Sep 21, 2010I received a call the other day from a venture capitalist who has invested in a company that sells radio frequency identification technologies. He told me that management at his firm had done a good job of trimming costs to weather the economic downturn, but that he was wondering if now is the time to invest more aggressively in building brand awareness and market share. "If RFID is going to enter the tornado soon," he said, "we are running out of time to position the company."
The reference to "tornado" comes from Geoffrey Moore's book Inside the Tornado, which presents, in my view, the most intelligent explanation of how new technologies are adopted (see The (RFID) World According to Moore, Moore Has Spoken—Were RFID Vendors Listening and Geoffrey Moore Discusses RFID Adoption Strategies). Moore's insights have huge implications for technology providers and the strategies they adopt. For a new technology to be widely adopted, he argues, a single technology provider must emerge as the dominant player. He calls this company the "gorilla." Think of Apple in the MP3 market, Microsoft in personal computers and Intel in central processors.
What this means is that one company will get the vast majority of the market—always more than 60 percent, and sometimes more than 85 percent—and it is very difficult to take the market away from a gorilla, because it has a base of users that tend to stick with what is working. So if you are a technology firm sitting back and conserving your cash, as my venture-capitalist friend's company is, and the market goes into a tornado, you are left fighting over perhaps 30 percent of the market with a bunch of other monkeys.
But here's the challenge: If you go all out to try to be the gorilla, you could easily run out of cash before the market enters the tornado. So timing is critical. Spend too early, and you might go out of business. Spend too late, and you can't be the gorilla.
Moore talks about "local tornados," which is when a single industry adopts a new technology rapidly, and then other sectors follow. I believe RFID will see a lot of local tornados, and apparel retail is the industry that is the closest to entering a local tornado first. That's because almost all of the elements Moore says are necessary for a tornado to occur exist in that sector.
Moore says there has to be a global standard. In apparel retail, almost all companies are using passive ultrahigh-frequency (UHF) technology based on the ISO 18000-6 standard. There also needs to be a compelling business problem that existing technologies can't solve. All apparel retailers are struggling with inventory accuracy and replenishment, which RFID alone can solve. And there needs to be a "whole product" that does everything companies need it to do. There isn't a unified whole product at present that is plug-and-play for apparel retail, but the hardware and software solutions do exist from separate vendors.
Moore says there has to be a gorilla. One doesn't exist yet in apparel retail, but Avery Dennison is emerging as the gorilla tag provider, and Motorola is shaping up to be the go-to company for RFID readers. The big question is who the software gorilla will be—as yet, there is no clear leader.
Finally, there needs to be a critical mass of end users that are buying the whole product from the gorilla. I believe that once a clear software winner emerges, apparel will quickly reach critical mass and enter the tornado.
So if my venture-capitalist friend were representing a company that sells software to apparel retailers, I would have told him to start spending aggressively to build name recognition among retailers deploying RFID. Alas, he was not from this sector—his company sells a health-care solution. I told him that health care is probably closer to a tornado than most other sectors. The compelling problem hospitals and clinics face is tracking high-value, mobile medical equipment, and RFID can solve that.
But unlike apparel retailers, hospitals have not yet settled on a standard. Some are deploying Wi-Fi-based RFID systems, some ZigBee, some ultra-wideband (UWB) and some proprietary systems. Until one of these technologies emerges as the clear winner, RFID will not be able to enter the tornado.
"The question is, does your company have the resources to win enough business to emerge as the gorilla?" I asked the venture capitalist. "Moore would advocate focusing all of your energy and resources on that one market, in an attempt to win over enough hospitals so all others say, 'That technology is clearly the way to go.'"
I don't know if the venture capitalist will follow my advice, but I do know this: The next two or three years are going to be critical for many companies in the RFID market. Those that position themselves to be gorillas in specific markets will do well, while those that try to grab business wherever it exists will wind up being bit players when RFID enters the tornado in a specific vertical industry.
Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark's opinions, visit the RFID Journal Blog or the Editor's Note archive.