March 10, 2006

Cost of RFID Tags Falling, but Mass Use Far Away

HANVOVER, Germany -- Tiny chips touted as a wonder technology that could transform shopping and manufacturing are slowly making headway, but the cost of producing them is preventing mass usage.

Radio Frequency Identification (RFID) was invented more than 50 years ago but has so far failed to live up to its promise to connect everyday things through a wireless network and make it possible, in theory, to track every item ever produced.

Computer scientists dub RFID "The Internet of Things," in which anything from shampoo bottles to marathon runners can be tracked using radio tags. Criticism from some camps is that the technology can lead to an unacceptable invasion of privacy.

But the future looks rosier for RFID as costs to make the chips decline and governments take a keener interest.

"The time for action is now," said Viviane Reding, European Commissioner for Information Society and Media. She spoke at CeBIT, the world's biggest tech and telecoms fair.

Firms from around the world exhibiting at the fair in Hanover showed how they have been using RFID to make business more efficient.

Metro, Germany's biggest retailer, said it saved 8.5 million euros ($10.1 million) in its German operations last year by using the technology to track inventory from suppliers and at its flagship Future Store in the town of Rheinberg.

But Gerd Wolfram, head of technology at Metro, admitted mass take-up was still not imminent. "RFID has a long way to go," he said. "This technology will not be introduced today or tomorrow but sometime in the next 10 to 15 years."

The cost of making an RFID tag is about 14 euro cents today and needs to go lower, Wolfram said. Using it to tag a cup of yoghurt priced at 40 euro cents made no sense.

Ian Furlong, manager of Intel's Solution Services division for Central Europe, said the price of RFID tags was "rapidly falling toward the 5 euro cent mark. As a result, demand from a variety of industries will increase."


Some industries in which tracking goods is crucial are already using RFID technology, such as retail, pharmaceuticals, governments, logistics, airlines and manufacturing.

A recent study by ABI Research found that 10 drug products are expected to have RFID tags on a large scale this year. Pfizer, for example, uses RFID tags to track Viagara shipments to make sure what is sold is the original product.

But the study noted that high costs and a retreat from the "irrational exuberance" of early market hype about the technology had prompted drugmakers to stick to small-scale pilots for now.

And Andrea Huber, managing director of Informationsforum RFID, a German group raising public awareness about the technology, said most companies were waiting for the price of tags to fall to 1 euro cent before they start widespread use.

EU Commissioner Reding said international standardisation of the RFID technology was necessary for it to develop but that should be balanced by measures to avoid compromising privacy.

"We need to ask what information will RFID systems gather and how long that data will be kept?" she said. "Who will have access to it? How will the data be secured from theft, negligence and abuse, and how will accuracy be ensured?"

Her comments echo those of RFID's many opponents, who say mass deployment could create a Big Brother with access to data about people's private lives.

"I've heard that if I take this tag home with me, they will be able to track down my apartment," one shopper at Metro's Future Store said recently, peeling off the RFID tags from his shopping and binning them in the shop.

However, proponents of RFID draw parallels with the early days of mobile phones, when worries that callers would be instantly traceable were eventually drowned out by mass demand.

Given the right must-have application for RFID, they say, privacy concerns will fade away.

(Additional reporting by Georgina Prodhan and Natalia Matter)