What Shaped the RFID Market in 2002?

Feb. 1, 2003
From standards development to expanded pilots to real installations, the RFID market made substantial progress in 2002. End-user interest in RFID technology

From standards development to expanded pilots to real installations, the RFID market made substantial progress in 2002. End-user interest in RFID technology is at its highest point and continues to climb. RFID technology is getting strong support from end users, with consumer goods manufacturers, government organizations, retailers, medical facilities, libraries and airlines using, evaluating, testing, and becoming more aware of RFID solutions. However, according to Venture Development Corporation (VDC) project manager Michael Liard, "The end users are coming out, but not their wallets. The excitement surrounding RFID has not translated into explosive sales. Regardless, 2002 proved to be an interesting year for the RFID market." So what shaped the RFID market this past year?

1. Market growth amid difficult economic conditions. VDC's recent report entitled "Global Markets and Applications for Radio Frequency Identification and Contactless Smartcard Systems, 4th Edition" reveals global shipments of RFID systems (including transponders, readers, software and services) reached approximately $965 million in 2002. Although struggling economies across the globe (especially in major markets such as the United States) have limited IT investments and restricted RFID spending over the last two years, the RFID market experienced roughly 8% compounded annual growth since 2000.

2. Traditional application segments continue to drive current market. The market for RFID systems remains driven by traditional applications such as security/access control, automobile immobilization, toll collection and transportation (i.e., rail car identification, shipping container tracking, etc.). These profitable application segments are now approaching saturation, leaving the future growth of the RFID market to emerging application segments such as supply chain management, real-time location systems, baggage handling, and point of sale.

3. RFID security applications attract attention post-September 11, 2001. The increased demand for security applications such as homeland security, employee identification, people tracking, and access control exerted a strong influence on RFID shipments in 2002. VDC research revealed an increase in end-user evaluation of and spending for RFID-enabled access control systems and employee tracking/identification programs across all economic sectors, most notably within government and industrial/manufacturing environments.

4. The MIT Auto-ID Center and ePC initiative march forward. With more than 80 active members, the MIT Auto ID-Center and its ePC initiative made significant progress over the last year. Successful ePC product demonstrations were carried out in late 2002 using the first UHF transponders based on the Auto-ID Center's specifications (developed by Alien Technologies). Matrics, Tagsys, and Philips were among the companies to announce the development of ePC-compliant products. And, perhaps the biggest news of 2002 was Gillette's announcement that it plans to place an order for 500 million ePC transponders from Alien Technology. The signals are clear -- ePC technology is ready to be commercialized; however, the immediate focus will largely remain on container, pallet, and potentially multi-pack carton denominations, with item-level tracking remaining a near-term hypothetical.

5. Promising end-user initiatives and trials. Few large RFID implementations were announced in 2002; however, pilot programs are providing a morale boost to the industry and demonstrating the value proposition of RFID. Tagging reusable items such as pallets, totes, crates, shipping containers, and even vehicles provides a significant return on investment and the opportunity to amortize the cost of transponders over several years. Among the most promising trials in 2002 were Marks and Spencer's (UK) returnable plastic container project; PMG/Wal-mart pallet tracking pilot; leading pallet provider CHEP International began tagging hundreds of thousands of its 200 million pallets and containers; and the Smart and Secure Tradelanes (SST) initiative was launched in three major Atlantic tradelanes, including the Port of New York-New Jersey, using RFID transponders to track shipping containers.

Interest and awareness of the potential of RFID solutions has never been higher. However, the market continues to struggle with issues restricting stronger growth such as channel development, end-user education, standards, end-user price expectations, and application potential. The RFID market has undoubtedly become a waiting game -- waiting for standards, waiting for prices to drop, waiting for major orders (especially from larger, Tier-One end users), waiting for the market to explode. In the interim, industry players must communicate the value proposition of RFID, further educate the market, and provide a unified message on critical issues surrounding price, performance, and technology availability. Much can be done with currently available technology at present price points and more end users need to realize the impact an RFID system can have on their business environments today.

Study Source: Venture Development Corporation. For more information, visit www.vdc-corp.com.