Many companies are hesitant to enter into emerging, unstable markets because there's a chance the investment may bring no return. This could explain converters' current reluctance to join the radio frequency identification (RFID) market. It may seem to lack ROI, but is it just because people are not looking in the right places?

The Smart Labels USA 2006 conference, held March 28-29 in Boston, explored many facets of RFID technology and revealed sectors that labelmakers/converters may not have considered as possible business opportunities.

According to a study by IDTechEx, a provider of RFID, printed electronics, smart labels and packaging development and applications analysis (www.idtechex.com), RFID is currently a card business with an estimated 300 million cards to be made this year sold at $1-$4 each. "It's still a card business now, but labelers should look into (the card business) because it has a similar production process," said Peter Harrop, IDTechEx chairman.

The chart (right) shows other RFID sectors that IDTechEx has examined for profitability. "The full study revealed that relationships are complex, and the larger markets are not necessarily prosperous—nor are the fast-growing ones," Harrop said.

For example, the retail and consumer goods markets, which have placed the greatest demand on converters to create labels for packaging, are large and fast-growing but do not have many profitable suppliers. "Legal push and mandates can inflate market size—as with livestock and with pallets and cases that consumer goods companies must tag for retailers regardless of economics," Harrop said. "For RFID suppliers, that sounds like a license to print money. However, if customers are reluctant, prices can be tight and delays commonplace. Add technical problems and you have a bloodbath." And that is exactly the market converters are facing today. "We're not saying that there won't be big winners in the pallet/case tagging business—we are just saying that, for most, there are much richer pickings elsewhere," he added.

For those not interested in looking into other sectors with similar production processes, all is not lost when considering RFID. According to research by IDTechEx, an estimated 500 million RFID labels will be printed in 2006 globally for pallets and cases. Eventually, RFID labels will be seen on nearly all retail goods and by 2016 will be a $10.85-billion label business.

Plus, "sooner or later, someone will have to write a very simple specification for the biggest opportunity of all—item-level RFID," Harrop said. "Printed RFID could be the big disruptive technology in RFID." Disruptive technology often performs worse but eventually comes to dominate an existing market by filling a need or improving until it displaces current technology. Right now, the RFID industry is dismissive of printed RFID because it's not ready, which could mean big opportunities for printers/converters later on. However, directly printing RFID onto things will not be a major case before 2016, Harrop said.

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Until then, converters will continue to work with inlays to create RFID labels. The good news: The release of EPC's Gen 2 inlays have helped improve the RFID-label converting process with increased performance, more predictable performance, more yields and more supply options.

"Gen 2 brings standardization, prices have decreased and IP (intellectual property) issues are getting resolved," said Reik Read, senior research analyst for Robert Baird & Co., on moving the RFID industry forward. "Many converters are piloting Gen 2 and building inventory, and the industry is seeing sufficient availability."

In addition, the University of Arkansas studied 24 Wal-Mart stores—12 using Gen 2 RFID and 12 with regular barcodes—and found the stores using RFID had a 16-percent reduction in "out of stocks," three times faster replenishment of stocks and a 10-percent decrease in manual ordering. "Wal-Mart will take this data and put more teeth in its mandate," Read said. This, of course, will mean more opportunities for converters and labelmakers later this year and into 2007.

"There's a lot of venture money out there and investors, which is good because it means people are seeing (RFID) is working now," concluded Read. Gen 2 will further define the market, with start-ups and incumbents both having the opportunity to participate in the marketplace, he added.