Q&A: What's Next For RFID VARs?

Although some of the hype over RFID has quelled, the market continues to grow. According to research firm IDTechEx, the size of the RFID market, including systems and services, will grow from roughly $2.7 billion in 2006 to $12.3 billion in 2010. By 2016, it expects the market to be worth $26.2 billion. Opportunities for VARs selling RFID are still strong. Management consulting firm A.T. Kearney estimates that large regional and national retailers will spend approximately $400,000 per distribution center and $100,000 per store on RFID.

Mandates such as those from Wal-Mart and the DoD are now old news, so what should RFID VARs know about where the RFID market is headed? We asked two industry experts for their advice. Mendy Ouzillou is the product line director, RFID Readers for Impinj, Inc. and  Ulrich Denk is the RFID product marketing manager for Texas Instruments.

What trends are you seeing in active and passive RFID applications?
Ouzillou: We expect the demand for passive UHF (ultra high frequency) Gen 2 RFID products will continue to grow as item-level tagging of high-volume consumer goods such as pharmaceuticals, electronics, and apparel becomes a reality. The tagged objects in those market segments are usually high-value items for which passive RFID provides an attractive payback. End users with other needs for postal applications and government asset tracking are also beginning to take advantage of the performance benefits of Gen 2 products. We expect that trend to continue. 

We acknowledge that many applications require active tags, either for extended range or for some sensor-based applications. In addition, we see a lot of interest for battery-powered, semiactive sensor tags in the market, but the current cost of batteries is typically prohibitive for high-volume applications.

We are following the extremely important trend toward increased interoperability, particularly for passive UHF Gen 2 products. Despite EPCglobal's interoperability standards for tags and readers, very few vendors have attained interoperability certification to date. As noninteroperable hardware proliferates and causes problems in the field, we expect more RFID technology developers will make interoperability a priority.

Denk: We are seeing growth in both active and passive RFID applications. There are a number of factors driving the growth of the passive RFID market. Among them are an increase in the demand by companies for asset track-and-trace capabilities, the decreasing cost of the technology, international standardization, and integration with other wireless technologies.

Are RFID mandates still a hot topic for RFID VARs?
Ouzillou: The use of RFID technology is branching out beyond closed-loop supply chains, according to a report released on July 17, 2007 by ABI Research. However, the report concedes that most RFID pilots and implementations are still mandate compliance-based. This means that understanding the Wal-Mart and DoD mandates is still important for VARs. That being said, more RFID applications are being deployed for ROI reasons, whether there is a mandate in place or not.

Denk: Mandates are still a hot topic, and compliance with these mandates, such as those from Wal-Mart, the DoD, and the Metro Group in Europe, are driving RFID adoption. For example, Wal-Mart reaffirmed its support for RFID and announced in May 2007 that it expects to roll out RFID capability to 400 additional stores by the end of this fiscal year. So there are opportunities for VARs in supply chain-related applications such as tracking pallets, cases, and items. At the same time, VARs need to look beyond mandates to a wide range of other markets where RFID is being used.

What are the current vertical market applications for RFID?
Ouzillou: Pharmaceuticals, apparel, electronics, and digital media are examples of vertical markets that require increased supply-chain efficiency and inventory control. The most exciting vertical markets are those in which tangible benefits accrue to all parties in the supply chain — all the way to the consumer. Protecting and verifying the global food and drug supply is a good example of this. Guarantees of authenticity and improved customer experience will apply to a wide range of consumer markets. Rapid deployment is easier when one business entity, or a small consortium, can implement RFID and realize the benefits. These are sometimes referred to as closed-chain applications (e.g. mobile asset tracking).

Denk: High-growth RFID applications include asset management, access control, and closed-loop inventory management. There is a proven return on investment from RFID in these applications, with businesses saving millions of dollars by better tracking assets — people or items.

Other hot applications are contactless payment and electronic identification of documents. American Express, MasterCard, and Visa all have contactless programs underway. Retailers, particularly fast food restaurants, convenience stores, and drug stores, are installing readers that accept consumer contactless payment cards and fobs. There are more than 55,000 merchant locations to date.

One of the reasons the electronic ID market is growing so rapidly is that governments around the world have implemented, or are in the process of issuing, electronic identification documents such as passports. Both contactless payment and many of the government ID initiatives use secure contactless smart card technology based on the ISO/IEC 14443 standard versus traditional RFID (e.g. EPC Generation 2 and ISO/IEC 18000). If VARs aren't yet working with a wide range of these standards-based technologies, they have an opportunity to broaden their product and service offerings to capitalize on these growing vertical market opportunities.

What should VARs expect to see in RFID in the next few years?
Ouzillou: With the advent of UHF Gen 2 solutions, we are entering the 'era of implementation.' RFID will move from being an interesting discussion topic among technology developers to being an important enabler for many highly efficient business processes. We expect deployments to accelerate over the coming months and years as RFID technology continues to mature and more VARs add UHF Gen 2 products to their solutions portfolios. Selecting the right technology will always be important. As the technology matures, it will become easier to use. There will also be more application-specific features in readers and tags, which will broaden RFID's value and ease the development of complete solutions.

Denk: We expect the combination of RFID and sensor technologies to deliver new value to consumers and businesses. For example, sensors will be combined with RFID to capture and record temperature or humidity information on various shipments such as sensitive drugs. As the technology evolves, proximity RF technology will be combined with biometrics — a technology which can authenticate people to their transaction devices before the transactions even happen. This would not only further improve security (and the user experience), but also address concerns around the protection of sensitive privacy-related data tied to some applications. The number of contactless payment issuers and retailers will continue to proliferate. And, as more trials get under way, we'll start to see near-field communication (NFC) technology enabling payment using mobile phones.