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Jan. 24, 2003 — Small tech is under fire again. Since Gillette Co. said it would buy hundreds of millions of ID tags and put them on its razors, fears of privacy invasion have crescendoed.
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Several news reports raised the privacy issue, notably news.com’s Declan McCullagh. Also, Consumers Against Supermarket Privacy Invasion and Numbering calls the technology “dystopian.”
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The issue concerns small tech because Gillette ordered its tags from Morgan Hill, Calif.-based Alien Technology, which uses microfluidics to make them.
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For now, the privacy fears are overwrought, say industry analysts.
“When you tag large amounts of product, there could be some privacy issues. But there are some very real physics issues with tracking people,” said Joseph Tobolski, director of Accenture’s Silent Commerce Center. The tags are known as RFID tags because they use radio frequency waves to transmit information. Like any wireless network, these tags face physical transmission limits, both from antenna size and power sources. The tags Gillette will use are about the size of a dust mote, and Tobolski said their effective transmission range is about 3 feet.
“What consumers are worried about is people driving by the house and seeing what they have. The physics prevent that,” he said. He added that the Auto-ID Center, an industry/vendor consortium using ID tags as the basis for a next-generation bar code (called an Electronic Product Code, or EPC), was examining the issue. Gillette is a member of the Auto-ID Center, as are companies like Wal-Mart and Procter & Gamble.
In one sense, the RFID business would love to have a privacy problem. RFID has spent the last few years waiting for next year. While 500 million sounds like a big number, Gillette likes to say that it touches “a billion and a half faces a day.” Auto-ID Center members sell more than 500 billion items a year. So in this regard, the Gillette order represents little more than a cornerstone.
“It provides a morale boost to this industry,” said Michael Liard, an analyst at Venture Technology Corp. in Natick, Mass. Liard said that the order, if it is fulfilled, will be about the size of the entire current RFID market.
The order is a vote of confidence for microfluidics, the core of Alien’s manufacturing process, but most importantly it signals that ID tags can be made cheaply enough to be put on individual packages.
Liard said transponders cost about $1.57 each right now. Alien said the price will drop to under a dime each when it achieves volume of 1 billion a year, and down close to a nickel each at 10 billion units a year. Until prices drop until about a nickel a tag, consumer goods makers won’t bother putting tags on every product they make, rendering consumer privacy issues moot.
The order hinges on the success of two pilot programs. A Wal-Mart pilot, to begin later this quarter, will focus on testing how effective Alien’s technology is at helping keep Gillette products in stock. A pilot is already under way at a Tesco store in Cambridge, England, which is testing whether a Gillette “smart shelf” can use RFID to foil shoplifters (Gillette has found that if someone takes more than two or three packages of razors, they’re probably stealing).
One sure thing from this order: Alien will build out its production line. That’s a must since, Liard said, the company can only produce about 40,000 RFID tags a month right now. Tom Pounds, Alien’s vice president of marketing, said Gillette committed “to a significant portion” of the 500 million ID tags, enough to justify building out its production line to full capacity of nearly a billion straps (integrated RFID circuits) a year. Pounds estimated it would take 18 months to build out the line.
In other words, 2003 won’t be the year of RFID, either. But it still holds promise, particularly for Alien, which is seeking funding. Alien uses self-assembling fluidics processes to produce NanoBlocks, integrated circuits with ID tags. AMI Semiconductor Inc. provides the basic silicon, Toray Industries Inc. of Japan helps Alien assemble the fluidics.
The Gillette order also may help Alien break into other accounts. Alien bet on a high-frequency approach that had largely been shunned by current market leaders Philips, Texas Instruments Inc. and EM Microelectronic-Marin SA.
“The market’s been driven largely by semiconductor manufacturers,” Liard noted. He projected that the market for transponders and supporting equipment will grow from $965 million in 2002 to $2.7 billion in 2007, a 22.6 percent compounded growth rate. That’s substantially higher than the 8 percent a year he said exists now. He also does not include EPC tags in his projections because of the market’s uncertainty. So there could be tremendous upside if the pilots pay off and if production capacity increases.
When that happens, there need to be clear answers to privacy questions.