Product Hits and Misses
18 Dec 06
This will be my
last update of 2006. I’d like to wish all of you the best of the season,
and thank you for your comments, suggestions, and encouragement
throughout the year. It’s certainly been an innovative one.
For over five
years I’ve been highlighting a few innovations to watch at the beginning
of each year. As the year winds up, I return to these innovations to
see what’s happened to them. This week, I’ll update the product
innovations; when I return in the New Year, we’ll look at services.
Here are the
three product innovations to watch that I discussed back in March:
·
E-85 Ethanol Gasoline
·
Pfizer’s Exubera – inhalable diabetes medicine
·
Apple’s Video iPod.
Two of these,
Ethanol and the Video iPod, are on track to have major and long-lasting
impacts on their respective industries. Pfizer’s Exubera, on the other
hand, is having a bit of a rough time.
E-85 Ethanol – Accelerating
Corn Cob Bob – Ethanol Industry Mascot
"This will absolutely change the way we power our automobiles"
Richard Hamilton, CEO of energy startup Ceres, Inc., in Business Week,
18 Dec 06
There are a
large number of scientists who remain quite pessimistic about corn-based
ethanol. They point out that it currently takes about 7 gallons of
fossil fuel to make 10 gallons of ethanol, and that to produce any
significant amount of the fuel would require much more farmland than
we’re currently using. Ethanol fuelling stations remain quite rare –
while the number has almost doubled in the past year, only about half a
percent of all service stations can currently provide ethanol, and most
of these stations are located in the Midwest.
It turns out,
however, that many new technologies can improve the efficiency of
ethanol conversion from a variety of materials, not just corn. According
to reporting in BusinessWeek, recent scientific developments
promise significant supplies of ethanol – perhaps enough to replace half
of current US oil demand.
There are
numerous experiments underway, with large companies like DuPont, BP, and
Cargill working with small startups to develop pilot facilities and test
new processes. Results so far appear quite promising.
For example, the
Spanish energy giant Abengoa is piloting a plant in Nebraska that takes
any kind of material rich in cellulose (corn stalks or wastepaper, for
example) and converts it to ethanol.
These
innovations will be put to work quite rapidly. According to Bruce Dale,
a biochemical engineer at Michigan State:
“This will happen much faster than
most people think… and it will be enormous, remaking our national energy
policy and transforming agriculture.”
Bruce Dale, in Business Week, 18 Dec 06
All of this
activity is stimulated and supported by generous government subsidies
for ethanol, and by unstable and increasing oil prices. As a result,
Ethanol is a very profitable commodity right now, and investment capital
is flowing into the sector.
A “learning
curve” phenomenon may now be occurring in the ethanol industry. During
World War II, industry responded to wartime needs for airplanes with
material and process innovations that drastically reduced costs and
increased output. Today’s emerging ethanol industry is doing much the
same thing – starting from a high cost position, the industry is
developing and implementing innovations that both reduce costs and
increase ethanol output. This remains an emerging industry to watch.
Apple Video iPod -- Accelerating
Courtesy of
Wikipedia, here’s a roadmap of the iPod line, from its introduction in
October 2001 to the current offerings in 2006:
iPod Product Roadmap – 2001-2006
Over the course
of these five years, iPod has gone through five generations. A $1000
investment in Apple Computer stock in late 2001, when the iPod was
introduced, would today be worth about $9000. Steve Jobs is now on the
board of Walt Disney. The company’s success demonstrates the enduring
power of product innovation both to create new markets and to build a
very profitable and influential enterprise.
Pfizer Exubera – a rough year
Inhaling Insulin with an Exubera Inhaler
Pfizer launched
its inhalable insulin product, Exubera, in the US in July, 2006.
Shortly thereafter, the product was made available in Ireland, the UK
and Germany.
Response has
been underwhelming, if not hostile, from many diabetics and clinicians.
Both groups worry about the respiratory effects of inhalable insulin.
Pfizer, on the other hand, maintains that the risk is low, but is
conducting ongoing studies.
In addition, it
turns out the market is much smaller than Pfizer had originally
imagined. While Pfizer had forecast annual sales of Exubera to be up to
$2 billion a year, analysts now expect Exubera sales to be substantially
lower than that. DataMonitor, for example, forecasts Exubera sales to
reach an annual level of $215 million by 2015.
Perhaps the
analysts are wrong, and Exubera will reach the potential that Pfizer had
originally conceived for it. At this point, however, Exubera represents
one of those puzzling “type 1 error” kinds of products, like Motorola’s
Iridium satellite phone or the infamous Segway.
These projects
represent “type 1 errors” because the company launched a failing
product. For all these kinds of
products, company management turned out to be significantly mistaken in
their estimates of market demand and product value. The enduring puzzle
in all of these examples is why the company did not foresee the
product’s poor showing in advance, and so move to reduce its negative
impact.
With the recent
cancellation of its cholesterol medication torcetrapib, this has been a
remarkably bad year for innovation at Pfizer – a kind of annus
horribilis for the pharma giant. Its current portfolio of products
generates billions of dollars of profits, but the company’s future does
not look as good as its recent past.
Stay tuned for a
new set of innovations to watch in 2007. In the meantime, best wishes
for the holidays!
More information:
-
The Update
on product innovations to watch, from March 2006, is
here.
-
You can find
a listing of Ethanol stations
here. Massachusetts now has one – it didn’t 6 months ago.
-
Here’s a
Business Week
report, from their 18 Dec 06 edition, that describes the
technical progress in Ethanol.
-
Datamonitor,
a provider of commercial research, issued a negative report on
Pfizer’s Exubera in mid-October, 2006. The findings are reviewed
here.
-
I wrote an
update on Pfizer and torcetrapib on 11 December 06. That’s
here.
-
The
Wikipedia iPod entry is
here.
The Updates
publish under a Creative Commons license. You’re welcome to forward as
you see fit.
