It’s now over seven years since we published the first edition of the Nanotechnology Opportunity Report and plenty has changed. Reviewing the original edition, from March 2002, it’s striking how many of the companies touted as being the “new industrial revolution” back then have disappeared.
You can download the report from here, and it may make an interesting academic study to compare what was said then with the current situation.
In the report we identified six major areas of opportunity, most of which, I’m happy to say, were spot on!
Six Major Areas of Opportunity
We believe that nanotechnology currently presents six major features that investors must be aware of if they wish to understand potential investment opportunities. All of these relate to the near term (now to three years). To take advantage of these opportunities investors will need a deep understanding of the underlying technologies and associated market dynamics. The reward will justify the effort!
Unlike previous technology waves, such as dotcoms, telecoms, photonics and biotechnology, nanotechnology is a broad-based enabling technology that has the power to change the technological and economic structure of an industry, from “low tech” to “high tech”. Nanotechnology’s closest relative in this respect is biotechnology, which is the only recent innovation sector to recover from the market downturn. While there is no doubt that due to the vast amount of investor money sidelined since the dotcom and telecoms downturn ($75 billion, according to Venture Economics) many nanotechnology companies will receive funding because it is perceived as the “next big thing”. As always, the investors who take the time to understand the technologies and their impacts will prove to be the winners.
In all six areas of impact identified below, the opportunity lies in exploiting the interaction of the technologies with the shock wave caused by the disruptive impact of nanotechnology in both new and existing markets.
1. Technology “Blind Spots” That Have Been Overlooked
Influenced by the idea that technology must be something new, and the general aura of futuristic science fiction surrounding nanotechnology, the most significant nanotechnology revolution that is happening right now—the use of nanocomposites in structural materials—has gone unnoticed by a surprising number of commentators.
Nanocomposites, using nanoparticles based on clay, are already being used in the automotive industry and the packaging industry, owing to their very high strength-to-weight ratio and impermeability to gases respectively. Current uses in cars are in components such as step plates, body moldings, timing belts, and engine covers, but as the technology develops these nanocomposites will see widespread adoption elsewhere in this industry and others.
This is a real market, right now, as witnessed by plans by clay nanoparticle manufacturers to ramp up production rapidly. As applications and markets are developed, a second wave of specialist manufacturers is emerging to offer high-added-value products to specific markets.
This revolution is likely to continue for some time, fueled by new developments using other nanoparticle fillers, such as metals or ceramics (widely used already in nanoparticle-based composite coatings), or, later on, fullerenes and nanotubes.
While this specific materials-related example is likely to be of greatest interest to corporate investors, as nanotechnology begins to influence increasing numbers of markets keeping an open mind as to what constitutes “technology” will allow all investors to exploit the opportunities afforded by bulk technologies such as composites and other nanotechnology-affected materials.
2. Accelerated Pace of Development from Multiple Sources
Many large government-funded initiatives draw comparisons with the NASA Apollo space program, and the US National Nanotechnology Initiative is no exception. However, the Apollo program had a very specific goal in mind, to put a man on the moon, and it was the work of a single nation. The phenomenal amount of public money going into nanotechnology research is a global effort with a goal of utilizing nanotechnology for global competitiveness rather than a specific application.
A further difference is that nanotechnology is not just being funded by governments, but also large corporations and venture capital. In contrast with previous funding initiatives, a common feature of all the global programs is to commercialize nanotechnology, and the corporate and venture capital elements serve to accentuate this.
The most likely outcome of this global scientific and technological effort will be an acceleration of research at the academic level, and an acceleration of the commercialization of nanotechnology. Coupled with coordination through national initiatives and networks, there is a significant probability of commercial breakthroughs occurring in the near term. This fertility is already evident in the quasi-simultaneous breakthroughs being made in both Europe and the US in molecular electronics, nanowires and nanotube electronics. As we are only just seeing the beginnings of the effect of large-scale funding of nanotechnology, we anticipate that this trend will continue to accelerate significantly.
3. Commoditization and The Second Wave
We report on over seventy companies involved in the production or application of fullerenes and nanotubes, all of which are technology companies without a well-defined market. Most of these companies have one thing in common—they are attempting to develop production processes that will drive down the bulk price of the product to levels where large markets will start to make use of the materials. This will lead to two significant effects.
Once prices have fallen to a level where market pull has replaced technology push, a wide range of both bulk and niche markets will open up for fullerene and nanotube producers. A segmentation of the market into bulk materials, used, for example, in the composites market, and specialized materials, for use, say, in semiconductor applications or the medical market, will take place in the short term. This will lead to a shakeout of producers who are either unable to fulfill the market demands, or unable to compete on price with other producers. At this stage we also expect to see some consolidation in the industry, with intellectual property becoming a prime strategic asset.
