Radio Frequency ID Standard Too Expensive?

by Bill Glover

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The latest edition of RFID Journal includes an article on the much anticipated Generation 2 standard of the Electronic Product Code specification. This specification may influence the way we build applications as diverse as tracking pallets for Wal*Mart, and how we monitor the location of Alzheimer's patients in the hospital.

One of the things driving interest in RFID in recent months is the reduction in cost of tags. RFID has been around since World War II, but, until recently, the cost of the tags was too great to use for anything much less expensive than a train car or automobile (think express toll tags). Recent advances have produced tags for as little as $0.08 USD each and has opened up a huge number of applications. Now, an organization which represents the same partners who manage barcode standards has proposed a new Electronic Product Code standard which may possibly be encumbered by patent licensing fees. Will this drive up the cost of tags? Could this delay or even stall adoption of RFID in the field?

What do you think?


2004-12-09 23:01:28
Competing Patents and Standards

EPC will only be accepted as a standard, in the long run, if it is price-competitive against alternatives. The whole world will be going to RFID in time, and if patent revenues exceed the cost of a patent-avoiding redesign for a given region, then companies serving that region will seek alternatives. Those alternatives represent a major competitive threat to the patent-gouging companies; low price units eventually replace high price units.

RFID will become practical for general retail at about 2 cents per unit total manufacturing and transaction cost. At about 1 cent, demand is expected to eventually approach 10^14 units per year, or about one trillion dollars. You can bet there will be an enormous amount of competitive energy focused on this market, and shaving a millionth of a cent off the tag cost will fund a good-sized engineering effort - or a good-sized legal effort.

In the particular, places like Intermec do not have nearly the clout of places like Walmart; if Intermec plays cutsie with Walmart, they are out of the loop. Now, Walmart might arrange to get a "no-royalties" price, and everyone else pays royalties; but they don't get to work that deal with any of the other patented goods they buy, so they probably won't get to here, either. Walmart will just hammer, hammer, hammer their suppliers down to marginal cost, and buy a boatload of RFID equipment, and Intermec and others will mostly just scramble to keep up with the demand.

As a patent holder for some technology that may get applied to a future generation of cost-reduced RFID tag, it is nice to dream that my patent will make me billions of dollars, but in actual fact I will get designed around if I get greedy. I cannot expect to get paid more than the value of the service I provide, or the cost of designing alternatives to my offerings. Heck, even Bill Gates has to offer something to attract customers.

So while I expect Intermec and Alien and other patent holders to try gouging for a while, they will either keep prices reasonable, or get bypassed by competitors with clever alternatives.

Keith Lofstrom