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RFID hardware survey 2005

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RFID hardware survey 2005

  1. 1. RFID hardware survey 2005 Is UHF technology ready for European adoption? SOLUTIONS THAT MATTER
  2. 2. 01 RFID hardware survey 2005 Colophon This study is an initiative by LogicaCMG, conducted by the RFID centre of excellence. Editor Eelco de Jong Contributing authors Rolf Appel, Eric Burgers, Sebas de Jongh, Andrew Vann Arjon Vlasblom. Special thanks to: All the organisations that participated in this study. Wilco Schillemans and Theo Quick for reviewing the final version Layout Andrew Mason Text review Norman Ireland, Plain Text UK Printing Cachet Printing B.V, Rotterdam, Netherlands Prof. W.H. Keesomlaan 14 1183 DJ Amstelveen Postbus 159 1180 AD Amstelveen Netherlands Tel: +31 (0)20 5033 000 Fax: +31 (0)20 5713 960
  3. 3. Preface As many of you have experienced in the past few years, the speed of RFID technology development and its business applicability has increased dramatically. Driven not only by retailers, but more significantly by logistics providers, defence departments and the aviation industry, RFID has become much more mature than it was, say, just three years ago. LogicaCMG has received many questions from clients about the necessary hardware infrastructure that needs to be put in place and the role of the RFID vendors: • “Should we wait for Gen2 to become readily available before purchasing equipment?” • “Is software upgrade for readers really viable when we are going for Gen2?” • “When facing item, case and container level tagging in our company and looking at three infrastructures, can we somehow integrate or simplify these?” As a company whose reputation is based on facts, LogicaCMG believes that a serious investigation into the status and future development of the RFID hardware in Europe serves many purposes. In line with our major research into Returnable Transport Items, 2004, an international technical, business and editorial team from the Global RFID Centre of Excellence was formed. This team worked on this study for six months. There are a number of positive conclusions in this report, notably the availability of off-the- shelf hardware solutions and the Gen2 standard, but also some issues that are still inhibiting major adoption. Luckily, the hatchet between Symbol and Intermec on RFID patents has been buried, giving room to many initiatives and developments. However, this has happened only very recently. A special word of thanks to all the companies that have contributed to this study and the Hardware Survey team at LogicaCMG that has fulfilled its mission with the utmost dedication again! Finally, I hope that this survey gives you many new insights, recommendations and reinstatements for the quest into the most efficient RFID architecture. Paul Stam de Jonge LogicaCMG Group director RFID solutions
  4. 4. 03 RFID hardware survey 2005 Contents Preface Management summary 4 1. Introduction 10 2. Findings of the survey 13 3. Implications for end-users 33 4. Conclusions 36 Appendix A: sources 39 Appendix B: glossary 40 Appendix C: introduction to RFID 44 Appendix D: overview of RFID standards 48 Appendix E: European UHF regulations 55 Appendix F: background on IP issues 60 Appendix G: company profiles 63 Appendix H: about the authors 71 Appendix I: LogicaCMG and RFID 73
  5. 5. Management summary The benefits of RFID technology sound promising, especially for applications in supply chain management and asset management. This is particularly the case for RFID technology in the Ultra-High Frequency (UHF) range, which makes it possible to track objects over a distance of about three meters. But the use of UHF RFID technology in Europe has long been hampered by regulations that prohibited many useful applications. When the European regulations were changed in 2004 to allow for read ranges similar to the US market this obstacle was removed. The ratification in December 2004 of the ‘EPC Class1 Generation 2 standard’ – referred to as Gen2 – created the first global standard for UHF RFID technology and provided a further boost to uptake. Since then, RFID hardware vendors have been quick to announce new products and European early adopters, including retailers Metro in Germany and Tesco in the UK, have started major implementation projects. As a result of these developments many companies are now considering to start pilot projects or full-scale implementations with UHF RFID technology. The benefits of UHF RFID technology may be promising, but is the technology ready to be adopted? With the technology developing at such a rapid pace, it is very difficult to assess its maturity of the technology and to make sound investment decisions. With this survey, it is LogicaCMG’s goal to help the companies facing these important decisions, by providing answers to the following questions: • What is the status and maturity of UHF RFID technology in Europe in 2005? and • Is UHF RFID technology ready to be adopted by European end-users - both early adopters and mainstream users? To explore these issues, early in 2005 we questioned twenty RFID hardware vendors. We have complemented the results of this questionnaire with in-depth interviews with leading hardware vendors, end-users and industry bodies. Status and maturity of UHF RFID technology in Europe in 2005 We believe there are a number of variables that together determine the maturity of a technology making it ready for mass adoption. These elements include the status of standards and regulations, intellectual property issues, the vendor landscape, the investment focus, price levels and the availability of products and technical expertise to implement solutions. These topics are analysed here.
  6. 6. 05 RFID hardware survey 2005 Based on our research, LogicaCMG concludes that 2005 is a very exciting period with significant progress in UHF RFID technology. In short, UHF RFID technology is ready to be implemented in many – but not yet all – business applications. Whereas 2004 was the year of breakthrough developments in standards and regulations, 2005 will be remembered as the year of product development. A critical range of products is being developed and this provides the baseline for future developments. The performance of UHF RFID technology will continue to improve in the coming years, but the products that come to market in the next six- twelve months are future-proof, and increasingly address specific business problems. With the new European regulations and the creation of the Gen2 standard, the market has clearly found an environment that is ready for a wide range of UHF RFID applications. Our research shows the significant progress made, but also highlights the issues that remain to be resolved. In particular, the European regulations still include some challenging areas for the most difficult implementation scenarios. Let’s look at the findings in more detail: Availability and pricing of products European companies that wanted to implement UHF RFID technology so far had a choice between products that comply with the EPC Class 1 Generation 1 standard, or products compliant with ISO 18000-6. Figure 1: UHF RFID product availability Clearly, this is not a perfect situation, and the Gen2 standard will help to resolve this. We expect that by the end of 2005 RFID tags and readers will be available in the European market that are fully compliant with the new European regulations (the ETSI EN 302-208 regulations) and the EPCglobal Gen2 standard. The road to Gen2 products is illustrated below: Figure 2: The road to Gen2 products
  7. 7. It is very important for end-users that this next generation of readers provides a baseline for future enhancements. Nearly all the readers will be able to be updated by software to support emerging standards, so end-users are guaranteed that the readers can be upgraded at low cost to support future functionality. Based on our research, LogicaCMG expect price levels for both UHF tags and readers over the next three to five years to come down 60-70 per cent, with the price of an RFID reader at less then €1000. These reductions will mainly be driven by higher volumes. In the next twelve months we do not anticipate major price reduction in RFID readers, as vendors will bring enhanced products to market rather than reduce the price. Application-specific solutions It is critical that off-the-shelf RFID solutions become available to address specific business problems before the mainstream users can adopt RFID technology. We call these ‘application-specific solutions’: they are designed to optimise the RFID performance in a specific situation, for example on forklift trucks in a warehouse, or on baggage in the aviation industry. Today, there is a lack of application-specific solutions, but based on our survey, LogicaCMG expects this to change over the next one-two years, as the experience of the current RFID pilots and implementations translates into integrated solutions. Hardware vendors indicate that they are currently working with customers and partners on many innovations in tag encapsulation and peripheral equipment. Examples of products that LogicaCMG expects to come to market over the next twelve months include integrated portal solutions for warehouse operations, forklift readers, handheld readers, tunnel readers for the aviation industry and RFID tags that are optimised for use on metal objects. Status of standards and regulations The updated European regulations and the ratification of the EPCglobal Gen2 standard have been a huge step forward for UHF technology in Europe. However hardware vendors remain fairly critical of the new European regulations’ ability to meet the needs of implementations with high volumes of both tags and readers in close proximity. They are particularly concerned about the limited availability of bandwidth in the UHF spectrum in Europe. With only 2 Mhz available, compared to 26 Mhz in the United States, this may affect the speed at which readers can receive and process data from tags. Despite these concerns, the hardware vendors are committed to developing products that are compliant with the new regulations, and are convinced that with advanced radio engineering, many issues can be resolved. The performance of these products will continue to improve over the next few years, as these companies become more sophisticated and experienced in applying advanced solutions.
