Nanotechnology Is More than a Hot New Label

Nanotechnology often inspires images of "science fiction" rather than science. The word conjures visions of technological marvels such as atoms and molecules joining together to create materials hundreds of times lighter yet stronger than steel. This material is used to build "carbon nanotubes," allowing pod-like crawlers to carry cargo thousands of miles up to a space station. Hollywood caters to the fiction, most recently by portraying Spiderman's Green Goblin's alter ego as a nanotechnologist. But remove the artistic license and the business implications of the science offer an equally compelling story.

The predictions for nanotechnology are fantastic. Richard Feynman's 1961 vision of nanotechnology's evolution has progressed in part by the development of high-definition microscopes and other instruments that operate at a nano scale (see figure 1). 1   But in reality, we still have a long way to travel before we reach its full potential. For example, to make miles of carbon-nanotube cable capable of reaching that faraway space station, we must first be able to weave the carbon into threads—something that may not be possible for another 10 to 20 years.

Yet, even in its infancy, nanotechnology offers a wealth of possibilities. Computers could be faster, armor stronger, medicine smarter and medical devices more reliable. Nanotechnology is already widely used to create materials such as stain-resistant clothing and sunscreens that keep out ultraviolet light. It is at the root of a new type of aluminum and zinc coating that could improve the performance of jet aircraft and other high-heat machines. And in food, where smaller ice particles yield tastier ice cream, nanotechnology can control their size, making for a tastier frozen treat.

The economics of nanotech are equally alluring. According to the National Nanotechnology Initiative, which oversees federal efforts to nurture the field, the technology will contribute $1 trillion to the U.S. economy by 2015. Worldwide revenues for nanotechnology increased from $30 million in 2001 to more than $10 billion in 2004. The National Science Foundation predicts the world's nanotechnology market will create two million new jobs in the next decade. From our analysis, we expect the $100 million in revenues currently generated by U.S. emerging nanotechnology companies to increase tenfold by 2010, and to maintain a similar growth rate through 2015.

As these numbers illustrate, nanotechnology is clearly forging its own path. Like "atomic" in the 1950s, "micro" in the 1980s and ".com" in the 1990s, nano is more than a hot new label—it is the next disruptive technology. As companies tap into the opportunities, the effect will ripple across industries.

What Is Nanotechnology?
Nanotechnology is a broad term that can refer to anything engineered down to the nanometer—one-billionth the size of a meter (see figure 2). Sometimes called the science of making things very small, nanotech provides the ability to isolate and manipulate single atoms, which behave much differently than clustered atoms. Individual molecules are measured in nanometers, as are viruses, strands of DNA, and the microscopic structures of everyday materials such as steel and plastic.

Nanotechnology aims to create new materials and practical applications from these nano-sized resources. Scientists across fields are collaborating to learn how to unlock capabilities in common materials by manipulating them at the molecular and atomic levels. Building at the nanoscale allows scientists and engineers to design specific magnetic, thermal and strength properties into any product. This change in behavior is due to an increased relative surface area (producing more chemical reactivity) and the dominance of quantum effects (altering the material's optical, magnetic or electrical properties).

For example, gold, which in bulk form is inert, becomes a highly effective catalyst when broken into particles in the 10- to 100-nanometer range. Aluminum in bulk form is an innocuous foil used to wrap sandwiches, but as a nanoparticle, it becomes an effective addition to explosive mixtures. Other materials turn into superconductors of electricity. Incorporating carbon atoms into nanotube structures, for instance, makes the structures stronger than steel, conduct electricity better than copper and virtually impervious to heat.

The new scale allows manipulation on the cellular level, thus enabling new discoveries in pharmaceuticals, biodefense and health care. In cancer research, scientists are exploring ways to use quantum dots to study tumors and locate proteins. These are metallic particles that emit bright light in a color range that varies with their size. By injecting nanoparticles into a tumor and subjecting them to a specific wavelength of light, they will ultimately target and destroy only the cancer cells. (By comparison, chemotherapy kills cells indiscriminately). This process requires fewer drugs and is safer for the patient. Similarly, insulin can be encapsulated in nanoparticles that are designed to cross the intestines and be released as needed into the bloodstream.

