Consumer Demands
01/01/2006
Uncovering the profits and pitfalls in five key markets
For companies both big and small, consumer markets beckon like few others. They are huge, dynamic and offer an enticing array of both high-margin and price-competitive categories. But their glimmering appeal can quickly turn into a siren song if they are misunderstood, and all their benefits melt into problems.
Micro and nanotechnology entrepreneurs and executives have found consumer markets to be profit centers, PR platforms and, in some cases, surprisingly easy to penetrate. As you’ll see in the following pages, they have also bashed headlong into the challenges these markets provide.
 From lipstick to laundry, micro and nanotech are already pervading diverse consumer markets. |
Manufacturability is key that opens electronics markets
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Micro and nanotech have a broad array of applications in consumer electronics, many of which have already made it onto store shelves. Texas Instruments’ DLP projection system, now a common big-screen TV technology, has at its core a postage-stamp size array of MEMS mirrors. Kodak has sold digital cameras with organic LED screens. And a bevy of electronics and semiconductor companies are exploring a variety of nanomaterials and nanoscale processing techniques in a never-ending quest to shrink the size, increase the speed and lower the power consumption of consumer electronic devices.
The allure is obvious. Consumer electronics markets are already huge and growing fast, and are accustomed to embracing innovation. Global revenue from sales of semiconductors - the processor and memory chips that drive all those gadgets - set an all-time record of $235 billion in 2005, according to market research firm Gartner Inc. Whereas some markets are used as stepping stones to get to the gold at the end of the rainbow, consumer electronics usually is the pot of gold.
But, say experts, bridging the gap from a prototype to a finished product is notoriously difficult, especially in semiconductors where it is difficult to convince a manufacturing partner to deviate from standard processes.
“You have to develop a process that is very easy to manufacture and that doesn’t require the purchase of any new equipment,” said Greg Schmergel, CEO of Nantero Inc., a Woburn, Mass., company developing a new kind of memory technology using ribbons of carbon nanotubes.
Most manufacturing facilities are averse to introducing new, exotic materials into their production lines, he said. Since they make money by taking advantage of massive economies of scale - running many companies’ different products through the same equipment - any kind of equipment contamination from a customer’s product could be catastrophic for their bottom line.
While Schmergel’s company has been successful in establishing working relationships with two production fabrication facilities, many startups report having a tough time finding a manufacturer willing to spend time developing a product and, perhaps, mentoring the startup’s management team. Instead, these startups get caught in a Catch 22 between using university labs to create a prototype and big foundries that only want to work with startups that have proven their process.
“The way that some companies have tried to do this is to have a relationship with a big partner,” said Richard Carter, the business director for INEX of Newcastle, England. But he believes there is a middle way. INEX is a publicly funded organization that provides micro and nanofabrication prototyping, medium volume manufacturing and commercialization support services. It will help a partner get up and running and, at the appropriate time, help source additional manufacturing capacity and transfer a process to a high volume manufacturer.
In his experience working with micro and nanotech entrepreneurs, Carter said, he has found that many develop innovative new products without investigating market demand. He turns them away but if it’s a promising technology, he encourages them to go back and find out where it would be best put to use.
In other cases, even if an entrepreneur understands the necessity of matching an innovation with a market need, he is likely to not understand the perils and pitfalls of manufacturing. Concepts like design for manufacturability, or the vast difference between making a single device and making millions of them, are generally not part of scientific training, he said.
His organization tries to fill that gap by helping shepherd innovation from lab to fab - currently about a dozen at a time - with realistic expectations. “We sometimes have to work to get our partners to agree that their design is not necessarily the best one,” he said. “That discussion becomes a screening process.” Those researchers who “get it” move forward. The others don’t.
- David Forman
Retailers drive demand for textiles, clothing
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Until recently, the only thing that high tech and textiles had in common was a similar sounding syllable. The introduction of Nano-Tex’s fabric-enhancing technologies about six years ago proved that there was room for innovation in the age-old industry.
“Apparel is a soft industry,” said Donn Tice, Nano-Tex’s chief executive officer. “There was no reason for people to buy anything new. We gave the customer a reason to buy something new.”