  8. 8. 07 RFID hardware survey 2005 Market focus LogicaCMG found a remarkable shift in industry focus among RFID hardware vendors in Europe over the last year. Until about a year ago, most of the vendors were targeting open supply chain applications in the retail industry. About six-twelve months ago, many vendors started to broaden this focus and look at opportunities in other market segments. The focus areas identified by different hardware vendors today include: • retail and consumer products • transportation and logistics • automotive • aerospace • healthcare • government and defence. In terms of application focus, we have identified an important shift from open supply chain applications to more near-term opportunities in asset-tracking and closed-loop applications. It appears that the hardware vendors have started to recognise that the European RFID market is different from the market in the United States. The vendor landscape The current vendor landscape is complex for end-users. This is due to the variety of RFID components required in an implementation, the different vendor strategies, the lack of clear market leaders and competition between incumbent and early-stage companies. But all hardware vendors agree that system integrators are the natural choice to take ownership of the integrated solution for the customer. Intellectual property issues For the last year or so, the UHF RFID market has been plagued by disputes around intellectual property for the Gen2 standard. Hardware vendors agree that this issue contributes to a perception of the RFID market as being immature, and that it may create confusion among end-users. Today these issues are still not completely resolved, but recent developments are a huge step in the right direction. First, the creation of an IP pool by a group of vendors was announced, and most recently Intermec and Symbol - two of the companies that contributed significant intellectual property to the Gen2 standard - reached a breakthrough agreement. Clearly, the hardware vendors have come to realise how important it is to resolve this issue. As a result of these recent developments, we do not expect the intellectual property issue to have a major impact on the RFID adoption in Europe.
  9. 9. Availability of technical expertise Hardware vendors agree that in the European market there is limited technical expertise around UHF RFID technology. This is not surprising, given the early stage of the market. We do see that the entire industry is going through a very rapid learning curve, accelerated by both formal and informal knowledge generation, and an increasing number of pilots and implementations. Technical developments Based on a strong belief in the huge market potential for UHF RFID technology, hardware vendors are making significant investments in research & development. There can be no doubt that in the next three to five years RFID tags and readers will become cheaper, provide better performance, and incorporate more intelligence. Some of the key trends, both long term and short term: • RFID readers are getting more intelligent and more networked. Readers are becoming enterprise networked devices, and will include increasing intelligence in filtering tag data. • Tags and readers will be optimised for the European regulations, for example by intelligent synchronization and other advanced engineering technologies. • The development of application-specific solutions will result in more integration between RFID and sensor technology. • New enhanced manufacturing practices and polymer chips will reduce the prices of tags and readers. Is UHF RFID technology To some extent, end-users need to come back to earth following the enormous amount ready to be adopted by of publicity of last year. UHF technology is ready to be applied to some very interesting European end-users? business scenarios, with the potential to give a positive ROI. But UHF technology is not yet sufficiently advanced to read every object in the most demanding environments. Our advice is to start at the more realistic end of the landscape and identify achievable scenarios that make good business sense and provide positive returns. Gen2 has given a clear direction to the technology. Future performance improvements will only strengthen this and make it possible for UHF RFID technology to handle increasingly complex scenarios. If your company wishes to be an early adopter and use RFID technology to create some kind of competitive advantage, the time is right to invest and work jointly with hardware vendors and system integrators. In this case end-users must be prepared to do some joint research work to find the fit-for-purpose solution for their business case. With RFID adoption progressing, more and more proven scenarios and application- specific products become available. But true competitive advantage can only be gained by those prepared to search for the as yet unknown solution.
  10. 10. 09 RFID hardware survey 2005 If your company wants to be a mainstream user and implement only a proven solution, we recommend you start by experimenting today, so you’re ready for implementation when the solution is proven. RFID is merely an enabling technology and the real benefits from RFID will come when you understand the impact on your business processes. This knowledge takes time to develop, and cannot be copied easily from the early adopters. As one hardware vendor stated: ‘The early adopters have recognised where they can obtain the ROI. They’re focused on building the solution and the early roll-out of that solution. The people who have chosen to follow I think are a bit blind to what’s going on, because people who are developing those solutions have no incentive to share what they’ve learned. This is very much an industry where you learn by doing, so you’ve got to go out and make your own luck.’ Recommendations to end-users This survey has clearly illustrated the rapid progress in UHF RFID technology in Europe. But even with the technology maturing quickly, companies will always need a combination of skills in order to implement RFID. Implementing RFID remains complex, especially in industries where the long-term impact is high. Based on our experience, LogicaCMG suggests the following concrete steps to address the opportunities provided by RFID: 1. Understand the fundamental features of RFID and what these mean for your business. For example, what does it mean for processes such as manufacturing, logistics, distribution and in-store operations if objects can be tracked with no line of sight and no delay in the process? 2. Develop a vision of the long-term value of RFID for your company and industry, providing a framework for the organisation to make investment decisions. 3. Involve senior management – especially if the long-term impact is high – and decide if your company wants to be an early adopter or a follower. 4. Work with a strategic partner that can help you navigate the complex RFID landscape and take responsibility for the end-to-end solution. The hardware vendors agree that the system integrators are the natural choice in this process. 5. Design and create a corporate RFID architecture. This will provide the infrastructure that enables your company to deploy new applications quickly and achieve seamless integration with your back-office systems. 6. For the short term: identify quick wins that contribute to your key business drivers and go for rapid experimentation. Start the learning process as quickly as possible. With 2004 the year of standards and regulatory changes, and 2005 the year of critical product development, it remains to be seen whether 2006 will be the year of wide-scale adoption of UHF technology. One thing seems clear however: UHF RFID technology is ready to be implemented in many business applications. We already see companies in many industries seizing the opportunity. The question is: will your company do the same?
  11. 11. 1. Introduction Much of the interest surrounding radio frequency identification (RFID) is currently focused on the ultra-high frequency (UHF) range. This allows RFID tags to be read from a distance of about three metres, and is set to revolutionise supply-chain management in the next few years. The vanguard of this revolution can be found in the United States where retailer Wal- Mart and the US Department of Defence are implementing UHF RFID in their global supply chain operations. Until recently, UHF RFID technology in Europe hardly existed. The European regulations restricted the power used by UHF RFID readers to such an extent that many useful applications were prohibited. Instead, the market for RFID in Europe has been focused on low–frequency (LF) and high-frequency (HF) technology. With a read range of less than one metre, these technologies are widely used in public transport systems and access control but are not suited to some other important situations. In 2004, the main obstacle to UHF RFID technology in Europe was removed when the European regulations were changed to allow for read ranges similar to the US market. The ratification in December 2004 of ‘EPC Class1 Generation 2 standard’,1 the first global standard for UHF RFID technology, will provide a further boost to the uptake. Many RFID hardware vendors have announced products and European early adopters, including retailers Metro in Germany and Tesco in the UK, have started major implementation projects. European companies have watched these developments closely, and many are currently considering UHF RFID pilots or full-scale implementations. With the technology developing at such a rapid pace, companies face significant investment decisions. LogicaCMG has conducted a major survey in the European market place for UHF RFID technology. This survey aims to answer the following questions: 1. What is the status and maturity of UHF RFID technology in Europe in 2005, and 2. Is UHF RFID technology ready to be adopted by European end-users - both early adopters and mainstream users? How can the maturity of a technology be determined? This is not defined by a single element, but rather by a number of variables that, when combined, provide a good picture of the level of maturity. We believe these elements include, the regulatory environment and status of standards, intellectual property issues, the vendor landscape, the investment focus, price levels and the availability of products and technical expertise to implement solutions. We will analyse these topics in detail. 1 In the remainder of this document we will refer to the EPC Class 1 Generation 2 standard as ‘Gen2 standard’.
