RFID has always been an exception. An exception to the limitations associated with bar code-based data collection. An exception to the low-cost, easy deployments of said systems. Thought of as a fringe player suited for remote keyless entry and automatic fare collection, but not for real business applications. Even where RFID was shown effective in enterprise applications, the application was often dismissed as the exception, rather than the rule, by operations managers stuck in a "It can't happen here" mindset.
In 2001 RFID was again the exception, showing signs of life and growth in an ADC market that contracted for the first time in its history, according to the latest estimates by market research firm Venture Development.
Yes, I know PinPoint went bankrupt and dissolved. Yes, I know Gemplus divested its RFID business. Yes, I've heard that Brady discontinued its RFID operations. The herd has been thinned, but the species is not endangered.
I also know that Venture Development estimated the RFID market would grow 32% this year and 24% compounded annually over the next five in a study released earlier this year. Add to that the tenfold increase in sales ($27.3 million in 2000 to $277.8 million in 2004) for the RTLS product category predicted by Frost & Sullivan, and it's clear that something good is happening.
How could this happen?
A deeper look into how and why RFID usage is growing reveals more exceptions to conventional thinking about the technology. Technologists, systems integrators and many end users have acknowledged the great potential for RFID to improve logistics, manufacturing, asset management and other operations. The same thinking says this potential will go unrealized until tag costs fall and standards are set that create real vendor choices. Well, these things didn't really happen in 2001, but users put more RFID and RTLS tags on items than ever before. Here's why.
Were standards overrated?
No, the importance of standards is not overrated and can't be overstated. The creation of RFID standards will be followed by the production of compliant equipment, which will enable users to make apples-to-apples comparisons to different vendors and implement systems that don't wed them to the proprietary technology of a single vendor. Vendors continued tearing down the standardization obstacle this year by cross-licensing their technology to other RFID companies and to solutions providers in complementary fields. There were 20 cross-licensing deals announced in our January issue alone, and more followed throughout the year.
In November Savi Technology released a data interface protocol for multiple RFID and other data collection technologies along with an impressive list of licensing partners. These agreements helped create equipment and companies that could provide complete applications by supporting multiple technologies. They also helped ease user concerns about proprietary technology by enabling interoperable choices-albeit somewhat limited-in core tag technology. The interoperability and multiple-vendor support should also eventually drive down RFID system costs.
I can't tell if RFID costs are falling because it's still hard to determine real costs for real systems at real-world tag volumes. For example, during a recent private briefing an RFID vendor told me the cost of a new active tag "could be less than $5 if we could produce quantities of 50,000." This is a common way to express tag cost, which is dependent on economies of scale. However, many applications for the technology wouldn't require 50,000 tags up front, so true costs are hard to calculate.
The best evidence that costs may be falling is the number of actual companies who have bought and deployed the technology. The year saw many new deployments or expansions of existing programs: in manufacturing, John Deere and Jaguar implemented, while Ford expanded its RTLS program to 40 factories; Associated Food Stores was a marquee retail deployment; in logistics, FedEx is implementing RFID for vehicle security, the U.S. Navy is tracking munitions inventories, and many more container yards and cargo terminals are utilizing the technology.
Two of the industries thought to hold some of the greatest potential for RFID-retail and airlines-are among the most sensitive to the overall economy and would be considered bad prospects for 2001. However, there were several notable new deployments in these industries, which would not have happened if costs-and cost justification-weren't very clear. The Gap, Wal-Mart, Revlon, Procter & Gamble, and McDonald's are among the leading retailers and consumer goods manufacturers currently conducting RFID trials.
Many of these trials, and future outcomes, are related to major standard initiatives led by UCC/EAN International and the MIT Auto-ID Center. Progress on these standards will play a major role in the participants' future plans, and their RFID purchases could change the economies of scale for all users. So conventional thinking about RFID adoption will hold partly true another year.
The future
Standards developments will provide plenty of fireworks in 2002. The UCC/EAN GTAG project is moving quickly. Too quickly, in the eyes of some technology vendors, who say the technical specifications leave something to be desired. Similar concerns have been echoed about the MIT project, and with more than a dozen different industry, national and international committees actively working on RFID standards, there is no shortage of opinions.
Standards would no doubt provide a boost to RFID implementations, but usage will continue to grow without them. Companies have recognized that they need to gather timely data from all areas of their operation, and are extending their information systems outward to do this. RFID tags, which are essentially a wireless chip that can go virtually anywhere, are the ultimate portable computers, even if they're not traditionally thought of that way. As such, 2002 looks like it will be another exceptional year.
