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Public Library QuarterlyPublication details, including instructions forauthors and subscription information:http://www.tandfonline.com/loi/wplq20

Looking in All the Wrong PlacesEric IpsenPublished online: 12 Oct 2012.

To cite this article: Eric Ipsen (2005) Looking in All the Wrong Places, Public LibraryQuarterly, 24:1, 63-65, DOI: 10.1300/J118v24n01_07

To link to this article: http://dx.doi.org/10.1300/J118v24n01_07

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Looking in All the Wrong Places:Assessing the Costs of RFID Tags

Eric Ipsen

ABSTRACT. The author lays out the pricing facts on RFID tags.Through a series of clearly stated assumptions about the scale of librarydemand as opposed to the size of the RFID market, plus some simple cal-culations, he shows that prices for the kinds and numbers of tags that li-braries want to purchase will not decrease very much, if at all. Thelooked-for savings in installing RFID will come in lower-priced softwareand hardware, not in tag prices. [Article copies available for a fee from TheHaworth Document Delivery Service: 1-800-HAWORTH. E-mail address:<docdelivery@haworthpress.com> Website: <http://www.HaworthPress.com>© 2005 by The Haworth Press, Inc. All rights reserved.]

KEYWORDS. RFID costs, materials processing, tags, security

Time after time librarians have told me that one of the biggest obsta-cles to adoption of an RFID inventory system is the price of the tags.RFID labels (for books) are currently being sold to libraries for around$.50. Their expectations for drastic price reductions are misguided,however. It is misguided for three reasons.

First, libraries do not purchase labels in large enough quantities to re-ally drive down prices. Moreover, because they have not collectivelyadopted a data model standard, and they traditionally use a decentralized

Eric Ipsen is a consultant to vendors, libraries, and other organizations on RFID andphysical automation, inventory, and item-level security in libraries (E-mail: eipsen@mac.com).

Public Library Quarterly, Vol. 24(1) 2005Available online at http://www.haworthpress.com/web/PLQ

2005 by The Haworth Press, Inc. All rights reserved.doi:10.1300/J118v24n01_07 63

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purchasing structure that does not lend itself to achieving a large-enough purchase to win any discounts.

Second, most libraries purchase labels from a self-checkout vendorwho has purchased them from one or more intermediary vendors. It isnot unusual for a tag to go through three transactions before getting tothe library.

Third, libraries need durable RFID labels with a guaranteed longlife–typically the life of the book–whatever that really means. These re-quirements are very different from the needs defined by key buyers inthe retail supply chain who each need the lowest price tag/label toachieve a very specific purpose for a limited timeframe.

The best way to illustrate the library’s purchasing situation is by ex-ample.

Consider a hypothetical library that has holdings (inventory) of100,000 books. It purchases 100,000 tags at a price of $.50 each. Thisadds up to $50,000 for the labels without installation costs.

Let’s assume a cost of $.15 as the baseline cost for 1,024 bit chipswith read/write capability attached to an antenna and applied to a sub-strate so the labels can be put onto rolls. (This typically is called an in-let.) Assume that each label goes through three companies’ handsbefore arriving at the library. Of course, each company needs to make aprofit, cover its operational, risk, and sales costs.

Usually labels are delivered with the library name, logo, and what-ever other information a particular library specifies. This label needs tobe durable and highly readable, the ink needs to be very resistant toabrasion, and the adhesive needs to be acid-free. Let’s add another $.05to cover the cost of getting the inlet converted to a finished label asdescribed.

Now let’s work backward from the assumed sale price of $.50. Aftercovering the costs described above, we are left with $.30 available toshare among the vendors before the library receives its finished label. Interms of the original total price, that is $30,000. For simplicity sake,let’s assume vendor one adds $.06 to cover its costs as described earlier,vendor two adds $.10, and a third vendor, the one that delivers the chipsto libraries, adds $.14. The final vendor selling you the finished labelwill receive $7,000.00 of sales revenue to cover all costs, risk, salescommissions, and profit.

To strengthen the case, let’s sweeten the deal for the final vendor bycutting out vendor two. That raises the final vendor’s sales revenue to$12,000. Assuming operating costs of 15 percent, direct sales costs of15 percent, sales commissions of 10 percent, and a risk set aside for tag

64 PUBLIC LIBRARY QUARTERLY

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failures and returns of 10 percent, that leaves the final vendor with agross profit margin of 50 percent. Fifty percent of $12,000 is 12 centsper tag or $6,000.00.

While that may seem like a fair amount, it does not really representthe huge amount of money that librarians might expect, because mostsales to libraries are relatively small by vendor standards. Based on var-ious sources, it is reasonable to assume that three million books are go-ing to be tagged with RFID labels during 2005. That would add up to atotal revenue for library-facing vendors of $720,000 and a gross profitof $360,000. Now spread that across five vendors. That comes out to$72,000 each. Not enough to cause a blip on the income statement ofmany different vendors currently selling RFID tags.

The point of this exercise is not to defend high vendor profits onRFID labels but to put the overall library market in perspective. It alsodemonstrates hypothetical numbers in terms of costs, profits, and actuallabels to be sold during 2005. Stepping back up to a macro view, onecan begin to see that until libraries either pool their purchasing powerand/or the RFID self-check market picks up significantly, library pro-fessionals shouldn’t expect any drastic reduction in RFID label pricesfor libraries in the next few years.

The good news is–there are places where you can expect to see majorreduction of prices and increasing functionality at that lower price.These lower prices will come in the areas of self-check hardware, soft-ware, and the associated maintenance costs.

In summary, don’t hold your breath waiting for major price reduc-tions in RFID label prices for your libraries. It is still misguided in look-ing to RFID tags for your big cost reductions. Library book RFID tagsneed to last for the lifetime of the books, a period no less than sevenyears. It will be much easier to replace the processing hardware andsoftware than to try pressuring vendors to extract a few more cents froma tag price when they are not making a great deal on any single tag soldto libraries. Like so much else in library operations, vendor profits andquality tags for libraries go hand in hand. If libraries push vendors intoselling them lower-quality tags, problems are likely. Libraries may getlower-cost tags, but the real costs will be higher, with increased labor,angry taxpayers, and unhappy patrons and librarians.

Solicited: 07/04Completed: 11/04

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