The Hyping of Automatic Identification
Yours truly GordonWebbo today wants you to read the following article, courtesy of this site:
Introduction
Hype. It’s an interesting phenomenon. It is the basis of modern marketing and advertising. We’ve grown accustomed to the drumbeat of hype that accompanies every new product launch and new model introduction. There’s scores of publicity and advertising for every movie premiere, especially for the big blockbuster movies and there’s a publicity machine surrounding every new and old rock star. And there’s always hype surrounding technology. The trick is to be able to look into one’s crystal ball and see the future. Will something prove to be – as Neil Bogart famously labeled it – “just a hype?”
Some have contended that RFID (radio frequency identification) has been oversold, while others contend that we really have yet to see the real power of the technology, in spite of it being increasingly used in myriads of ways in wide-ranging applications – everything from animal health to casinos. Some have said that it is a technology solution looking for a problem, while others construct solid business cases based on experience in their own or similarly situated industries. Some are “waiting on the fence,” looking for “the sign” that RFID is finally entering the mainstream of business – while others hold that it is already there.
How can one know when to pull the trigger on RFID – or any technology? Enter the hype cycle, a lens through which to view the impact of a wide range of promising technologies. And what this the hype cycle has to say about RFID says a great deal about where the market is moving and where it needs to improve in order for its promise to be fulfilled.
The Gartner Hype Cycle
Since 1995, Gartner, the noted technology analyst/research firm, has annually released its Hype Cycle for Emerging Technologies. These have been prepared under the leadership of Jackie Fenn, a Gartner Fellow and Vice President with the firm. Later this year, the hype cycle will likely see a great deal of hype itself. This is because Ms. Fenn along with her colleague, Mark Raskino, have coauthored a book on emerging technology strategy. Gartner’s annual release of its hype cycle has itself become a rather big event in technology circles, being much discussed in executive suites, written about in major news publications, and commented about in the blogosphere.
The snaking chart shows the “normal” path through which emerging technologies pass. One can see that after an initial explosion of enthusiasm for an up-and-coming technology, there is a peak at which point the initial, often-exaggerated and grand expectations for the technology cannot be fulfilled. This leads to a period during which there is a deflation in the market regarding the technological balloon, leading to a bottoming period for the technology, which Gartner keenly labels as the “Trough of Disillusionment.” After this point, there is often a shake-out in the industry and a realization as to the real value of the technology. In the final two phases, pilots lead to permanent implementations, and the technology finds its proper place, even emerging into successive generations of the technology. How big the actual market becomes – and how long this whole process will take – ultimately depends on the ability of the technology – and the industry behind it – to produce real world successes.
Some technologies never make it to the hype cycle; some become emerging technologies even though they really aren’t “new” (RFID was actually invented in World War II); and some make the hype cycle, only to become obsolete before rising, falling, and rising again through the flow of the cycle.
RFID and the Hype Cycle
No doubt, after the July release of this year’s Gartner Hype Cycle, more than a few executives for RFID vendors and integrators accidentally spit their coffee or tea out on the computer screen when they saw where RFID was placed. Gartner placed RFID – specifically as it is being applied at the case and pallet levels – squarely in the dreaded “Trough of Disillusionment” phase. Just as disconcerting was the fact that according to the research firm’s perspective, mainstream adoption for RFID in the supply chain was 5-10 years out into the future.
Yet, in reading more about why Gartner placed RFID in what amounts to a technology warning zone, the picture becomes clearer as to what needs to happen in the RFID sector overall, and in supply chain-level applications in particular. In fact, UK-based Gartner analyst John Davison noted that the research firm believes that RFID as a whole is not in the Trough of Disillusionment, as there continues to be significant growth and demonstrated successes in a variety of applications globally, including asset management, closed-loop applications, and in item-level tagging in retail settings.
Indeed, leading analysts believe that the fast growth of RFID overall is showing no signs of abating. Earlier this year, Gartner released a separate report with its forecast for the growth of the global RFID marketplace. The firm predicted that worldwide RFID revenues would top $1.2 billion this year, representing a 30.9% increase year over year. Looking ahead to 2012, Gartner predicts that global RFID revenues will total approximately $3.5 billion, corresponding to a compound annual growth rate of 24%. A more optimistic report was issued by the RFID-focused research firm IDTechEx. In its annual ten-year forecast on the RFID market, IDTechEx predicted that the aggregate value of the global RFID market would reach $5.29 billion in 2008, well over the $4.93 billion figure for 2007. IDTechEx’s market value figures are much larger than Gartner’s, due to the fact that they include all RFID-related revenues, including everything from tags, readers, software and integration services. Yet, both research firms agree that RFID is still in a significant growth pattern.
