Software Will Drive Adoptions—and Investment Returns

By Mark Roberti

With RFID hardware reaching an adequate level of maturity, software represents a huge opportunity for investors, and without new investment, the technology will be slow to take off.

About five years ago, I wrote an opinion piece stating that if I didn't already have my dream job running RFID Journal, I would have liked to be a venture capitalist (VC) picking winners in the radio frequency identification market. A reader who was a member of the VC community wrote to me, politely suggesting that I "stick to my knitting," because picking winners is harder than it looks. And he was absolutely right. But having spent much of the last month studying Geoffrey Moore's technology adoption life cycle, I think I'm now in a much better position to understand how adoption will occur, and who will be among the winners.

One thing that is clear from reading Moore's Inside the Tornado is that software is now the key to driving adoption. For a new technology to achieve widespread adoption, Moore says, vendors must offer a "whole product." Some vendors that offer active RFID already do this, but in the passive market, companies often have to buy RFID hardware, software and services from different players.

A great deal of money has been invested in RFID hardware over the past eight years. As a result, RFID hardware products have improved tremendously. There are many tags designed for specific applications, and interrogators are being tailored for particular applications and industries. Motorola's new MC3090-Z reader, for instance, is designed primarily with retail applications in mind. But software is often generic—that is, you can purchase software that tracks assets in any industry, but there are a limited number of companies offering software tailored to solve problems for a specific sector.

Software is the key to delivering the whole product. When end users can buy a complete solution for their industry that is easily deployable and scalable—and that delivers a significant return on investment, or solves a critical business problem—then adoption will take off. In my mind, the two industries closest to this point are apparel retail and health care.

Moore also says that pragmatists will adopt a technology en masse when one company emerges as the clear market leader. Such a leader often captures more than 50 percent of its entire market. Given the benefits apparel retailers can achieve by deploying RFID (suppliers can also benefit significantly), there is a clear opportunity for one software supplier to emerge as the market leader, and to enter the tornado.

The payoff for the winner would be massive. There are currently approximately 200,000 retail apparel stores in the United States. Let's assume half are single stores owned by individuals who will not deploy RFID. That leaves around 100,000 stores. If each spends $10,000 on software, that's a billion dollars in software sales in the United States alone. And if one company emerges as the dominant player—the "gorilla," in Moore's language—that equates to $500 million in software sales. And that's just in one industry, in only a single country. There are opportunities in just about every other industry as well, if investors are willing to put money into software companies that can build a solution to take advantage of RFID data and deliver compelling benefits in a particular sector.

VCs did put money into middleware companies a few years ago, but as the technology entered the chasm and adoption slowed, much of that funding went elsewhere. I have a feeling that the VCs will soon take another look at radio frequency identification. As I mentioned in my column last week, major companies are beginning to deploy RFID across their enterprise (The Age of RFID Pilots Is Over—Deployments Crank Up). That's a sign that the hardware has matured to the point at which "visionary" companies—again, I'm using Moore's term—can roll it out on a large scale. It's also an indication that the technology delivers compelling business benefits.

The biggest factor holding RFID back is the current lack of whole products in each industry. These are attractive opportunities, just waiting to be seized.

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 click here.