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MARCH 18, 2004
Like It or Not, RFID Is Coming Scott McGregor of Philips Semiconductor, the leader in radio frequency ID chips, says they'll change the world -- and not threaten privacy The decision by Wal-Mart (WMT ) and other retailers to require that their largest suppliers attach inventory-tracking RFID (radio frequency identification) chips to their products is creating a brand-new chip market -- one with a bright future. RFID chips, whose data can be grabbed by electronic readers, could one day hold all of an individual's personal information. In theory, that means they could displace credit cards, medical-insurance cards -- perhaps even wallets, predicts Scott McGregor, CEO of Philips Semiconductors, a division of Koninklijke Philips Electronics (PHG ) and the world's No. 1 maker of RFID chips, which are also known as "tags." If that comes to pass, RFID could also be an engine of growth for Philips, which now gets 5% of its $4.9 billion in annual revenue from sales of such chips. On Mar. 15, McGregor talked with BusinessWeek Online reporter Olga Kharif about what he sees as the potential for RFID. Here are edited excerpts of their conversation: Q: At this point, RFID technology is essentially forced by retailers on their suppliers, who often see few benefits in using this technology. How can you change that? A: If you're tagging low-cost commodity products, RFID tags need to approach the cost of bar codes (they now cost at least 20 times as much). But for higher-priced or brand-specific articles, there's a lot of value in RFID for manufacturers. It can work as a proof of authenticity. And for a lot of makers of sports shoes, RFID provides added benefit to customers. The average life of a sports-shoe model is about three months. Say that when your shoes wear out, you want a similar pair. It's incredibly difficult today for the retailer to tell a customer which new model corresponds to the old one. But we could fix that with RFID. That's a great sales tool. Q: A lot of people worry that RFID will infringe on their privacy. Is that a valid concern? A: There's a theoretical risk. But we have safeguards, and more are coming. Our tags have a kill function that will destroy the tag in case of tampering. There are ways to simply erase the information on the tag. There are also less high-tech ways to deal with this: When I buy a garment, one of the first things I do when I get it home is cut off the tags. You can cut off RFID tags the same way (see BW Online, 3/5/04, "Shutting Shopping Bags to Prying Eyes"). Also, privacy concerns around RFID tags are a little like concerns about supermarket scanners years ago. When the laser scanners were coming out, everybody was saying, retailers are going to collect information about what you buy. And none of that happened. I think the situation with RFID is similar. Q: You mentioned that it's important to drive prices down. What should RFID prices be? Today, an RFID tag, depending on features, costs more than 20 cents. A: If you sell a Rolex watch, whether the tag costs a cent or a dollar doesn't matter. But if you want to tag a can of soup, you need to get the price down to less than a dime. That would lead to an explosion of single-use applications. We already use our tags in tickets in the London Underground to help people check in faster. That's 2 million trips a day, so the price of RFID chips for subway tickets is really important. Q: What other applications do you foresee for RFID? A: Tracking individual items in stores. Medical identification: Your medical information is stored on a chip, so if you have an emergency and are in a hospital, doctors can read your medical history in a secure way. Use in payments: We're working with Visa, which will move from magnetic stripes to contact smart cards and eventually to contactless smart cards (they'll be scanned from a distance, vs. cards that have to be swiped). You can also put RFID tags in movie posters and advertisements and use your cell phone as a reader to pick up information from the poster. You then go to a Web page or download the trailer of the movie -- plus find out when and where it's showing. Q: How will RFID technology be used in mobile phones? A: We're discussing with a number of mobile-phone manufacturers embedding an RFID technology we call NFC, for near-field communications. Then the phone could pick up information from various things, like movie posters, and the tags could allow you to do things like carry an embedded Visa card. You'll see trials of such phones in the U.S. this year.
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