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When it comes to RFID, the buzz has subsided and most budgets have dried up. Today, leery customers search first for RFID’s business impact. No brainer, right? Think back to 2004 and the budding RFID mania. Analysts and industry watchers sat perched on the edge of their chairs, watching and waiting for RFID adoption to explode. Large companies like Symbol Technologies (later acquired by Motorola) shelled out hundreds of millions for itty bitty RFID start-ups in hopes of competitive leadership in an undefined space. And then…Nothing. There was no massive explosion. Just silence, followed by failed pilots and dried up budgets.

RFID leaders like Microsoft and IBM think RFID is on the upswing again, but for different reasons than four years ago. Both companies are focusing on partner development and product enhancements to seed the RFID market and position themselves for success when the economy turns around. If they are right, VARs interested in RFID should ready themselves for a strong push in both classic and emerging RFID verticals like healthcare and retail apparel.

“Microsoft is moving towards a more mature technology market, where it is not about whether the technology will work, like it was six or seven years ago, when the RFID buzz began,” shares Sudhair Hasbe, Microsoft’s senior product manager for RFID.  “It is about the business value,”.
Toby Rush, CEO of Microsoft partner and RFID VAR Rush Tracking Systems echoed a similar sentiment.

“Two or three years ago the focus was on a much more grandiose plan,” said Rush.  “You have to be able to prove your business case and put forth a solid rate of return and better and harder numbers.”

It appears that the RFID market demand slowed for a number of reasons, the economy being at the top of that list.

“Because of the economy, there has been an impact on the RFID market in general. That’s the truth,” said Microsoft’s Hasbe. 

Second, the cost for entry into RFID solutions is quite high. Underscoring the disconnect between the technology and the business impact, many customers that tried a pilot on for size took a second look at cost and projected return, then delayed plans for RFID adoption.

As the economy rebounds, IBM and Microsoft are positioning themselves to take advantage of renewed budgets and enterprise interest for RFID. The two have stepped back, learned some lessons about positioning RFID solutions to potential customers. Scott Burroughs, IBM’s sensor solutions strategist, calls the value proposition a “work-back approach,” meaning that IBM focuses on the business problem and then utilizes RFID and sensor technology to solve customer business issues and pains as opposed to leading with the technology itself.

“The business impact and the change it enables is where the value gets captured,” said Burroughs. “We have always been focused on process innovation and helping our clients be smarter about their business, and use technology as an enabler of that.” Microsoft’s and IBM’s quiet and cautious acceptance of budget slashes and the harsh economic reality can be frustrating for smaller software vendors and VARs that play in the RFID marketplace. Mobile application and RFID solution provider, Shipcom Wireless, is frustrated at what it perceives as both behemoths backing off RFID evangelism and leadership. 

“IBM and MSFT have both seriously backed up on RFID technology,” said Sam Falsafi, Shipcom’s senior director for oil and gas. “I don’t know why they are doing it and it’s disappointing – there’s less momentum – leaders in the market are not participating in the awareness market.”

Leif Eriksen, managing director for analyst firm Industry Insights, believes the forward-looking nature of RFID and the economic realities of the recession led to RFID being put on both Microsoft’s and IBM’s back burners. However, Eriksen adds he thinks IBM and Microsoft are positioning themselves well for the economic upswing and the consequent renewed interest in RFID.

“IBM and Microsoft are big companies with a lot of different interests, it was hot on their agenda, because it was hot in the market," said Eriksen.  “With the recession, like everyone else, they have to focus on their own core competency so that when the recession is over, they are in good shape. RFID is forward-looking stuff.”

Indisputably, Microsoft has turned itself into a dominant force in the RFID marketplace through product, strategic alliances and evangelical activities. Its BizTalk Server, originally released in 2006, provides a plug and play RFID framework for device management and development and deployment tools. 

Rush thinks Microsoft’s RFID market moves are very positive for future adoption of the technology
“Microsoft adds very large credibility to the space,” said Rush. “Having big name companies like IBM and Microsoft investing in the space, gives the Fortune 500 a lot more confidence.”

In a quest for strategic and high impact partnerships, Microsoft cozied up to tag provider Avery Dennison and RFID hardware vendor Motorola and, together, they focused on building and evangelizing RFID to a global ecosystem of key software partners to influence RFID deals across the globe. The long list of small and large software partners was formed, and now, those companies are building and bringing to market RFID applications in a variety of industries. Microsoft is also pounding the pavement tirelessly, and trying to convince solution providers traditionally focused on barcodes to incorporate RFID applications into their product set.

No doubt, by tapping the right partners Microsoft has had some significant successes and can point to real case studies with significant return on investment metrics.

“Microsoft has been seeding the market and gathering case studies to demonstrate the business value of RFID,” said Hasbe.

