Prepare for the Future

By Admin

If low-cost RFID is going to disrupt the market for this technology, then now is the time for establish players to develop a strategy for the change that's on the horizon.

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July 1, 2002 – In last week’s column, Get Ready for Disruption, I used GE Global eXchange Services (GXS), which runs the world’s largest electronic data interchange network, as an example of a company that didn’t respond to the threat from an inferior technology (i.e. – the Internet). A day after that column was posted on this Web site, General Electric announced it was selling 90 percent of GXS to technology buyout firm Francisco Partners for $800 million.

That raises an interesting question: If low-cost RFID is going to disrupt the market for more sophisticated – and expensive RFID tags – should existing vendors get out of the market now? Certainly, GE would have received more than $800 million if it had sold GXS three or four years earlier, before it became apparent to everyone that companies would gradually migrate away from EDI.

No one has asked me for my advice, but the nice thing about running your own publication is you get to give it anyway. My advice to established vendors would be to assess the threat now – before it’s too late. Is the low-cost RFID system being promoted by the Auto-ID Center likely to catch on or not? (The odds of success seem to improve every day.) Are companies like Wal-Mart and Procter & Gamble serious about adopting low-cost RFID technology? (Very serious.)

If you agree that there’s a good chance that the Auto-ID Center and its members will succeed, the next question is: How long will it take for a low-cost RFID system to catch on? Wal-Mart has an in-store prototype up and running now. Metro AG will have one by the end of the year. By next year, Alien Technology will be producing chips that cost less than 10 cents. My best guess at this point is companies will start deploying as early as 2004.

So, you can assess the threat and then decide whether to bail out before the end of next year. Another option is to consider ways of dealing with the threat. If you are Philips Semiconductor or Texas Instruments, you could probably buy Alien Technology for a reasonable price and put yourself in the forefront of the new market. (You might have to hard time explaining to your shareholders and Wall Street why it’s the right move.) Philips has already invested in Alien. Consider it a $2 million insurance policy.

The most intelligent option, in my view, is to assess the emerging market and see where you might play in it. Low-cost tags are necessary for tracking boxes of laundry detergent, but not every RFID tag in the supply chain is going to cost 5-cents and hold only a unique serial number. Companies may want more information stored on tags placed on pallets, totes or even certain items. There will be a market for smart sensors and advanced chips for interactive packaging, where the tag holds a serial number but also controls changes in the appearance of the item.

Savi Technology started off primarily as a hardware company, building a sophisticated RFID tracking system for the Department of Defense. The company still offers tags and electronic seals, but it has moved into software systems for tracking goods because there is an unexploited opportunity there. That was a savvy move in my view.

Systems integrators, reader makers and everyone else in the RFID business are going to be affected by the emergence of low-cost RFID. You can either ride the wave or be crushed by it.

The problem is not the lack of opportunity; the problem is denial. Established vendors think low-cost RFID will never happen. Denial is common in business. GXS suffered from it. So did Microsoft when Netscape came a long, and so did Barnes & Noble when a goofy guy named Jeff Bezos thought he was going to sell books online. All of those companies waited until the threat became so obvious they couldn’t deny it any more. That gave the startups the time they needed to gain a foothold in the new market and meant the established players had to spend more time and effort to respond.

If you are an established RFID vendor, distributor, or integrator, you can’t afford to live in denial. Now is the time to start developing the markets, strategies an expertise that will enable you to not just survive but to thrive in the much larger, much more lucrative market that’s emerging. I have no doubt that in two years someone out there is going to pay a six-figure sum to McKinsey or Giga or AMR Research and get the same advice I’m offering for $189 a year now.

Even if I’m wrong about the Auto-ID Center’s potential for success or the timing of adoption, by acting now the worst you can do is waist a little effort. Isn’t it better to risk a few man-hours assessing the threat than risk becoming another GXS?

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