Kellogg onTechnology

& InnovationEDITED BY

RANJAY GUL ATI

MOHANBIR SAWHNEY

AND ANTHONY PAONI

John Wiley & Sons, Inc.

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Kellogg onTechnology

& Innovation

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Kellogg onTechnology

& InnovationEDITED BY

RANJAY GUL ATI

MOHANBIR SAWHNEY

AND ANTHONY PAONI

John Wiley & Sons, Inc.

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Copyright 2003 by Ranjay Gulati, Mohanbir Sawhney, and Anthony Paoni. Allrights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, ortransmitted in any form or by any means, electronic, mechanical, photocopying,recording, scanning, or otherwise, except as permitted under Section 107 or 108 ofthe 1976 United States Copyright Act, without either the prior written permission ofthe Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923,(978) 750-8400, fax (978) 750-4470, or on the web at www.copyright.com. Requeststo the Publisher for permission should be addressed to the Permissions Department,John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax(201) 748-6008, e-mail: permcoordinator@wiley.com.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have usedtheir best efforts in preparing this book, they make no representations or warrantieswith respect to the accuracy or completeness of the contents of this book andspecif ically disclaim any implied warranties of merchantability or f itness for aparticular purpose. No warranty may be created or extended by sales representativesor written sales materials. The advice and strategies contained herein may not besuitable for your situation. The publisher is not engaged in rendering professionalservices, and you should consult a professional where appropriate. Neither thepublisher nor author shall be liable for any loss of prof it or any other commercialdamages, including but not limited to special, incidental, consequential, or otherdamages.

For general information on our other products and services please contact ourCustomer Care Department within the U.S. at (800) 762-2974, outside the UnitedStates at (317) 572-3993 or fax (317) 572-4002.

Wiley also publishes its books in a variety of electronic formats. Some content thatappears in print may not be available in electronic books.

Library of Congress Cataloging-in-Publication Data:

Gulati, Ranjay.Kellogg on technology & innovation / Ranjay Gulati, Mohanbir Sawhney,

Anthony Paoni.p. cm.

Includes bibliographical references and index.ISBN 0-471-23592-X (alk. Paper)

1. Technological innovationsEconomic aspects. I. Title: Kellogg ontechnology and innovation. II. J.L. Kellogg Graduate School ofManagement. III. Sawhney, Mohanbir S. IV. Paoni, Anthony. V. Title.

HC79.T4 G85 2002338.064dc21

2002011427

Printed in the United States of America.

10 9 8 7 6 5 4 3 2 1

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http://www.copyright.com

To Donald P. Jacobs, Dean Emeritus of the Kellogg School of Management,

who served as Dean from 1975 to 2001. Dean Jacobs fostered a culture of collaboration,

teamwork, and entrepreneurship. Without his support for our TechVenture course,

this book would not have been possible.

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Contents

Preface ix

Section IEnabling Technologies and InfrastructureChapter 1The Future of Semiconductor Technology 3

Hagai Bar-Lev, Paul W. F. Rutten, Avner M. I. Sonnino, andMichal Tauman

Chapter 2Optical Networking 38

Mike Doheny, Jennifer Ann Glaspie, B. Jason Koval,Nicholas L. Leeming, and Eric M. Smyth

Chapter 3The Wireless Value Chain and Infrastructure 79

Jennifer L. Eselius, Deepak Garg, Greg Hughes, Jef f Kelly,Ian R. Lacy, Daniel A. Levine, Nelson Francisco Molina,Manish Panjwani, Donaldson C. Pillsbury, Andrew I. Quarles,Charity C. C. Rivera, Tom Stokes, Shyam V. P. Sharma,Lori S. Tabuchi, Christopher Thun, Karthik Vasudevan,Vivian Yang, and Rich Yeh

