Radio frequency identification (RFID) systems will grow at a 24-percent annual rate over the next five years, predict analysts at Venture Development Corp. (www.vdc-corp.com).

The market research firm expects the RFID market to grow from $890 million in 2000 to about $2.65 billion by the year 2005. RFID encompasses tags/transponders, readers, software and related services.

VDC said the deployment of so-called smart labels – which embed a transponder in a label rather than in a hard-cased 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 a baggage handling and high-speed sortation," VDC wrote in its recent report, "Global markets and applications for radio frequency identification equipment and systems."

At present, security and access control and transportation are the two largest applications for RFID. By 2005, supply chain management applications are expected to join security/access control and transportation "in holding the lion's share of RFID market revenues," the analysts said.

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 other industrial uses accounted for 44.5 percent. Although retail only accounted for some 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.