When more than 100 top executives gathered at Microsoft's Redmond, Wash., campus a few months ago for the company's annual CEO Summit, a technology experiment took place right beneath their noses. Radio-frequency identification tags, attached to the attendees' name badges, emitted signals that were used to facilitate seating at the opening reception.

"Definitely, this is a revolutionary technology," Bill Gates told his influential guests, before informing them their badges were equipped with the wafer-thin tags.

What Gates didn't reveal was that his company was already working on something much more ambitious. For months, Microsoft has been ramping up development as it prepares to enter the RFID market in the first half of next year. Its engineers are coding RFID specifications into three of the company's enterprise-resource-planning applications--the Axapta, Great Plains, and Navision suites--and into BizTalk Server, which plays a central data-integration role in Windows environments.

Windows may get an RFID injection next. "The platform will be RFID-enabled," says Paul Flessner, senior VP of Microsoft's server platform division. Within the operating system, RFID support probably would be akin to a device driver, the piece of code that allows a printer or a network device to work with a computer.

Microsoft is aiming for a share of the burgeoning market for RFID readers, which will grow 50% next year, to 1.5 billion devices, research firm Venture Development Corp. estimates. "If one reader costs $1,000 or more, we want to bring down that cost significantly by taking a zero off that number," says Drew Gude, a Microsoft program manager. While some companies, such as TrenStar Inc., have done the work themselves to load Microsoft's mobile operating system, Windows CE, onto handheld RFID readers, Microsoft is assessing whether to create a version of Windows CE tailored for RFID readers, according to a source. A Microsoft spokeswoman, however, says that's not an area of focus right now.

Partners and customers feel the gravitational pull of Microsoft's growing interest. An RFID Council, launched by Microsoft in April, already includes more than 30 technology companies, and compatibility testing is under way in an RFID lab on the Redmond campus. Matrics Inc. last week sent its RFID readers and other infrastructure products to be reviewed there. Microsoft's goal, says Girish Rishi, Matric's senior VP of marketing, is to "understand RFID, how it operates, what players you need, what layers exist, back-end systems requirements, and what applications work best in specific markets."

In short, Microsoft is sizing up the RFID market, from top to bottom, to see where it should push hardest. "Microsoft's expanding activity will influence the broader market," Rishi predicts. "Microsoft is expected to drive standards and influence how data is managed as it's transmitted from readers."

Customers are watching closely to see if that translates into applications that are easier and cheaper to implement. "That's the problem--RFID has been cost prohibitive," says Kevin Lehoullier, CIO and CFO of Arthur Schuman Inc., an importer of Italian cheeses.

	Axapta will be Microsoft's first suite to get an RFID overhaul. "The business applications will become more real time," VP Nadella says. Photo by Suzanne Opton

The first Microsoft suite to get an RFID overhaul will be Axapta 4.0, due in the first half of next year. The work involves adding RFID specs to Axapta's warehouse-management module and revamping the module's inventory-tracking features to use data generated by RFID readers. "The business applications will become more real time," says Satya Nadella, corporate VP of development with Microsoft Business Solutions.

The plan calls for those same capabilities to be added to Microsoft's Great Plains and Navision suites sometime in 2006, though that will be cutting it close for midsize suppliers that need to get on board with Wal-Mart Stores Inc.'s RFID initiative by then. "I'll be pushing for it sooner," Arthur Schuman's Lehoullier says.