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Traditional Tech to Lead RFID

Budgets for RFID will grow in 2005, but RFID-centric companies may not see much of that money, according to ABI Research.

ABI sees budgets increasing three to five times from last year's line item, as companies scale up, begin tagging more products and integrate the information from RFID into their normal operations.

ABI analyst Erik Michielsen said most of the 137 suppliers that hustled to meet Wal-Mart Stores' mandate to begin shipping products tagged with radio frequency ID chips started small. Many simply used the "slap and ship" method, which is applying the tag without any attempt to capture data themselves. Many invested much less than the $2 million to $3 million average expected.

While companies like Johnson & Johnson, Campbell's and Unilever went direct to the source in 2004, buying tags from one manufacturer, readers from another, and middleware from still another, larger implementations won't allow for such mix-and-match procurement, Michielsen said.

"Now that these larger companies are making RFID a higher priority and quadrupling their investment, they'll turn to their traditional technology partners, companies they know and trust," Michielsen said. "In 2004 we saw many end-users working with smaller RFID companies, but the big-name relationships didn't come, because they weren't necessary."

According to ABI, any lack of cutting-edge knowledge will be more than offset, in the minds of executives at companies like Johnson & Johnson, Campbell's, Gillette, Kimberley-Clark, Kellogg's, Kraft, Nestle Purina, Proctor & Gable and Unilever, by the comfort factor that large, familiar partners can provide.

That will be the case even if RFID is not central to these partners' businesses. Michielsen expects old-school vendors such as Avery Dennison , Texas Instruments , Symbol Technologies , Cisco , IBM, Microsoft, Oracle, SAP and Sun Microsystems to pick up and run with the business.

In fact, while RFID vendors focused on helping customers meet the January 1, 2005, RFID deadline, traditional integrators and software vendors sat back and spent their resources on getting their own houses in order.

Oracle began integrating RFID into its complete product line. Microsoft , IBM and Phillips announced initiatives and pilot projects. And Sun Microsystems opened RFID test centers in support of its RFID package, developed with Capgemini.

Most RFID-centric vendors simply don't have the capacity to handle global service contracts, Michielsen said.

"How large technology companies will work with these small companies remains to be seen," he said. "They have incredible expertise and have developed strong relationships during these trials."

Michielsen expects an interesting year for RFID, with plenty of acquisitions as traditional technology services organizations go on a shopping spree to bring RFID technology in-house.