MIT Nov RFID article

[Owen Densmore]

Folks: This article on RFID captures quite well the center struggle we
faced at Sun.  Indeed, the decision to focus on palette and case
tagging was an accepted near term approach by all the commercial
participants.  Schrage's point is well taken: there is a need to
identify consumer value, not just retailer cost savings.

Owen

Little Bang for the RFID Buck
Radio frequency identification tags flounder as innovators figure out
how to best use them.

By Michael Schrage
Making good ideas matter
November 2003
RFID?tag; you?re not it. The aspiring ?bar code of the future,?
midwifed at MIT?s Auto-ID Center, faces a serious identity crisis.
Proponents insist the tiny tracking tags (RFID stands for radio
frequency identification) will profitably transform the global
economics of supply chains and customer relationships. Outraged privacy
activists attack the diminutive digital devices as Orwellian bugs for
tomorrow?s surveillance society. Though these rival claims are less
about honesty than hyperbole, radio frequency ID is emerging as a
symbol of innovation that benefits innovators at the direct expense of
consumers. That?s bad news for a technology bidding to be a ubiquitous
global standard.

Even worse news was Wal-Mart?s surprise summertime declaration that it
would indefinitely delay a high-profile ?smart shelves? RFID test with
Gillette. When the world?s largest?and most technologically
invested?retailer postpones experimentation with a next-generation
innovation, that?s a market signal radio-tag innovators can?t afford to
ignore. If any company is superbly positioned to turn a technical
protocol into a ubiquitous presence, it?s Wal-Mart.

Mere weeks later, another Gillette smart-shelves experiment with Tesco,
Great Britain?s tech-savviest retailer, ended amid controversy. What?s
going on here? Are the anti-radio-tag activists winning the privacy
propaganda wars? Does RFID technology promise more than it can
reasonably deliver? Or do the darn tags simply cost too much?

The answer reveals a great deal about the dueling economics?and dueling
ethics?of innovators with conflicting business models. Technology
innovators must always remember that there?s a huge difference between
customers who invest in innovation to save money and those who invest
to make money. The fervent belief that saving money and making money
are somehow equivalent is the great innovation delusion.

Wal-Mart has no such delusions. At the same time that the retailing
behemoth canceled its in-store test, it reiterated its intent to push
suppliers to attach radio tags to all the cases and pallets they ship
to the company?s warehouses. Why? Because even a casual
back-of-the-envelope analysis shows Wal-Mart getting by far the biggest
bang for its RFID buck from using the tags to boost efficiencies within
its gargantuan logistics infrastructure.

In other words, Wal-Mart best maximizes its ROR?Return on RFID? not by
using smart tags to better track millions of customers spending
billions of dollars but by optimizing the processes that place hundreds
of thousands of products on its shelves. Wal-Mart?s ability to deliver
on its ?everyday low prices? promise depends more on rigorously
tracking products than rigorously?intrusively? invasively??monitoring
customer purchases. Wal-Mart knows this. So do its suppliers. And so
the Auto-ID Center is learning.

But what about making money through radio-tag tracking? Don?t retailers
like Tesco?with business models and investor expectations geared to
higher margins than Wal-Mart?s?also have a big incentive to go beyond
internal supply chain efficiencies? Yes, but the barrier is obvious:
the economics of the tags are inherently different when they?re
employed to increase customer value rather than cut internal costs.
Whether the tags cost a penny, a nickel, or a dollar is irrelevant to
the essential business question: how are they used to add value?genuine
or perceived?for customers? Apparently, neither retailers nor
manufacturers have yet figured out an economically intelligent answer.
Even worse, RFID champions appear unable to design real-world business
experiments that potential customers find more exciting than offensive.
In effect, radio tags have everything to do with cost reduction and
nothing to do with value creation. The issue isn?t RFID technology;
it?s determining how to persuade customers that an innovation?s
benefits unambiguously outweigh its costs.

Indeed, the loudly debated privacy issue is a red herring. The RFID
community could take its cue from the credit card companies who monitor
customer purchases in real time. Visa, MasterCard, and American Express
have convinced millions of their customers that real-time monitoring
cuts back on fraud and the risk of identity theft. In other words, the
costs of privacy invasion are outweighed by the benefits of increased
security.

The problem with radio frequency ID is that it?s clear how retailers
and manufacturers might benefit from attaching smart tags to their
products, but it?s utterly unclear how this helps consumers.

The moral of this ongoing tagging tale is simple: everyone understands
?everyday low prices.? But if customers can?t see how they?ll get value
from your proposed innovation, the problem is not their ignorance but
your own.


-------------- next part --------------
A non-text attachment was scrubbed...
Name: not available
Type: text/enriched
Size: 5577 bytes
Desc: not available
Url : http://constantinople.hostgo.com/pipermail/friam_redfish.com/attachments/20031024/1bceec40/attachment.bin

[Robert Holmes]

> ...there is a need to identify consumer value, not just retailer cost
savings.

And a need to reassure people that the threats to privacy aren't real. Oops,
too late:
http://www.wired.com/news/technology/0,1282,60898,00.html?tw=wn_tophead_1