This article was originally published by RFID Update.
January 6, 2006—Research firm Regan, Jacob & Sydney (RJS) today released a free report entitled Has RFID “Crossed the Chasm?”, which addresses the question everyone in the industry is asking as another year begins: Has RFID matured beyond the stage of isolated, early-adopter pilots to more mainstream, widespread adoption? RJS’s answer: yes. Says the report: “We believe that as we enter 2006, RFID can be said to have crossed the Chasm. The pioneers are no longer lonely, and can now see the smoke of their neighbors.”
The report lists a number of justifications for its optimistic conclusion. It considers the Wal-Mart deployment, which, despite consistent reports about hiccups and supplier pushback, “has gone well, on balance.” More encouraging still, according to the report, is that it has done so in spite of EPC RFID technology’s relative immaturity. “Wal-Mart is not only making more money where RFID has been adopted… they are doing it without having solved all the problems, yet.” But Wal-Mart isn’t the whole story. Indeed, its diminishing importance as the primary driver of RFID is itself good news and further evidence that RFID adoption has turned a corner. Focus on the technology is not nearly as retail and consumer packaged goods (CPG) centric as it once was. Compelling implementations of RFID in other verticals and applications have emerged, such as those in cold chain (temperature monitoring of perishable goods), aerospace, automotive, and logistics.
RJS sees activity related to the US Department of Defense mandate as further evidence of progress. While the DoD mandate has had a slow-to-start ramp-up, the report notes that it has already contributed considerably to RFID reader purchases and even “been an important revenue source for some firms.” More importantly, with RFID rules for DoD suppliers finalized in late 2005, tagging requirements will now show up in new contracts, and the mandate should accelerate considerably. “Only in late 2005 did DoD work out rules for supplier RFID adoption. This sets the stage for a second wave of DoD RFID adoption, and one that will be important to the maturation of the market.”
The RFID industry’s merger and acquisition activity is another indicator of a market in transition from nascent to adolescent. The report notes that 2005 acquisition prices were often computed at very high multiples of 10x or more. The fact that acquirees were able to command such aggressive prices suggests a larger demand to purchase RFID companies than there is a supply of potential acquisitions. “An out of balance demand vs. supply of acquisition targets [is a] hallmark of a market that is past the early adopter stage,” according to the report. RJS sees this imbalance exacerbated going forward as large IT consulting firms without in-house RFID expertise gobble up smaller RFID boutiques. “In discussions with [major IT solutions and services firms], we found some who were willing to state openly that acquisition was the most likely path to a viable RFID business model, making M&A a high priority for some of these firms.”
Last but not least, the vastly improved standards and intellectual property situation in the market represents a major hurdle overcome. The standards and related IP issues which so preoccupied the market up until the second half of 2005 are now largely resolved. In RJS’s estimation, “The final chapter has not been written on RFID patent licenses and litigation, but it now seems unlikely to threaten the development of RFID related markets.”
Download the free report (PDF) from Regan, Jacob & Sydney