Privacy concerns dog initial RFID plans

Koninklijke Philips Electronics NV made a splash last month when it announced clothing retailer Benetton would outfit its garments and shipping containers with wireless-enabled labels containing microchip transmitters that Philips developed.

But the splash turned into a tidal wave of negative publicity as privacy groups raised fears that the transmitter would let the retailer identify and track customers.

One consumer advocacy group called for a boycott of Benetton Group SpA, saying sensors hidden in the retailer's clothing could be used to create a global surveillance network. Another privacy advocacy firm started a campaign aimed at stopping retailers from selling consumer goods containing live tracking devices.

The backlash was enough to cause Benetton to retreat from its commitment to the technology in question: radio frequency identification (RFID).

With RFID, the signals that transmitters emit are picked up by strategically located sensors, which extract item-identification information stored on the chips. The decades-old technology - it was used to track aircraft during World War II - powers Exxon Mobil's Speedpass payment system, for example. It's also commonly used for luggage tagging systems at airports and highway toll collection systems.

The retail and consumer goods industry has been abuzz for the past couple of years about RFID's potential to improve supply-chain processes, and momentum is growing. At an AMR Research retail and consumer-goods conference this month, 63 percent of 250 attending executives said they are evaluating electronic product codes enabled by RFID technology.

For retailers and manufacturers, RFID provides an alternative to traditional bar codes; garment tags embedded with tiny chips and antennas store information relating to an item's style, size, color and intended destination, for example.

But whereas bar codes must be read one at a time by devices within line of sight, RFID tags can be read when they're sitting in closed boxes. In addition, RFID readers can scan multiple items at once. Instead of unpacking and counting every item in a shipment by hand, a warehouse employee could scan the entire contents of a sealed box in one pass.

The allure of using RFID in the supply chain is greater visibility. With RFID-outfitted merchandise - and a means to extract data from RFID systems and feed it to enterprise sales, inventory and warehouse management systems - retailers and manufacturers could track products from distribution centers to store shelves in order to reduce out-of-stock conditions and trim warehouse operating costs. Ideally, sales and supply-chain information would be available in real time to retailers and manufacturers responsible for estimating merchandise demand.

Companies including CVS, Gap, Procter & Gamble and Wal-Mart Stores have announced RFID pilots over the past several months. However, large-scale RFID deployments by retailers and their suppliers are virtually nonexistent. When it was announced in March, the Philips-Benetton deal was big for the industry.

"By purchasing 15 million RFID-chipped tags from Philips, Benetton becomes the first retailer to push item-level RFID out of pilot and into its 5,000 stores," Forrester Research Inc. said.

But now Benetton appears to be retreating from its RFID endorsement after privacy objections. This month the company declared that no microchips are present in the garments it produces and sells, and that it hasn't made any decisions about using RFID. Benetton acknowledged in a statement that it is analyzing RFID technology but emphasized "that no feasibility studies have yet been undertaken with a view to the possible industrial introduction of this technology."

"On completion of all studies on this matter, including careful analysis of potential implications relating to individual privacy, the company reserves the right to take the most appropriate decision to generate maximum value for its stakeholders and customers," Benetton's statement read.

Adding to the cloud forming over RFID is a technology hiccup that another high-profile RFID adopter, The Gillette Co., is experiencing.

Gillette bought 500 million tags - reportedly for less than 10 cents per tag - from Alien Technology. The deal encouraged industry watchers, hoping the price of RFID tags just might get to the sought-after nickel-a-tag level believed to be necessary for widespread adoption.

But at an IdTechEx conference on RFID last month, Gillette said the half-billion Alien tags it bought aren't European-compliant and that it is conducting tests with tags from Philips for possible use overseas.

Experts say it's no surprise that multiple RFID systems might be required to meet regional frequency and power requirements. Laws regulating radio frequency differ in Asia, Europe and North America, says Peter Abell, research director at AMR.

"Japan does not even allow UHF, which is the preferred tag frequency here in the U.S. and would probably be the preferred - but at a lower power - in Europe," Abell says. Companies therefore need to prepare for different frequency requirements of the major continents. "One size doesn't fit all, relative to this technology," he says.

Neither are the privacy concerns raised in the Benetton flap a surprise. Among attendees at AMR's retail and consumer goods conference, 52 percent indicated consumer concerns about privacy would be the major roadblock in the public's acceptance of RFID.

That both events garnered significant press coverage is an indication that there needs to be better information disseminated about RFID.

"There's been a lot of overhyping of RFID. Some of it's great, and some of it's doing injustice to the industry," says Michael Liard, a senior analyst at technology research firm Venture Development. "We really need to, as an industry, delineate what is real vs. what is potential today with RFID technology."

Meanwhile, progress is being made on privacy and standards fronts.

The Auto-ID Center, an industry-funded research program based at the Massachusetts Institute of Technology (MIT), has developed privacy guidelines for retailers. Some of those guidelines include building a "tag-kill" command into RFID systems; notifying users that electronic tags are present; and providing consumers the option to render a chip nonfunctional.

On the standards front, groups such as Auto-ID Center are working to address interoperability issues. So, too, are vendors. MIT spinout ThingMagic has developed an RFID reader that can handle multiple frequencies and power levels, Abell says.

In the end, neither Benetton's nor Gillette's issues will do permanent damage to RFID, analysts say.

"It's not a setback for the industry," Liard says. "It's just part of the normal maturation process."

The bad publicity won't stall RFID development, says Jeff Woods, principal analyst at Gartner. "There is a risk that if the technology remains overhyped, people will have unrealistic assumptions about the technology and maybe become disenfranchised with [it]," he says. "But the potential reward is so big that we're going to continue to see people very interested in this."

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More about AMR ResearchCVSForrester ResearchGartnerGilletteMassachusetts Institute of TechnologyMITPhilipsPhilips Electronics AustraliaProcter & Gamble AustraliaTechnology ResearchWal-Mart

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