))) Retailers Tune In To Radio Tags –
IBM, SAP Study RFID

Radio frequency ID may fast replace bar codes...

J. Bonasia
March 16, 2004

Technology that's been used for years to track livestock and pay for gas at the pump is emerging as the next big thing for product makers and retailers.

Radio frequency identification tags are fast replacing bar codes as a means of identifying packaged goods. Such tags can slash costs and boost sales by greatly improving the efficiency of supply chains and in-store stocks.

Last month, Target Corp. joined Wal-Mart Stores Inc. and the Defense Department in requiring suppliers to affix the tags to all pallets and cases by next spring.

RFID, as the technology is known, has the potential to transform entire industries. Yet many investors remain unclear on who stands to profit most from this potentially lucrative field, says Michael Liard of Venture Development Corp., a market research firm.

Many Vie For Piece Of Action

"There's such a hubbub in the market today," he said. "And there's no shortage of people who want to get a piece of this pie."

The total market for RFID products and services is about $1 billion per year, and is expected to grow to $8 billion over the next five years. In addition to helping retailers manage inventory, smart tags can help thwart the sale of counterfeit drugs and other goods, and protect cargo shipments from terrorist attacks.

Analysts break the tag market into four main parts: the actual tags, the devices to read the tags, the software to process and analyze the data, and the services to build RFID systems and integrate them with corporate networks.

Unlike bar codes, smart tags rely on antennas to transmit data to reader devices. That's how the readers pick up information from several feet away, even through boxes and cartons. As a result, products move from manufacturers to retailers and on to consumers much more efficiently.

At about 25 cents each, the tags are still too costly for widespread use. But by requiring suppliers to use the tags on pallets and cartons, Wal-Mart and Target hope to increase the volume of tags produced and thus lower the cost. Eventually, each consumer item will be tagged.

Today's reader devices are accurate only about 80% of the time, and no clear industry standards yet exist for the tags and readers.

But some of the world's biggest tech companies, such as IBM Corp., SAP AG, Motorola Inc. and Texas Instruments Inc., are funding new research into RFID.

Meanwhile, many new companies are cropping up to address one or more aspects of the RFID equation, says Evangelos Simoudis, a venture capitalist with Apax Partners Inc. His firm has studied 22 early-stage companies the past year, but has not invested in a startup.

"We're trying to determine the best business model for a private company going into this space," he said. "We're interested in young companies that are built around new applications."

Texas Instruments launched its RFID division more than a decade ago. Since then, the company has sold more than 300 million tags, says Bill Allen, a spokesman for TI-RFid™ Systems.

Texas Instruments also sells readers, and is active in the push to create industry standards. Two bodies – the International Organization for Standardization, or ISO, and EPCglobal Inc. – are hashing out the details for universal product standards. They will likely approve standards by midyear, giving the whole sector a big boost, says Allen.

"The question is not if the use of RFID will become ubiquitous," he said. "It's a question of when."

Some analysts expect the tags to become a high-volume, low-margin commodity. That would likely make tag manufacturers a less attractive investment.

Can Cost $5,000

Some notable private tag makers include Matrics Inc., Alien Technology Corp. and Savi Technology Inc.

The readers will probably be more profitable. They now sell for $1,500 to $5,000 each, and multiple readers are needed for each warehouse loading dock, says analyst Liard.

"Multiply that by the number of dock doors out there, and the math goes up exponentially," he said.

Applied Wireless Identifications Group and ThingMagic LLC are private reader makers with potential, says Mark Somol of NeoCarta Ventures Inc.

NeoCarta has not backed either firm, but Somol says both are doing a good job of shrinking the components in their readers, thus adding more functions while reducing the price. "There is still no clear winner in the reader field," he said.

Other software makers are designing and promoting new RFID applications as well. Some of the most notable ones include Manhattan Associates Inc., Red Prairie Corp., OATSystems Inc., GlobeRanger Corp. and Provia Software Inc.

Another promising area in the early stages of RFID adoption will involve the services of systems integrators and consultants such as Accenture Ltd. and BearingPoint Inc. That's because many companies will need help figuring out the best RFID strategies for their businesses, says Somol.