California-based Nano-Tex has developed a series of products that wrap or bind to fibers to give them desirable traits. Its additives can be used to make fabrics water repellent, stain resistant or wrinkle-free. Since its founding in 1999, Nano-Tex signed deals with more than 80 mills across the globe and its technology has been incorporated into more than 100 clothing and interior furnishing brands. The company is also targeting home products and automotive upholstery.
While textiles may be an old industry, it is still a lucrative one. The World Trade Organization estimated that in 2004 textile exports totaled $195 billion. Clothing netted another $450 billion. Tice, a veteran in the textiles and clothing industries, knows there are profits to be had.
“We’ve really just scratched the surface of apparel,” Tice said. “There’s an untapped opportunity.”
Nano-Tex faces competition, especially in Asia. U-Right International Holdings of Hong Kong introduced nanocoatings for making fabrics stain and water repellent in 2001. It claimed that by 2003 its products had been incorporated into handbags, shoes, toys and home furnishings. It established a prototype processing facility in Shenzhen in China’s Guangdong province that year and set up another processing center in Nanchang of Jiangxi province in 2005.
 Nano-Tex supplies a kit to Brooks Brothers stores that allows sales clerks to demonstrate its liquid and stain resistance in ties. Photo courtesy of Nano-Tex. |
In the meantime, Hong Kong Poly-technic University’s Institute of Textiles and Clothing has created a nanotechnology center to infuse nanoscale advances into the industry. The more futuristic Institute for Soldier Nanotechnologies at the Massachusetts Institute of Technology has brought together academic researchers and companies like DuPont, Raytheon and Triton Systems for projects to design, among other things, protective “smart materials” for troops.
The MEMS industry has recognized opportunity in textiles as well. Semiconductor company Infineon Technologies AG partnered with the carpet business Vorwerk Teppichwerke to develop what they call “thinking carpets.” The two German companies want to market electronically networked sensor-studded carpeting that can detect security breaches or be used in climate control systems.
They unveiled a prototype in 2004 and said the project needed at least two more years of development before a market launch was feasible.
Tice is taking innovation in the competitive textile market a step further. Nano-Tex continues to develop new products, court mills and brand-name clothing manufacturers and look for opportunities to work with universities and government agencies like the Army’s Natick Soldier Systems Center in Massachusetts.
But Tice has expanded his concept of “customer.” He and his marketing team are going directly to big-box retailers like Target and Bed Bath & Beyond to tell them about the benefits of nano-enhanced products. Their goal is to convince merchants that they’ll attract more consumers by offering napkins, placemats, pillows and other home items that carry nano-added attributes.
In turn, the merchants will order their suppliers to incorporate Nano-Tex’s products into their product lines. It’s a strategy that Tice expects will propel Nano-Tex above the competition.
“We realized that while mills are an important production partner, they don’t make the buying decisions,” Tice said. “They can’t influence more than what they buy and sell. ... It’s the retailers who are making the decisions.”
- Candace Stuart
Construction offers foundations for growth
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Stuart Burchill didn’t intend to go anywhere near building materials. The president of Industrial Nanotech Inc. was having enough fun selling Nansulate, a composite insulation applied in liquid form.
“We actually thought the building materials market would be more difficult because of the codes,” he said.
So when building materials manufacturers came calling in response to hearing about Nansulate, he didn’t expect the conversation would go far. He was pleasantly surprised to learn that as long as his product met the existing specifications for what was currently on the market, then it could be approved.
Although he won’t disclose what product he is working on, Burchill said it uses a reformulation of the company’s insulating product. The coating is factory-applied to a building material to increase the material’s insulating ability. Think sheet rock or roof tiles - or really anything that covers a wide swathe of a structure and would benefit by being better insulated.
Once he saw that building codes wouldn’t prevent him from addressing the market, Burchill said he realized the building materials market would fit neatly into his plans. “From the very beginning my concept was to go after economies of scale. ...One of the beauties of the building industry is that until we get zero percent population growth this huge market is just going to keep growing.” That’s not going to happen, he said, without a big partner willing to help him establish the manufacturing ability.
If finding an opportunity in the market was a surprise, so was the attitude of the partner. Burchill expected the company to be tough and demanding - in short, to flaunt the extraordinary leverage it had in the relationship. Surprise number two: the partner was open, collaborative and willing to share proprietary information about processes and market opportunity forecasts.
