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Home > Nanotechnology Columns > Alan Shalleck-NanoClarity > Nanotechnology Valley of Death Redux:Why Nanotech is Not Having the Impact Predicted in NNI

Alan Shalleck
President
NanoClarity LLC

Abstract:
13 years ago after the first National Nanotechnology Initiative the economic global impact predicted for Nanotechnology just hasn't occurred. There is no ‘nanotechnology industry" as was projected. Todays ‘progress' in nanoscience doesn't mean that economic impact won't occur in some form later but the four and eight million new jobs created by nanotechnology companies and products just haven't materialized. Some have occurred but certainly not nearly that number of new jobs have been created. If you recall, many new "Nanotechnology" IPO's and financing opportunities were projected and those too have fizzled after spending billions and billions on nanotech R & D. Where were we wrong and how does the path change over the next decade?

March 23rd, 2012

Nanotechnology Valley of Death Redux:Why Nanotech is Not Having the Impact Predicted in NNI

Nanotechnology Valley of Death Redux
Why Nanotech is Not Having the Impact Predicted in NNI
By
Alan B. Shalleck
March 2012


13 years ago after the first National Nanotechnology Initiative the economic global impact predicted for Nanotechnology just hasn't occurred. There is no ‘nanotechnology industry" as was projected. Todays ‘progress' in nanoscience doesn't mean that economic impact won't occur in some form later but the four and eight million new jobs created by nanotechnology companies and products just haven't materialized. Some have occurred but certainly not nearly that number of new jobs have been created. If you recall, many new "Nanotechnology" IPO's and financing opportunities were projected and those too have fizzled after spending billions and billions on nanotech R & D. Where were we wrong and how does the path change over the next decade?

When examined, the causes of the lack of projected impact seem to be three fold. There is a technical reason for failure; a business model reason for failure; and a financial reason for failure.

The technical reason is that we've never realized ‘bottom up" nanotechnology as projected. Real nanotechnology, the production of new bottom up, exciting, not naturally experienced, useful compounds or materials at the Nano scale, was supposed to be rampant throughout the world by 2012 … and that just hasn't occurred. We are still involved in ‘top down" or modification of existing known materials to or at the Nano scale to produce enhanced performance, not the radically new and exciting possibilities that were projected in 1999. Regardless of intent, these involvements produce "incremental or modular" changes in the ways things are made or done, not the radical or disruptive effects predicted a decade ago. Companies then attempt to upsize these ‘incremental developments" to macro size so that they can improve or modify what we already do. Objectively, except in the biosciences, it is now clear that nanotech is not a standalone industry. Currently, it is a ‘dash two" model of what we have been doing for decades.

The second technical reason for lack of impact to date is a simple physical fact. Nanotech is very very very small. For impact, it has to become ‘macro' sized so it affects our macro lifestyles. Well, scaling up from nanotech to macrotech turns out not to be very easy. What is true at nanotech is hard to maintain as the materials move to larger and larger effect. Ways have to be developed to keep the nanotech tech breakthroughs at nanosize and simultaneously to carry those effects to the macro level so that they can be used. Not so easy. For example, look at Carbon Nanotubes. They tend to clump together. They tend to twist and intermingle. They tend not to align easily and on…We make tons of CNT now… but look at the minimal affects on structural materials, on electronics, on other industries those ‘tons' are having. Even after a decade of development work.

The business model reason for the lack of impact should be obvious to anyone studying successful business models. You need gross margins …Sales less costs of sales … for a business model to have success… Margins get better as you move up the value chain. Nanotechnology is a phenomenon that occurs at the lowest level of the value chain. The margins at the lowest level are the smallest because above it, constrained by the ultimate customer's price he's willing to pay for a Nano enhanced product, are all the upper levels of the value chain… If, for example, my company makes nanotech sized Titanium Dioxide for inclusion in Sunblock products, the cosmetics manufacturer who sells the sunblock to a pale sun worshiper has a price he can reasonably charge for his tube of sunblock. From that price is the retail/distributor's discount, the cost of packaging the sunblock, the manufacturing cost of the sunblock compound of which the nanotech TIO2 is only a small part of the cost, and then the price the cosmetic manufacturer is willing to pay the nanotech TIO2 manufacturer for his bulk TIO2 (in tons). There isn't any margin or gross profit left around which for the primary manufacturer to build an attractive business model. No amount of hype will provide that margin dollars necessary to support a successful commercial business model at the lowest levels of the value chain. The solution, as I have argued in this column for three years is for the nanotech entrepreneur to move ‘up the value chain' to capture in his or her business model, more of the potential gross margin in the product line… or to merge with other nanotechs serving other primary markets in order to aggregate low level gross margins into a possibly successful business model... to no avail. Or the last option, for the nanotech entrepreneur, is to merge his company into a large company with a successful business model and just to become part of the larger company's cost structure… and this has been done during the last three years of depression. The core problem remains. There are few successful business models at the lowest levels of the value chain and nanotech is at that level.

Last, the financial reason for failure. That reason follows from the above. The early years of the decade saw much funding for the "nanotechnology industry" based on projects, government support, hype of market effects, and the need for VC's for a ‘hot area' of investment. By mid decade, it was clear that it would take at least 10 years for any profits to show up in whatever might be called ‘the new nanotech industry" and that wasn't acceptable to investors. There were only losses and no financial success stories on which to build other financial successes. Moreover, you had a series of IPO disappointments. A123, raised hundreds of millions, for nano-enhanced battery technology. Out at $14… interim prices in the $20's… now in the single digit levels as contracts and markets didn't materialize. A company with POC Nano based medical diagnostic technology (at the DNA level) went public at low double figures, went into the 20's and now also in the low single digit price level. The product works, and the markets are developing... but the economic returns just aren't yet there. When you make stuff that is revolutionary, it takes time to find and develop its market. It's been the rule for decades that from the incidence of a new technology, it takes 20 years for that technology to settle into the economics of living and to have a major effect. Note, for most nanotechnology, we're less than a decade into that 20-year historical standard. The lack of private funding for nanotechnology in the marketplace reflects that time span ahead. There are more current opportunities for fickle investors to invest in. And for the last five years, the valley of death has existed for nanotech entrepreneurs.

Here's the rub. The profits are actually coming. Numbers of nanotech companies today have bootstrapped their way into the market over the last three years, have paying customers and are on the verge of market and profit breakouts. We'll talk about them next month.


Alan B. Shalleck
NanoClarity LLC
www.nanoclarity.com


© 2012 NanoClarity LLC - all rights reserved.
ved.

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