With nanotech, the 15 percent growth rate of the current $30 billion drug delivery market will increase significantly as nanomaterials improve the absorption, distribution, metabolism and excretion rates of drugs. Scientists at Harvard University have developed a sensor that uses nanowires to electrically detect the presence of a single virus in real time, which could mean more effective tools for diagnosing diseases and detecting bioterrorism attacks.

Yet as scientists gain an understanding of why electrical properties undergo transformations at these nano sizes, they still struggle to understand and predict many of the other changes.

Practical Applications
The beauty of nanotech is that you don't see it. It is the equivalent of "Intel inside" in that nanotechnology helps to make products better. And although much of the discussion around nanotechnology focuses on pharmaceuticals, medical devices, photonics and electronics, nanotechnology is increasingly spreading to many other industries (see figure 3).

Lux Research, a New York-based nanotech industry research firm, estimates that governments, corporations and venture capitalists spent more than $8 billion on nanotech research and development in 2004. A closer look at the breakdown of funding shows that while governments have taken the lead in pushing nanotechnology research and development via efforts such as the National Nanotechnology Initiative in the United States and the EU Framework Programme, private-sector funding and venture capital investments will surge ahead by the end of this year (see sidebar: Who's Investing in Nanotech?). However, nanotech is just emerging as an industrial force. For example, in 2004, $13 billion worth of products incorporated nanotechnology, which is less than 0.1 percent of global output, according to the NanoBusiness Alliance trade group. But by 2014, that figure is expected to rise to nearly $3 trillion, or 15 percent of manufacturing output.

Indeed, nanotechnology will create markets with entirely new products and revolutionize industries. It will also enhance existing products and allow for higher profit margins based on the improved functionality and lower costs. For example, in sporting goods, Wilson uses nanotech to make tennis balls that don't deflate as quickly. And for tennis rackets, nanotubes are the next leap up the trajectory that went from wood to metal or fiberglass and then to graphite—with every step leading to lighter and stronger rackets. Several companies are using this same technology to engineer next-generation golf clubs. A Japanese company is making a nanotech bowling ball that supposedly will not get surface nicks, thereby giving it a longer life span.

In apparel, a company called Nanotex is using nanotechnology to make stronger, stain-resistant khaki pants. The molecules in the fabric also work to capture odor and sweat, trapping the bacteria until the material is washed. And in the utilities sector, nano-enhanced solar panels can feed cheap electricity onto superconducting power lines made of carbon nanotubes. Japan is on the verge of introducing these next-generation solar panels, which is a particularly important development given its high energy prices.

Estimates suggest that industrial markets for nanotech such as aerospace and defense, automotive, construction and energy will develop over a somewhat longer period (see figure 4).

A few high-powered companies are already immersed in nanotech. HP, Intel, GE and IBM have made significant nanotechnology investments. While small companies are doing much of the leading-edge work in nanomaterials, many of these larger companies have proprietary processes for making the tiny particles in uniform sizes, shapes and purities. Some smaller firms have formed marketing and development alliances with large global chemical and plastics suppliers such as Honeywell, DuPont, BASF, GE, Bayer, Rohm and Haas, DSM and Mitsubishi. And the U.S. government is throwing in its support (see sidebar: The United States Is Catching Up).

Nanotechnology will also develop as a stand-alone industry with nano tools, such as scanning probe microscopes, destined to become a key segment. Nanotech tools allow for the visualization, measurement, manipulation, fabrication, production, simulation and testing of matter in the nanoscale range, which is vital to creating practical, commercially viable products (see figure 5). Analysts project that the U.S. market for such tools will increase nearly 30 percent per year to $900 million through 2008, and then triple again to roughly $3 billion by 2013.