Section IIBusiness Models and MarketsChapter 4Interactive Television 155

Marc P. Adams, Parul Anand, and Sebastien M. Fox

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viii Contents

Chapter 5Wireless Applications 193

Albert V. Fratini, Deepak Garg, Daniel C. Grace, EstebanGreenberg, Christ ina N. Goletz, Jonathon D. Lewis,Laura J. Lewis, James E. Lutz, Rodrigo Manzano, ArmoghanMohammed, Evan M. Norton, Ian M. Norton, Manish Panjwani,Daniel B. Rosenbloom, Lisa S. Roth, Shyam V. P. Sharma,Sonia A. De La Tor re, Karthik Vasudevan, and Rich Yeh

Section IIIEmerging TechnologiesChapter 6Recent Trends in Nanotechnology 261

Puneet Gupta, Rajit Malhotra, Michael A. Segal, andMarc Y. F. J. Verhaeren

Chapter 7Peer-to-Peer Computing 284

Alanso Quintana, Jayesh Ramsinghani, and Timothy Walls

Chapter 8A Framework for the Biotechnology Industry 312

Katie Arnold, Thomas H. Fuchs, Scott T. Saywell,Wallace Saunders, and David M. Scalzo

Index 343

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ix

Preface

Genius is one percent inspirat ion and ninety-nine percent perspirat ion.Thomas Edison

Edison reminds us that successful in-novation requires more than just a good idea. Given the current state ofthe technology sector in 2002, which has witnessed dramatic drops in stockprices, tens of thousands of layoffs, and the demise of many start-ups, Edi-sons quote seems particularly relevant. After all, couldnt we argue thatmany technology companies started out with good ideas and have beenworking hard? Perhaps they were working hard, but not necessarily work-ing smart. Or perhaps some good old-fashioned luck is needed in additionto inspiration and perspiration, given the rapidly changing market and busi-ness conditions. Or maybe there were just too many players competing forthe same pie.

All of these observations have some truth. Early in the development ofan industry, more inspiration may be required. While for mature indus-tries, more perspiration may be required. Regardless, successful businesspractice is about positioning a company well to beat the odds and exe-cuting relentlessly to capitalize on the position. To create positions of ad-vantage, business decision makers need information that can help themunderstand the trends in their markets so they can place their strategicbets intelligently.

The past decade has witnessed unprecedented advances across a varietyof technological frontiers. The pace of change is compounded by the con-vergence of some of these frontiers. Many promises have been made about

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x Preface

the value creation potential of some of these developments, only to f izzleout later on. The list is longe-retailing, business-to-business market-places, satellite phones, HDTV, wireless data, optical networking, ge-nomics, broadband, third-generation wireless technology, interactive TV,home networking, and so on. Skeptics have looked back and pointed to apattern of hype surrounding new technological developments and havebecome dismissive of any new claims because of their poor track record.

We believe that at least part of the reason we see this boom-and-bustpendulum in technology industries is because much of the early discus-sion of new technologies is about the technical merits of the new tech-nologies. Very seldom does the discussion focus on the business value ofthe technology and the business models that need to be developed to cap-ture value from the technology. Too often, business-model and customer-value-proposition discussions are conducted as a postmortem, when entiretechnology sectors f lame out, and journalists and academics build retro-spective accounts of why things did not turn out the way people thoughtthey would. Unless we change the nature of the conversation about newtechnologies, we may not be able to break free from this vicious cycle.

The Purpose of This BookThis book is an attempt to view emerging frontiers in technology throughthe clear lenses of business instead of the rose-tinted glasses of technolo-gists. Our goal is to help managers and investors gain an intelligent un-derstanding of some of the most-promising new technologies and developan informed opinion of the business prospects of these technologies. Indiscussing a technology frontier, we provide enough details for the readerto develop strategic f luency with the technology, and then we quickly turnto the business challenges in commercializing it. We also present likely al-ternative scenarios that paint a picture of how the markets for each tech-nology might develop and identify some of the key players and plays thatare likely to capture a dominant role in each domain. The primary audi-ence for this book is managers who are intrigued by these exciting fron-tiers and have a feeling that some of these developments will have animpact on their industries but are not sure how. Given our business-focused stance, this book makes no attempt to provide complete coverageof the various technologies. Technology is discussed only as necessary tounderstand the key drivers and trends in the industries. Our main focus isto help