  12. 12. 11 RFID hardware survey 2005 What do end-users demand from RFID hardware vendors? When deciding to invest in new technology such as RFID, organisations have a number of different investment criteria. These will reflect which type of organisation they are with regard to attitude to innovation: the early adopters and mainstream users. 2 Early adopters - such as Wal-Mart, Tesco and Metro - are driven by a strong vision. They view RFID as a means to realising competitive advantage, and they are prepared to champion RFID against entrenched resistance. Being the first to implement RFID they are also willing to work with an immature and rapidly developing technology. Mainstream users – who represent the majority of companies – have a different attitude towards RFID technology. They want to minimise disruption to their existing processes and mitigate risks when deploying RFID. These companies will only implement RFID when a number of conditions apply. Standards must be stable and clear. Solutions should be available to solve specific business problems, for example in the form of RFID tags on IT assets such as laptops, or RFID readers on forklifts in warehouses. References and a proven track record should be widely available and include a proven return on investment model. Mainstream end-users do not expect to debug or refine somebody else’s product. Instead, they want to buy ‘off-the-shelf’ RFID technology from trusted partners. This survey investigates whether the current market for UHF RFID technology meets these requirements from both early adopters and mainstream users. 1.1 Research methodology This analysis combines three elements: • a literature study - Appendix A gives an overview of the sources • a survey questionnaire for RFID hardware vendors • interviews with end-users, hardware vendors and industry bodies. A total of 20 manufacturers responded to the questionnaire in February and March 2005. These manufacturers were selected based upon their ability to provide UHF- related RFID hardware for use in Europe, and included vendors of RFID chips, tags, readers and printers. These manufacturers represent the majority of the European market for UHF RFID technology, and together provide a good picture of the expected availability and trends in Europe. The follow-up interviews with end-users, hardware vendors and industry bodies were conducted in the summer of 2005. 2 Our categorisation is mainly based on Geoffrey Moore’s classic book on the adoption of emerging technologies, “Crossing the Chasm”, which analyses the different needs of early adopters and mainstream users.
  13. 13. 1.2 Structure of this This document assumes a basic understanding of RFID technologies, it terms and document issues. An introduction to RFID and glossary have been included in the appendices. The authors recommend that readers familiarise themselves with these appendices if they are not well versed in RFID. Within the body of the survey, the first section examines the findings of the questionnaire and follow-up interviews. This includes current status, plans and expectations of UHF RFID hardware in Europe. Next, we look at the implications for end-users of the current status, and provide a number of recommendations. The results of this analysis are summarised in the conclusion. Appendices of this survey include extensive background information. This includes: 1. a glossary of RFID terms 2. an introduction to RFID 3. a comprehensive overview of the RFID standards 4. current status of the European UHF regulations 5. primer of the intellectual property issues 6. a profile of the vendors and authors that participated in this survey.
  14. 14. 13 RFID hardware survey 2005 2. Findings of the survey This section takes a detailed look at the key findings of the survey. To analyse the status and maturity of the UHF RFID market in Europe, we have identified the following elements: • vendor landscape • pricing and availability of hardware products • development of application specific solutions • status of RFID standards and regulations • intellectual property issues • industry and application focus • availability of technical expertise in the market. We believe that these topics address the main concerns from end-users, and when combined, provide a balanced picture of the current market for UHF RFID products in Europe. 2.1 The vendor landscape The RFID vendor landscape is very fragmented and often confusing for the end-user. There are a lot of different players, each playing a role in the entire value chain from the pure silicon chip manufacturer to the hardware integrator or producer of forklift trucks with built-in UHF reader. As well as performing a core role, each may be a supplier of individual value-chain components, such as R&D capabilities, or design of a bespoke solution. The diagram below provides an overview of the RFID value chain, which includes RFID hardware vendors, as well as software vendors and service providers. Figure 3: RFID Value Chain End-users can easily get lost in this fragmented world. What tag fits my business case? What encapsulation do I need? What frequency and what protocol do I need? Or more generally, how do I select an RFID infrastructure which can offer a return on
  15. 15. investment in multiple business cases? It’s not easy to find your way in the RFID vendor landscape, and in reality the hardware component is never the complete solution. It often only creates business value when the data generated by the RFID infrastructure is integrated into the business application. Companies that took part in the survey A total of twenty companies took part in this survey, ranging from small companies with 100 per cent focus on RFID, to large multinationals whose RFID work accounts for only a small percentage of their overall business. The years that the companies were established ranged from 1935 to 2002, with the average year being 1981. The most recently established companies tended to be purely RFID companies and were usually privately owned. 43 per cent of respondents were entirely committed to RFID work and the average date that these companies were founded is 1995. 36 per cent of the respondents were public organisations. Figure 4: Product range of RFID companies The survey was concerned mainly with four types of RFID hardware product: semiconductor chips, finished tags, interrogators (readers/writers) and RFID label printers. The vast majority of the respondents sold more than one type of RFID hardware product: Twenty one per cent of respondents sold semiconductor chips Seventy one per cent of respondents sold completed RFID tags Sixty one per cent of respondents sold interrogators Twenty one per cent of respondents sold RFID label printers. Figure 5: RFID products by vendor
  16. 16. 15 RFID hardware survey 2005 Perhaps unsurprisingly, the large majority of respondents’ RFID business (eighty-six per cent) was conducted in North America and Europe. The following graph illustrates the average distribution of all the respondents who provided this information: Figure6: Geographic revenue distribution It should be noted that since this survey is primarily concerned with UHF RFID technology for use within Europe, only companies who provide RFID hardware that is suitable for use within Europe were invited to take part. Ninety-three per cent of respondents claimed to have local presence and helpdesk support in Europe. The following graph shows the breakdown of helpdesk support and local presence by geographic region: Figure 7: Local presence by region
  17. 17. Existing companies versus new players When we look at the RFID hardware players, we see a big difference in their origins. Companies like Intermec, Symbol and Zebra have backgrounds in an existing set of product lines, like barcode readers, handheld readers and label printers. For them, RFID is a new technology, which enhances their existing product set, and might well take market share from that product set. Their big advantage is that they already have an existing organisational structure, suited for international roll-out and support of infrastructure like RFID. At the opposite end of the scale to these ‘incumbents’ are more early-stage companies, like SAMSys, Alien Technology, and Power Paper, who have specialised in research and development of RFID products, and are eager to make the market move forward. These companies are now in serious investment mode, and are eager to accelerate progress. They often lack the scope of large existing international organisations, but are actively setting up distribution channels through value-added resellers and system integrators. Based on cutting-edge research and development, they often provide the most advanced products in the market. Pressure to accelerate RFID adoption in the marketplace is far greater for these young entrepreneurial companies. They need a quick return on their investment and are therefore much more eager to support customers in fine-tuning their solutions to the exact needs of a business and hence accelerate adoption. Often, they are willing to work on client sites and work closely with partners and end-users to prove the concept. Application focus versus technology focus Another distinguisher in the RFID hardware landscape is the difference in product development focus. There are a number of companies who focus on optimising the quality of their radio module, the ability to read multiple protocols and other technical aspects. They spend a lot of time on R&D and due to this they are positioned ahead of the market from a technological point of view. Often they come out best in proof of concepts and pilots. These companies stand the best chance of reading tags when they need to, the products are often most easily integrated in a total solution, and a high level of technical support is readily available. At the other end are the companies who focus on offering a wider range of products. They often include their reader module in more application-specific product lines, thus concentrating more on the specific needs of end-users. Such companies deliver products like tunnel readers, conveyor belt readers, forklift reader, etc. Of course such application-specific products still need integration with the regular business process, before they realise their full business potential. A similar difference can be found at the tag supplier side. Some players focus on low cost, high volume labels, hoping to deliver high revenue once the market develops. They provide a basic, generic tag at very affordable prices. However, when you want to tag a difficult object, like a laptop which contains a lot of metal, end-users will need to find a company that is willing to work closely with you to develop a bespoke solution.