In fact, Burchill said he thinks tight collaboration can help his company overcome one of the major challenges ahead. The huge size of the building materials market is both a blessing and curse. “You have to be able to come out of the gate at huge capacity.”
Chris Tagge, president of Innovative Construction and Building Materials LLC (ICBM), anticipates the same need to ramp up in massive volumes. “That’s a big challenge you wouldn’t have with, say, a healthcare product.”
But, like Burchill, Tagge thinks the benefits outweigh the costs, especially if you take advantage of certain inherent features of the building materials market. “The good thing is that they’ve been around so long, they’re so mature, that there’s a lot of companies out there looking for product differentiation.” A startup that can provide a quantifiable performance improvement can help a customer create a premium product - or improve the performance of more commodity-like materials.
Berkeley, Calif.-based ICBM is working in a variety of building products areas. It has projects under way to improve the strength-to-weight ratio of drywall, to create high-efficiency but low-pressure air filters, as well as in other areas, although Tagge said he is not ready to discuss details.
Tagge said building materials offer some other challenges that his company had not originally foreseen. “These are materials, in some cases, that have been around for thousands of years,” he said, citing concrete as an example. “Everybody is making things slightly differently.” As a result, companies seeking to enhance such products must make sure their processes are sufficiently flexible to accommodate all the variations out there.
Despite the industry’s yearning for performance improvements, he said, expect some skepticism. “You have to remember that these are companies that have gone through asbestos, so they are very sensitive to new technologies.” Therefore, anyone thinking to address the building materials market should be ready to show not just how their product yields a performance improvement but also that it is safe - in manufacturing, in use, and even when demolished.
- David Forman
Sports can make nano a player in other markets
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The origins of golf trace back to the Middle Ages, when Scots devised a game that required players to hit a ball with a stick into holes in the ground. The sport developed a set of rules in the mid-1700s that still dictate its fundamentals. But while the game itself hasn’t changed much, its equipment continues to become increasingly sophisticated.
The sporting goods industry knows some consumers will pay premium prices for incremental improvements. As a result, manufacturers have embraced nanotechnology. Consumers can now buy bouncier tennis balls, more responsive tennis rackets, more adhesive ski wax, swifter bowling balls, stronger bicycles, sturdier baseball bats and even golf balls that are less inclined to wayward wobbles. And nanotechnology companies have welcomed the exposure that the market provided.
“Sporting goods was the first to adopt carbon fiber,” said Marni Rutkofsky, a chemist at Zyvex Corp. in Richardson, Texas. It was also among the first industries to see commercial value in carbon nanotubes.
In 2004, Zyvex announced that Easton Sports would incorporate its NanoSolve carbon nanotube technology into bicycle components to make them stronger. A year later, Easton unveiled a new line of baseball bats based on the same technology. Easton said the bats offered an improved handle design, more flex capability and gave sluggers a better “kick” when they hit a baseball.
The high-profile deal has given Zyvex a kick as well. “We gained exposure into other markets,” Rutkofsky said. “It’s given us an edge.”
Some nanomaterial companies supply ingredients such as nanoclays that become integrated into final products. Zyvex works with suppliers of raw materials and the end users who want to take advantage of those materials’ superior properties. Easton, for instance, desired strong and durable composites to make tougher seat posts, handlebars and other parts. Zyvex applied its technology to carbon nanotubes, which are renown for their strength, to ensure the tubes would disperse and otherwise be compatible in a composite.
“A lot of what people want us to do is select the right nanomaterial,” said Lance Criscuolo, manager of worldwide sales at Zyvex. “We provide the product and streamline it into (their) production.”
Keith Blakely, chief executive officer at NanoDynamics in Buffalo, N.Y., had another motivation for developing a nanotechnology-based golf ball. As the founder of the tech company ART Inc., Blakely had found focus and messaging were critical to success. NanoDynamics specializes in nanomaterials and ways to commercialize them.
“At ART, I learned the best way to sell materials was to develop one or two niche products,” he said. “You need a performance metric (to explain to potential customers) why they may want to select a new material. Simply coming out and saying it’s new won’t work.”
