So what shaped the RFID market this past year? Here's what VDC has to say:

1. Market growth amid difficult economic conditions. VDC's recent report, "Global Markets and Applications for Radio Frequency Identification and Contactless Smartcard Systems, Fourth Edition," reveals that global shipments of RFID systems—including transponders, readers, software, and services—reached approximately $965 million in 2002. Although struggling economies across the globe have limited their IT investments and restricted RFID spending over the last two years, the RFID market experienced roughly 8 percent compounded annual growth since 2000.

2. Traditional application segments continue to drive current market, such as security/access control, automobile immobilization, toll collection, and transportation (e.g., rail car ID, shipping-container tracking, etc.). However, these profitable applications are now approaching saturation, leaving the future growth of the RFID market to emerging segments such as supply chain management, real-time location systems, baggage handling, and point of sale.

3. RFID security applications attracted attention post-9/11. The increased demand for security applications such as homeland security, employee identification, people tracking, and access control exerted a strong influence on RFID shipments in 2002. VDC research shows an increase in end user evaluation of, and spending for, RFID-enabled access control systems and employee tracking/identification programs across all economic sectors, most notably within government and industrial/manufacturing environments.

4. The MIT Auto-ID Center and ePC (electronic product code) initiative's march forward. With more than 80 active members, the MIT Auto ID-Center and its ePC initiative made significant progress over the last year. Successful ePC product demonstrations were carried out in late 2002, using the first UHF transponders based on the Auto-ID Center's specifications (developed with the help of Alien Technology). Matrics, Tagsys, and Philips were among the companies to announce the development of ePC-compliant products. And, perhaps the biggest news of 2002 was Gillette's announcement that it plans to place an order for 500 million ePC transponders from Alien Technology.

The signals are clear: ePC technology is ready to be commercialized. However, the immediate focus will largely remain on container, pallet, and, potentially, multi-pack carton denominations, with item-level tracking remaining hypothetical, at least in the near-term.

5. Promising end-user initiatives and trials. Few large RFID implementations were announced in 2002. However, pilot programs are providing a "morale boost" to the industry and demonstrating the value of RFID. Tagging reusable items such as pallets, totes, crates, shipping containers, and even vehicles provides a significant return on investment and the opportunity to amortize the cost of transponders over several years.

Among the most promising trials in 2002 were the Shipping-of-Goods initiative in the U.K.; Marks and Spencer's (also UK) returnable plastic container project; the PMG/Wal*Mart pallet-tracking pilot; CHEP International, a leading pallet provider, began tagging hundreds of thousands of its 200 million pallets and containers; and the Smart and Secure Tradelanes (SST) initiative was launched in three major Atlantic trade lanes, including the Port of New York-New Jersey, using RFID transponders to track shipping containers.

According to VDC, interest in and awareness of the potential of RFID solutions has never been higher. However, the market continues to struggle with issues restricting stronger growth, such as channel development, end user education, standards, end-user price expectations, and application potential. As we look to 2003, the RFID market has become a waiting game—waiting for standards, waiting for prices to drop, waiting for major orders (especially from larger, Tier One end users), and waiting for the market to explode.

In the interim, industry players must communicate the value proposition of RFID, further educate the market, and provide a unified message on critical issues surrounding price, performance, and technology availability.

Much can be done with currently available technology at present price points, concludes VDC, adding that more end users need to realize the immediate impact that an RFID system can have on their business.