What Piece of the Nano-Puzzle Is Yours?
The nanotechnology buzz among today's corporations is unmistakable. There are approximately 2,800 patents in nanotechnology, with IBM leading the patent race. According to Lux Research, 63 percent of the 30 companies comprising the Dow Jones industrial average are currently funding nanotechnology R&D, and 20 percent of the Dow companies have recognized nanotechnology partnerships. Even in these early days, the impact of nanotechnology on industries should concern long-term investors. And with good reason. Think back to how other disruptive technologies—electricity, the automobile and the PC—eliminated entire industries.

With this in mind, manufacturing, materials and products companies should not opt out of this emerging field. But because nanotechnology is such a broad term, companies should first identify a niche market and thoroughly evaluate all options—even the most drastic choices.

The process might begin with answering a few key questions: Are there any recent technological breakthroughs that nanotechnology could enhance? What is the company's greatest area of growth or projected growth? Can nano play a role? Can you easily identify customer demands and needs to determine which products could be nano-enabled, and deploy R&D accordingly? What are your competitors doing with nanotechnology? Is it possible for your company to define the marketplace? Or is it smarter to react to competitive activity?

Once a company decides to take the nanotech plunge, executives must consider numerous issues and strategies—from increasing collaboration among partners to developing pricing strategies. From our work in various industries, including consumer products, pharmaceuticals and chemicals, we have developed some unique insights on the issue of nanotech and have devised a list of best practices. The following are the top five:

1. Define a strategic imperative and foster collaboration
Where will your products or contributions sit in the nanotechnology value chain: Is it smarter to invest in nanomaterials such as fullerenes, nanointermediates such as memory chips, or nano-enabled products such as processed food? Leading companies will use techniques such as probability weighting scenarios and real options analysis to identify nanotech opportunities and maintain the balance of focused research (to avoid overspecializing too early).  2   

The high cost of capital and uncertainty about what products will ultimately be successful will limit growth in nanotech. This means a "nano-enabled" strategy must begin with recognizing the interdisciplinary nature of the science. No scientist can conduct research or develop products without getting help from experts in other fields. Scientists trained to address this market are rare—the first and second generations of nanotechnology practitioners are only now training third generation graduate students to enter the marketplace. Therefore, scientists in other fields, including physics, molecular biology and chemical engineering, will all play a part.

Similarly, universities and industries must collaborate in an effort to improve prospects for success and reduce risk. Major corporations are investing heavily in university labs, start-ups and their own internal R&D departments. As scientists focus on their research, corporations focus on commercialization.

Already, companies are investing significant amounts of money and resources in the effort—building new facilities to host budding scientists, investing in state-of-the-art manufacturing operations and hiring experienced people with product commercialization acumen.

2. Redefine innovation
Nanotechnology is redefining innovation. Traditionally, innovation refers to adding new products to existing business lines. But it can also mean reorganizing internal functions, refreshing external perspectives, and changing—not maintaining—growth rates. Maximizing the value of your innovation requires understanding what you have, what you need and how you will get it.

With this in mind, companies must decide how much emphasis to put on innovation, taking into account the opportunities in the market and their own unique skills. Some companies will pursue innovation by recruiting innovative people (internally and externally) in non-traditional ways. For example, some firms are fueling creativity internally by sponsoring scientific and product development forums; others are offering financial incentives to employees who come up with new product ideas

Leading companies are using nanotechnology as a reason to reevaluate their R&D investment portfolios. They are taking the bottom performing 25 percent of their R&D projects and reallocate them to new, potential high-value projects. Setting nano-enabled innovation targets based on margins will allow companies to:

• Add functionality to existing products, such as stain-resistant clothing
• Enhance functionality of existing products while lowering or maintaining costs
• Spark further innovation by marketing "the next big thing"

We can use Air Products, a $7.4 billion materials company, as an example. In 2000, Air Products decided to tap into the promise of nanotech by adopting a long-term strategy focused on both internal and external R&D initiatives. The company established partnerships with several universities and research organizations (to gain access to the latest technology advancements) and is now developing nanoparticles for several of its businesses, including chemicals, industrial gas and electronics. Air Products turned traditional ideas of innovation upside down—essentially innovating innovation.