NanoDynamics is working on portable solid oxide fuel cells, a path that has allowed it to demonstrate nanomaterials’ attributes to a select market. Blakely saw an opportunity to reach a wider audience when he was approached with an option to develop a nano-based golf ball with a radical design: a hollow metal core that shifts the weight of the ball to its outside for straighter drives and putts. NanoDynamics found that by controlling the grain size of nanomaterials, it could give the core its required strength.
“I wanted to generate publicity around this,” Blakely said, and he succeeded. “We get calls from design engineers from the aerospace and automotive industries. It’s allowed us to communicate with a broader audience about skills that they might not otherwise hear about.”
Blakely got more than exposure; he got a golf ball that meets industry standards. NanoDynamics began beta testing its golf balls in June of 2005 and started selling them on its Web site later that year. Blakely is now in discussions with golf ball manufacturers.
- Candace Stuart
Cosmetics offers low hanging fruit - at a price
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The skin care market provides a number of simultaneous opportunities and challenges for nanomaterials suppliers. On the plus side, say analysts and executives, are three things: It is easier to get into skin care than other markets. It provides great visibility to other potential customers and consumers. And formulations can often serve a dual use in skin care and some other market.
On the down side, it’s an industry where customers can be overly demanding and public impressions about nanotech’s health and safety effects - whether accurate or not - could have a dramatic impact.
“In terms of Optisol,” said Kevin Matthews, the chief executive of Oxfordshire, England-based Oxonica, “the trick was getting the first product launched with Boots.”
The breakthrough came in February 2005, when Boots Group, a 68,000-employee English health and beauty retailer, incorporated Oxonica’s Optisol ultraviolet absorber into a range of facial suncare products. “Once they put it into one of their lines,” said Matthews, “we began talking with major cosmetics houses.”
Matthews said his strategy in skin care is no different than any other: identify a market opportunity, develop a patented offering and outsource manufacturing. “The bottom line is you need to be able to build a real business from it.”
However, according to Matthews and other nanomaterials company executives, a smart strategy includes commercializing nanomaterials for skin care while targeting the same materials toward other, unrelated markets.
“The markets must complement each other,” said Paul McCormick, chief executive of Advanced Nanotechnology Ltd., a nanomaterials developer based in Welshpool, Australia. In his company’s case, it uses the same zinc oxide nanoparticle in its ZinClear UV absorber for skin care products as it does for its nanoZ industrial protective coatings. “It’s the same kind of product put into different oils,” he said.
 Oxonica’s Optisol UV absorber was incorporated into skin care products in 2005. Photo courtesy of Oxonica. |
The skin care market has its peculiarities. In cosmetics, the waiting time to get into the business is very short, said McCormick, adding that the formulations and testing are relatively easy compared to working in other markets. “Industrial contracts take longer to get but are better for the long term.”
But while those cosmetics contracts might be easier to get, they also come at a price. “They want to give you an order today,” McCormick said, “and you provide the nanomaterials tomorrow.”
The market is growing rapidly, but its relatively small size suggests that in the future it will remain the same sort of near-term, modest revenue opportunity for nanomaterials providers that it is today. Global retail sales of nanoparticle-containing skin care products were worth $360 million in 2004, according to Andrew McWilliams, a research analyst who covers advanced materials for the market research firm Business Communications Co. But the actual commercial sales of the nanomaterials that went into those products only added up to $14 million for the year.
“There is increasing demand for the high-end (skin care) products,” McWilliams said, which will drive demand for the nanomaterials that provide enhanced capabilities. However, he expects the nano component to remain a small fraction of the total market value. He forecasts that nano-enhanced skin care products will increase to $1.42 billion by 2010, while the commercial nanomaterials sales will rise to $55 million in 2010.
McWilliams brings up another peculiarity of the market. Since they are used on the body, the cosmetics and related skin care product markets are also among those most vulnerable to any negative connotations of nanotechnology. “That perception that nano is unhealthy and should be regulated is sort of out there on the fringes,” McWilliams said. “All it would take is one incident.&rdquo
- David Forman
Don’t forget the consumer in ‘consumer market’
By Candace Stuart
Advanced Nanotechnology Ltd. didn’t have to persuade consumers to slather on sunscreens containing its zinc oxide nanoparticles. In its homeland of Australia, the dermatologists did the talking.
