Virtually every technology, especially in the area of automatic identification, ends up at a certain level of commoditization. What that means is that the technology becomes fairly straightforward to implement, the hardware elements of a system are increasingly sold by third party distributors rather than the manufacturers themselves, hardware prices fall sharply, and the technical aspects of system implementation become relatively straightforward.
Clearly, this happened with bar coding, for example. The process of successfully printing and scanning bar codes and communicating that data to other systems was something of a black art in the early 1990s, became increasingly mainstream in the late 1990s, and reached largely commodity technology status by the early 2000s.
It’s no coincidence that in the middle part of that evolution, the industry went from having several specialized bar code-oriented trade publications and at least two major annual trade shows to reduced numbers of both and eventually no focused magazines or trade shows by the end of the 1990s.
This week, Bert Moore, long-time auto ID commentator and consultant, noted that at some levels, there are signs of the coming commoditization of RFID.
“You can buy RFID reader/encoders and tags online. There are USB readers you can plug into a wide range of mobile devices. There are kits that allow you to add tags to everyday household items,” Moore noted in his RFID blog for AIMGlobal, the auto ID industry’s trade association. “Even Dell Direct is offering a turnkey RFID IT asset tracking package,” he observed.
Such a transition of a technology’s sales channels to third party distributors clearly is one sign that a technology has matured and reaching more commodity-like status. However, that may not be a good thing for the RFID manufacturers Moore was primarily writing for, as commoditization usually puts more pressure on price and more buying power in the hands of potential customers versus the manufacturers.
“It seems as if RFID is going main-stream and that it's really not all that hard to use RFID. In some respects that's true,” Moore added. “In other respects, it couldn't be more wrong.”
“Yes, it's potentially easy to encode some UHF Gen2 tags. And it's even possible to read them. But what data do you encode? What format?” Moore asks. “Are you using EPCglobal data and formats or are you using something else? Do you know how to change the one bit in the tag to indicate that EPCglobal data is not being used?”
All good points, but like virtually all technologies before it, RFID is caught a bit in a “standards trap” says SCDigest editor Dan Gilmore.
“Industry standards are essential to build a real market, in part to give users confidence that their investments won’t be made obsolete over night by a change in the technology foundation,” Gilmore says. “But ultimately, those standards make “plug and play” something close to a reality, and that brings with it a growing element of commoditization.”
The Gen2 standard for EPC RFID tags is a good example. Gen2 brought significant performance improvements to EPC technology, and has clearly helped to spur adoption. But with true interoperability between tag and reader manufacturers are growing though not yet complete reality, that means soon the hardware differences will revolve completely around features and price (and less on “will it work?”), and give buyers growing clout to push hardware and tag prices down even more so than they have been able to date.
That price pressure leads to manufacturers to try to insulate themselves from those pricing trends by relying on third-party channels, hoping, often successfully, that they take the largest margin hits, and the commoditization game is in full swing.
It is interesting to note what is happening in the active tag and reader area, where some of the manufacturers believe, likely correctly, that a lack of standards has been a barrier to more rapid adoption. A group of companies in 2009 form a new consortium called the DASH7 Alliance, with a goal of developing more true active RFID technology standards (see New Industry Consortium Aims to Do for Active Tags what EPC Did for Passive UHF.)
Of course, as with bar coding today, the role of “systems integrator” can still be an important one, and the software using a given hardware technology in the end drives most of the real value.
(RFID and Automatic Identification Article - Continued Below)