The overall market for radio-frequency identification (RFID) equipment will grow at a 24-percent annual rate over the next five years, predict analysts at Venture Development Corp. (VDC), a market research firm based in Natick, Mass. VDC says it expects the RFID market to grow from $890 million in 2000 to about $2.65 billion by the year 2005. The RFID market includes transponders, readers, software and related services.

VDC says the deployment of so-called smart labels, which encode data on a label rather than in a unit like a transponder tag, will drive growth in the RFID market. "Future revenue growth will be primarily driven by the development of the smart label market, particularly to support growing applications such as baggage handling and high-speed sortation," VDC wrote in a recent report titled Global Markets and Applications for Radio Frequency Identification Equipment and Systems.

At present, VDC says, 32.6 percent of users use RFID equipment for security and access control. Transportation was the second most popular application, with 20.7 percent of respondents. (See chart.)

According to the report, worldwide RFID hardware sales reached $663.3 million in 2000. Transportation, distribution and warehousing applications accounted for 30.3 percent of that total, while industrial uses accounted for 44.5 percent. Although retail only accounted for 4.3 percent of RFID sales, VDC expects that retail will be among the fastest- growing sectors over the next five years. Increased concerns over security are likely to make rental item tracking and baggage handling the second- and third-fastest growing applications for this technology.