In our last issue we discussed in Many Lights Turning Green for Investors in RFID, whether RFID-centric companies and technologies were good investments for investors. Of course that means that the companies in the market have to scale and meet their business plans.
And that means that these technology solutions have to stand on their own — provide a complete solution in a growing market.1Last year we wrote a report about adoption of RFID (and other mobile technologies) and what it takes for users to adopt. After talking to lots of end-users, one of the premises of the report was that now that RFID was no longer ‘an engineering project,’ they felt comfortable purchasing the technology. The bigger companies were looking for a solution approach, our subsequent research also pointed out, — not components, but integrated solutions.
But two conflicting perspectives continue to confront my thinking:
1. There are many innovators and developers still experimenting. This perspective may be due to our geographic proximity to the epicenter of geek-hood — the Boston area is loaded with scientists and engineers — as well as being researchers, since we are constantly being introduced to the ‘next big thing’ and new entrepreneurs.
2. Component solutions stack.2 There are a few ‘applications’ with mature use cases that allow users to just adopt (examples include Savi Insight for transportation and asset management, Stanley Healthcare and Intelligent InSites in healthcare, Tyco’s TrueVUE for retail inventory management, Checkpoint’s OAT System tool and asset tracking for manufacturing applications, and ComponentSoft’s ItemSight for sample management for private label retailers). These are beginning to get traction in the market.
I don’t want to say we should squash innovation. There is not a market — even so-called mature markets like EDI and ERP — in which fresh ideas that solve old problems do not ultimately add lots of value. But if there is too much churning, does it make end-users hesitate to put their toes in the water?
To answer that question, let’s look at these phases and then rethink whether RFID is really Main Street (as my own firm contends) or still in an intense engineering stage.
The Engineering Phase — Proving the Concept
The User Perspective: In the engineering stage, technologies may be acquired or developed from scratch by large corporations who are willing to experiment and invest. They may see long-term promise and the opportunity to realize a substantial competitive advantage by being the first with new capabilities; or they may recognize the value of the new technology, and know they need to dig in for the long term to realize value. These are speculative projects by early adopters who often engage directly with inventors to solve technical challenges on a very local level.
Early adopters who continue to innovate can be very experimental. For example, Walmart experimented with web-based collaboration in 1995, before this moved into the greater industry for adoption. And the DOD used RFID in the 1990s, well before the establishment of MIT’s Auto-ID Center in 2002. Over the last decade we have seen Airbus and Boeing, but especially Airbus, fund ongoing pervasive use cases within their operations. Early adopters in hospitals deploy initial use cases and then continue to work with RFID and application firms to develop a broader portfolio of applications that use the infrastructure.
The Engineer’s Perspective: Most often, technologies are created by the archetypical ‘developer in the garage.’ Even in this case, the most successful applications are frequently developed by someone with years or decades of experience in the end-user community or industry that they are serving, and they have experienced firsthand (often within one of those large companies) the challenges they are trying to solve. They see there is no existing satisfactory solution in the market and they are willing to risk all to create it. Successful RFID firms have both the engineering professional who continues to tinker, and the hires from the ‘the industry’ who are applying these ideas and turning them into solutions.
However, our industry is still heavily populated by the tinkerers and visionaries with patents and ideas aplenty. And since the RFID industry, relative to others, is still small, these players can still have a presence in the market and influence over end-users regarding what constitutes a solution.
But of course, engineering does not just mean garages and can be housed in big enterprises.
Component Integration Phase — Enter the Ecosystem
If a value proposition/benefit is achieved by the customer and the inventor has further funding and the ability to scale, they may advance to Stage 2, with perhaps more sales, more projects and maybe, larger projects. Stage 2 projects are still generally handcrafted implementations. More importantly, other complementary technology players may be willing to participate in Stage 2. These include software and integration firms who not only contribute their expertise to a project, but are also learning about and evaluating the long-term opportunities that this particular technology presents. If a solution fails to attract these partners, it can be very difficult to sustain a growth trajectory.
