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Analyst Update on RFID Adoption and Drivers

Asset tracking is emerging as a breakout RFID application, but other mainstream application candidates are not clear, according to a briefing from industry research and analyst firm Frost & Sullivan. The company predicted 20 to 25 percent overall growth for RFID in the next two years, but said rates may very widely by technology type.
Apr 18, 2007This article was originally published by RFID Update.

April 18, 2007—There is an RFID application on its way to mass adoption -- and it doesn't involve EPC tags on shipping containers or consumer goods. That was one of the major messages Brendon Ouimette of market research firm Frost & Sullivan presented yesterday in an online briefing for analysts that examined factors that could trigger more RFID adoption.

Ouimette predicted overall RFID industry growth of 20 to 25 percent over the next two years, and acknowledged Gen2 and other passive UHF adoption has thus far not met expectations.

Ouimette identified three stages of RFID adoption: compliance; mid-level, which is characterized by pilots and single-application deployments; and full implementation, which has a transformational effect on business. In Ouimette's market analysis (which does not cover RFID-based payment applications), no segments have reached the highest stage, and asset tracking is showing signs of being the first breakout application with wide adoption across vertical industries.

"Asset tracking and management has shown clear ROI. A lot of other applications haven't quite gotten there yet," said Ouimette. "It's not clear which applications will get to the mass adoption level. Somebody needs to lead the way and find the value all the evangelists are talking about."

Much of the briefing focused on why RFID hasn't been more widely adopted -- particularly for EPC Gen2 and other passive UHF technologies -- and what it will take to trigger adoption.

High-profile users, lower RFID infrastructure costs, and technology improvements could all lead to more adoption, although Ouimette cautioned that cost may not be as strong of an RFID adoption inhibitor as many believe.

"RFID is really not about the cost. It's about the flexibility and visibility that you're going to get," he said, and noted that ROI-producing asset management applications are often done with tags that cost $10 to $50 each.

"Ultimately the value in RFID is the visibility provided. In that end, watch the software."

Application software providers are currently best positioned to develop RFID systems that create value and provide ROI for users, according to Ouimette.

He believes they will hold this leadership position for at least two years, but enterprise software vendors are ultimately best positioned to provide high-value RFID systems, because the greatest RFID value would come from high-level integration with enterprise systems and trading partners.

"Enterprise level software can deliver the greatest benefit and the strongest ROI," said Ouimette. "That said, enterprise software is not ready for real-time RFID yet."

Ouimette said lower RFID reader and middleware costs would also aid adoption, and that the product costs could change dramatically in the next few years. "Intel has developed a reader chip now, and that could make an impact. There's already been some talk about $500 readers," Ouimette said.

In March Intel announced it developed a fully integrated Gen2 reader on a single chip, which the company estimated could lead to $500 readers before the end of the year (see Intel Announces Gen2 Reader Chip and RFID Vendors Rally Around Intel's New Chip).

"Intel is important for their signaling effect. Their traditional approach is to commoditize the markets they enter," said Ouimette.

In December Frost & Sullivan released market research predicting 53 percent compound annual growth for RFID smart label printers (see Frost: Major Growth Ahead for RFID Printer Market). Last week guest contributor Russ Klein of market research firm Aberdeen Group presented insight on RFID adoption issues in the retail industry (see Aberdeen on RFID Adoption in Retail).
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