  18. 18. 17 RFID hardware survey 2005 However, it is a challenge for the end-user to distinguish one player from another, and not be confused by adopting a generic view on the market that fails to meet the long- term requirements. Semiconductor chip manufacturers All of the companies that produce and sell semiconductor chips for use in RFID devices anticipate expanding their RFID chip production capacity during 2005. Every chip manufacturer that responded claimed that it will be mass-producing Gen2 compliant chips before the end of 2005. Our opinion – based on latest information – is that this will continue to accelerate in 2006. Sixty-seven per cent of respondents claim to be producing UHF RFID chips that work in both US and European frequency ranges. The remaining manufacturers are planning to produce such a chip by Q4 2005. As expected, the most-cited reason regarding the factors that are preventing the cost of chips from falling further in today’s market is lack of demand. As all of the chip manufacturers who responded claim to be expanding their production capacity significantly in the coming years, it can be assumed that they are predicting a large increase in demand. With more and more mandates expected from companies with significant economic clout, it seems in little doubt that RFID semiconductor chip production (especially in the UHF region) will proliferate in the near future. Tag manufacturers Whilst the majority of tag manufacturers have not experienced any microchip supply problems (and don’t envisage this being a problem in 2005), two major manufacturers indicated that supply had been a problem and may continue to be a problem in the short term. This is hardly surprising considering the quantities that are being produced and all the reports that have been issued regarding shortfalls of RFID chips. Fifty-six per cent of the tag manufacturers who responded indicated that there was no minimum order quantity for their tags. Of the remaining forty-four per cent, the minimum order quantity ranged from 10,000 to 50,000 with the average being just over 20,000. Figure 8: Minimum order size for tags
  19. 19. Thirty per cent of the tag manufacturers polled produced just UHF tags. The vast majority of the respondents also produced HF tags, with a few producing tags for use in the LF or microwave regions. For global supply chains it would be very useful if one UHF RFID tag could operate effectively in both frequency ranges allocated for use within the US and the lower range allocated for Europe. The tag manufacturers were asked whether they were planning to market these so-called ‘global’ UHF tags that would operate over the 860-960MHz range. Sixty per cent were not planning to produce these. Of the remaining forty per cent, twenty per cent believed they would be selling such a tag but not until 2006, ten per cent said by H2 2005 and ten per cent claimed to be already selling such a tag. Figure 9: Global UHF tags Of the forty per cent of respondents who are planning on selling such a tag, opinion is divided as to whether or not they will cost more than a ‘standard’ tag, designed for use specifically within Europe. The average read range of such a ‘global’ UHF tags will be slightly less compared with a standard UHF tags for only one region. Reader Manufacturers A large number of reader manufacturers produce both fixed and handheld RFID readers, although some reader manufacturers focus on plain fixed readers. However there are significantly more models of fixed readers than there are handhelds. This is illustrated in the following graph: Figure 10: Fixed and handheld readers
  20. 20. 19 RFID hardware survey 2005 Availability of UHF handhelds is a problem in the current market. Most companies are working on a Gen2 product, but there’s currently a clear shortage of handheld readers, regardless of protocol. Memberships All participants were asked whether they were members of various standards bodies, namely EPCglobal, ETSI and ISO/IEC3. Seventy-one per cent claimed to be members of EPCglobal, twenty-one per cent members of ETSI and fifty per cent members of ISO/IEC as illustrated in the following graph: Figure 11: Membership of standardisation bodies Responsibility for the end-to-end solution All hardware vendors responded unanimously to the topic of ownership. RFID hardware vendors recognise the fact that their products are only a spoke in the wheel. It is the composition of the right building blocks, and integrating the RFID infrastructure into existing business processes that will generate business value. All hardware vendors see it as a system integrator’s role to take ownership of building the total business solution. It is the systems integrator who will help the end-user to find his way in the fragmented world of RFID hardware, and ensure ROI. Or as an important RFID hardware vendor stated it: ‘It’s absolutely the role of the system integrator to take the lead. They will take that natural role, once there’s enough money to be made for them.’ Or as another vendor states it: ‘The end-user would need to be more clear about on who they are relying on providing the technology. It would be wrong to buy hardware stuff yourselves, and then buy integrator consultancy to apply this in a beneficial way, possibly resulting in the choice of the wrong equipment. Find a partner who can help you compose the right end-to-end solution for the right business challenge.’
  21. 21. 2.2 Availability and pricing With the ratification of the Gen2 standard in December 2004, there has been a frenzy of of hardware products activity in order to develop and produce Gen2 tags and readers as soon as possible. While waiting for the Gen2 products to come to market, European companies that wanted to start pilots or implementations with UHF technology had to choose from the products currently available. This means either opting for technology that is based on the EPC Class 1 Gen 1 standard, or on the ISO 18000-6 standard. See diagram below: Figure 12: UHF RFID product availability These standards have very different backgrounds. The EPC Class 1 Gen1 standard is the initial standard that was developed by the Auto-ID Centre, and its successor EPCglobal. Vendors that supply products for this standard are the companies that have often been working with the Auto-ID Centre since its start in 1999, and include companies such as Alien Technology and Symbol (previously Matrics). Most US companies implementing UHF technology use this technology, including Wal-Mart. In Europe, Tesco is one of the companies implementing products based on this standard. The ISO 18000-6 standard reflects an existing ISO standard for the air interface between UHF tags and readers. Vendors that provide products based on this standard are often more established players, such as Intermec. One of the most prominent users of the ISO 18000-6 standard is Metro in Germany. During the course of 2005 and early 2006, products based on these two standards will largely be superseded by products based on Gen2 standard. The road to these Gen2 products is illustrated below (source: Alien Technology): Figure 13: The road to Gen2 products A more detailed primer on these standards may be found in the appendices
  22. 22. 21 RFID hardware survey 2005 Tags There has been considerable talk about the lack of availability of tags in large quantities. The questionnaire enquired about this. It is interesting to note that several tag vendors had experienced difficulties in obtaining microchips during 2004, and were expecting some problems during 2005. Although different chip manufacturers were able to demonstrate Gen2 chips in April 2005, it has taken some time to get to the stage of high-quantity production levels. In the last quarter of 2005 LogicaCMG expect a significant uptake in the amount of Gen2 chips being shipped to tag manufacturers. For example, chip manufacturer Impinj has indicated that it expects to deliver 50 Million Gen 2 chips before the end of 2005. It is expected that the costs of Gen2 tags will initially be higher than current Gen1 tags. This is due, in part, to the extra complexity of the chip and its requirement for more silicon. The cost of silicon is a major contributor to the cost of a tag. In order for costs to drop, demand needs to increase and the size of chips decrease. It is likely that Gen2 tags will initially retail for twenty to forty cents (€) for large quantities. However, it is expected that some suppliers may actually sell their Gen2 tags below cost, in an attempt to grab an early market share. The performance of tags will continue to improve as tag manufacturers become more sophisticated in designing tags for specific applications. Tags will always be ‘pre- detuned’ so that when used on certain materials the tag will show optimum performance. Readers Nearly every reader supplier is aiming to deliver an off-the-shelf product that can act as a baseline for future innovations. As of 2006, Gen2 is really a starting point for future reader development, and product lines seem to be aligned across suppliers. Usually, these new readers will use ‘soft radio‘ technology: firmware containing algorithms that are executed by digital signal processors (DSPs). This is opposed to the older readers that are based on electronics with a significant quantity of discrete components that define the protocol capabilities of the reader. These readers cannot be easily upgraded because an upgrade effectively means replacing the internal circuitry in the reader. Nearly all of the next generation of readers are: • able to be updated by software to support emerging standards • equipped with a self-diagnostic system, and • can be rebooted remotely. Compatible, partially compliant or fully compliant to Gen2? In today’s emerging marketplace where the race for market leadership is wide open, hardware vendors are rushing to develop products that are Gen2 compliant. But Gen2 is a complex standard with many different features; so, being compliant to Gen2 is a not clear cut. Tags and readers can be compatible, compliant with some or most Gen2 features, or they can be fully compliant.
