Viewpoints

About This Technology

Radio-frequency–identification technology is an automated data-capture technology that uses low-power radio waves to communicate between readers and tags or contactless cards. Tags can attach to items such as components, products, packaging, or bulk batches of products to provide access to additional information for, for example, manufacturing, supply-chain, and asset-tracking applications. Contactless cards find use in passports, smart cards, and badges for authorization, identification, and payment applications. The technology promises to capture information accurately and reliably. RFID technology, in contrast to bar-code technology, requires neither line of sight nor alignment between reader and tags. Moreover, RFID tags are sturdier than bar codes, enabling their use in adverse manufacturing conditions (such as hot or dirty environments). Some types of tags—rewritable tags—allow for changes of information directly on the tag, whereas write-once tags establish a reference point for finding information in databases.

A major driver of the technology is the need for real-time Internet-enabled information access. Though RFID has been available for quite some time, the technology is still at an early stage of development and commercialization. Early use of RFID has demonstrated benefits for supply-chain management and logistics, but evolving use of RFID technology faces a number of technical and institutional challenges. The technology's accuracy and reliability need to improve. Existing infrastructures are limited—with an insufficient number of readers and middleware connecting RFID-captured data to other software modules—in contrast to infrastructures for bar-code technology. Implementation of an infrastructure that enables seamless use of the technology across all supply-chain partners will come with staggering costs because of the necessary hardware and software. Costs of individual tags, which manufacturers will produce in the billions if the RFID market lives up to its promise, are still too high for ubiquitous tagging of individual items in most commercial product categories. Nonetheless, return-on-investment potential and compelling operational benefits will drive adoption of the technology.

Initiatives such as Wal-Mart's rollout, which started in 2005; Metro's introduction of RFID in November 2004; and the U.S. Department of Defense's initiatives to implement RFID technology have been major drivers of market adoption, and one cannot underestimate the impact of these rollouts. The ongoing rollout of contactless passports constitutes another milestone.

RFID technology is on the verge of becoming a crucial market enabler for manufacturing, supply-chain, and logistics operations; tracking; and security and identification applications. Adoption of RFID technology in manufacturing, supply-chain management, and identification applications is only the first step. Once a sufficient infrastructure is in place—in response to ROI and security considerations—a wide variety of other commercial opportunities will emerge, much as products and services proliferated in the Internet arena. New products and services will emerge that use the RFID infrastructure as a base. Among the applications with potential for market success are products that combine RFID technology with sensors, RFID-enabled end-consumer products and services, and new types of payment systems for mobile commerce. As with the Internet, entrepreneurs are likely to discover many other potential RFID applications, and market optimists (and industry hype) envision a gold-rush mentality similar to the one that occurred during the dot-com period. In reality, RFID technology is already demonstrating benefits. Use of RFID provides opportunities for virtually every industry, offering extremely high potential for productivity gains and bottom-line results. But the technology still faces a number of challenges and obstacles that require resolution before the industry can realize the road to widespread commercialization. Developers, users, and investors need to take a realistic look at remaining RFID-technology–related issues not only to avoid making strategic business mistakes but also to identify genuine opportunities in a wide range of applications.