From the April 2004 issue of Entrepreneur

If the Internet revolution happened because millions of computing devices got connected, will an even bigger revolution occur if billions of razor blades, shoes and other items get connected to computers?

That's the intriguing question about Radio Frequency Identification, or RFID. RFID embeds tiny data-packed radio transceiver chips into all kinds of goods and containers. Like a talking bar code, an RFID chip can talk to a scanner several feet away and tell it far more than a printed label, even from inside an unopened carton.

RFID has been around for decades without revolutionizing much, but that may change soon under simultaneous pushes from government agencies such as the Department of Defense, which uses RFID to unravel its massive logistical puzzles, and giant companies like Wal-Mart, which in the next few years will begin requiring suppliers to RFID-tag every carton shipped to the world's largest retailer.

When RFID really arrives, look out, says Mark Roberti, editor of RFID Journal, an industry publication offering news and analysis. "This is an innovative technology similar to the Internet," says Roberti. "When that happened, we saw a wave of innovation from small companies. This is far more dramatic than connecting computers. You can now make any object smart."

RFID goes back to World War II, when air forces began using radio transponders to identify aircraft. Transponders are now nearly ubiquitous on aircraft. RFID got a bump in the 1980s, when governments worried about mad cow disease began to require detailed tracking of cattle from feedlot to refrigerator case. Tens of millions of cows now bear RFID tags.

In the early 1990s, automakers turned to RFID to deter theft. Most new cars today can be started only by keys equipped with appropriate RFID chips. RFID is also used to time recreational runners, enable monthly toll-card purchases so drivers can breeze through turnpike booths, and allow drivers to purchase gas by waving a key fob at the pump.

RFID does have costs, limits and risks. The tags may someday cost less than a nickel apiece, but today, they're 50 cents or more, according to Bill Allen, marketing communications manager for the RFID division of Texas Instruments, the leading maker of RFID tags. Scanners may run $50 to $1,500, depending on whether they're handheld or used on a conveyor belt.

The tiny chips' signals can be gathered from, at most, a few feet away at this point, and this range may be reduced by environmental factors such as the presence of metal building frames, filing cabinets and the like. Standards for making RFID interoperable are a big sticking point, too, since most RFID systems are proprietary, and the technology won't take off until all can work together.

Finally, RFID has attracted the ire of privacy groups. They fear businesses and even criminals could secretly tap into a great deal of personal information were RFID to become commonplace.

If you'd like to try RFID now, start by looking for a point in your internal operations-Allen calls it a "pain point"-where RFID is most likely to give big benefits fast. If, say, you have employees opening cartons to hand-scan bar codes on lots of individual boxes or the items inside, RFID may be able to gather all that information and more in a single pass.

At least start thinking about RFID. Wal-Mart's mandate will create a ripple effect among suppliers, to its suppliers and their suppliers. A similar wave of adoption put bar codes on seemingly every flat surface today.

"Waiting until someone demands that you do something is a mistake," warns Roberti. "The smart companies are going out now and looking for internal applications."


Mark Henricks writes on business and technology for leading publications and is author of Not Just a Living.