RFID: Not Easy Or CheapRFID: Not Easy Or Cheap

There's big money in those little RFID tags. Research firm Venture Development predicts that global shipments of radio-frequency identification tags used for cattle tracking will grow from $31.3 million last year to $71.5 million in 2007, a compound annual growth rate of 23%, and it will soon revise those projections upward. Wal-Mart Stores Inc.'s and the Department of Defense's RFID mandates will drive spending on the technology for the U.S. retail supply chain from $91.5 million in 2003 to nearly $1.3 billion in 2008, IDC says.

As the livestock industry contemplates a $600 million investment over six years for full-scale, nationwide RFID deployments, suppliers to retailers and the Defense Department are planning strategies to swallow the costs of their own multimillion-dollar RFID implementations. With Wal-Mart using a phased approach, some suppliers may ease themselves into RFID by outfitting a single warehouse or distribution center at a cost of about $100,000 to $200,000 per facility for an RFID reader or two, basic software, and systems integration, says Jeff Woods, a Gartner analyst. That doesn't include RFID tags, which average 25 cents but can cost $1.50 or more each. Some suppliers may open RFID consolidation centers in Dallas or Mexico; Wal-Mart's distribution centers in Texas are the first ones expected to implement RFID.

As orders of a billion or more tags arrive, prices could fall to 10 cents by 2006 and 5 cents by 2008, says Jan-Willem Reynaerts, transport and logistics market sector director at RFID tag-maker Philips Semiconductors.

"I'll believe the nickel tag when I see it," Woods says. "It will be a real trick for vendors to deliver at that cost."