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Looking back, 2006 has been an "on the one hand/on the other hand" kind of year in the development of RFID.

On the one hand, it was a year without major developments. The ratification of the Gen 2 standard for passive RFID (radio frequency identification) in the supply chain-the biggest industry news in recent memory-took place at the end of 2005. When it comes to RFID implementation, most manufacturers and distributors are still focused on complying with their customers' mandates and not on using RFID in their own operations.

On the other hand, the technology continued a slow but steady march from emerging technology to a mainstream integrated solution for automated data collection (ADC).

"Over the last year, we saw increasing confidence in the technology and convergence with EPCglobal as the standard for RFID in the supply chain," says Kevin Ashton, vice president of marketing for ThingMagic . "Deployment across industries is not happening overnight the way some predicted a few years ago, but it's moving in the right direction."

In fact, Ashton adds, the adoption rate is probably just about right. "I think when we look back we'll find the expectations about the adoption rate were wrong," says Ashton. "With Gen 2, we're getting good performance and the end-user community is adopting RFID when they find applications where it can add value. That's as it should be."

As we move closer to the day when RFID is just another ADC supply chain component-like bar codes and voice recognition technology-six important trends have emerged, according to companies working in the RFID space.

Even though Gen 2 tags, readers and printers have been on the market for less than a year, the standard has been embraced by the two leaders: Wal-Mart and the Department of Defense. Both organizations have announced sunsets on Gen 1 technology.

"Acceptance has been fast, but that's because the specification is superior to previous generations in every way," says Bill Colleran, CEO of Impinj , the primary supplier of silicon for Gen 2 tags.

As EPCglobal moves to adopt ISO standards, most experts are betting that Gen 2 will also become the global standard. That also explains why large chip manufacturers like Texas Instruments are now making silicon for Gen 2.

"There are still some open issues, like what China will do," says Jeff Kohnle, director of retail supply chain management at TI. "But we're beginning to see interoperability across the globe."

Standards, Kohnle adds, ensure compliance among companies as well as create confidence.

Analysts, like Philip Alling from Bear Stearns , who attended the EPCglobal conference in Los Angeles in October, left with the firm sense that mandates from the Department of Defense and Wal-Mart are the prime movers in the RFID space.

Wal-Mart, for instance, is committed to adding 500 stores to its rollout in 2006 and another 1,000 stores in 2007. That brings the total number of RFID-enabled stores to 2,000. Meanwhile, by the end of 2007, 600 suppliers will be shipping cartons and pallets tagged with RFID tags to Wal-Mart distribution centers and stores.

Still, RFID companies say that Wal-Mart and DoD suppliers have been slow to adopt the technology for their own operations. "You've only got a handful of suppliers who are focused on the value from RFID and another handful who are even asking the question," says Eric Peters, CEO of TrueDemand .

Motorola's acquisition of Symbol , BEA 's purchase of middleware provider ConnecTerra and the decision of RFID reader provider SAMSys Technologies to sell its assets to Sirit are just three examples of industry consolidation.

Most RFID implementations to date have put readers at dock doors. With the introduction of vehicle-mounted RFID readers for lift trucks, RFID is moving deeper into the plant and DC.

"The value of RFID is in having total visibility into my inventory, wherever it is," says Dick Sorenson, director of RFID products for LXE . "That means I need the ability to capture information beyond portals at the dock doors."

Justin Hotard, director of product management for Symbol agrees. "The most important information about a good is when it's moving, not when it's static on a shelf," says Hotard. "And it's difficult and expensive to put a stationary reader at every access point. In that environment, mobile solutions are an obvious choice."

As recently as last January, very few end users were interested in even talking about item-level tagging. Fewer still were implementing pilot projects. Today, many retailers have item-level tagging next on their to-do list.

"There are a number of applications where the return on item-level tagging is large and immediate," says Impinj's Colleran. "Think of counterfeiting of goods in pharmaceutical and apparel. There is an ROI for that."

Last spring, Impinj introduced silicon chips and antennas especially designed for low-cost, item-level UHF chips. Likewise, EPCglobal US has two workgroups investigating item-level tagging-one using UHF technology, like Gen 2, and the other using high-frequency (HF) tags.

As a result, the dialogue has moved from end users wondering if they will be able to apply tags to individual items to when they will apply tags to individual items.

While deployments on a broad scale are still several years off, companies working in the area believe the first projects to move beyond a pilot will happen in the coming year.

"Tags are coming down in price, standards are in place, and we're learning from the early pilots that we can consistently reduce out of stocks," says Robert Locke, CEO of Vue Technology . "Retailers are gaining confidence that if they deploy the technology, they will achieve results."

A few years ago, most RFID projects involved one person working alone in the corner of the warehouse, trying to figure out how to read a tag.

"Today, we've got CIOs, CEOs and business operations teams looking at how to apply RFID to their business processes," says Symbol's Hotard. That, too, is a measure of the success of the new Gen 2 standard. In most instances, the technology works, allowing companies to focus on how to use the information to improve their businesses and not how to write information to an RFID tag.