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RFID standards race may set early market leaders

The companies fighting to have their technology approved as the hardware standard for radio frequency identification are also competing for a head start that could deliver early dominance.

Matt Hines Staff Writer, CNET News.com
Matt Hines
covers business software, with a particular focus on enterprise applications.
Matt Hines
6 min read
The ongoing effort to establish standards for technology used in radio frequency identification systems could give an early lead to companies involved in creating the winning design.

Three groups have proposals in contention before Brussels-based standards body EPCglobal. Solo RFID specialist Alien Technology has proposed one, Royal Philips Electronics and Texas Instruments have collaborated on another, and smaller firms EM Microelectronic-Marin, Matrics, Atmel and several others have offered a third.

The three proposals are thought to be relatively similar, being based on existing International Organization for Standardization guidelines for warehouse logistics technology. However, some industry experts say there are enough differences in the designs to heavily dictate competitive issues in the RFID market for the near future.

Perhaps the chief competitive issue is the benefit of the head start that will be granted to the backers of the selected standard. "Weeks and months could provide a significant advantage in establishing a presence in this market," said Erik Michielsen, an analyst at New York-based ABI Research. "There isn't so much of an adversarial relationship involved, because you have engineers rather than executives, but at the end of the day, the group than wins acceptance has put itself in a good position."

The push to create industry standards for all the components needed to build the inventory tracking systems has accelerated rapidly, as the market for RFID tools has developed. Retailing giant Wal-Mart Stores, which jump-started the market for RFID by ordering its top 100 suppliers to adopt the technology by January, has left the matter of selecting technology guidelines for building the systems in the hands of EPCglobal.

RFID tags use chips armed with wireless antennas to provide detailed information about the products to which they are attached. The retailers that are driving RFID adoption, including Wal-Mart, Target and United Kingdom-based Tesco, are expecting to have more efficient inventory tracking, reduced costs and easier solutions to supply problems.

The standard that EPCglobal selects for the RFID UHF (ultrahigh frequency) generation 2 air interface protocol will determine how RFID tags and readers communicate. EPCglobal has proposed an acceptance deadline of Oct. 4.

Handicapping the race
According to industry watchers, the early favorite is the Philips-TI team, based on the companies' lengthy experience with many pieces of the RFID puzzle, including semiconductors and device manufacturing.

Michielsen says any existing success enjoyed by Alien and Matrics, whose products have found their way into a number of early pilot programs, would be rendered moot if their proposal isn't selected.

"After one standard is chosen, the companies that have won will be able to begin manufacturing, while the others will struggle with time lag, as they make production facility changes," Michielsen said. That head start means that the first company to market products in quantity will seize an immediate lead that the analyst said may be hard to overtake for some time. This is despite Michielsen's estimate that the "losers" may suffer delays as short as a month or two, especially if they outsource their fabrication.

"Philips and TI will make the typical Microsoft play in the market and try to dominate, even if they're forced to be late with products."
--RFID expert Anthony Higginbottom,
Deloitte Touche Tohmatsu

And for collaborating giants Philips and TI, losing the standards battle may be even less of a setback, Michielsen said, citing the scale of their manufacturing operations. "Philips and TI have the greatest ability to seize the market and move forward quickly, any way you look at it," he said.

Anthony Higginbottom, an RFID consultant at Deloitte Touche Tohmatsu, ventured to say that if one of the other two groups wins, Philips and TI may attempt to buy critical pieces of the victorious effort--specifically, vendors Alien or Matrics themselves.

"Philips and TI look at the market as organizations that have been doing RFID work for some time, and they understand how important getting this standard is," Higginbottom said. "They will make the typical Microsoft play in the market and try to dominate, even if they're forced to be late with products."

Higginbottom said the group whose standard is accepted should feel flush with that success right away, garnering a slew of early sales from companies waiting to get their programs under way.

Nobody wins?
The experts expect the three-way standard competition to be resolved with one clear winner and two obvious losers. But Sue Hutchinson, EPCglobal's product manager, said the team could blend elements of multiple proposals rather than accept one.

"I honestly think that's a much greater likelihood," she said, explaining that the organization's Hardware Action Group isn't looking to adopt a particular technology. Its effort to ratify a standard for the second-generation UHF air interface protocol is focused on meeting user needs.

A blended standard would reduce the advantage that a single winning proposal would offer its advocates. But Mike Wills, co-chairman of the Hardware Action Group, said he doubted that there was much benefit to "winning," anyway. "If the decision is to choose one, well, maybe someone will have a slight advantage, but I don't think it's that simple," said Wills, chief RFID strategist at tag and reader maker Intermec Technologies.

Wills said Wal-Mart's help in spearheading the effort has helped keep the standards work focused on the needs of end users--retailers such as itself--rather than on tech providers' marketing plans.

As RFID players wait for a standard, EPCglobal has been criticized for taking too long to set one. Deloitte's Higginbottom said EPCglobal has been moving too slowly and that the group will need to become more aggressive, if it is to hold on to its current position as the leading industry authority on RFID.

In a recent interview with CNET News.com, Tom Laffey, vice president of integration software maker Tibco Software and chairman of EPCglobal's Software Action Group, blamed delays in rolling out standards on festering intellectual property issues between members of the organization. He also cited continued work to make sure that any guideline would function properly in industries other than retail.

Hutchinson and Wills both took issue with the idea that the group is moving too slowly. "There are huge challenges, and the fact is that the group is trying to meet a long list of customer requirements," Wills said. "Getting several dozen technology providers to come to an agreement is never easy, and the short time frame we have is daunting, but the work is going incredibly well, compared to other standards efforts I've seen."

Taking stock
Overall, the time spent on developing the standard does not appear to be slowing RFID adoption rates. On Tuesday, executives at RFID poster child Wal-Mart spoke out against reports that the company's program has foundered, as its suppliers struggle to make RFID make sense. In a rare public statement on RFID, Michael Duke, chief executive of the U.S. Wal-Mart Stores division, said the company's pilot program remains "full speed ahead."

Analysts at Forrester Research, which in March predicted that many Wal-Mart suppliers will not meet its Jan. 1 RFID deadline, wouldn't dispute the retailer's claim but pointed out that the standards ratification effort remains critical to real adoption.

"The biggest impact of getting the standards work done is in lowering the costs related to the tags themselves," Forrester analyst Christine Overby said. "Right now, you have fragmented tag designs, fragmented suppliers and uncertain demand, and all of this is getting in the way of RFID."

Overby said establishing the standard may reduce chip prices by as much as 80 percent and truly usher in the sort of rapid growth experts are predicting for the sector.

"Right now, you have fragmented tag designs, fragmented suppliers and uncertain demand, and all of this is getting in the way of RFID."
--Christine Overby,
Forrester Research

In a study published this week by Deloitte, ePC Group and Retail Systems Alert Group, researchers predicted that 25 percent of companies with $5 billion in revenue will spend between $500,000 and $10 million on RFID adoption in 2004. The study also showed that RFID spending among smaller companies will be significantly less than that of their larger peers. The research entailed a survey of 90 retail, distribution and consumer products businesses.

"Widespread interest in RFID shows its potential as (a) catalyst for change in the retail industry," said Peter Abell, president of Boston-based ePC. "However, members of the retail and (consumer product) industries have only begun to get their feet wet--and they don't want to jump into the pool too quickly."