Background
Radio frequency identification (RFID) has been a major topic of discussion for a couple of years now, with Wal-Mart and the United States Department of Defense driving the attention already focused on this technology to a whole new level, thus triggering the corresponding RFID hype of the media, trade publications, and analyst community. Of particular interest has been the emergence of an RFID ecosystem of hardware, middleware, software, and services companies, which are all vying for prospects and attention. The emergence of an ecosystem is usually a good thing, because it drives technology innovation, facilitates competition, and brings both new solutions and the application of solutions to the fore. But the emergence of an ecosystem can also cause confusion, forcing enterprises looking to adopt RFID technology in either the short or long term to perform due diligence on vendors and services providers that are all espousing their particular RFID solution set or level of RFID domain expertise.
RFID Ecosystem Landscape
Simply put, RFID is the latest "disruptive technology" to track objects (which might be products, containers, people, or specific assets) and turn object data, along with events, into actionable knowledge. The components of an RFID system typically include the following.
RFID technology is not necessarily new, nor is the constituency of the ecosystem new, but its role and activity in RFID is a relatively new phenomenon. Three or four years ago you could hardly find a single mention of RFID (not to be confused with basic line-of-sight radio frequency [RF] and bar code technology, which has been used in warehouses, stores, and other supply chain applications for decades). Now, however, RFID has emerged as the latest technology to capture significant supply chain mindshare and to gain major recognition as being a sizeable market for the future. The growth of this market will, nonetheless, span decades, with a relatively quick incremental growth path leading to a robust market that, conservatively, could be in the $10 billion (USD) range. Several industry analyst firms have conducted interviews of hundreds of companies, primarily in the manufacturing and retail segments, feedback from which indicates that the current mind set clearly holds that it is a matter of when, not if, to initiate and deploy RFID. In this regard, timing will be everything for those in a position to wait for the RFID technology to mature. This waiting period will result in a more reasonable pace of RFID adoption over the next few years.
As previously mentioned, the market potential for RFID has been recognized as substantial and there has been considerable speculation about its growth. Along with this speculation has come a rapid, dramatic expansion of the RFID solution landscape. Solution providers from various backgrounds and with various software and services domain expertise have jumped on the RFID bandwagon. As a result, an ever expanding and changing RFID ecosystem of solution providers has emerged, as depicted in figure 1.
Figure 1. RFID Ecosystem
While retailers and retail suppliers have been the most noticeable early adopters of RFID technology (see RFID—A New Technology Set to Explode? Part Two: Early Adopters), the opportunities for adoption of this technology abound, both inside and outside of traditional supply chain application touch points. We are already seeing applications of the technology in asset management, access control, inventory control, quality control, anti-counterfeiting, and contact-less payment.
In fact, RFID can be used to provide visibility into processes, to enhance security and safety of objects, and to monitor quality control measurement. Moreover, the ability to justify an RFID solution improves when more than one benefit is provided to an enterprise, and this simple economic fact is driving solution providers in the RFID ecosystem toward innovative ways to use the technology. In this regard, the real key to the usefulness of RFID solutions hinges on their ability to take collected data and pull them into applications where actionable knowledge can be gained from them.
Trends in the Competitive Ecosystem
Early adopters of RFID are looking beyond initial pilots and field trials as project implementations are completed and critical post-implementation issues are tallied. We are collectively learning the nuances of RFID technology and process adoption, one step at a time, and we are beginning to recognize trends among the solution participants.
First and foremost, the market is shifting away from a focus on tags and readers and towards integration with enterprise applications and the implementation of business process changes, where the real value of RFID will be captured. This maturation of RFID technology into the business process arena is critical if the enterprises deploying RFID technology are ever going to reap positive benefits. The initial "slap-and-ship" solutions of suppliers trying to meet retailer mandates were mere exercises in minimizing costs to meet requirements. Emphasis must shift to how enterprises can gain positive return on investment (ROI).
To date, positive and quantifiable ROI has been elusive. Most early adopters report that unexpected complications and costs incurred during the implementation and verification process have dissolved any real short term notion of ROI. The "slap-and-ship" compliance approach of companies that viewed RFID as just an added cost of doing business with channel masters like Wal-Mart has limited their initial process improvement efforts to minimize costs, as they are waiting for a better ROI capability before investing further. However, this impression that ROI remains illusive for most early adopters is not as yet substantiated by a great deal of empirical data, because most early adopters are not willing to share their metrics.
Meanwhile, competitors are attempting to extend their solution footprints, some via acquisition of complementary firms. Examples include Alien Technologies' purchase of systems integrator Quatrotec, Verisign's purchase of R4 Global Solutions, and the recently announced acquisition of Connecterra by BEA. Other companies are expanding their footprint via product development. Both SAP's and IBM's RFID offerings now provide middleware functionality along with integration, while OATSystems' software is now providing a feature set that transcends middleware and provides data analysis capability. In addition, as companies examine the full effect of RFID technology across the enterprise, they are beginning to recognize that in order to realize its full potential, enterprises must understand the multi-organizational impact the technology might have, relative to business impact, information technology (IT) infrastructure impact, organizational impact, and partner impact, as well as to product (object) and event data management.
In fact, regardless of the size of the solution footprint, the RFID market may favor the larger software companies. RFID requires a cross-organizational sales effort, which favors the large software vendors that have established ties to a prospect's IT organization and have the industry and functional knowledge to sell to other internal line-of-business decision makers. For example, an enterprise with an extensive multi-nodal distribution network and elaborate supply chain infrastructure is more likely to lean toward a mega-vendor, like IBM, SAP, Oracle, Sun, or Siemens Demantic, when incorporating an RFID strategy into its interdependent supply network.
Finally, the push from large initial customers, like Walmart, the Department of Defense, Target, and Tesco, has driven many deployments as their suppliers are eager to conform, which is spurring further maturation of the RFID market and pushing down the cost of RFID systems. Coupled with ongoing technology innovation by the hardware manufacturers, this will open further applications to the market. The vision of ubiquitous, low cost RFID technology has the potential to revolutionize global commerce over time.
The RFID Solution Provider Landscape
A closer look at the RFID solution landscape reveals an interesting and diverse grouping of solution providers from various backgrounds, as shown in figure 2.
The RFID solution providers listed in figure 2 make up a representative but not exhaustive list of players in the market, and, according to several industry research firms, the opportunity for market leadership remains wide open. The industry should expect considerable change in the offerings and in the positioning of the numerous solution providers and their associated categories over time. Consolidation is likely, and, as competition heats up, the industry is likely to go through a shake-out similar to the emergence and shake-out of the electronic data interchange (EDI) technology evolution of the 1980s. RFID technical expertise, especially project implementation experience and expertise, is at a premium, so potential adopters of RFID technology will have to choose wisely when selecting partners and products.
This concludes Part One of a three-part note on RFID. Part Two will discuss the middleware vendor dilemma and partnerships, as well as the solution providers that are most likely to experience dramatic change. Part Three will discuss the multitude of opportunities for the application of RFID technologies, and provide a summary of RFID market timing and growth.