecast of the biometric authentication sector;

• historical of past investments.

WEAKNESSES:
• privacy concern related to the BIG DATA FIELD;

• product price and cost associated with multi-platform integration;

• lack of federal regulations in the United States;
• eventuality of conflicts by the large companies in the biometric payment sector;
• wide spectrum of companies offering very similar and competitive devices.

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KHAMLICH MOAAD REFERENCES

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[4] NASA:Liquid rocket engines, 1998, Purdue University.

[5] Endoreattori a propellente liquido, Università degli studi di Napoli Federico II, Napoli.
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