SCDigest editorial staff

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Analyst firm Gartner suggests corporate spending on RFID is beginning to accelerate, with worldwide growth up 39% in 2005 to $500 million and expected growth to $750 million in 2006.

Gartner expects that growth to continue, with worldwide RFID spend rising to $3 billion by 2010 – a six-fold increase from 2005. Nonetheless, Gartner’s numbers are below those generated by many other research and analyst firms. For example, last year researchers at Datamonitor suggested the size of the RFID market in North America alone would be $2.7 billion, and $6.1 billion worldwide – more than double Gartner’s estimate.

One of the problems with evaluating any of these numbers, especially at the press release or news blurb level, is that it the assumptions and definitions (and methodology) that go into the numbers are unclear or unavailable. Understanding these factors is critical to understanding the numbers.

In the Gartner press release announcing the estimates (available at the link above), one line in the market sizing refers to estimated “license revenue” – a term generally associated with software only. Gartner clarified the release for SCDigest , reiterated that the market size numbers refer to all RFID system elements – tags, readers, printers, software. It does not include consulting and integration services, however (which could be among the reasons these numbers differ from other studies). Also, it focused only on supply chain and asset tracking related applications, and so would not include applications like tool booth debits and so on that could be in other figures.

The full report also recognizes the challenge in estimating hardware numbers when many of the products go through multiple sales channels: “ In conducting the research for this report, we surveyed approximately 80 technology providers with a heritage in hardware and software. To balance this view, we also interacted with hundreds of end users regarding their use and concerns about RFID. This process helped create a balanced view of current market conditions and future growth projects.”

Estimating software sales is also challenging, as what constitutes “RFID” software is not clear – is a new warehouse management system with RFID capabilities RFID software? Only if the RFID software is used at the system outset? The challenges are obvious.

Gartner analyst Chad Eschinger addressed this question for SCDigest: “Our intent was to measure the software, which might be embedded in a larger suite purchase that was/is associated with an RFID initiative,” he said.  “This is obviously a challenge when dealing with suite providers.”

Another Gartner analyst, Jeff Woods, says RFID is finding its greatest value in areas where use of bar codes is tough or impossible, such as processes and environments where there isn’t a lot of structure. Conversely, in highly structured settings like a distribution center, the move to RFID will be slower and much harder to justify, and will take 5-7 years to occur.

Woods further notes: that in many cases, RFID will be used in areas where the process is not currently by an existing business application. This could mean that contrary to the prevalent notion that companies will need to "integrate" RFID data into established transactional applications, companies will likely need to develop new business applications if they want to put RFID at the center of a process.

"For the most part, bar codes are better at collecting data in highly structured and engineered processes, such as warehouses, and this will likely continue for the next five to seven years," Mr. Woods said. "However, RFID tags will be used for data collection of mobile assets and in largely chaotic or unstructured business processes, ranging from retail environments to hospitals, enabling these environments that lack sophisticated process engineering or controls to be systematically managed."

The wild card in all RFID numbers, of course, is that rather than relying on true inherent adoption alone, the market is now and may continue to be greatly influenced by compliance programs by major retailers and others. This makes market sizing estimates even trickier, as it involves prediction as to the pace and success of those programs.

At SCDigest, we think it is safe to say there will be more RFID bought in 2010 than there is today.

What are your projections for RFID market growth? Do you take these kinds of market estimates seriously? Do you agree RFID will be used first and best in places where bar codes just can’t get the job done? Let us know your thoughts.