Micromachines and Business Models
Fumio Kodama
Professor,
Research Center for Advanced Economic Engineering, The University of Tokyo
necessary to create a business model. As one might
expect, great changes in the direction of technologicalinnovation occurred during this process. We see manychanges particularly in technological innovation and thegeneration of industries, or the industrial structure.
Alternatively, the creation of industries changes theindustrial structure, causing the direction oftechnological innovation to change. I believe there is astrong interaction between innovation and theindustrial structure. Today I would like to tell you
about our research findings and views on this topic.

Introduction
Thank you for the introduction. I am Fumio Kodama.
Today I would like to focus my discussion on two topics:
micromachines and business models. You are probably
thinking that I am drawing a connection between two
wholly unrelated terms. Well, I believe I have been
associated with the Micromachine Center now more than
five years, where experts in many fields are tackling
various technical issues related to micromachines, andquestions on demand forecasts, economic effects, and soforth have eventually found their way to me.
If you think back to five years ago, it was extremely
difficult at that time to scientifically analyze potential
markets for this type of technology. At first we tried to
predict new markets, and by doing so came up withsome sort of statistics, but the grounds for thesenumbers were somewhat dubious. We wondered if
considering only new markets was enough. Then we
wondered if we should consider the creation of new
industries and begin to look at the relationships of these
new industries, which became a popular buzzword atthat time. While all this seemed to look good on paper,in fact it was extremely difficult to analyze.
While I realize that there are many types of
micromachines, I believe that by considering them asbasically element technologies we can look at theirvarious uses, particularly new uses. Therefore, we
considered the development of new uses, even though
we did not know whether they would actually be usedas such. Essentially it is necessary to link these useswith a system of use that can be established as abusiness. Or assuming this micromachine technology isof tremendous proportions, we must create a separatebusiness model. However, the term business modelsounded very small. We wanted a business model forestablishing an industry. So ultimately we began
creating peculiar terms, such as "industrial businessmodel," resulting in the title of my presentation,"Micromachines and Business Models."This
information is described in much more detail in ourreport, which is the result of experts in various fields
joining forces to analyze each sector of the market. But
rather than describing that here, I think you would
understand it much quicker by reading the report.
Today I would like to talk about the background andprocess at which we arrived at the conclusion describedearlier, through much trial and error, namely that it isMicromachine Systems
The reasons why Japan could create a new industry
and take control of its creation, and why Japan isregarded as the home of micromachines is due to the"mechatronics revolution" in the background. In fact,
the word "mechatronics" was coined by a Japanese,
which leads one to believe that Japan seized theinitiative in this technological revolution. The essenceof mechatronics and optoelectronics is the skillfulcombination of technologies thought to be ofcompletely different types belonging to different fields
for the purpose of exhibiting effects greater than the
combination of its parts. In this sense, we created a
new concept called "technology fusion," meaning the
combining of different technologies.
Hence, technologies have advanced in this pattern.
While industries had been progressing in a directionthat emphasized total integration, the PC revolution
brought about a state in which a manufacturer
supplying a single element called a microprocessor
unit, specifically Intel, has taken complete control of
all industries. By looking at this situation, however, I
believe a major change has occurred in technologies;
in other words, a phenomenon called digitalconvergence has progressed. Digital convergence is aphenomenon peculiar to the PC industry. With theadvance of modularization, module suppliers seized
leadership in technological development, and final
products are obtained by combining these modules.
This is what has occurred in the PC industry.
While there are varied opinions on whether thisphenomenon has occurred in the mechanical industry
as well, indeed we can find the same phenomenon bylooking at the automotive industry and the like. There
are some differences in how the progression of thisphenomenon is occurring in the automotive industry

5most cited patent group. Hence, many patents filed by
Japanese belonged to the patent group that is mostfrequently cited, thereby making them basic
technologies. As a result, in only ten years, Japan
jumped from the bottom rung in the Gellman Survey tothe very top rung in the Narin Survey.
It is conceivable here that this came about due to a
new technological concept. I think this is basically due
to the mechatronics revolution. For example, Japanbegan in fourth place in the number of machine tools
manufactured and jumped to an overwhelming firstplace in just ten years. As you are aware, such a largechange in only ten years was brought about by thegreat progress made in the numerical control ofmachine tools. Hence, Japan made this great jump
due to the advance of the mechatronics revolution.
Optoelectronics is a term for a similar technology,
also formed by fusing different technologies. In 1986
Fortune magazine published a scoreboard indicating
which countries were the strongest in various fields.
As you can imagine, the U.S. was the top in most fields,
but Japan was stronger in one: optoelectronics. Japan
had 9.5 points to America's 7.8, a difference thatcannot be ignored. While we found a major changeover a ten-year period when evaluating the quality ofpatents earlier, behind this change there has emerged
new technological concepts called mechatronics andoptoelectronics that conceivably brought about thischange. I propose that we combine these conceptions
into the term "technology fusion." Technology fusion is
not simply the combination of different technologies,
but rather the addition of one technology to another toprovide a solution greater than the sum of its parts. In
other words, one plus one equals three. This I havecited from the Harvard Business Review, a magazine
written for business managers, which emphasized inrather severe language that this is a new concept.