One example is Seattle-based sushi franchise Blue C Sushi that worked with Microsoft and one of its partners to try and better plan fish inventory to reduce waste. According to Microsoft, the company achieved a 45 percent reduction in waste and significantly impacted its bottom line.  Another example is American Apparel who achieved an increase in sales of 14 percent and a 15 percent reduction in inventory. The retail chain was also able to reduce labor needs by 20-30 percent in RFID-enabled stores.

Hospitality, including restaurant management, is a definitive focus for Microsoft’s RFID go-to-market activities. Other industries where Microsoft has seen significant traction are financial services, retail, manufacturing and the oil and gas sectors.

Microsoft is widening its support of RFID standards, as well. Last week, the company announced BizTalk’s compliance with dominant RFID standard GS1 EPCIS. The standard enables different organizations to track, query and monitor goods as they move through the supply chain in real-time through EPC bar codes and serialized bar codes.

As for IBM, it’s been in the RFID business for over twenty years. Big Blue was one of the first inventors and patent holders of core RIFD technologies that have been incorporated into products over the years. IBM is still intent on driving the adoption of RFID technology. The company created a focused sensor practice and is incorporating RFID and sensor technologies into its growing Smarter Planet umbrella. Global Business Services also plays an important role in solution delivery and defining RFID business cases. IBM points to German retail giant Metro and Airbus as two of its largest sensor/RFID customers.

IBM’s sensor solutions practice aims to track and monitor assets and consumer packaged goods through the supply chain. The company uses unique id and location technologies like RFID, barcodes, GPS, as well as condition monitoring (ie. Temperature and SCADA) technologies and middleware to monitor, track and analyze assets for improved operational efficiency and meeting compliance standards.

Big Blue continues to expand its product set to support sensor and RFID technologies. In early November, IBM added a new Returnable Container Management component to its RFID tracking software, the InfoSphere Traceability Server. The software is designed to track and authenticate items as they move through the supply chain, and allows clients and their trading partners to use a Web browser to determine where each container is at any given point.

Like Microsoft’ BizTalk Server, the software also supports GS1 EPCIS. The new release includes features like serial number management, alerts, reporting and an analytics engine built on IBM’s Cognos assets. The software also supports non-RFID sensors, like bar codes and condition sensors.

The new software offering is focused on verticals where IBM has seen significant traction, including the healthcare, government, aerospace and automotive industries. The software is currently being used in a pilot project launched by the Vietnamese State Agency for Technological Innovation and the Vietnam Association of Seafood Exporters and Producers to track the country’s seafood exports.

IBM’s purchase of MRO Software three years ago also gives IBM a competitive edge in the RFID solutions marketplace. MRO’s flagship product, Maximo, is an enterprise asset management solution that is widely adopted in IBM’s target RFID industrial sectors. IBM can tap an existing customer base of asset-intensive enterprises that may need RFID technology today and in the future.  Another benefit for IBM is Maximo’s native tracking and monitoring business processes. The pre-built processes can be integrated with IBM value-added software offerings so clients can perform additional processes for tracking and monitoring assets.

When asked about the MRO acquisition, Burroughs said, “It makes a lot of sense and it is a place where you’ll see a lot of leverage going forward and very positive synergies.”

IBM also sees the RFID market gaining traction in retail and consumer packaged goods, pharmaceuticals and industrial products like oil and gas.

Lockheed’s RFID arm, Savi, also thinks the oil and gas sector is a key vertical for RFID technology. The company recently announced a three-way partnership with Shipcom Wireless and rugged tag vendor KBR Wireless to go after the oil and gas marketplace. The move also marked the beginning of a dedicated oil and gas practice for Savi. The solution combines both active and rugged passive RFID tags, mobile software, and integration and business process services aimed at tracking and managing supplies transported between onshore and offshore oil and gas facilities worldwide.

Eriksen believes that supply chain intensive verticals like oil and gas are ripe for RFID adoption.

“The business of getting oil and gas out of the ground is very capital intensive, requiring an extensive and expensive supply network. Despite the hundreds of millions of dollars in tools and spare parts inventory required to support these operations, inventory visibility is poor. ” said Eriksen.  “Recent advances in wireless tracking technologies – driven by the interest in RFID – opens the door to improving inventory visibility dramatically and delivering an immediate boost to supply chain performance and the bottom line.”

Microsoft and IBM are betting the recipe for RFID leadership and success is the combination of partnerships, economic recovery and more defined business value.

Rush admits 2009 was a tough year for budgets – pointing out that end-user organizations are battling it out internally for budget allocation. He is optimistic, however, and observed a positive budget shift.

“It was very difficult in Q1 and Q2 of this year,” said Rush. “You have to have a pretty good business case to be funded– budgets are opening up a lot more than 8 months ago.”

Microsoft and IBM, along with many VARs and software vendors, are back to waiting and wondering on the edge of their chairs for RFID adoption to actualize. In the meantime, the focused and systematic gathering of pilot project successes, improvement of product sets and expansion of the channel leaves Microsoft and IBM poised to attack when the economy mends.