RFID: it's here, but is it ready?

Tracking goods by Radio Frequency Identification is predicted to be the next big market for wireless communication. But those involved in the field differ on whether the technology is mature enough for widespread application.

Alien Technology Corporation, a maker of RFID tags and readers, has registered with the Securities and Exchange Commission for an initial public offering (IPO) of $120 million of its common stock, signalling the next onslaught of excitement about Radio Frequency Identification (RFID) technology, an automatic identification technology often used in retail and logistics applications.  

Alien’s IPO will be the first big one in the sector, and other players will surely be watching closely to see how well the company does in moving from the realm of venture capital to that of capital markets. Alien, founded in 1995, has raised $200 million in venture capital. It filed IPO plans with the Securities and Exchange Commission in mid April and is now on a road show with investors.

Jeff Woods, an analyst at Gartner, Inc, says that if the IPO goes well, it will spur additional financing of vendors in the market for tags and readers that communicate over radio waves, allowing the unique identification of a product, and passing on far more information about it than a barcode.

At the very least, he wrote in a recent news analysis, the offering will increase visibility of and investment in RFID applications.

But Alien’s IPO could also bring unwelcome scrutiny to projects still under development.

Many companies deploying or testing RFID applications to track pharmaceuticals, manage fleets of cars, or better oversee their supply chains are hesitant to release return on investment figures since they see their projects as long term.

Looking for the large scale

These companies cite the need for the technology to be adopted on a large scale, for standards to converge and for tag prices to drop to about $0.05 each before applications reap their full benefits.

In other applications, such as pilot projects for tracking blood in hospitals, the return on investment comes in the terms of increased safety, or more-satisfied personnel.

Forrester Research analyst Christine Spivey Overby also expects excitement about RFID to rise with Alien’s stock launch. But she doesn’t believe the listing will be followed by numerous others in the segment.

“Vendors that were early in the market will more likely be acquisition targets for bigger companies,” she predicts. Witness the 4 May announcement by Lockheed Martin that it will acquire Savi Technology, which supplies RFID hardware and software to the US Department of Defense.

RFID-type technology dates back to World War II. The British developed the so-called IFF transponder that was used by Allies to “identify friends and foes”.

Closed RFID systems, or proprietary systems under the “control” of the owner – such as toll road or library applications – have been used commercially since the early 1990s, and open systems, or applications that work in several companies, have been used and tested frequently since the end of the 1990s.

First commercial boost

The Auto-ID Center, initially founded in 1999, and affiliated with the Massachusetts Institute of Technology, gave RFID its first commercial boost. It transferred most of its commercial activities to EPCglobal Inc., a nonprofit organisation charged with creating standards for the industry.

A spin-off of the Auto-ID Center, the MIT Auto-ID Laboratory, researches RFID and Wireless Sensor Networks with the goal of creating a global system for tracking goods with a single numbering system called the Electronic Product Code.

Even with RFID’s long journey from the lab to the marketplace, Overby characterises the technology as having the maturity of a “gangly teenager”.

“There is a heightened awareness about RFID, and many companies are using it or evaluating how to use it. But RFID is still very embryonic,” she said.

Joseph Dalton of the Intel Innovation Center in Ireland also considers the technology immature. “There’s a lot of work to be done to bring this technology to the mainstream. Many of the efforts are isolated pilots at the moment, and a joining of the dots in this regard is necessary,” he said.

Intel has tested RFID to see how the technology can solve the business problems of major industries, and it uses one small application in one of its own factories. Dalton sees particular promise in the pharmaceuticals sector, where most applications focus on tracking drugs through the supply chain to increase drug safety and fight counterfeiting.

Still emerging?

IBM also sees RFID as an emerging technology, even though it has already dedicated significant resources to it by employing about 1,000 employees on RFID projects, including systems integration for industry-specific customers and R&D.

“I’m sure that most of the benefits have not been discovered yet because it’s too early, said Dirk Spannaus, who works in business development for IBM Sensor & Actuator Solutions, adding, “It’s like a domino effect. There are already many cases in which RFID pays off in a short time, but much of the potential will still come since RFID is a network technology.”

Stephane Pique, senior vice president for European, Middle East & Africa operations for the International RFID Business Association, differs from most analysts in his perception of RFID as “very mature”, if one considers the technology’s widespread use in different frequencies. Pique says that UHF, or Ultra High Frequency, has the biggest potential because it is becoming standard in logistics.

“The market is ready now. What we need to do is educate the people. End users need to know what the technology can and cannot do,” Pique said.

Start-ups in this market most often fail because they lack focus, says Pique, who recommends that small companies choose a specific application or market and gain expertise in that niche.

Some creative applications include robot vacuum cleaners steered by RFID, human implants for identifying people for restricted access to buildings, and smart beer jugs that notify the waiter when they are getting empty

“Right now the market is looking for applications. The best thing to do is find a creative application that can be argued and then find a sponsoring company that can create and duplicate the solution,” says Pique.