3. Establish a value-based pricing strategy
Nano allows access to new inventions and functions and better, cheaper products. But determining and articulating the "value" of a new nano-enabled product or technology, and what people (or companies) will pay for it, is a tall order. If the seller cannot fully identify the value that the product brings to its customers, the set price will inevitably be off mark. If the customer is not familiar with the offering or its value, and isn't given a clear and compelling case for spending a certain amount on it, a sale is unlikely.

Establishing a price for a nanotech product  requires an unwavering focus on three key principles, which together form the basis for an effective value-based pricing strategy. 3   

First, value must be defined from the buyer's point of view, not the seller's. Rather than over-emphasizing the features of a product, you must focus instead on the benefits that the customer perceives. As NanoDynamics prepared to sell its nanotech golf ball last year, its promise was not the ball but the fact that it could dramatically reduce hooks and slices—a valuable feature for frustrated golfers everywhere. NanoDynamics believed those serious about the sport would pay $5 per golf ball (compared to $3 for a pack of three) to improve their shots.

Second, the value of the offering must be clearly superior to that of alternatives. If not, the price will end up being set either by your least sophisticated or your most aggressive competitor. The implication is that if a company cannot meaningfully differentiate its products and services, it is unlikely to be able to put a price on their value. In other words, if that $5 golf ball doesn't reduce your handicap, you aren't likely to buy it again.

Finally, all the benefits of the product must be uncovered and communicated to all potential customers. For example, as Nanosys develops its nano-engineered coating, which is far slicker than Teflon, for industrial uses, it should be considering other potential applications as well. If the coating is on a full-body swimsuit, for instance, a swimmer could reduce friction and glide through the water to faster times. That's a completely new market.

Finally, although industry and consumers will use vastly different amounts of product, the value per square inch may be the same for both. The margins should be significant enough to reinvest in new product development, extending patents or maintaining proprietary products. It is up to companies to understand what the market will bear and where they can profit.

4. Define a supply management strategy
Nanotechnology presents companies with a unique supply challenge. The required materials for a nanotech offering could be scarce and expensive, or possibly only available through a sole supplier with patent protection. Thus, companies must establish long-term supply management strategies that outline affordable pricing options and identify qualified substitutes. And it will be necessary to develop more sophisticated sourcing strategies to keep up with increasing demand, maintain geographic proximity and address the changing regulations sparked by this new science.

5. Plan a solid execution
Business planning and execution is far more complicated in a nanotech world. Companies have to pare down their traditional business planning initiatives to only those that are relevant, adaptable and necessary. Nanotech requires new implementation strategies, new market assumptions (to consider the potential for drastic changes) and new communication and marketing channels. Pairing value with positive public relations strategies will help justify the value of nanotechnology investments to internal and external stakeholders. The right tracking mechanisms will help capture information from partners and keep track of competitors; establishing accountability for each nano project will clarify who is in charge, who gets credit and what is proprietary.

If You're Not Already in It,
You're Already Behind It
"There's no turning back from research on the nano frontier," explain Stephen Baker and Adam Aston in a BusinessWeek article. 4     "Such a retreat would be akin to telling Dutch biologist Antonie van Leeuwenhoek in 1668 to toss his microscope in the nearest canal and settle for squinting at germs with the naked eye. What's more, entire industries are banking on advances in nanotechnology not just for enhancements but for salvation."

There is as much money to be made in nano-products as companies interested in making money. But the profits in nanotechnology products (both nano-intermediates and nano-enabled) will vary widely depending on the product and the price that can be charged. Companies that incorporate nanotechnology into their products over the next 10 years will likely see their numbers and market share soar, while those that hesitate may be left out of the game.