RFID - Lots Of Apps, But Where's The Killer?

There's an old story about hanging a carrot on a string and waving it in front of a donkey to keep the animal moving forward. Sometimes we have to wonder if the killer app is to the RFID industry what the carrot is to the donkey. Not that we're comparing RFID vendors to donkeys, but is the elusive killer app what keeps us all going?

At some point, RFID technology will be as popular and widely used as bar codes are today. It's just going to take time. And we may not even see total acceptance coming.

In my conversations with eight leading RFID vendors, it became clear that each company is making progress in taking its products to market. Each company is finding unique uses for the technology, and most vendors seem to be happy with the progress their companies are making. However, when I hear discussions about the RFID industry as a whole, most vendors and analysts say it hasn't taken off yet. While all agree it will take time to grow sales, everybody still seems to be expecting an overnight explosion in the market…the killer app. Forget it; it's not going to happen that way.

To understand the path RFID growth will take, let's look at some of the emerging and existing markets. Many RFID vendors believe the airline industry is finally showing signs that it is ready to incorporate RFID into its baggage handling/tracking and security applications. Jack LeVan, president/CEO of SCS Corporation (San Diego, CA), told me, "The airline industry, along with the FAA (Federal Aviation Administration), has been testing RFID technology in a combination of airport applications. They have been using RFID tags to route baggage, and in some cases, to aid in security measures.

"These pilot programs were put on hold after September 11, because the airlines can no longer afford to pay for trials. But, we believe the government will step in and bail them out with money for security systems."

Allan Griebenow, president/CEO of Axcess, Inc. (Carrollton, TX), said his company was involved in homeland security long before the need for security became so clear to us all. Axcess offers active (battery-powered) tags that have a very long read range. "Much of our sales revenue comes from security related applications," said Griebenow. "We can track vehicles, personnel, and all types of assets. As a truck passes through a gate we can record the time of departure, the materials loaded in the trailer, and the name of the driver.

"If the driver is wearing a tag, we can match the driver to the truck. And, if the driver does not match the truck, we can tell there is a problem. If a person in an airport is wearing a tag and enters a restricted area, our system will alert proper airport personnel of a potential security violation."

Precision Dynamics Corporation (San Fernando, CA) specializes in nontransferrable RFID wristbands for healthcare, law enforcement, and crowd control. Company founder and President, Dr. Walter Mosher told me, "The cost of RFID tags has come down to the point where businesses in our niche markets cannot afford to be without our products. Even if a tag is $2, that is a small price to pay to keep from making a mistake in a patient's medications or to prevent a baby from being stolen from a nursery."

Continuing, Mosher stated, "In prisons, guards must keep inmates from entering restricted areas. RFID wristbands make the process of tracking inmates much easier. Also, it adds an element of safety to the prison environment. Prisoners can store cash on their wristbands to use for purchases in the complex. There is less chance of thefts and fights when inmates do not carry cash."

Crowd control refers to applications such as theme parks. For instance, water park attendees can move about the complex without having to carry money or tickets. "Most women's bathing suits do not have pockets," said Mosher. "Our wristbands make it easier and safer for patrons to enjoy the facility. The park owners like the technology because it has been proven that people spend 10% to 20% more in parks when using electronic stored cash. Kids will spend everything in their account and can spend it more easily because they don't have to track their parents down for money."

Texas Instruments (TI) (Dallas, TX) is using RFID in retail applications. Dave Slinger, vice president and general manager of the TI-RFID Systems Group, said the company has had tremendous success with applications such as the ExxonMobil SpeedPass system, and Shell's EasyPay program. Both applications allow customers to pay for gas or items in a mini-mart by simply using an RFID tag. For instance, a Shell customer could pull up to a gas pump, pump the gas, and leave. An RFID reader on the pump records the customer's name and account information from a tag affixed to the vehicle or to a key fob. Once a month, the customer receives a bill. McDonald's has five pilot programs going on for quick payment at its drive-through windows.

Both TI and Checkpoint Systems, Inc. (Thorofare, NJ) have seen success in the library market. "Using RFID tags to check books in and out of libraries is a perfect application for the technology," said Doug Karp, Checkpoint senior director of RFID operations and strategic marketing. "It shows the technology works; the cost is justified; and the customers couldn't be happier with the technology. In addition to check-in and check-out, libraries can use RFID tags for inventory purposes. Libraries can locate books that are out of place. In a library, if a book is misplaced, it is considered 'gone forever.' RFID tags enable library personnel to find these lost books by scanning shelves with an RFID reader."

