RFID –
From technology & economics
to business & policy
Yale Braunstein
School of Information
Updated April 2010
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Motivation
• Opportunity to have policy informed by
economics & technology
• Opportunity for policy and technology to
develop in logical, coordinated manner
Today’s approach:
From technology & economics to business & policy
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Economic Background
• Costs & features
– One approach is to look at prior technology
for analogs (e.g., barcodes)
• Technical hierarchy
– Where does RFID fit in with other
technologies in terms of use, complexity, etc.
• The next three slides portray these
relationships in different ways
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Costs & features
Characteristics
Persistence
Accessible to remote
monitoring
Link to user/consumer
database (example)
Bits/bytes of information
Barcode
RFID
Y
Y
Low
(Line of Sight)
Med-High
Y
(Discount
Card)
Y
(CalTrans)
12 digits
(bytes) for
UPC
64 or 96 bits
$.001
$.05
Cost per code/tag
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5
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But, it is not an “either-or” case
• Since it is likely that technologies old (barcodes)
and new (RFID) can and will co-exist, it is
important to look at the rationales and drivers for
each technology
– Economics
– Regulatory and policy issues
• Each informs the other. The old approach was
to focus on “optimal regulation”. We now realize
this is impossible to define so we look at
optimizing strategic business decisions given the
regulatory environment. (a la Michael Porter)
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Underlying economics
•
•
•
•
•
•
Potential to reduce transactions costs
Fixed cost to adopt/convert to RFIDs
Per-unit costs
Other costs for adopters
Benefits for adopters
Increase capabilities to
– Discriminate in prices
– Do versioning
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Standard Value Chain
- a linked set of value creating activities
- from raw material to end use product
Procurement
R&D
Manufacturing
Marketing
Value chain
Distribution
Service
Customer
Customer Basis
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Redesign of the Value Chain
Redesign can create dramatic gains in:
- cost structure
- asset investment
- speed of responsiveness to external
changes
What has to be redesigned?:
- set of activities
- the interfaces across the chain
We shall return to this later...
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Operating Frequencies
and Uses of RFIDs
Advantages
Liabilities
Widely deployed;
Read range
limited to less
than 1.5 meters
•Animal tracking
•Container
tracking
•Antitheft systems
Read range
limited to less
than 1.5 meters
Metal serious
problem
•Library asset
tracking
•Baggage tracking
•Retail product
tracking
Low Freq.
broad global freq.
125 kHz
deployment;
to 134
minimum metal
interferences
Widely deployed;
broad global freq.
High Freq. deployment;
13.56 MHz
minimum
moisture
interferences
Applications
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Operating Freq and Uses of RFIDs
Advantages
Ultra-high
868 MHz
to 928
Microwave
2.45 GHz
Liabilities
Applications
Widely deployed;
read range MUCH
greater than other
standards
Can’t be used in
Japan, affected by
moisture and
adjacent tags
•Pallet
•Container
tracking
•Vehicle tracking
Read range is
MUCH greater
than even UH.
Not widely
deployed,
complex
implementation,
can’t be used in
parts of EU
•Vehicle access
control
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Supply Chain Economics
• Overall ROI? Probably negative if one:
– Just looks at costs
– Does not restructure to take advantage of the
technology
• Competitive advantage (those with tags
worth $$ more than same quality w/o)
• The haves and the have-nots
• High fixed costs
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Transactions costs
• Savings throughout entire supply and retail
chain (shipping, inventory, pricing, etc)
• RFIDs have potential to lower transactions
costs, but benefits probably will be
unequally spread across the supply chain
– This raises contractual supplier vs. retailer
issues
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Fixed costs to adopt
•
•
•
•
•
Readers costs appx. $1,000 – 4,000
Tag Printers $2,000 – 5,000
Middleware $25,000 – 200,000
More easily afforded by larger players
Large players more likely to have more
difficult logistics, with costly errors.
• According to Forrester, companies must
spend as much as $100 million to see real
benefits from deployment
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Unit costs
• At least fifty times that of barcodes
(remember the comparisons chart)
• But this will change (learning curve)
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Other costs for adopters
• RFID strategy and technology $50,000 $300,000
• Training and maintenance
• Specialized, network-connected tagging
equipment (ex: factor floor equipment)
• Reoccurring fees to EPCglobal and/or
UCCnet (15%-20 of cost of system)
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Benefits for adopters
(Varies for every adopter)
• Avoided shipping errors
• Reduced labor costs
• Accurate inventory counts and improved
forecasting demand
• Avoided incidents of counterfeiting (which can
also damage brand value and public confidence)
• EPC/RFID adoption saves between $500 million
and $1 billion/yr for pharmaceutical
manufacturers, and between $200 million and
$400 million/yr for healthcare distributors
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Price discrimination, etc.
