Surpassing customers’ needs: When technology is too good

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Sept. 20, 2004 – At the turn of the 21st century, an array of small tech startups sought to satisfy telecom’s need for new components. The technology largely delivered what the industry needed to meet burgeoning bandwidth demands.

Then, the economy contracted and telecom system providers stopped buying. In the end, superior technology couldn’t overcome the evaporating market, and many firms touting micro and nanoscale solutions dried up in the drought. Today, roughly two dozen of the more than 60 players remain, and about a dozen are selling products.

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“You tend to fall in that trap — the basis for even entering the market is your technology,” said Hubert Kostal, vice president of sales and marketing for NanoOpto Corp. “There is a tendency for startups to solve all problems with technology.”

Back then, Kostal said the Somerset, N.J.-based developer of nanoimprint lithography-based parts likely would have predicted that its success was 90-percent dependent on technology, and its primary target was optical components. Today, after the sector’s fall forced the firm and many others to diversify, he said one-third is technology, and two-thirds is “plain-old business sense.”

In that category he includes establishing consistent manufacturing and delivery, building strong relationships with customers and exploring new uses for a tool or technology.

“It’s all the old-school stuff that you kind of, in an ideal world, think your technology would take you away from.”

Such ideas have been dissected in books on business innovation, notably those by marketing and venture capital adviser Geoffrey Moore and Harvard University professor Clayton Christensen.

But Don Norman, a professor, consultant and former vice president of advanced technologies at Apple Computer Inc., modified the work of Moore and Christensen and coined the term “excess quality.” It’s the point at which technology exceeds the basic needs of most of its customers.

It doesn’t matter if your technology is superior, Norman argues; it only matters if what you offer is good enough for the purpose. And that’s tough for emerging fields fueled by science and research.

“Mainstream companies are not about technology, they’re about user benefits. Price is critical. Reliability is critical,” he said.

“The customer doesn’t care what technology they’re using. They care about getting their jobs done.” The customer’s always right.

Of course, new firms can’t be faulted for emphasizing technology, since it has its place in the development cycle. In his 1998 book, “The Invisible Computer,” Norman explained that the early adopters are technology enthusiasts and visionaries who see the promise offered by the new technology and are willing to tolerate higher cost or complexity. They help establish the market, so it’s important to appeal to them.

At the other end of the spectrum are the late adopters, who represent most of the marketplace. They want reliability, simplicity and affordability. In the commercial development cycle, “gee-whiz” gradually gives way to “Gee, is this necessary?”

Norman said the point on the timeline where technology satisfies basic needs is also the transition between the adopters who prize performance and coolness and those whose priorities are cost and convenience. The latter are likely to hang on for a good long time to the good-enough stuff they already own.

One small technology steadily moving toward that transition point is Texas Instruments’ Digital Light Processing (DLP). The system, which includes a chip with a million micromirrors flipping 5,000 times a second to reflect sharp, clear and stable images, appears in business projectors, tabletop televisions, home theaters and digital cinemas.

The profitable division has cornered more than a third of the business projector market, and is making inroads in large-screen TVs. New data released by iSuppli/Stanford Resources found DLP had garnered 4 percent of the market last year for TVs 40 inches and larger, up from 0.8 percent in 2002. The research firm expects DLP to reach 10 percent this year and 12 percent in 2005.

It’s considered a rapid transition by industry standards, but it’s a far cry from the industry standard bearer. Cathode ray tubes (CRTs) were invented in the 1890s, and the blueprint for modern TVs using the technology was published in 1929. CRTs held 81 percent of the large-screen TV market last year, down from 94.6 percent in 2002.

Despite being lighter, more reliable and offering the clarity of a digital picture, DLP won’t truly dominate CRT until the former’s prices drop even further than they already have. They have fallen to around $3,000 for one 50-inch model, but that compares to prices in $1,000 range for CRT sets.

Even DLP’s biggest ambassador recognizes the hurdles ahead. Larry Hornbeck, primary DLP inventor and a TI fellow, said CRT was considered a mature technology by the 1950s, and its demise has been predicted many times since. But the century-old technology keeps evolving to meet market demands, something his comparatively “primitive” technology must continue to do as well.

The same can be said in the race to replace silicon. Several academic and industrial researchers are working with carbon nanotubes in the area of molecular electronics. Scientists at IBM, Hewlett-Packard, General Electric and elsewhere believe they must work on replacements for silicon because it will reach a point in a decade when it cannot support more circuitry.

Laboratory demonstrations have found that the performance of certain nanocomponents meet or exceed their silicon counterparts. But that doesn’t mean that they’re close to building an entire device, much less one that is cheaper than existing technology. Meanwhile, silicon chips keep improving in size, speed and price.

Norman said CRT and silicon are among many entrenched technologies that have fought back. “What happens when these new technologies come along is it revitalizes the old people,” he said. “When the DLP comes out, then some of the CRT people get new ideas. We can get rid of the filament, bend at this angle, use electron beam technology to focus electrons better. … From the customers’ point of view, it’s great.”

Too good a thing

Buyers and suppliers can both benefit by modifying advanced technology to meet other needs.