Checkpoint also offers RFID tags for asset control/management. But, the most promising application, according to Karp, is supply chain tracking. The problem is, Karp and many of his peers believe it make take years for this application to be a viable market.

Intermec Technologies Corporation (Everett, WA) has been a leader in the development of a number of RFID technologies and has made significant investments in its UHF (ultra high frequency) Intellitag® products. The company's main market focus has been reusable plastic containers, but the market has been slow to develop. Jim Evans, vice president of Intellitag marketing, stated, "We are still in the early adopter stage of RFID technology. As RFID adoption in supply chain applications becomes more widespread, you can expect RFID tags, labels, inserts, and readers to come down in price. When this happens, we'll see the beginning of a major market boom."

Chris Turner, technical director, BiStar Technology Ltd. (Johannesburg, S. Africa), told me, "Like other RFID vendors, we view the supply chain market as the probable killer app. The problem is there is a lack of global standards. This hurdle is further complicated by varying regional power and frequency restrictions. The UCC (Uniform Code Council) has undertaken the task of creating a global standard (GTAG) but is fighting an uphill battle at times. The biggest challenge in the development of a standard is to convince vendors to give up legacy (proprietary) systems."

Escort Memory Systems (EMS) (Scotts Valley, CA) is a key vendor for giants including Ford Motor Company and Toyota. A key market for EMS has been tracking component parts and engines in automotive assemble lines. By proving its technology to customers, EMS has been able to grow its list of applications within its own install base. Mark Nicholson, EMS president/CEO, warned, "You can't force customers into a risky position. If we are exploring a new application, we will offer to test the system in our own facility or the customer's. We want to maintain a strong comfort level for potential buyers. This leads to new application development."

Almost every vendor I polled said VARs and integrators hold the key to identifying and growing new markets for RFID technology. When it is promoted in applications where the technology is a good fit-in both cost and efficiency-RFID can be an exciting offering for end users. And, vendors say margins for resellers make the technology very enticing-in the 40% range when value-added services are taken into consideration. One vendor said margins for resellers are higher than those for vendors.

VARs who are considering the technology should remember that there is a cost to adding RFID to their offerings. This is not a simple technology. Expect to invest time for training. If a vendor tries to tell you there is no training needed, look for another vendor. You're being stroked.

Clearly, there are many applications for RFID technology, and vendors, often with the help of channel partners, are finding new uses for the technology every day. But, there are still hurdles the industry must overcome. Some of these include:

• A lack of standards-and fighting between the various standards groups
• End user confusion-often created and perpetuated by the RFID industry itself
• Cost and cost justification-the technology is often promoted in markets where the cost is not justified
• Varying global restrictions in frequency and power levels

Fighting in the standards arena has been well-documented in my newsletter, SCAN: The DATA CAPTURE Report, over the past four months. The war over UHF standards for pallet and container tracking continues to escalate. ANSI (American National Standards Institute) and the UCC (Uniform Code Council) cannot seem to come together in their efforts to develop a set of standards that will unite the industry and promote market growth. The main problem seems to be with an unwillingness by vendors to give up royalties on proprietary technologies-or to change their legacy systems.

End user confusion is a vast problem. It ranges from confusion over frequencies to the elusive one cent tag. It has frequently been touted as the replacement for bar codes. The technology has been hyped to the point where it may not be able to live up to preconceived expectations in the end user community.

RFID is a great technology, but current tag costs still average over 50 cents in the passive tag arena. Active tags can cost from $2.50 each to $250 each. The key to selling the technology is to promote it where the cost is obviously justified. The problem goes back to the hype about RFID. Those who are promoting RFID as a bar code replacement, are making a mistake. End users think they can get tags for a penny apiece. When they see the actual cost of a system, they are disappointed with the technology.

With respect to frequency and power level restrictions, the subject is rather self-explanatory. Countries around the world have restrictions on power levels and bandwidth for radio frequency technology. Lower power levels equate to shorter read ranges. Longer read ranges are critical in supply chain applications where a tag on a pallet may need to be interrogated by a reader mounted on a shipping dock, rather than a handheld reader that users can hold within one or two feet of a pallet. Obviously, universal tracking systems must operate in a common bandwidth, so restrictions would, in some cases, render a system useless.

Among the eight vendors we polled, growth rates for this are running from 35% to 300%. Those who said growth was over 100% cautioned that they were starting from a small number to begin with. As for 2002, some are expecting sales to double again. Conservatively, most said growth would fall in the 40% to 60% range. Some refused to speculate on 2002.

The supply chain is the killer app. Imagine using RFID tags to track all retail items from the point of manufacture to the end user. The market would be huge. But, until we overcome the obstacles that still lie before us, this killer app is out of our reach.