  23. 23. The current activities by reader vendors remind us of the movie The Cannonball Run. In this movie a wide variety of eccentric competitors participate in a wild and illegal car race to determine who can cross the United States first. In the race to be the first to market with Gen2 products, marketing departments of hardware vendors may be inclined to push the limits. They might be tempted to announce products that are compliant with Gen2 for products that incorporate some or many of the Gen2 features. It may be unclear to end-users whether these products contain all the features of the Gen2 specification. This is a risky trend. What the market needs is transparency rather than confusion. The worst thing that can happen is that end-users get confused about the product offerings, and decide to wait until the dust settles before adopting the technology, causing market inertia. To address this problem EPCglobal has recently launched the EPCglobal Hardware Certification Program. The main purpose of this program is to provide end-users the confidence that products are really compliant with EPCglobal standards, including Gen2. Initially the program will encompass products such as chips, readers, reader modules and printers with embedded reader modules. Products that pass rigorous testing by an independent laboratory will receive an EPCglobal Hardware Certification Mark (see below). Each Mark includes an 18-digit global Service Relation Number (GSRN) that is unique to that product and the exact test that is successfully completed. In the near future EPCglobal plans to enhance the program with interoperability testing to indicate that different products can also successfully work together. Figure 14: EPCglobal Hardware Certification Mark Based on our survey, we believe it likely that during the remainder of 2005, most of the UHF RFID readers that will come to market will be compliant to the Gen2 standard, but will not yet incorporate all of the elements of Gen2. But these readers will be firmware- upgradeable, so additional enhancements to make the readers fully compliant with Gen2 can be implemented with little effort. One of the difficulties for the reader manufacturers in developing Gen2-compliant readers so far has been the lack of availability of Gen2-compliant tags. Current developments in Gen2 reader technology are based on using prototypes of Gen2- compatible tags. ‘What we need is tag availability to get through in larger quantities now, so that people can get going with some pilots and actually start to do some proper testing.’ r
  24. 24. 23 RFID hardware survey 2005 But do we really need to wait for Gen2-compliant equipment? The answer is ‘no’, as long as the RFID application is a closed-loop. The basic philosophy of the EPC is to allow users of the technology to access the information associated with the tag anywhere, any time. Because this information can be stored anywhere, an open standard is needed. When this is not the case – when all information is created and accessed from within the enterprise – there is no need to wait for Gen2, because existing Generation 1 or ISO 18000-6 tags will be sufficient. Upgrading the existing products With the rapid technical developments, an important issue for companies starting UHF pilots and implementations is the transition for products based on the existing standards to the new European regulations and Gen2 standard. For example, can readers be upgraded through a so-called firmware upgrade? Or is it necessary to change some of the hardware components? This is a solution that is clearly more costly. Our questionnaire indicates a split between vendors who believe they can do a firmware upgrade to comply with emerging standards, and companies that need to change hardware components for this. Some hardware vendors are sceptical about the possibilities of making an existing reader fully compliant to Gen2 standard based on a firmware upgrade: We take a different perspective to many of our competitors. We believe that it is unlikely that you can take to current Gen1 reader and make it fully compliant to Gen2. There are just too many things, such as dense- reader-mode, multi reader modes, sessions, modulation, and symmetry, which means that we don’t believe that you can do that only with a software upgrade. We believe that what will happen is that most Gen1 readers will be upgradeable to be compatible with Gen2, so that they do some if not most of the areas of Gen2, but we believe that you actually have to build a new reader in order to be fully compliant with Gen2. Our perspective is that there are too many people claiming that they have Gen2 readers. We do not believe that these readers will be fully Gen2 compliant, because there were probably insufficient chips, tags or time available to do all the things that are in the Gen2 specification. So we would be very surprised if anyone could turn a Gen1 reader into a Gen2 reader and be fully compliant Reader prices Based on the results of the questionnaire, the average price of a UHF reader was just over €2000. Some of the readers were sold as packages with antennas included, but the majority required antennas to be bought separately. The price of these antennae is around €250-300, and a reader is typically connected with up to four antennas.
  25. 25. One of the leading reader manufacturers indicated that a major ‘price point’ will be when the price of a reader drops to €1500. They also believe that, with sufficient market adoption the price of a reader could fall to as low as €1000. How long it may take to reach this point is hard to judge and is based heavily on the rate of adoption. Prices of UHF RFID readers have dropped in the US over the last twelve months, but the prices in Europe have dropped very little, if at all. This is probably due in part to the relatively new ETSI 302-208 regulations and the time and effort that manufacturers have had to invest in producing a reader that is compliant with these regulations. It is apparent that there is a wider range of readers in the US than there is in Europe. This is partly due to the fact that many of the large RFID suppliers are US based. LogicaCMG believe that with the introduction of new standards in the UHF range, adoption of RFID will increase in Europe. This will in turn lead to a larger amount of RFID hardware being needed and eventually to a greater variety of equipment being available. Printers Five suppliers provided costs for their UHF RFID printer/encoders. These were: Avery Dennison, Datamax, Intermec, Printronix and Zebra. When the questionnaire was commissioned, the average price for a printer, based on the information received, was just over €4300, ranging from €2995 to €8990 depending on the supplier and functionality available. The price of RFID printers has remained reasonably static, and this seems set to continue until economies of scale are realised through widespread adoption. As one would expect, all RFID printer manufacturers aim to supply what the market demands. For the moment this seems to be robust, metal-cased printers. It may be that in the future, less robust, cheaper printers will be in demand and plastic-cased printers may appear in the marketplace. Whilst most RFID printer manufacturers claim to be able to ship relatively small quantities (<5) within a short timeframe (e.g. several weeks), it seems that they are often built to order and are not generally held in stock. This means that suppliers are reliant on forecasting demand which is, of course, prone to inaccuracies, and can result in lead times of up to two months. 2.3 Development of RFID will never be a technology that is capable of providing a universal ‘plug-and-play’ application-specific solution, because it remains dependent on its physical environment; one warehouse solutions may look similar to another, but if it has metal elements in the concrete floor, this will affect the performance of RFID technology. This does not detract from the market need for off-the-shelf solutions that address specific business problems. LogicaCMG refers to these as “application-specific solutions”, which are solutions that integrate hardware and software to optimise the RFID performance in a specific situation, for example on forklift trucks in a warehouse, or lap-top computers in an office, or on baggage in the aviation industry. Some excellent examples of application-specific RFID solutions can already be found in the High-Frequency (HF) range. In this market, which is more mature than the UHF market,
  26. 26. 25 RFID hardware survey 2005 different vendors provide integrated solutions for libraries to track books with RFID. These solutions combine tags, readers and software applications. The availability of these proven solutions makes RFID a viable option for mainstream users. A first step in this evolution will be the development of hardware products that combine optimal tag and reader design with the appropriate encapsulation of the tag and peripheral equipment, such as directional sensors. Our survey indicates that the RFID hardware vendors recognise the need for application-specific solutions, but take different approaches towards developing them. Some vendors focus on their core competence in designing RFID readers and tags, and let their partners develop integrated solutions. Others adopt a more proactive approach and take control of the integrated solution: ‘If you take a specific example like airline baggage, we have a solution that we have been developing at a major airport for the last three years, which includes a special tunnel reader for airline baggage and special tags. I would expect this solution to be rolled out within the next year or so.’ RFID hardware vendor The current UHF RFID marketplace is at an early stage, and application-specific solutions are simply not yet available. Based on our survey we expect this to change over the next 1-2 years, as the experience of the current RFID pilots and implementations are translated into integrated solutions. Hardware vendors are working with customers and partners on many innovations in tag encapsulation and peripheral equipment: ‘A lot of the specialised applications that we currently see are coming out in terms of the peripherals and in terms of encapsulation of the tags. For encapsulation of tags we are working with partners that are striving to meet the requirements of reusable plastic totes and crates, as well as special close- to-metal tags. You can see a whole variety of close-to-metal tags currently being developed for applications where the cost of a tag is less of an issue than it is in the retail supply chain. So just because people have not heard of things, it doesn’t mean that solutions aren’t being created. But obviously they are at the one or two pilot stage as opposed to the packaged solutions, ready-for-roll-out stage.’ RFID hardware vendor Clearly the market is going through a rapid innovation and learning process that will result in application-specific RFID solutions. Some of the high-priority products that LogicaCMG expect to come to market over the next twelve months include: • Integrated portal solutions for warehouse operations. These portals may include RFID readers with directional sensors, and may be optimised for dense reader
  27. 27. environments and to provide the level of robustness required in a warehouse • Forklift readers for warehouse operations • Hand-held readers, as many processes still require manual reading in certain processes • Tunnel readers for the tracking of baggage in the aviation industry • Close-to-metal tags, to optimise the performance of UHF RFID on metal objects, such as roll cages and lap-top computers • Plastic tote tags, tags that can be easily encapsulated in plastic totes and crates • Bagage tags, RFID labels that are designed and optimised for the use in aviation luggage. 2.4 Status of RFID There is no doubt that the uptake in UHF RFID technology throughout Europe has been standards and regulations due to the updated European regulations and ratification of the Gen2 standard, in 2004. Clearly, this has been a huge step forward for UHF technology in Europe, but it is critical to understand whether these standards provide adequate features required for large- scale RFID applications. Important issues include the read range between reader and tag, the speed at which readers can read tags (the data rate) and the way in which many different RFID readers operate in a close environment such as a warehouse. We discussed these topics with the leading RIFD hardware vendors, and identified a number of issues. More detailed descriptions of the new European regulations and the Gen2 standard can be found in the appendices. First we look at how the European regulations and the EPCglobal Gen2 standard relate to each other. This is illustrated in the diagram below. The EPCglobal Gen2 standard aims to create a global standard for the way in which UHF tags and readers communicate with each other (the so-called air interface). This standard is part of the larger EPCglobal efforts to create global RFID standards, particularly for low-cost tags in supply chain applications. The new European regulations specify what frequency spectrum may by used by RFID readers within European countries, and specific guidelines how readers may operate within this spectrum, for example the power that can be used to transmit a radio signal.
