Harvard Business School Working Knowledg e Archive

RFID: The Promise (and Danger) of Smart Barcodes

Thanks to Wal-Mart, we all have heard about radio frequency identification. Now RFID tags are set to pop up on everything from razor blades to cattle.

The annual Cyberposium conference highlights the latest high-profile technologies. Two years ago the Segway scooter rolled onto center stage, while last year's event broadcast the power of WiFi.

But at Cyberposium 2004, the tech star was much less glamorous: a five-cent tag that transmits data about itself to a distance of just a few feet. But radio frequency identification (RFID) tags have the power to do everything from saving companies massive amounts of money through pinpoint supply chain management to shrinking lines at the checkout counter.

At the same time, the ability of smart tags to collect and broadcast data opens up new worries about privacy protection.

Those issues were discussed by a panel of RFID users and analysts at the Cyberposium conference held at Harvard Business School on January 17.

With RFID, every object is part of the ecosystem of the Internet.

An RFID system (also called auto-ID) is essentially two parts. The tag, which is affixed to a product, is like a barcode on steroids. It assigns each product a unique ID number that is linked to information about the product—when and where it was made, how much it costs, a travel history from production floor to store shelf. It also contains a simple radio transmitter that allows the data to be "interrogated" by computerized readers placed anywhere from a loading dock to a store checkout counter. The reader, which can gather data while being six feet or more from the item, can move the information to an online database where it can provide real-time information for managers.

But there is a fundamental difference between a barcode technology and RFID. Barcodes used Universal Product Codes to identify the product—say, Coke in cans. RFID replaces the UPC with an Electronic Product Code (EPC) that identifies the single item—a particular can of Coke.

When products and components are tagged individually, "every object is part of the ecosystem of the Internet," said Benoit C. A. Gaucherin, chief technology officer of business and technology consultant Sapient.

Jamshed Dubash, who runs the auto-ID program for The Gillette Company, said Gillette uses tags to track palettes and cases of products, but not yet individual products, as they move to distributors and retailers. He said RFID is helpful in following small products such as razors, which can often get displaced, lost, or stolen as they make their way through the system.

Eventually, Dubash said, tags will be applied to each product, making it much easier to track inventory levels and ensure products are on the shelf when customers want to buy them.

Also, panelists said, individual product tagging will help companies respond more quickly and effectively to product recalls. Example: Mad Cow disease. The U.S. Animal Health Association in October supported a proposal to tag cattle potentially exposed to an animal disease, making identification of infected cattle much easier.

Tags are being designed to not only hold more data but also to employ sensors to record environmental information, Gaucherin said. He imagined an auto insurance agent who might be interested in interrogating your car's engine to see how fast it has run before quoting you a price.

Casino chains have expressed interest in tagging their big players (with permission, of course) to see how they move through the facilities, Gaucherin said.

Audience members expressed concern that RFID tags could be used to track individuals.

Interest in RFDs escalated last year when Wal-Mart required its top 100 suppliers to deliver goods with RFID tags. And in December, the U.S. Department of Defense announced a test by the Army, which will use tags equipped with temperature sensors to ensure that food sent to troops is stored properly and used before expiring.

What about privacy?
Audience members expressed concern that RFID tags could be used to track individuals when a tag number is matched with the buyer. Gaucherin provided one scenario where someone could interrogate an individual's garbage container filled with tagged products with a portable reader from a few feet away. But most RFID tags are not tracking devices, he said. They have to be near a reader, and they can't be read well when near metal or liquid.

And panelists agreed that the RFID industry would create tags that can be deactivated by consumers who don't want to participate. Dubash said when Gillette does begin tagging individual products, probably in about five years; the tags will be easily visible to consumers and can be shut off.

Where's the money?
Venture capitalist Hemant Taneja, a principal with General Catalyst Partners, said his firm is interested in potential investments in RFID in two areas: vertical applications that make use of the captured information, and systems and networks that manage the vast amount of data being collected by billions of tags in the field.

RFIDs will be used in many industries including pharmaceuticals, livestock, healthcare, and airlines, where tags will help keep track of baggage, said Prasad Putta, CEO of OAT Systems, which makes RFID products.

The tags themselves will become more sophisticated. The military is using tags combined with a global positioning system to be able to pinpoint shipments at a moment's notice. In the end, RFID users will be able to choose from more expensive but more capable tags that cost a few dollars each to simple devices that are available today at a nickel each in large orders.

Rollout of the technology might be quicker than has been the case for other new technologies because basic standards are in place, such as a single numbering system, Dubash said.

Looking for your next career? Panelists said there is a severe shortage of RFID engineers. And with the market potential untapped, "if you want to be an entrepreneur, this is the place to be," said Gaucherin.