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Get Ready For Disruption

Low-cost RFID is a disruptive technology that will have a profound impact on the market and established tag makers. Mark Roberti explains why.
By Mark Roberti
Jun 24, 2002June 24, 2002 - In last week's column, the Great RFID Divide, I talked about the chasm that exists between companies like Wal-Mart that are aggressively pursuing low-cost RFID and vendors who want to sell proprietary tags for 50 cents or more. I mentioned at the end of that piece that it is inevitable that startups will bridge the gap. Now, let me take a shot at explaining why.

In an article in the June issue of MIT's Technology Review, Clayton M. Christensen, a professor at Harvard Business School and the author of The Innovator's Dilemma, identifies variables that can help determine the potential for success of new innovations. He suggests that disruptive technologies succeed more often than innovations that improve upon the existing products of established players (think of Preston Tucker and his attempt to build a better car).

One test of whether a technology is a disruptive technology, according to Christensen is: "Does the innovation target customers at the low end of a market who don't need all the functionality of current products? And does the business model enable the disruptive inventor to earn attractive returns at discount prices unattractive to the incumbents?"

Christensen probably wasn't thinking about a 5 cent RFID tag carrying only an electronic product code versus a tag that costs $1 and has 384 bits of memory and read-write capability. But he might as well have been.

Low-cost RFID is a disruptive technology. And it is coming, probably sooner than most people think. I don't know if Alien Technology will be the company that disrupts the market, or whether the Auto-ID Center will pull off its audacious vision to get everyone to track products using a universal network based on open standards.

But I'm sure of one thing: The Auto-ID Center has already succeeded in one crucial way. It has shown startups that there is a massive market for low-cost RFID tags and readers if the startups can develop the technology. And the startups are responding. I've talked to several over the past few weeks, and we'll be covering their efforts regularly. The startups understand that there are more than 20 end-user companies at the Auto-ID that want to buy some 500 billion low-cost tags per year. If you could make a 1 cent profit on every 100 tags you sell, that's still $500 million a year.

Why don't the incumbent technology producers go after this market? You can read Christensen's article for the full story (http://www.technologyreview.com/articles/christensen0602.asp). But I'll try to explain his main point here. He says the incumbents are often well run. They continue to innovate and develop new and better products based on their original technology. We see that today. Companies like Philips, which has produced the first chips that will work with the emerging G-Tag standard, and Texas Instruments are doing marvelous things.

But below the surface, there are dozens of companies that are working to produce low-cost alternatives that are inferior to the existing products. They are inferior in the sense that they won't hold as much data, or won't have sophisticated encryption schemes. But they will be so cheap that they will address a market that the incumbents don't want to address or can't address profitably.

One reason people often dismiss low-cost RFID is because they don't see many of the big players doing it. But that shouldn't be a surprise. Look at the Internet revolution. It wasn't Microsoft that created the first browser. It was a kid named Marc Andreesson. Although Bill Gates later wrote a book called "The Road Ahead," it took him a ridiculously long time to see the importance of the Internet.

And look at GE Information Services, now GE Global Exchange Services. The company runs the largest electronic data interchange network on earth, an expensive proprietary system companies use to share data. Did it see the potential of the inferior (that is, less reliable) Internet? It thought companies would never send important data over the Internet because it was less reliable and less secure. Now the company is struggling to come up with a strategy for protecting its revenue base and its "superior" technology.

The aim of RFID Journal is not to sides with either the startups or the incumbents. In fact, we should probably be hailing the products of the established players who can afford to advertise. But the aim of this venture is not to make millions by pleasing potential advertisers. The aim is to provide insights for readers who need to understand both the benefits RFID technology available today and how RFID is evolving. If we do that well, perhaps we can get enough subscribers to survive at the low-end of the market, where the incumbent publishers can't or won't touch us.

Mark Roberti is the Editor of RFID Journal. If you would like to comment on this article or submit your own, send e-mail to mroberti@rfidjournal.com.
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