  28. 28. 27 RFID hardware survey 2005 Figure 15: Comparison of RFID standards The new European regulations are developed by ETSI, the European Telecommunications Standards Institute, and are known as ETSI EN 302-208. Before this new standard can come fully into effect, individual countries must pass laws adopting the recommendations. This harmonisation process has largely finished, as most European countries have adopted the new regulations, or are expected to do so before the end of 2005. France, Italy, Spain and Turkey have indicated difficulties with the new regulations because the allocated spectrum is already in use for other applications. It is expected that over time these issues will be resolved, and that end- users in these countries will be able to use UHF RFID with a so-called site-license. What are some of the important features of the new ETSI EN 302-208 regulations? The good news is that readers may now use up to 2 Watts of power in Europe, compared to half a watt under the old regulations. This enables a read range which is roughly similar to that established in the United States. In terms of frequency spectrum, ETSI EN 302-208 provides a frequency range from 865 to 868 MHz, a total bandwidth of 3 MHz, however only in a range of 2 MHz within this bandwidth can the readers operate at 2 watts. Compared to the US, which has a bandwidth of 26 MHz, the bandwidth available in Europe remains fairly limited. In order to permit optimum use of the available spectrum, ETSI EN 302-208 divided the bandwidth into 15 channels, each of 200 KHz. To enable readers in the same building to operate on adjacent channels, the regulations require that readers use only one channel at a time and conform to something called a ‘spectral mask’, essentially the amount a broadcast can bleed outside the channel. In the United States readers can emit radio waves within plus or minus 3 MHz of the frequency of the channel they supposed to be using. This wider range in the US allows the reader to send more information more quickly.
  29. 29. The following table summarises the different regulations (from RFID Journal – New ETSI rules move Forward, November 2004) Table 1: European versus US regulations Although the new European regulations are seen as a major improvement over the old regulations, many hardware vendors remain critical about the implications of the spectral masks and the limited bandwidth. These topics affect the speed at which readers can receive and process the data from tags, so essentially the number of tags that can be read simultaneously. Despite these concerns the hardware vendors are committed to develop products that comply with the new regulations, and they are convinced that, with advanced radio engineering, many issues can be resolved: ‘There is a genuine interest to make the standard work and there are things we can do to reduce the threshold and to make the spectral mask easier to comply with.’ RFID Hardware Vendor How far these hardware vendors can push the performance of the new UHF products in Europe remains to be seen. Many believe that within the next six months there will products on the market that are fully compliant with both the ETSI EN 302-208 regulations and EPCglobal Gen2 standard. Only then will a good indication of the exact performance will become available. Despite the confidence in advanced engineering solutions, some hardware vendors expressed a desire for further changes to the regulations that would put Europe on a par with the rest of the world:
  30. 30. 29 RFID hardware survey 2005 ‘At the end of the day, Europe is the only place in the world which believes that everything can work with 2 MHz bandwidth and 10 channels. Remember that the United States have 26 MHz bandwidth, Hong Kong has got 5 MHz and Australia 8 MHz. As you are getting back to 2 or 3 MHz you are putting the technology under a lot of pressure. So my view is that Europe needs to open up more bandwidth, but that’s something we can deal with over time.’ RFID Hardware Vendor Other hardware vendors we interviewed were more reticent about regulatory changes, as they feel that what the market needs right now is stability and clarity. In 2005, ETSI’s Task Group 34, which wrote the new regulations, started to work on a code of practice for RFID at UHF4. The group will use practical tests with end-users to determine how the performance of UHF RFID technology in Europe can be optimised. In summary, RFID hardware vendors are currently working very hard on the development of products that are fully compliant with the new European regulations and the EPCglobal Gen2 standard. The performance of products that come to market over the next six months is likely to meet the requirements of many business scenarios. Due to the inherent issues with the European regulations, these products may not be a viable option for all applications that require a very high number of both readers and tags in close proximity. But as hardware vendors become more sophisticated in applying advanced radio engineering solutions to address some of the issues, performance of European RFID products will continue to improve over the next few years. 2.5 Intellectual property issues The products that are based on the EPCglobal Class 1 Generation 1 were designed from scratch and are provided to the market on a royalty-free basis. But when EPCglobal was looking to improve the performance with the Gen2 standard, different hardware vendors contributed existing intellectual property. EPCglobal had always aimed for a royalty-free standard, and initially underestimated the implications of adding existing intellectual property to the new standard. The result has been that when the Gen2 standard was ratified in 2004, important intellectual property issues had not been resolved. For a background explanation of these issues, please refer to the appendices. Today, this remains an open issue, and with the first Gen2 products coming to market, it becomes more and more urgent to resolve it. The good news is that the key hardware vendors have recognised the urgency of this problem, and have been able to achieve some important breakthroughs. It is likely that
  31. 31. the early adopters, such as Wal-Mart and the US Department of Defence have played a role in this process by putting significant pressure on the leading hardware vendors. Most – but not all – of the hardware vendors that participated in this survey have agreed to the licensing program by Intermec, one of the vendors that contributed significant intellectual property to the Gen2 standard. A number of other vendors have taken an initiative that seems to point to the direction of the final resolution of this issue, by creating an IP pool. Today, it is not completely defined how the IP pool will work in practice, but it is clearly a sensible way to move forward. Most importantly, Intermec and Symbol – the companies that had been in a high profile legal battle about the licensing of mutual intellectual property – have recently reached a settlement. As part of this agreement Symbol has also signed the Intermec licensing program. As a result of the recent developments we no longer expect the IP issues to have a major impact on RFID adoption by end-users. Until recent developments, this issue contributed to a perception of the RFID market as being immature, but this has now changed. Nevertheless, LogicaCMG recommends end-users review carefully the position of hardware vendors on the IP isseue before making purchasing decisions. 2.6 Industry and We detected a remarkable shift in industry focus among European RFID hardware application focus vendors over the last six-twelve months. Until about a year ago, most vendors were targeting the open supply chain applications in the retail industry, hoping to capitalise on the potential high volume of RFID tags and readers promised in these applications. However, about six-twelve months ago many vendors started to broaden their focus, and targeted opportunities in other market segments. Target areas identified by different hardware vendors include: • Retail and consumer products • Logistics • Automotive • Aerospace • Healthcare • Government and defence. In terms of application focus we have identified an important shift from open supply chain applications to asset-tracking and closed-loop applications. It appears that, over the last twelve months, hardware vendors have started to recognise that the European RFID market is very different from the market in the United States: ‘I think there are two ways to look at Europe compared to the US. First there is a more balanced cross-industry approach to RFID in Europe compared to the US. In the US it is basically Wal-Mart and the Department of Defence, which corresponds to retail and government; whereas in Europe I think you see more industries involved. So it’s a lesser percentage in retail.