The synthetic molecule known as the dendrimer has struggled for commercial success since being discovered more than two decades ago. It has potential for a variety of industrial and medical uses, but the main sticking point for the sticky, tree-like molecule is price. The dendrimer is grown in a multi-step process through up to 10 generations, and each step doubles the complexity at the branching end.

“There have been customers we’ve talked to who have purchased them, and their feedback was it works great, but it’s too expensive; there’s no economic feasibility,” said S. Emery Scheibert, president of Midland, Mich.-based Dendritech Inc.

“The concept of excess quality applies. These people picked up this molecule and it was more than they needed. They didn’t need the precision.”

Scheibert and his colleagues set out to serve a market that doesn’t require the precision and uniformity of dendrimers but wants the functionality and density, or multiple branches on the same molecule. Dendritech is working with the Michigan Molecular Institute on a hyperbranch material that’s still a dendritic molecule but not a perfectly shaped dendrimer.

Sacrificing some symmetry could save serious cash. He estimates the new material could be made at one-tenth the cost of dendrimers in sufficiently high volume. Dendritech already has lined up one customer: An industrial coating maker is testing small quantities in anticipation of scaling up production.

Scheibert expects to have commercial quantities of the hyperbranch material on the market within five years, and by then it’s likely to be more than half of the company’s total sales. But that doesn’t mean Dendritech is abandoning the higher cost, higher quality dendrimer.

The company’s dendrimers are used to capture samples in clinical diagnostic devices developed by Deerfield, Ill.-based Dade Behring Inc. Dendrimers enhance the sensitivity and precision of one analyzer that rapidly diagnoses a person’s heart attack risk. According to Dade Behring, results come in 15 minutes, several minutes faster than previous methods.

“We understand there’s a limit to the market for dendrimers because of the cost. So you limit your applications to the ones that have enough value to justify the cost,” Scheibert said. “It’s really a marketing challenge — defining the customer’s unmet need.”

Such talk about knowing and serving your customer isn’t limited to the marketing cubicle or executive office. Mark Banash, senior engineer at Richardson, Texas-based Zyvex Corp., said he learned the hard way while working as a research scientist for a now-defunct maker of micro-optical lenses.

The tiny lenses made by Enichem Americas in the late 1980s and early ’90s were designed for devices ranging from fax machines to endoscopes. Although he said Enichem’s micro lenses could focus light better than its competitors, it couldn’t overcome their lower prices and superior distribution.

“It wasn’t a technical problem,” he said. “We went out to the marketplace as a bunch of scientists who didn’t have any experience in the marketplace. We learned how Darwinian it could be.

“Obviously, the one thing I took away from all that is the customer sets the specs. Never think that because you have something wonderful and terrific that there is ever really a need for it. … At the same time, it can also get you into the door. It all depends on the application. I found that nanotech is finding more of an application in evolutionary, rather than revolutionary applications.”

That’s part of what brought him nearly a year ago to Zyvex, whose early days were focused more on the distant dreams of molecular manufacturing than the near-term realities of instruments that can benefit today’s developers. Now, the order has switched.

In the past few years, Zyvex has launched tools for probing semiconductor defects, as well as designing and assembling micro and nanoscale components. Each seeks to improve the bottom line while bringing the company closer to the goal of ending manufacturing, as it is now known.

Banash likens it to Henry Ford, whose automotive assembly lines fundamentally changed 20th century industry. “When you have technological breakthroughs, it’s easy from hindsight to say, wasn’t that innovative?” Banash said. “But a whole infrastructure had to be put in place to achieve that dream.”

Formula for success

Norman said true innovation offers the best approach for small tech. Coming up with a material or component that provides a modest increase in strength, speed or flexibility is unlikely to sell if it can’t do so at a substantially lower cost than what’s out there.

“New products succeed not by displacing old ones; they do it by finding a new niche,” he said. “By coming at it differently, you will actually change the field. Yes, you’ll knock out the incumbents, but not because you’ve taken over. You’ve redefined what the market is about.”

NanoOpto’s Kostal is aiming to redefine several markets just as it redefined how to make optical parts. The technology relies on the optical properties of nanomaterials and patterns to design and fabricate larger systems in smaller packages; an approach the company says reduces overall cost and improves performance.

He describes it as “fundamental technology,” but the fundamental business shift came when the company stopped being seduced by what it made and started looking at new ways to sell it. NanoOpto now has production-ready parts for communications, optical disc drives, digital imaging and projection displays.

“We’re not just betting one product, one customer — do or die,” he said. “It’s clearly still a sense of do or die because you have to succeed somewhere. … But we’ve clearly established that our technological base is portable across a number of different markets.”

For Kostal, it’s a long way from the days of the telecom bubble. And a lifetime removed from his days pursuing a doctorate in math. But even then, he had a clue of what might lie ahead.

During oral exams, he was asked to show how he proved the Law of Large Numbers, a theorem he boils down to “the closer you get to infinity the better your information is.” After he proved it, a professor asked, “What is it useful for?” Kostal thought for a while, then told him it wasn’t good for anything because it doesn’t tell you how large is large enough. So, in the end, it’s a beautiful construct but not useful.

That, he said, turned out to be the right answer. For math, and the market.

“I look at our technology. The challenge to us, and I think the opportunity continues to be to build things that are truly useful, not just amazing in the way they function. We’ve been finding, fortunately, ways to do that.”


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