“Australia knows more about sunscreens than most countries do,” said Brian Innes, business development manager at Advanced Nanotechnology. For good reason: A mere 15 minutes of exposure to sun on a clear January day can lead to sunburn if skin is unprotected. That’s one reason why annually skin cancer accounts for more than 80 percent of all new cancers diagnosed in the nation, according to the Cancer Council of Australia. Melanoma kills about 1,300 Australians a year.
Given those statistics, consumers and the doctors who advise them seem willing to accept the potential risks of using sunscreens that incorporate ZinClear nanoparticles.
“This was driven by the dermatologists,” Innes said. “They wanted to have a transparent, mineral-only sunscreen.”
 The Wilson Center’s David Rejeski predicts some companies will put a “nano-free” label on products. Photo courtesy of the Woodrow Wilson Center. |
Based in Welshpool in Western Australia, Advanced Nanotechnology has made its mark by producing uniform batches of nanoparticles since its launch in 1997. It decided to expand beyond its initial market of slurries after 2000.
Zinc oxide, an ingredient in sunscreens that absorbs damaging ultraviolet light, appeared like a good candidate. Standard-sized particles scatter visible light waves, giving sunscreens their characteristic pasty color. At the nanoscale, however, zinc oxide still absorbs ultraviolet light but lets visible light through, making it clear.
Concerns about short-term and long-term health effects of nanoparticles have been increasing as more nano-based products reach the market, analysts say. Consumer acceptance will depend on perceptions of the relative safety and benefits of products. In Australia, for instance, consumers may conclude that the benefits of a transparent sunscreen outweigh the unknown consequences of exposure to nanoparticles.
“Most consumers don’t expect to live in a zero-risk world,” said David Rejeski, director of the Project on Emerging Nanotechnologies, a partnership between the Woodrow Wilson International Center for Scholars and the Pew Charitable Trusts. “Consumers are saying, ‘What’s in this for us?’”
But unlike Advanced Nanotechnology, many of the nanotech companies hoping to dip into the consumer market will not have advocates like the dermatologists of Australia. They lack a clear message - or some critics contend, any message at all.
In a November hearing at the U.S. House of Representatives Committee on Science, Minnesota’s Rep. Gil Gutknecht compared nano companies’ communication efforts to the agriculture industry’s attempts to introduce genetic modification into food crops. “Those companies did a marvelous job of selling the technology to the farmers, but they did a miserable job of explaining it to the consumers,” he noted.
Rejeski, who was a witness at the hearing, said that he expects to see more interest from what he terms “inquisitive consumers.” They are people who are not antagonistic toward new technologies but wish to know more before they buy nano goods. “Most of these companies have no strategy for dealing with the inquisitive consumer,” he said.
He recommends that the industry engage in pre-competitive research on communication strategies to eliminate what he sees as mixed, jargon-filled or conflicting messaging. Adding to the confusion is a tendency by some of the press, grass-roots organizations and even toxicologists to group all nanoparticles together. “Ambiguity raises anxiety” in consumers, he warned.
Alan Rae, vice president of market and business development at NanoDynamics in Buffalo, N.Y., and a participant in industry-shaping nano initiatives, said that discussions about public awareness and concerns about public backlash bubble up. But organizations such as the American National Standards Institute, where he is a delegate in a committee on nanotechnology, are better suited to tackle technical challenges rather than public outreach.
“One of the issues is there is no one actually responsible for it,” Rae said. Consumer education doesn’t fit the role of governmental bodies such as the U.S. National Nanotechnology Initiative. While the European Commission has taken a lead in efforts to raise public awareness, Rae and Rejeski point out that the public remains generally skeptical of governments worldwide.
“The governments are discredited,” Rae said. “And industry is seen as having a vested interest. So the platform is left to people who don’t want to see any change at all.”
Rejeski predicts a similar outcome if no communication strategy is in place. He envisions a “nano-free” movement with companies applying a “no-nano” label to set their products apart in consumers’ eyes. “As soon as there is a no-name label, it sends the message that there is a risk,” he said.
Even companies like Advanced Nanotechnology voice concerns about a backlash. “There’s always a question mark out there,” Innes said, “particularly in this environment where nanoparticles tend to get lumped together.”