The standard provides specifications so manufacturers can produce RFID chips, tags, and readers that can transmit and receive RF signals in multiple protocols from a variety of vendors. The standard was created to aid the use of electronic product code (EPC) numbers that uniquely identify objects, such as pallets, cases, and products. Wal-Mart Stores Inc., which is leading RFID adoption, expects to stop receiving the first generation of RFID tags from suppliers and transition to Gen 2 in mid-2006.

This year EPCglobal created a certification program for Gen 2-compliant products, and announced in September the first 10 hardware products and four laboratories. The certification process and standards have created a competitive environment and are expected to result in falling prices for RFID tags, readers, and other equipment. Meranda said readers have already fallen to $1,000 each in the past two months. As recently as a year ago, readers cost approximately five times that price, according to industry experts. Meranda said Gen 2 is responsible for "a precipitous drop" in the overall cost for RFID equipment. In September, Alien Technology, cut the per-inlay price, inserted inside the label, by 44 percent, to 12.9 cents, on its electronic product code Class 1 RFID labels for quantities of 1 million or more. Avery Dennison is offering inlays at 7.9 cents. Although the sub-eight-cent price is still above the five-cent price some industry analysts tout as the magic number needed to ensure a viable RFID industry, prices are falling.

Beyond price, Gen 2 offers other advantages. For one, the protocol enables equipment to operate at multiple frequencies to comply with standards on multiple continents. Tags also have the potential to carry up to 256 bits of memory each--nearly triple the memory of first-generation tags. Gen 2 readers also have better read rates and cause less interference with each other, letting companies position readers in closer proximity.