• To successfully discriminate, the seller needs to:
– Identify two or more market segments
– With different elasticities of demand
– Prevent arbitrage
• For versioning to work:
– New versions need to add functionality, at least in the
minds of some users
– Old versions need to expire
• RFIDs can facilitate either of these
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RFID in casinos: price
discrimination?
• In the past, casinos have relied on pit bosses
and dealers to continually estimate how much
gamblers were wagering, which in turn enabled
the casinos to figure out about how much a
customer spent overall, and what level of
discounts and freebies he or she was entitled
to. With RFID, the chips are automatically
scanned at each bettor's position, and the data
are displayed in real time on a personal
computer behind the table visible to the dealer
and pit bosses -- thus eliminating the human
guesswork.
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Potential winners & losers - I
• Who wins? Who loses?
– The quick answer is that RFIDs will produce
some big winners and a lot of losers. Even for
the winners, RFIDs requires so much capital
and change that the risk is very great.
Successful transition management requires
insight, finesse, and careful planning.
– Smaller firms may be particularly at risk
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Potential winners & losers - II
• Participation will be costly for the manufacturers.
Nevertheless, they will have to adopt Auto-ID.
Large manufacturers may see a decrease in
profitability, but many smaller manufacturers will
not have the resources to remain involved at all.
At the same time, many smaller retailers will not
have the incentive or resources to adopt AutoID. This may well accelerate the split in the retail
sector between "haves" and "have-nots."
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Issues II - Regulation
• Reasons to regulate
– It may be more efficient to treat RFID as a
“special case”
• Reasons not-to-regulate
– Avoid the problem of building a regulatory
model based on defunct technology
– General approaches to privacy, price
discrimination, etc., may be sufficient
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Recently in California…
California Bill Seeks to Ban Tags in IDs
California's Identity Information Protection Act
would prohibit the use of contactless integrated
circuits in government-issued identification
documents.
(The Identity Information Protection Act of 2005,
SB 682, authored by State Senator Joe Simitian)
See: http://www.rfidjournal.com/article/articleview/1565/1/1/
and http://www.aclunc.org/pressrel/050517-rfidbill.html
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Consumer applications - 1
• Could RFIDs be valuable once the consumer
has purchased products with them?
• Clothes, DVDs, passports, car parts, etc.
• Another: Pharmaceuticals
– Supply chain, especially with third-party payers
– “Smart Medicine Cabinets”
• Are there consumer analogs to “high reliability
systems” such as nuclear power plants,
airplanes, etc.?
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Consumer applications - 2
• Eventually, do items w/o RFID become
less valuable?
• May not be able to return items w/o active
RFID
• Could not “find” item in home
• Could not generate list of items
• Could be difficult to sell per second hand if
they also have adopted RFID (ex:
textbooks)
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Consumer applications - 3
• Potential for complementary effects
• Imagine if your mobile phone had a reader
(Phillips Electronics is trying to do this.)
• The PDA may have a revival
• Innovative software that works with RFIDs
• RFID jammers and protectors
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Government applications - 1
• May be useful to distinguish between:
– Cases driven by economics (these can be analyzed
with similar approaches to business applications)
– Cases driven by non-economic concerns
• National security
• National identity
• Government can also direct technology adoption
by its (very large) purchasing decisions
– Historical example: microfiche in the U.S.
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Government Applications - 2
• The Federal Highway Administration
awarded a contract to develop a 5.9 GHz
RFID system to cut road fatalities in the
U.S. by 50%.
• New U.S. Civilian and Soldier Passports
with RFID
• DoD’s supply chain
• Satellite tracking of commercial vehicles in
EU
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Final Thoughts - 1
• Old economics rules still apply
• Don’t think of just the Low Freq. chips… there is
much room for innovation with other chips as
well
• Try to think of what consumer “pain” to solve (is
an idea a pain killer or just a vitamin?)
• Think of why there may be the “winners” and the
“losers” with RFIDs… can we make everyone
winners?
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Final Thoughts - 2
• RFIDs.. just an asset tracking system ?
• However, in combination w/ other systems, RFID
is far-reaching capabilities
• What types of implementations will be
encouraged? Those that track important
resources.
• What are important resources?
– Either expensive (cars, razors, electronics)
– Dangerous (toxic wastes, drugs, weapons)
– Emotional Attachment (pets, children, iPod)
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