  32. 32. 31 RFID hardware survey 2005 The second thing you see is that in the United States focus is on supply chain visibility, whereas in Europe it is much more balanced between asset tracking and supply-chain visibility.’ RFID hardware vendor. We believe there may be different reasons for this shift in industry focus. The first is that the European retail industry has not developed over the last year as many had expected, with many of the retailers adopting a ‘wait-and-see’ approach. The second reason is that leading companies in other industries have started to take an interest in UHF RFID technology, because of the new ETSI regulations and EPCglobal Gen2 standard. These changes have made UHF RFID technology a viable option for these industries, whereas in the past it simply was not. 2.7 Availability of technical Hardware vendors agree that in the European market there is limited technical expertise expertise in market surrounding UHF RFID technology. This is not surprising, given the immaturity of the market. Companies that implement and integrate the different RFID components for a specific customer require a deep understanding of the capabilities of the technology. System integrators and hardware resellers need to invest a significant amount of time to keep up with the rapid pace of developments, in order to best address customer needs. We perceive the entire industry is going through a very rapid learning curve, accelerated by formal and informal knowledge generation, and an increasing number of pilots and implementations. For end-users this means they have to be very selective in choosing a system integration partner for RFID pilots and implementations. End-users should look carefully at the experience, skills, partnerships, as well as the commitment by a system integrator to develop its knowledge about RFID technology. 2.8 Trend in technical Today, UHF technology is an emerging technology. But because of the large business developments value that the technology promises to bring to users, large investment is being made in research and development to take the technology forward. These investments are made through corporate funding at major international companies, such as Philips, Texas Instruments and Siemens, and by financial investors, who are funding innovative early stage companies such as Alien Technology, SAMsys and Power Paper. Clearly, there is a sound belief in the future prospects of UHF technology. We already discussed some areas where a lot of the current developments are focused: • Development of the next generation of Gen2-compliant readers that provides a baseline for future upgrades. Readers that are coming to market in the next twelve months are more intelligent and better networked. These will be: • able to be software upgraded to support emerging standards • equipped with a self-diagnostic system and • can be rebooted remotely • Development of tags and readers that are optimized for the European regulations, for example by intelligent synchronization and other advanced engineering technologies
  33. 33. • Developments around application-specific solutions, both at the tag level, through application-specific tuning, as well as in encapsulation of tags and peripherals. One of the comments of a hardware vendor about the fact that RFID readers are getting more intelligent and networked: ‘When you look at current reader technology, we’re looking to move from producing readers to providing an enterprise reader platform; an architecture. Readers are becoming networked devices that are going to sit on a network that you can deploy in tens of thousands and people are recognizing that you need computing capability on them. Our next set of readers will have Windows CE or Linux and they will have RFID controller software inside. So the readers become truly enterprise networked devices. With the current reader technology, it’s evolving much more to look like something like a Cisco network device’ RFID Hardware Vendor If we look further into the future there is little doubt that major technical innovations will make the use of RFID technology ubiquitous. The boundaries between passive RFID, active RFID and sensors will continue to blur. Companies will have an intelligent edge of their network that provides real-time information on the status and location of physical objects. A number of innovations will significantly reduce the prices of RFID tags and readers in the future, including new, enhanced manufacturing practices and potentially polymer chips. Other innovations promise to provide enhanced intelligence and functionality, for example closer integration of RFID and sensor technology: ‘If you look at future reader technology, that’s when you get into the whole area of adaptive readers, very intelligent networked devices linking into sensors. We are already seeing things like temperature tags, long-range passive tags being integrated with reader technology, and the sort of R&D that we see at readers at the moment in terms of things like directionality, synchronization, I think is really very exciting.’ RFID Hardware Vendor There is no doubt that a very exciting future lies ahead for RFID hardware vendors and end-users alike.
  34. 34. 33 RFID hardware survey 2005 3. Implications for end-users Based on the previous analysis on the status and maturity of the UHF RFID market, we now aim to answer the second question of this survey: Is UHF RFID technology ready to be adopted by European end- users - both early adopters and mainstream users? LogicaCMG believes that in the next twelve months, the maturity of UHF RFID technology is no longer an obstacle for investments in large-scale RFID implementations. In other words, with Gen2-compliant products coming to market in the next twelve months, UHF RFID technology in Europe is ready to be adopted for many – but not all – applications. It is true that performance of UHF RFID technology will continue to improve in the coming years, and that prices are likely to drop significantly. But with the new European regulations and the creation of the Gen2 standard, the market has clearly found an environment that is ready for a wide range of business scenarios. And it is very important that the RFID readers that will come to market in the next six-twelve are firmware upgradable. This means that end-users are guaranteed that the readers can be upgraded at low cost to support future functionality. But end-users should also not expect that UHF RFID technology is ready to track every object in the most difficult environments. We believe end-users are best off when they start at the realistic end of the landscape, and find the simpler, achievable scenarios that make good business sense and provide returns. Gen2 has given a clear direction to the technology. Future improvements in technology – and longer term the potential modification of regulations – will only strengthen this direction and make it possible for UHF RFID technology to deal with increasingly complex scenarios. The early adopter perspective Early adopters of an emerging technology such as RFID are normally driven by a strong vision. These companies view RFID as a means to realising competitive advantage, and being the first to implement RFID they should also be willing to work with an immature technology. We believe that if your company wants to use to RFID create some kind of competitive advantage, the time is now to invest and work jointly with hardware vendors and system integrators. The interviews with hardware vendors have clearly illustrated that these vendors are actively developing solutions based on the large number of pilot projects they are involved in. With RFID progressing at such a rapid pace, more and more proven scenarios and application-specific hardware product will become available in the market. But true competitive advantage can only be gained by those companies prepared to search for the yet unknown solution. So end-users that have the ambition to be an early adopter must act quickly and be prepared to do some joint research work to find the fit-for- purpose solution for their business case.
  35. 35. The mainstream user perspective Mainstream users, who represent the majority of companies, have a different perspective from the early adopters. These companies require proven solutions based on ‘off-the-shelf’ RFID technology from reliable partners. These companies normally desire an ROI model based on a reference project in a similar situation. This is hardly a way to achieve competitive advantage, but it does create business benefits with minimal risks. If your company decides to be a mainstream user and only wants to implement a proven solution, we do not recommend you wait until these solutions become available in the market. Instead, we strongly recommend you start by experimenting today, so you’re ready for implementation when the solution is proven. The reason to start experimenting with RFID today is simple: RFID is only an enabling technology and the real benefits from RFID will come when you understand the full impact on your business processes. This knowledge takes time to develop, and cannot be copied easily from the early adopters. As one hardware vendor stated: ‘The early adopters have recognised where they can obtain the ROI. They’re focused on building the solution and the early roll out of that solution. The people who have chosen to follow I think are a bit blind to what’s going on, because people who are developing those solutions have no incentive to share to share what they’ve learned . This is very much an industry where you learn by doing, so you’ve got to go out and make your own luck.’ Recommendations to end-users: Whilst we accept that Gen2 is the building block which can take us further, we need to see how we get to implementation. The fact is that companies still need a good deal of knowledge in order to get there. Consequently, you need to develop an implementation strategy that on one hand gives you the right hardware, software and integration components to fulfil this business case; and on the other hand gives you an infrastructure and an integration approach that allows you to re-use the investment in other short- longer-term business cases and in changed business processes. System integrators are the natural choice as a strategic partner in this process. But given the limited technical experience in the market place, end-users should be very selective in choosing their partner. The integrator with a long-term view on where your market and business are heading — and with a strong track record in implementing and integrating RFID based solutions — can be the natural and vendor neutral partner in all stages of this process.
