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RFID MENTAL BREAK BRINGING THEM MARKET EXPECTATIONS BACK DOWN TO REALITY
RFID is a pretty cool technology. It might even spark revolutions in asset and transaction management. However, the technology is not new or stable; and it is certainly not ubiquitous. RFID's potential is no doubt significant, but its near-term revenue stream is expected to be just that - a stream - not a geyser, a waterfall, or any other over-wrought natural analogy. The RFID market remains in transition. It is not 'already' in transition as if it were evolving, maturing and growing in alignment with the wide-eyed forecasts developed by the uncalloused hands of light-headed, translucent-skinned analysts who have never run a snack food route, or a series of receiving bays, shadowed an intern on morning rounds, or sat in on a purchasing staff meeting carving away at $40 million in excess inventory. The RFID market remains stubbornly in transition - like the concertina on the verge of prodigy, if only she could master that one chord progression. VDC has been tracking the RFID market for nearly 15 years. During that time we have witnessed, and have occasionally hailed, a number of significant, positive steps forward for the market. On several occasions we offered our opinions, only to receive catcalls accusing us of throwing 'wet blankets on infants.' The pressure to succumb to 'RFID supply chain fever' was significant in 1998 - as it is now. Market forecasts increased while user investment remained restrained. Vendors reported revenues in the millions, not the 10's of millions many suggested. In the absence of a near-term market explosion, the portfolios of VCs investing in RFID took a beating. We, too, felt that pain. But, rather than gloat or grouse, we went to work just like we have every day for the past 15 years to define the real requirements, the real opportunities, the real story of RFID. In this note, we share a few unvarnished thoughts with some of our closest friends in the RFID market. Today feels a bit like 1998 with RFID. And like 1997 with 2D. And 1999 with direct marking. And 2000 with SME channel development. And health care management applications in 2001. Today, things are different than all these other times. However, we cannot help but think that some of the frames in this movie were screened before. The deja vu is so strong; we could not help ourselves from sharing these thoughts, or the following ideas: Do your prospects have guns to their heads? If not, push them down the funnel. Pull back your strategic account managers and executives. Move on. That target will not buy. If there is no proverbial 'gun to the head', from government legislation, industry regulation, key customer mandates, then there is little chance that that account will be providing you and your team with a profitable revenue opportunity. There is no doubt RFID can bring value to a user and business processes, but it is tough to argue against the fact that in today's market, compliance is king. On the other hand, if you and your team are prepared to support break-even work, or business that is 10 basis points red, then you may have a fairly significant market opportunity before you over the next 3 years. If this sounds pessimistic, then consider the time and treasure that has been poured into developed health care markets - however you want that defined - for AIDC and Enterprise Mobility solutions. Zebra Technologies may be one of the best-run companies in the world. Their timing and execution have consistently been brilliant. Yet their health care segment performance frustrated for years. As the health care market continues to embrace technology, Zebra will be there to reap significant rewards. However, we should not forget that they have been there for years making significant investments. Symbol Technologies may have the best track record for next-generation vertical market and application development in the AIDC and Enterprise Mobility industries. Symbol's best-known brand, marketing machine and global reach have created dozens of new niches for the folks in Holtsville and elsewhere. Despite their recent gains in this market, we should not forget that Symbol's efforts in this market go back nearly a decade. Intermec Technologies may have as much collective wisdom and experience in the RFID market than any other single company on the planet. Moreover, the company might still have a legitimate claim to the largest installed base of AIDC or enterprise mobility solutions supporting industrial supply chain installations. However, this rare combination of advantages, so brilliantly applied in a number of transportation, logistics and industrial supply chain markets, produced marginal leverage in health care for years. Stories such as these are legend, and could describe a few dozen of the Fortune 500 suppliers of information technology as well as hundreds of the most experienced and skilled systems integrators and ISVs in the world. The problem? There were no proverbial 'guns' in 4 out of 5 health care sites. Without compliance mandates to create an imperative to invest in RFID, the RFID supplier community will need to continue to invest significant resources in every dimension of product, market, channel, and industry infrastructure development. Without compliance mandates, what is to be done? The answer might be rooted in a market development approach that mirrors a building method called up-and-down construction. But, in this case we might call it forward and backward market development. We need to continue to push forward on a number of fronts where we have traction and momentum. At the same time, we need to go back and repair some of the most suspect, or missing, elements of our most disciplined performances. The market will need significant customization for years. The products must age quickly and become stable, cheap and open 'before their appointed time' according to product marketing managers. Good program management is intimate and a critical component for market growth. At the same time, suppliers will need to do their best product ad channel development and management. The channels must be given the room and the resources to invest with evaluators and suppliers in application-specific RFID solution development kits that create and give away more advanced enabling technologies with each new contract. The markets must be dotted with powerful cases and examples of tangible ROIs that can be achieved with fewer caveats, conditions, and disclaimers, and these cases must be made public (even if anonymous). The industry infrastructure has progressed to the point where technical standards are becoming more stable. It is now time for compliance standards to be defined. Show me a serious RFID supplier without a presence, direct or indirect, on key technical and commercial standards development committees, and I will show you an RFID 'business' withering on the vine. So, if this brings you back to 1998, you are one step ahead of your peers. You know what to expect. If this reads like motherhood and apple pie as well, then you are two steps ahead. If this reads like a smart, simple plan that your firm needs to seriously consider, you might be in trouble. For the issue here should not be what to do, but how to do it. We offer these ideas not as a complete game plan, but rather as a 5-act script to consider for the opening of the second half. Our recommendations may not be unique or overly creative. However, we believe that by embracing them and digging deep to define how you will meet the challenge, you might capture a scalable, profitable piece of that highly fragmented, lurching, marginally profitable prize called the 'near-term' RFID opportunity.
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