At last month's RFID Live conference in Orlando, I had the opportunity to hear representatives from Venture Development Corp., Frost & Sullivan, ABI Research and RW Baird discuss the future of the RFID market. I found their comments to be very useful in navigating the thicket of news releases that we see every week in the RFID industry, so I am sharing this information with you. The figures presented here are what I took to be the average consensus view, so you may find some variance from specific articles written by the analysts represented.
RFID Market Size
The RFID market, for the sake of this discussion, includes software, services, and hardware for all frequency ranges (LF, HF, and UHF). In 2006, the worldwide RFID market was roughly $2.3 billion. The American market accounted for 53% of the total, with Europe, the Middle East, and Africa combined at 28% and all of Asia-Pacific at 19%. For 2007, the consensus estimate for the total market was roughly $3 billon. Strong growth in demand is forecast for North America and China; Europe is expected to remain steady throughout 2007 due to standards issues.
It is instructive to look at the market portion occupied by the basic RFID infrastructure of tags and readers. The expected size of the UHF Gen 2 market for tags and readers in 2007 is $30-$50 million. The expected size of the HF tag-and-reader market was higher, at roughly $250 million forecast for 2007. Finally, the 2007 market for active tags and readers is expected to be $1 billion. Therefore the application that gets the most press coverage -- retail consumer-goods EPC UHF Gen 2 tagging for the Wal-Mart (and other) mandates -- is the smallest portion of the worldwide RFID market.
Technology Trends
The analysts stated that growth in the RFID market has primarily been driven by closed-loop applications such as manufacturing control, industrial tool tracking (particularly Aerospace), animal tracking and automobile immobilization via RFID chips in "smart keys." Container tracking throughout the multi-modal logistics system has also been a driver of growth.
The expected escalation of RFID across all industries is expected to be 25% to 30%. HF technology was singled out for particular attention. HF tag technology underlies the "contactless payment" systems used by credit-card companies; it is also used for e-passports and RFID enabled national ID cards. The analysts cited the growth in popularity of contactless payment, plus a Chinese initiative to issue national ID cards, as drivers of particularly aggressive growth of the HF tag sector. The active-tag sector will continue to grow due to continued demand in the industries cited above. The UHF tag market will grow, but at a lower rate than active and HF tags. Finally, low-frequency tags are viewed as an obsolete technology. This sector is expected to decline as on overall percentage of the RFID market.
Market Trends
As might be expected from a meeting of market analysts, the consensus view was that ROI considerations drive all decisions in the RFID market. Asset tracking and traditional closed-loop applications are winners from an ROI perspective. Open-loop RFID applications, including UHF EPC Gen 2 initiatives, have not shown convincing ROI yet in the analysts' view, so they expect such initiatives to continue to struggle. They estimate that 90% of CIOs have a negative view of the ROI potential for passive RFID, which understandably slows adoption of the technology.
For technology vendors, 2006 was a tough year. The industry is seeing increasing consolidation. Hardware manufacturers are fighting a losing battle against the trend of tags and readers becoming commodity goods where low cost is the primary consideration. Therefore margins are being slashed to be competitive and expand the size of the market.
Meanwhile, middleware vendors of purely software solutions are being squeezed at both ends -- the hardware manufacturers are producing increasingly intelligent readers and other devices, and the large ERP software companies such as Oracle are adding RFID functionality to their products. One analyst commented, "If you survived 2006, you probably have pretty deep pockets so you'll be OK in 2007 and 2008."
In the analysts' view, the future of the RFID market belongs to solution providers. These companies bring a set of software, hardware, and business-application skills together to solve a specific business problem. A good example of this is Savi Technology (now part of Lockheed), which innovates in hardware, software and systems to provide a total solution to the problem of tracking shipping containers. The solutions providers that address a specific business need with a clear ROI will be the winners in the RFID marketplace, at the expense of hardware-only and software-only vendors.
Rise Of The Solutions Integrator
One interesting observation, which is consistent with the emphasis on RFID solution providers, is that the adoption of RFID technology is hampered by a shortage of qualified systems integrators. The hardware and software vendors use systems integrators as a primary market channel for sales. Systems integrators are, in effect, the primary solutions providers for small and medium-sized businesses. Therefore the analysts foresee a rise in companies marketing themselves as RFID systems-integrators, but issued a warning that real experience in the field is likely to be rarer than the marketing of such integrators would indicate.
Conclusion
This column reveals the most important trends, in my opinion, in the RFID industry for the next year or two. The key perspective for is the view of a person trying to make a technology decision for a particular company project. And from that perspective, the view of RFID technology hasn't changed significantly over the last year. It is still necessary to match the RFID technology (or non-use of RFID technology) to the specific business problem to be solved. It is still important to evaluate projects in terms of ROI. What has changed is that solutions providers will be stepping up to make decision-making easier by offering packaged solutions to specific problems.
Paul Faber is a Principal with Raleigh, N.C.-based Tompkins Associates, a supply-chain-solutions consulting firm. As the chief manager of RFID equipment implementation at Tompkins Emerging Technology Center, he possesses extensive experience in material handling solutions, systems integration, and installation. Paul has managed field integration and operations activities at material handling sites around the world.
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