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Threat to RFID in Manufacturing May Come from Within
ARC Advisory Group's Chantal Polsonetti discusses how RFID and other automatic identification technologies will increasingly compete with one another for the same applications, forcing vendors to demonstrate value not only over competitors offering the same technology, but also over alternative technologies that are appropriate for the application.
Jan 26, 2007—This article was originally published by RFID Update.
January 26, 2007—Prospective customers for RFID in manufacturing applications often report consideration of alternative technologies to meet their application requirements. In the automotive industry, for example, 2D bar codes are likely to be used in some applications where RFID was originally considered. Use of WiFi solutions in lieu of active RFID for asset and location tracking is another example of an alternative technology threat, and now UWB, Wi-Max, and Rubee (IEEE 1901.1) are looking to exploit weaknesses of WiFi-based solutions.
While threats from alternative technologies will be significant, growth within a given segment of RFID used in manufacturing applications will also come partly at the expense of existing options. For example, WiFi-based tracking solutions are frequently marketed as overcoming the limitations of existing active RFID solutions, while the price of active RFID solutions themselves are declining to the point where they are competitive with high-end passive solutions. This expands the competitive field at the customer level, where manufacturers may consider a wider range of options that meet their application requirements.
Our expectation is that it will take some time for suppliers to achieve significant growth in greenfield applications for RFID in manufacturing, outside of those mandated by customers or regulatory authorities. The low conversion rate of customer pilots to production implementation is one of the primary cautionary indicators to this trend, with numerous potential customers investigating its use but few high-volume applications coming to fruition.
This will result in a large part of the incremental growth in manufacturing applications for any given supplier, or RFID technology, coming at the expense of an existing or emerging RFID competitor. Responding to this threat from competitive RFID or alternative automatic identification/sensing technologies targeting the same customers and applications will be one of the most significant strategic challenges for suppliers through the end of the decade.
This is already evident in the inroad attempts made by two of the current upstart technologies, WiFi and passive UHF. WiFi's value proposition in healthcare and other industries where it is experiencing early success differs significantly from what we expect when it is applied in manufacturing. Ability to overlay location tracking capabilities on existing voice and data infrastructure is a primary selling point in these early adopter industries, but few manufacturers will be able to employ their existing infrastructure for wireless location tracking -- either because it doesn't exist or because it requires significant upgrade to generate the x/y/z coordinates necessary for location tracking. This is leading manufacturers to consider alternative technologies, such as active RFID or high-end passive RFID, to meet the requirements of a target application.
For RFID solution providers, this scenario translates to ongoing competition with not only other providers of the same technology solutions, such as active RFID, but also suppliers of other RFID and automatic identification solutions. This is already evident in the marketplace with new WiFi suppliers looking to displace active RFID, low-end active RFID looking to displace high-end passive RFID, and new entrants in passive UHF targeting both passive HF and low-end active. This will result in the need to not only win the application but also compare favorably to an increasingly broad competitive field from the customer's perspective.
The impact of competition between specific RFID and alternative identification and sensing technologies is just one of the market forces highlighted in ARC's just-released Market Outlook Report on RFID in Manufacturing Applications. This report, which covers passive, active, and WiFi technologies used in manufacturing applications, includes market size, forecast, and shares for each technology, as well as shipments by geography, industry, application, frequency, form factor, channel, and customer type. RFID reader forecasts by network interface and operating system are also included. Further information on the study is available at http://www.arcweb.com.
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