As this consolidation is taking place, a second wave of fullerene and nanotube producers will emerge, producing high-added-value products for specific markets. This second wave will be generating specific products, rather than raw materials, and will be attempting to control much more of the value chain than the first wave companies. An example would be supplying tuned or doped nanotubes as integrated components for specific applications in the nanoelectronics industry.
4. Competing with Nanotechnology on Multiple Fronts
Almost everywhere that nanotechnology is going to have an effect, there are multiple applications that will compete for market share or dominance, making for a highly-dynamic market with potentially rapid gains and losses. Because of the breadth of technologies involved, nanotechnology allows dominant companies in markets to leverage it to defend their position against new entrants armed with a slightly different flavor of nanotechnology.
In the microelectronics industry, the huge amount of R&D spending by companies such as IBM and Hewlett-Packard is evidence of their recognition that nanotechnology will have a major impact on their existing markets. In the case of IBM, they are using nanotechnology in devices like the “Millipede”, an atomic force microscope-based high-density storage medium, while newcomer NanoMagnetics is using a magnetic nanoparticle formula to produce terabyte disk drives. Into this mix can be added other competing nanotechnology-based approaches, such as nanotube-based random access memories (being developed by Nantero, a newcomer) and magnetic RAM (also being developed by IBM, among others).
This competitive and volatile situation is echoed in the materials industry (nanocomposites vs. nanocrystalline materials), the power generation and automotive industries (batteries vs. fuel cells, superconducting ceramic power lines vs. domestic solar cells) and the biotechnology industry (quantum dots vs. nanowires for biodetection).
5. New Industries
Much of the analysis and discussion of nanotechnology have been in terms of improvements to things we already know. Nanotechnology is widely touted as a way of making something better/faster/cheaper/more powerful. While nanotechnology will undoubtedly have this effect, the opportunities afforded by incremental improvements will be dwarfed by those generated by the creation of whole new industries.
It should be emphasized that nanotechnology is an enabling technology, based primarily on allowing us to understand nature by directly observing structures and processes on the nanometer scale. The production of items such as nanotubes is only the tip of the iceberg when it comes to assessing the true impact of nanotechnology.
A good analogy is the plastics industry, which emerged as a direct result of our understanding of polymer chemistry. From its early products such as Bakelite, the industry expanded through nylon, polyethylene, and PVC into a multi-billion-dollar industry. Today plastics form an integral part of our lives, not only replacing many traditional materials, but making many more industries possible, the IT industry being but one of many examples.
6. Intellectual Property Challenges
The rapid pace of technological innovation, coupled with the highly scientific and interdisciplinary nature of nanotechnology, contributes to the difficulties faced by anyone attempting to define or regulate the field. The acquisition and defense of intellectual property will be a huge challenge, not least because the European and US patent offices, by their own admission, do not fully understand nanotechnology yet.
The likely outcome is that overly broad patents will be granted in the early stages of nanotechnology, as they were for business methods and gene discoveries.
Other Key Findings
It is apparent from the research behind this report that nanotechnology is not, as some have suggested, science fiction, nor is it merely confined to universities and research labs. In fact, this report shows that approximately 450 companies are currently working with or applying nanotechnology, according to our selection criteria. Additionally:
- Most nanotechnology analysts have a flawed definition of technology and have completely missed the revolution that is going on in areas not currently considered to be “technology”, such as structural materials and nanocomposites, preferring to focus on recent technologies such as information technology, biotechnology, photonics etc. Nanotechnology will not just affect the things we consider advanced, it will also impact areas we consider mundane.
- Governments are spending $2 billion a year around the globe, with a similar amount being invested by the R&D departments of multinational companies—the amount of effort and funding going into nanotechnology is unprecedented. The conclusion must be that many of the current timelines could be conservative.
- The development and application of tools to see and to manipulate at the same scale as nature will allow us to truly understand, rather than merely observe, nanoscale biological processes. This understanding will feed back and have a significant impact in fields such as biotechnology and drug discovery.
- Currently, a third of venture capital funding of nanotechnology comes from corporate sources and the rest from venture capitalists. Almost half of all investors are in the US: of the remainder, a quarter are in Europe, and the remainder scattered around the rest of the world.
- Nanotechnology work is spread surprisingly evenly across the globe—there is currently no major concentration equivalent to Silicon Valley. However, Silicon Valley does have the potential to become a nanotechnology nucleus owing to its concentration of high-tech support industries and a very diverse technology base, entrepreneurial culture, and access to capital.
- Although half of the companies in this report are based in the US, a third of those are tools companies. If tool companies are discounted globally, then there is little difference in the number of companies in each of the three regions: US, Europe and Asia Pacific. Out of all the global companies (including tools), half of the European companies are based in Germany and half of the Asian ones are based in Japan.
- Growth of applications of nanotechnology-based products will lead to a rationalization amongst the first wave of nanotechnology companies, and stimulate a second wave of nanotechnology companies highly focused on specific markets (we are already seeing this in the nanocomposites arena).