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The Download, Shannon Henry
Pentagon Boosts High-Tech Tagging

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Thursday, December 18, 2003; Page E01

The Pentagon, just like Wal-Mart, is counting on a couple of start-ups to help it change the way it does business.

Both the Department of Defense and the world's largest retailer have said in recent months that they want their suppliers by 2005 to use a tracking technology called radio frequency identification, or RFID for short.

It's a higher-tech version of bar codes, using tags that have wireless antennas that can be placed on individual items or large cases of merchandise. The technology is supposed to improve a company's (or government's) bottom line by smoothing the "supply chain." If the technology works, say advocates, products arrive on time, get where they're supposed to and are easily trackable along the way.

At the moment, the two main companies developing RFID technology are Alien Technology of Morgan Hill, Calif., and Matrics of Columbia, according to Assistant Deputy Undersecretary of Defense Alan Estevez, who is promoting the technology in the Defense Department.

Concerns about privacy and the technology's high cost have so far prevented widespread commercial adoption of RFID. (If someone buys a tagged t-shirt, will he be followed by a Wal-Mart employee or, worse yet, a government worker wherever he goes?)

Nevertheless, Estevez said the Pentagon is embracing RFID because it can improve operations. "This works," said Estevez. "We've got to quit fooling around and make this our standard." The Pentagon has been using RFID intermittently for years, including during conflicts in Iraq, Bosnia and Kosovo, he said.

Matrics, which has just 50 employees, was founded by former National Security Agency technology experts. "We have a vision of creating a network where items talk to humans and talk to computers," says Piyush Sodha, Matrics chief executive. For instance, Sodha envisions a clothing tag that tells a washing machine it needs a delicate cycle, and a refrigerator that notifies people when they're out of milk.

Such uses for RFID, says Sodha, are 10 years away. But eventually, "items and appliances will be talking to each other," he said.

Several investor groups in the Washington area have bet on Matrics. Local venture capital and angel funds that have invested in the company include Novak Biddle Venture Partners, the Carlyle Group, Allied Capital, Venturehouse Group, Riggs Capital Partners, the Washington Dinner Club, WomenAngels.net and Capital Investors.

Matrics now has a total of $16 million in private equity investments. Because some high-net-worth individuals in Washington have invested in several of these funds, they stand to lose or win a big chunk. Mark Ein, who runs Venturehouse Group, says he knows people who are in the Matrics deal five different ways.

Meanwhile the area's largest venture fund, New Enterprise Associates, has put its money on Alien Technology.

Matrics now has seven paying customers, says Sodha, including a Las Vegas airport, a paper mill and a car manufacturer. The airport, McCarran International, has agreed to pay Matrics $25 million over five years to tag its bags. About 20 companies or organizations are trying out the technology, Sodha says.

On Dec. 2, the Pentagon held a summit to discuss the possibilities of having its 43,000 suppliers use RFID. A pilot program will start around February and will most likely be with a large aerospace company, said Estevez.

The Pentagon also plans to start using tags itself, and currently has two trials underway -- one tracking food sent to servicemen and women, and the other following shipments of biohazard suits. Estevez wouldn't say which company or companies are running those tests. In July, the Defense Department will start collecting bids for creating the tags for the Pentagon, he said. Estevez said he does not know how much this effort will cost the government.

One reason the technology has not been widely used in the private sector is its high cost.

Estevez admits he's getting letters from people worried that the government will soon be watching their every move. "I'm not tracking them," he says. "I'm tracking my inventory."

But even supporters of the technology acknowledge that the Big Brother fears remain a major obstacle for those promoting RFID in the government or private sector.

Estevez says he's talked to representatives at the General Services Administration, the U.S. Postal Service and the Department of Homeland Security who are all watching to see how the Defense Department fares.

There is a staggered rollout schedule and it is still in flux. The Pentagon now expects its top 100 suppliers to be on board by January 2005, then the top 500 by July of that year and the remaining companies by 2006. Many questions remain about exact standards and radio frequency regulation; a second summit has been planned for all the players to gather in Washington in February or March of the new year.

Shannon Henry writes about Washington's technology culture every other Thursday. Her e-mail address is henrys@washpost.com.


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