RFID gets a reality check

The electronic monitoring technology undoubtedly holds a lot of promise. Radio frequency identification (RFID) is expected to help retailers and their merchandise suppliers save big bucks by reducing theft, shaving inventory and labor costs, and keeping store shelves stocked. That's why major retailers, including Albertsons, Best Buy, Target and Wal-Mart Stores, are all signing on.

Although the future of RFID and the companies lining up to supply it looks bright, a number of unresolved issues are keeping discussions more sober than giddy at the nascent industry's annual convention, EPCglobal U.S. Conference 2004. Among the concerns are the technology's costs, its impact on consumer privacy, its reliability and a fear that the latest equipment could quickly become obsolete as new versions are introduced.

But the chief question is whether businesses are ready to spend big on new technology again, after reining in budgets in recent years and watching flaky dot-coms go under, according to Sarah Friar, vice president of Goldman Sachs.

"RFID has to live within the confines of that environment," Friar said during a panel discussion on Wednesday. "It's technology, and people have been burned by that, so I expect them to take it slow."

It probably doesn't help matters that a shortage of RFID equipment is driving up prices and that customers have been aggravated by spotty quality, according to Meta Group analyst Bruce Hudson.

"There is still a lot to prove with the technology," John Raudabaugh, vice president of systems implementation at Albertsons, said during another panel talk. "We want to give it time to settle down."

Privacy and what to do to protect is another big topic. RFID works by placing special microchips--RFID tags--on merchandise. The tags signal their location across a network of readers placed on shipping docks, in warehouses and stores, allowing retailers and manufacturers to monitor products as they travel from factory to store shelves.

Privacy activists worry that consumers could leave stores broadcasting all kinds of information about their belongings for anyone with the right tools to see. Another concern is that people's belongings would leave an electronic trail of their whereabouts and activities for government officials, lawyers or marketers to collect.

Several people have lost divorce cases after lawyers subpeonaed data from RFID systems used in EasyPass express toll systems and used it as evidence against them, noted panel moderator David Kirkpatrick, senior editor of Fortune magazine.

Yet several speakers at the conference, including an official from Department of Defense and a Michelin executive, dismissed the issue. "Taxpayers should be happy I'm managing supplies with RFID," Defense Department official Alan Estevez said. "I don't want to discount people's concerns, but I think they're overblown."

Technical questions about RFID also abound. What do companies need to do to handle the onslaught of data RFID systems are expected to generate? Another big question: How can companies incorporate RFID with other business systems that monitor inventory?

Goldman Sachs' Friar said many big names in computer technology have yet to figure it out, despite pitching new RFID products and services. IBM, Hewlett-Packard, Microsoft and Sun Microsystems all unveiled new RFID efforts this week in conjunction with the conference.

Friar added that many of those manufacturers have rushed to get something into the RFID market.

"A lot of it's a rebranding of products they already have in place that they can put under the RFID umbrella," she said. "They're being caught a bit on their heels."