Here's a statistic that might make your IT stomach flip: By 2007, at least 50% of RFID projects will fail. Within three years, according to Gartner Inc., a lot of companies will burn through plenty of money testing the new technology.
Jeff Woods, a Gartner research analyst who researched ongoing radio frequency identification projects for a recently released report titled "Prepare for Disillusionment with RFID," said the 50% failure rate estimate is optimistic.
"I was talking to one of the big three automotive makers and they said 'We've been working with RFID six or seven years. I'd love to have a 50% failure rate,'" Woods recalled.
"What we tell customers is if you want to be really strategic -- you really believe there is a business case -- you have to have a lot of money. And, oh, by they way, you have to have an appetite for risk that most people don't have; then RFID is for you."
There are many reasons so many RFID projects don't live up to their billing, including the fact that many companies have unrealistic expectations -- often provided to them by enthusiastic system integrators -- on the technology. Another simple fact, Woods said, is that sometimes bar codes work best.
"There are a lot of situations where bar codes work better than RFID," Woods said. "That's shocking to a lot of clients."
RFID tags are microchips that can pick up signals from objects -- cases of consumer goods, for example -- and send those signals to a reader. This provides the sort of drill-down data that, for example, Wal-Mart said is going to eliminate waste from its supply chain and keep its shelves stocked, but not overstocked.
Wal-Mart has set a deadline of January for 100 suppliers to use RFID tags on cases of consumer goods that arrive at Wal-Mart distribution centers.
"There are a lot of people right now who have been forced-marched in RFID," Woods said. "Many of them are just furious." However, Woods agrees with many industry analysts who said RFID can live up to its billing -- in about three to five years.
One of the biggest problems facing companies is the "uncritically optimistic" business cases that large system integrators are making, Woods said. "We don't know any manufacturer, any Wal-Mart supplier, that actually has a business case for RFID. We call this faith-based RFID."
Technical compliance is not a huge challenge for Wal-Mart suppliers, Woods said, and some RFID implementations have eliminated the need for clipboards in warehouses, but the business case -- showing ROI -- is elusive.
"The software vendors have come up with nothing on the business case. Some of them are going to be able to minimize negative ROI," Woods said. "I think that's funny, to call it a business case."
Meanwhile, IBM announced Monday that it would invest $250 million over the next five years, creating a new business unit to support products related to RFID. On Tuesday, SAP announced an initiative to bring together executives considering RFID technology and privacy advocate groups who object to it. The company is establishing a Web forum where RFID-related issues such as security and privacy will be discussed.
"The point we are making today is that we see and, we think customers see, the benefits of RFID and the reluctance to tackle the privacy issue," said SAP spokesman Bill Wohl. "New technology can be scary," he added. "I think Gartner is appropriately pointing out that there is risk involved. That's the standard Gartner response. They say 'Be careful.' "