However, Gartner believes that we are experiencing a profound change in the RFID market. According to Chad Eschinger, Gartner’s Director of Research, “The market for RFID technologies has begun to transition from being compliance-oriented to being revenue-generating and innovative. Much of the initial adoption of RFID was driven by mandates from the U.S. Department of Defense and Wal-Mart where compliance with a retailer directive rather than business competitiveness was often the underlying driver. Early adopters faced tight profit margins and pressed technology providers for lower hardware costs. Fortunately for the market, this trend has waned and innovation rather than cost is becoming a key driver for adoption.” Gartner believes that RFID is headed for a “second wave” of adoption, moving beyond pilot trials. It believes that this second wave will be focused on improving business processes to heighten the adopting company’s competitiveness in the marketplace, rather than being purely compliance-driven case and pallet level applications.
The lagging deployments of RFID in the supply chain can be seen in recently released market projections for RFID tag sales. IDTechEx points to the fact that in 2008, there were an estimated total of 2.16 billion tags deployed worldwide, up from 1.74 billion in 2007. Yet, manufacturers’ applications of tags on cases and pallets of goods to comply with mandates will command just 325 million out of the over 2 billion tags used globally, representing approximately 15% of the use of tags worldwide. Likewise, Gartner commented in its RFID projections that at present, RFID adoption is indeed being driven more by in-store applications than compliance-driven supply chain initiatives. Retailers are finding ROI on their item-level applications, with successes being reported by leading retailers including Metro and Marks & Spencer. In fact, UK-based Marks & Spencer has already used 100 million tags to date for its item-level applications.
In contrast, Wal-Mart continues to have a significant portion of its supply base finding no internal ROI in their efforts to comply with the mega-retailer’s mandate. This is a stumbling block that Ron Moser, Wal-Mart’s RFID strategy leader, recently acknowledged. While touting the many benefits RFID can bring throughout the retailer’s internal supply network, with demonstrated benefits in the firm’s stores, back rooms, and distribution centers, Moser recognized that: “We have seen suppliers that are getting no benefit out of RFID and use it only because we told them to. We’ve got to work with these suppliers to help them find cost savings and other benefits from the technology.”
Indeed, while Gartner is reporting that just under a quarter of all tier 1 retailers globally are currently engaged in RFID pilots and more permanent projects, there are many retail executives who are seeing Wal-Mart’s continuing issues with its supplier base and preferring to let it and other leading retailers learn the lessons and perfect the technology before deploying RFID.
Analysis
It’s a story we’ve heard before: RFID needs to be easier; easier to see the speed, accuracy, and visibility benefits from applying it; easier to see the bottom-line ROI for corporate investments; and finally, RFID needs to be made an easier decision, an easier buy. In fact, both Gartner and IDTechEx point to the nature of the RFID market today as being a significant hindrance to speeding the take-up of the technology. IDTechEx’s head, Raghu Das, recently remarked that: “The RFID industry remains far more fragmented than customers and prospective customers would wish.” And Gartner believes that: “RFID adoption is being impacted by the fact that users cannot buy an end-to-end RFID solution from one provider. The RFID market remains diverse and complex with many small startups, provoking a sense of immaturity in the product offerings.”
Thus, as consolidation takes place among RFID hardware, software, and solutions providers, both firms agree that companies will be much more inclined to acquire and implement the technology when they can do so working with a single-source provider, rather than having to coordinate multiple vendors for tags, readers, software, and services. In short, once RFID is made easier to buy from the customer’s perspective, the faster the technology will take hold.
Thus, far from being “bad news” for the industry, Gartner’s positioning of RFID at the case and pallet-level is a sign that the fast-growing trajectory for the RFID market will continue – and even accelerate – over the next five years and beyond. However, both Gartner and IDTechEx’s diagnosis of the health of the market reiterates two facts. First, RFID needs to be sold, not mandated, for long-term buy-in from all parties in supply chain applications. And, while there will undoubtedly be both fortunes made and pain extracted from industry consolidation, this short-term tumult will produce long-term benefits for the RFID market – both from the buyers and sellers’ perspectives. In short, the hype still rings true for RFID, as the technology is poised for an exciting, lucrative – and productive – future across multiple sectors, including supply chain applications.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
David C. Wyld (dwyld@selu.edu) is the Robert Maurin Professor of Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, and executive educator.
