A VC in Vacationland

Although a wide variety of uses have been proposed for auto-ID technologies, three key applications are proving to be most popular with early adopters of RFID solutions:

• High value product and asset monitoring in the supply chain is the area commanding the most attention at the moment.  Pfizer, for example, is using RFID to track and authenticate individual bottles of Viagra as they make their way through the supply chain.  Fighting counterfeit ethical drug production has substantial and quick ROI payoffs in terms of reducing lost sales and identifying counterfeiters for prosecution.
• Vendor performance compliance, with Wal-Mart in the U.S. and Metro in Europe both pushing for higher levels of RFID enables shipments, is creating a fast growing market for niche solutions around supplier tagging applications. Levi-Strauss is piloting item-level RFID tagging in its own stores to reduce inventory taking times from days to under an hour.
• Transportation security management, pioneered by major ports and third-party logistics companies, uses RFID to both ensure shipment integrity and enhance customer service via real-time shipment status monitoring. The Port of Singapore, for example, is RFID enabled for secure container tracking and monitoring across all aspects of port operations, from initial receipt of product to final loading on container ships.  DHL is integrating RFID into the "repair and return" supply chain to secure high-value items, such as HD TV movements to service centers.

Other possible applications that may emerge in the next few years include:

• Defense related asset tracking, being explored by the DoD, NATO and their suppliers.  Emerging new chip designs with higher data storage capabilities can be used to tag expensive aircraft parts, for tracking and management purposes.  Boeing, for example, is tagging over 1,000 high-value parts on the new 787 Dreamliner with chips designed to contain the complete history of part usage and repair.
• Vehicle manufacturers are an obvious deployment opportunity, given the huge flow of parts and returnable containers in their supply chains.  Recent AMR Research surveys indicate that nearly 50% of vehicle manufacturer respondents to RFID adoption questions said that a lack of clear ROI, high tag costs, security issues and other priorities for supply chain investments meant that RFID tagging was not far enough up their investment lists to be a priority in the next few years.

Finally, people monitoring may turn out to be a major new application of RFID tagging in the coming years.  China has orders out for over 3 billion tags by 2009, as it implements its new identity card program.  Similar programs are under serious consideration in Europe and the U.S. to embed passports with RFID chips in an effort to thwart terrorists.

From an investor’s perspective,the focus should be on whether the company has a well-tested solution to a known industry problem with a high ROI payoff for the customer. Betting on unproven solutions to problems with uncertain ROI just is not going to the basis for a successful launch in the next few years.  With limited solutions gaining acceptance, this is not a time to gamble by investing in fringe applications with limited markets.