Everyone wants to know whether this will be a one-off project or develop into a repeatable solution market. The partners want to know if there is a big enough market for them to make the necessary investments in developing the know-how and toolsets to include in their own solution or service offerings. These partners and players often become powerful sales channels and catalysts for growth. The growing ecosystem of partners can help the growth to a mature solution through a combination of an increased number of funded projects; an increasingly committed ecosystem of partners; and often, the attention of outside investors who believe in the opportunity.
This Ecosystem phase takes many years to traverse. It’s the zone of perseverance and often, continued experimentation. As the technology provider learns more about the market, they may make changes in the platform and delivery model, pricing, and focus.
For device companies, scaling often requires major changes in their manufacturing methods so they can meet market demand, maintain quality, and reduce the cost per unit. These issues are critical since, for device companies in our industry, they need a path to profit. And they need it immediately.
In the RFID UHF market, standards have played a critical role. They have required certification based on various government regulations or industry standards. Third-party testing labs are often sought for this purpose, and paperwork may need to be filed with government agencies to receive certification. This is yet another investment in time and money on the part of the tech company. But for many technologies, adoption at scale cannot occur without addressing it. Amazingly, many early stage companies who do participate in a highly regulated industry have not accounted for the time and money associated with this effort in their budget or funding plans. And it is a significant amount. Thus, in our industry, having a few players — the chip providers — deal with all that means that everyone else can piggyback off of that pain.
Even without a need to adhere to legal standards, the questions of “does this run on — ” or “do you integrate to — ” will be ever-present on the sales call. Again, from the adopter’s perspective, these questions must be addressed. Certainly, at an integration stage, solution providers need to decide on which OS or platform they will run and which enterprise application/ecosystem they will integrate into. Today of course, many companies make many of those decisions when they first conceive of the product. From there, they can leverage the platform provider’s toolset to create the solution.
So here is my angst. In the adopter report, we proffered that the industry was in a solutions and network stage — that is, mature enough for Main Street. And in our recent webinar we touted that same message. Yet at the same time, I am seeing an explosion of new application software/middleware coming from device/equipment companies: Zebra’s Zitar and Impinj’s Item Intelligence Software; all those innovators in my neighborhood; as well as the Intels, Ciscos, and Googles buzzing around investing in new ideas.
Are We There Yet? Beyond Engineering
The situation is mixed and a bit muddled. In key industries with popular use cases, end-users can find applications, if not quite out of the box, at least easy to deploy.
And today, end-users are willing to stand as reference accounts. Fast followers are now joining the trailblazing firms who believe this technology will deliver value, and just as importantly, have faith that this solution provider will still be there in a few years. This becomes a crucial point from the end-user’s perspective. All end-users want to know that their time and financial investments will not be lost. Although ease-of-implementation may be addressed through on-demand clouds, users are extremely disappointed if a service is withdrawn from the market after they have loaded all their files and data into a system and have begun to use it.3 Of course this tips the scale to more established firms, but they also don’t guarantee they ‘will be there’ tomorrow. In fact, larger firms can more afford and are more cavalier about cancelling services, whereas smaller firms often hang in there with their beliefs and dreams, and take care of their important customers.
In our continuing series on RFID we will cover the market and its growth; Apple and Google’s foray into RFID and what it means, Leaders in the Market and of course the Internet of Things, and what that means to the market (a lot!).
1 ChainLink is currently working on upgrading our 2014 RFID market research numbers for our 2015 forecasts now. — Return to article text above 2 Tags, readers, mobile/cell, middleware, business applications — Return to article text above 3 Hopping mad may be more like it. Large firms are notorious for canceling services, yet users still think it is the little firms who present most risk. SONY’s abandonment of the ereader (and other products) and selling the service to some obscure ebook publisher is a case in point. Users have been unable to reconcile the devices to the cloud ever since. Software markets are full of stalled or challenging issues from small and large software firms alike. Support and migration issues are discussed in Moving Off and Moving Up.
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