  36. 36. 35 RFID hardware survey 2005 Based on our experience, LogicaCMG suggests the following concrete steps to address the opportunities provided by RFID: 1. Understand the fundamental features of RFID and what these mean for your business. For example, what does it mean for processes such as manufacturing, logistics, distribution and in-store operations if objects can be tracked with no line of sight and no delay in the process? 2. Develop a vision of the long-term value of RFID for your company and industry, providing a framework for the organisation to make investment decisions. 3. Involve senior management – especially if the long-term impact is high. 4. Decide if your company wants to be an early adopter or a follower. Do you want to use RFID to create a competitive advantage, or just to deliver business benefits based on a proven solution? 5. Work with a strategic partner that can help you navigate the complex RFID landscape and take responsibility for the end-to-end solution. 6. Design and create the funding for a corporate RFID architecture. This will provide the infrastructure that enables your company to deploy new applications quickly and achieve seamless integration with your back-office systems. 7. For the short term: identify quick wins that contribute to your key business drivers and go for rapid experimentation. Start the learning process as quickly as possible.
  37. 37. 4. Conclusions RFID is one of the most difficult technologies for companies to assess today. With this survey, it has been LogicaCMG’s goal to provide assistance to companies that are facing important investment decisions. We focused on two main questions: What is the status and maturity of UHF RFID technology in Europe in 2005? Is UHF RFID technology ready to be adopted by European end-users - both early adopters and mainstream users? Status and maturity of UHF RFID technology in Europe in 2005 4.1 Status and maturity of LogicaCMG concludes that 2005 is a very exciting period for UHF RFID technology with UHF RFID technology in significant progress in the status of the technology. In 2005 the market for UHF RFID in Europe in 2005 Europe is quickly becoming mature. Where 2004 was the year of breakthrough developments in standards and regulations, 2005 will be remembered as the year of product development. During 2005 a critical range of products is being developed; these provide the baseline for future developments. The performance of UHF RFID technology will continue to improve in the coming years, but the products that come to market in the next six-twelve months are future-proof, and more and more addressing specific business problems. This means that the maturity of UHF RFID technology is no longer an obstacle for investments in many RFID applications. With the new European regulations and the creation of the Gen2 standard, the market has clearly found an environment that is ready for a wide range of UHF RFID applications. Our research shows the significant progress that has been made, but also the issues that remain to be resolved. In particular, the European regulations still include some challenging areas, and the most difficult implementation scenarios require hard work from all parties involved. Let’s look at the findings in more detail: • Availability of products and solutions: By the end of 2005 RFID tags and readers will be available in the European market and these will be fully compliant with the main standards, the ETSI EN 302-208 regulations and EPCglobal Gen2 standard. This next generation of readers also provides a baseline for future enhancements, as these readers will have the ability to be updated by software to support emerging standards. This means that end-users are guaranteed that the readers can be upgraded at low cost to support future functionality. • Price Levels: Over the next three to five years, prices for UHF tags and readers are likely to come down sixty-seventy per cent, with the price of an RFID reader at less then €1000. Higher volumes will mainly drive these reductions. In the next twelve months we do not anticipate major price reductions. • Application-specific solutions: In the first half of 2006 we expect the introduction of the first application-specific products based on the new standards, including ‘off- the-shelf’ RFID tags for metal objects and plastic crates, and integrated reader portals, forklift readers and handheld readers.
  38. 38. 37 RFID hardware survey 2005 • Status of standards and regulations: The new European regulations are a major step forward but still pose challenges for implementation scenarios that require high volumes of RFID readers and tags in close proximity. Hardware vendors will need time to optimise their products to address those challenges. • Market focus: Hardware vendors are broadening their industry focus from retail to near-term opportunities in other markets, including logistics, aerospace, healthcare, automotive and defence. • The vendor landscape: The current vendor landscape is complex for end-users. This is due to the variety of RFID components required in an implementation, the different vendor strategies, the lack of clear market leaders and competition between incumbent and start-up vendors. But all hardware vendors agree that system integrators are the natural choice to take ownership of the integrated solution for the customer. • Intellectual property Issues: Issues around the intellectual property for the Gen2 standard are still not completely resolved, but the recent creation of an IP Pool and the agreement between Intermec and Symbol are clearly a huge step in the right direction. As a result of these recent developments, we do not expect the IP issue to have a major impact on RFID adoption by end-users. • Availability of technical expertise: Hardware vendors agree that in the European market there is limited technical expertise about UHF RFID technology. This is not surprising, given the early stage of the market. We do envisage the entire industry going along a very rapid learning curve, accelerated by both formal and informal knowledge generation, and an increasing number of pilots and implementations. • Technology developments: Hardware vendors are making significant investments in research & development. In three to five years this will result in RFID tags and readers that are cheaper, provide better performance, and incorporate more intelligence. Readers will truly become intelligent enterprise network devices, and both tags and readers will be further optimised for the European regulations. 4.2 Is UHF RFID So where does the current status of UHF technology leave the end-user faced with technology ready to be important investment decisions? We conclude the following: adopted by European end- users? • With Gen2 products coming to market in the next twelve months, UHF RFID technology in Europe is ready to be adopted for many – but not yet all - applications. We recommend that users start with realistic applications and then build on those as the technology become more mature. • If your company wants to be an early adopter and use RFID to create some kind of competitive advantage, the time is right to invest and work jointly with hardware vendors and system integrators. Many companies are already conducting RFID pilots, making for more proven scenarios and application-specific hardware becoming available in market. But true competitive advantage can only be gained by those prepared to search for the yet unknown solution.
  39. 39. • If your company wants to be a mainstream user and only implement a proven solution, we recommend you start by experimenting now, so you’re ready for implementation when the solution is proven. RFID is only an enabling technology and the real benefits from RFID will come when you understand the impact on your business processes. This knowledge takes time to develop, and is difficult to copy from the early adopters. Recommendations to end-users: Based on our experience and the findings of this survey, LogicaCMG suggests the following concrete steps to address the opportunities provided by RFID: • Understand the fundamental features of RFID and what these mean for your business. Based on this understanding a vision of the long-term value of RFID should be developed, which provides a framework for the organisation to make investment decisions. • Involve senior management – especially if the long-term impact of RFID is high – and decide if your company wants to be an early adopter or a follower. Do you want to use RFID to create a competitive advantage, or just to deliver business benefits based on a proven solution? • Work with a strategic partner that can help you navigate the complex RFID landscape and take responsibility for the end-to-end solution. The hardware vendors agree that the system integrators are the natural choice in this process. Given the limited technical expertise in the marketplace, end-users need to be very selective in choosing a strategic partner. • Design and create the funding for a corporate RFID architecture. This will provide the infrastructure that enables your company to deploy new applications quickly and achieve seamless integration with your back-office systems. • For the short term: identify quick wins that contribute to your key business drivers and go for rapid experimentation. Start the learning process as quickly as possible. We already see companies in many industries seizing the opportunity this provides. The question is: will your company do the same?
  40. 40. 39 RFID hardware survey 2005 Appendix A: Sources “New ETSI RFID Rules Move Forward” – Mark Roberti, RFID Journal, November 2004 “Shrouds of Time; The history of RFID” – An AIM Publication, October 2001 “Crossing the Chasm”, Geoffrey A. Moore, 1991 “ERC Recommendation 70-03; Relating to the use of Short Range Devices” – CEPT, January 2005 “A summary of RFID standards” – RFID Journal “Impinj to ship 50M Gen 2 chips in 2005”, Mary Catherine O’Conner RFID Journal, September 2005 “Intermec, Symbol Reach Major Agreement”, Mary Catherine O’Conner RFID Journal, September 2005 “19 Firms Join Intermec Licensing Program”, Mary Catherine O’Conner RFID Journal, September 2005 “RFID Vendors to Launch Patent Pool” Mark Roberti, RFID Journal, August 2005 “Regulatory status for using RFID in the UHF spectrum”, EPCglobal, July 2005 “RFID Opportunities - Markets & Technologies in Western Europe” – Juniper Research, January 2005 “RFID Benchmark Study – Making waves: RFID adoption in returnable packaging” – LogicaCMG, May 2004 “EPCglobal Hardware Certification Program”, September 2005, EPCglobal

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