With RFID, corporate might makes right

Retail powerhouses such as Wal-Mart gather in Baltimore to push development of controversial tagging technology.

It's a rare thing in the computer industry when corporate customers steer the development of a promising new technology and the suppliers follow their lead.

But that's just the sort of dynamic that will be on display this week at the EPCglobal U.S. Conference 2004 in Baltimore, where the headliners will include executives from Albertsons, Nestle, Procter & Gamble, Gillette and Wal-Mart Stores. The hot topic: RFID, short for radio frequency identification.

"The RFID revolution is being driven by big companies that want to use it," said Kevin Ashton, vice president of marketing for technology start-up ThingMagic and former Procter & Gamble executive. "It's a real reversal in terms of technology innovation."

News.context

What's new:
Retailers, manufacturers and high-tech companies convene this week to promote a new electronic tracking technology that could be a major boon to the computing industry.

Bottom line:
The buzz around radio frequency identification--RFID--is growing, but the technology still faces numerous challenges, including standards debates, privacy concerns and an intellectual-property row.

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What's the big deal about RFID? For one thing, the gigantic and influential Wal-Mart has ordered its merchandise suppliers to cooperate with its plan to use RFID, an electronic identification technology that may someday replace bar codes as a more effective tool for managing inventory. Wal-Mart and other retailers expect the technology to save them and their suppliers billions of dollars by reducing theft, shaving labor costs and keeping shelves stocked.

The technology works by placing special microchips--RFID tags--on merchandise. The tags signal their location across a network of readers placed on shipping docks and in warehouses and stores, allowing retailers and manufacturers to monitor products as they travel from factory to store shelf, and possibly beyond.

As with any new technology wave, RFID is projected to fuel a buying frenzy, with companies stocking up on the required equipment, including RFID tags, readers, computer servers and new software. U.S. retailers will spend nearly $1.3 billion on RFID projects annually by 2008, according to market researcher IDC.

Those kinds of numbers are hard for high-tech companies to ignore. So this week's confab will also feature a lineup of big technology firms pitching their wares. Cisco Systems, Hewlett-Packard, IBM, Microsoft, SAP, Sun Microsystems and Texas Instruments are all preparing announcements and exhibits for the three-day show, which is expected to draw about 1,500 people.

IBM said Monday that it intends to spend $250 million on developing RFID, and a related technology known as sensor networks, over the next five years. HP is pouring $150 million into the technology, the company said in a dueling announcement.

But equally compelling is the fact that RFID technology has captured people's imaginations as few other recent computing breakthroughs have. Some governments have discussed embedding RFID tags into their national currency to combat counterfeiting. Theme parks have begun issuing RFID bracelets to help parents keep tabs on their wandering children. Hospitals, schools and prisons are experimenting with similar programs to more closely monitor people under their watch.

One company even offers to inject humans with RFID chips as a way to cut down on identity theft, tighten building security and improve medical care. One of the company's early clients is Mexico's attorney general, who was injected with an RFID chip recently as part of a new building-security effort. The Mexican government is also exploring the use of RFID to curb kidnappings.

"There are some very dramatic ways to use this technology," said Robert Corbett, director of retail industry solutions at HP.

Yet some of these scenarios have enflamed privacy activists and politicians. "A group called Consumers Against Supermarket Privacy Invasion and Numbering has called for a boycott against certain companies using RFID technology on consumer goods, and several states, including California, Missouri and Utah, have introduced bills to ease privacy concerns.

Tech talk
Some companies attending this week's conference expect the privacy issue to take a backseat to other concerns, such as technology standards. On the standards front, RFID advocates are eager for the release of a common specification for governing the way tags and readers communicate. The protocol should be finalized any day, but the only hitch is that it may require royalty payments to a patent-rich company called Intermec Technologies. Some in the nascent industry worry that patent disputes could flatten the RFID adoption curve.

Another theme at the conference will be how companies can use RFID systems to collect, analyze and securely share data with partners using the Internet. Internet domain name keeper VeriSign, and EPCglobal, a division of bar code purveyor Uniform Code Council, plan to demonstrate something called the EPC Network. The network runs over the Internet and provides a central repository for RFID data, which companies can use to relay information about inventory, deliveries and so on to customers and suppliers.

"The big focus will be on how you go outside your own four walls" with RFID, said Julie Sarbacker, director of Sun's RFID business unit.

The cost of the technology is bound to be a big topic as well. For RFID to live up to its promise, the price of tags must fall from about 45 cents apiece today to less than 10 cents, experts say. Tags should become cheaper as more companies place big orders, a trend that's already under way. But many in the industry continue to fixate on how low prices will go, and when they'll do so.

The EPCglobal conference should also provide technology suppliers with an opportunity to court merger partners, ThingMagic's Ashton said. Venture capitalists have hatched hundreds of RFID outfits over the last few years, and established computing companies are now looking for a piece of the action--the perfect recipe for a buyout spree, he said.

"I think there's definitely going to be consolidation of all kinds in the (RFID) vendor base--from companies giving up, to companies growing up or merging," Ashton said. "I'll definitely be looking out for who's having lunch with whom."

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