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RFID Won't Be Texas Tea For Everyone

Everything is bigger in Texas, including the sprawling hotel that's hosting the RFID World conference and the quarter-sized spider camped outside my room's window. Also big are the dreams of a lot of little software and hardware vendors who've come here to Dallas to hawk their wares. My guess is that within a few years, many of these vendors will join with others or, sadly, cease to exist.

Those murmured conversations in the hotel halls? At first I thought they might be about sales deals; now I'm wondering if they're about merger deals. RFID is a promising technology, but a lot more work has to be done before you have retailers, consumer goods companies, and others diving into heavy investments -- and having the need for so many different RFID "solutions" represented here at the show.

When Wal-Mart announced its plans for RFID several years ago, vendors popped out of the woodwork. So much weight for one retailer to carry, even if it is the size of Texas. There are many success stories for RFID in such areas as animal tracking (mandated by some country's governments), the automotive and transportation industries, and personal ID cards (China has spent $6 billion on them). Health care also is looking promising for asset tracking and patient identification, and many pharmaceutical companies are conducting RFID pilots. But any vendor hoping to make big bucks in retail and consumer goods is going to have to chill for a bit.

Most analysts believe that, eventually, these will be sizable markets. ABI Research predicts use of RFID for supply chain management, the primary focus of retailers and consumer goods companies, will go from 8% of the market at $350 million in 2006 to 18.8%, or $2.1 billion, in 2011. But Raghu Das, CEO of research firm IDTechEX, says that just about $150 million was spent on retailers and consumer goods intiatives last year. As a result, he's hearing a lot more vendors talking about niche and "closed-loop" applications that don't require business partner buy-in, and that's smart thinking on their part.

Hoping to drive up volume, many RFID tag companies have slashed prices on tags to about 8 cents, which means they're likely losing money on them, says Das. But a few consumer goods companies have indicated that the real ROI starts at about 5 cents a tag. Reader technologies, while having dramatically improved in even the last year, still aren't perfect, either.

As a result, the "open-loop" use of RFID in the suppy chain -- what Wal-Mart is hoping will eventually happen -- is moving slowly, and it will be too slow for some vendors to survive on their own. Companies like Wal-Mart and Best Buy are having a lot more success with "closed-loop" applications that require less buy-in from suppliers. Consider Marks and Spencer, a British retailer that talks about huge success with using RFID tags to keep track of mens' and womens' suits. The advantage is the company also makes the clothes; it doesn't have to ask a supplier to do the tagging.

The odds are still good that RFID could be big, as long as chip and tag prices continue to come down, accuracy of technologies improve, and the pioneers learn more about what works and what doesn't. After all, Best Buy CEO Robert Willett called RFID the best thing to happen to the supply chain, ever, in his keynote address. But Willett isn't buying the tags; his suppliers are. And before it's the best thing ever, there'll likely be an industry shake-out among RFID vendors, of Texan-sized proportions.

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