from how it is progressing in the PC industry, but
modularization is also taking hold in mechanicalsystems. Accordingly, the term micromachine-based
system was coined when considering the
micromachine market to mean a new system based on
micromachines. Much research has been conductedunder the belief that it would be better to consider
things under that system.
Hence, the idea is to predict the future. For
example, if we tried to predict what will occur in theyear 2010 and the year 2025, we know that while thecurrent pattern may hold through 2010, it is almost
impossible to predict what will happen in 2025 without
considering a completely different type of usage
pattern. Business models are used to consider new
industries that use micromachines.
Technology Fusion
To begin with, "mechatronics revolution" is a termcoined by a Japanese person in 1975. There wasanother significant movement occurring at this time.
Despite a steady increase in Japan's competitiveness in
the international market, doubts were raised at thistime concerning what original contributions Japan had
made. The U.S. administration in particular initiatedseveral comparative studies to determine whichcountry had the most technological innovativeness.
The first study, called the Gellman Survey, evaluatedthe innovativeness of each country. The method of
this survey was to list one hundred examples of radical
breakthroughs in technology over the period from 1953
to 1973 and determine which countries brought about
these breakthroughs. America was responsible for 65,
Japan for a mere 2, and England for 25. Hence,
although Japan's competitiveness in the market wasstrong, from the viewpoint of radical breakthroughs it
was responsible for only 2 of 100, leading to theconclusion that Japan is merely a country that imitates.
With the purpose of conducting a slightly moreobjective survey, Francis Narin was commissioned to
conduct a survey in which he stored all patents
registered in America between 1975 and 1985 in a
database. When checking the percentage of patents
for each country, Japan's share had increased steadily
during this period. Japan clearly demonstrated
enormous strength in high-tech oriented patents.
When looking at the quality of patents at this time, it
was found that the U.S. carefully manages citations ofpatents. All citations were fully listed on the front pageof each patent. By using this data, it was possible todetermine how many patents cite a particular patent.
If a patent is cited numerous times, that patent can beviewed as a basic technology. The chance of patents
submitted by Americans being in the most cited patentgroup, for example the top ten percent, was completely
random. It turns out that, rather than being
completely random, patents published by Japanese hada higher probability, by 37 percent, of belonging to the

Modularization
Subsequently, considerable changes occurred.
Around 1980, for example, the computer industry wascomposed of vertically integrated firms. Companies
like IBM, TEC, Fujitsu, and NEC were competing witheach other making their own chips, their own
platforms, their own software, and their own
applications, and selling them at their own distribution
outlets. Hence, the industry had an extremely
vertically integrated structure.
Around 1995, the industry shifted to a horizontal
competition. Intel and Motorola were competing in thesilicon industry; Sharp, NEC, and DTI in the matrix
display field; and so on. Great changes in the industrial
structure occurred when computer manufacturers
began to obtain various components and combine
them. In 1999 Newsweek magazine did a featureasking experts what they felt the major changes of thenext century would be. I was also interviewed, atwhich time I commented that it is not easy to link6

developing engines and outsourcing parts in otherfields as much as possible. As a result, modularizationin the automotive industry is advancing.
Generally speaking, modularization is also
advancing in mechanical industries. Hence, if
micromachines are provided in modules, it is sufficient
to simply consider the design of the overall system. So
what type of strategy do we use? Two scholars that
popularized the term "core competence" say thisstrategy comes in the form of first acquiring thenecessary technologies, integrating these technologies,
and then competing for the core intermediate product.
Ultimately the intention is to maximize shares in the
final end product. An example of this strategy was
adopted by Canon, and maybe some of the people
related to this project are here today. Canon evensells laser printer engines to its competitors, includingApple. Ultimately they sold their core product tocompetitors in order to obtain a larger market share in
the field. "Virtual market share" is a term being used
today. This is a competitive strategy for controllingthe entire market by seizing the initiative in module
development, as modularization increases.

things in the analog world, while things can be joined inevery possible combination in the digital world,
demonstrating results greater than the sum of theirparts. Hence, digitization has come charging into thecurrent age, I commented, and we will see a change
from technology fusion to digital convergence.
In my laboratory, we attempted to measure how much
modularization had developed. While there may be
several methods for measuring this, ours was to searchpatent applications on a patent database called PATORIS
for four different computer fields: CPUs, memory, discs,
and I/O devices. We measured the percentage of patentapplications filed to determine how much leadership theassemblers (not component suppliers) had seized in thetechnological development of each field. The assembler
shares in each field had all dropped, indicating thatmodularization has progressed in the personal computerfield, shifting control of technological development to theindividual module providers. This shift reflects thechange in industrial structure indicated above from a
vertical to a horizontal structure.
Many in the mechanical industry felt thatcompromise between companies was necessary andthat modularization would not be easy to implement.
We attempted the same analysis on the automotive
industry. We divided up control-related areas of theautomotive industry into four fields, checked thepatent filing percentage for each and measured theratio of automotive assembly manufacturers, or socalled automobile manufacturers, therein. While thetrends here were slightly complex, we divided theindustry into four fields: engines, chassis, safetysystems, and communication systems including
navigation. Although the share of automotive
assemblers rose in most fields up to around 1980, they
all dropped in the 1990s. Hence, we mustacknowledge that modularization had progressed.
While all fields in personal computers dropped, there
were some differences in the mechanical industries.
Only one field, engines, rose in the automotive field.
We can say that the proportion of automotive
manufacturers in engine control increased, that is,their leadership strengthened - a trend different fromthe personal computer manufacturers.
In general terms, I believe that the promotion ofmodularization is electronification. Determining theshare of production volume for electronic control units
in the overall production of parts of each automotive
field and determining how much weight each has interms of monetary value is one index for indicating
how much digitization and electronification has
advanced in each field. Based on this index, welearned that digitization in the field of engine control
has not advanced, or rather is in a declining trend.
Since the ratio of patent applications supplied fromautomotive manufactures has risen slightly in the
category of engines only, the strategy of automobile
manufacturers is being watched. This strategy isreflected in the pattern of concentrating all efforts in

Creating a Business Model
So what strategies will be used for micromachinetechnology? Micromachines should be thought of as corecomponents of systems rather than core products.
Therefore, I think that the problem lies not in the end
product, but in how systems can skillfully use inventive
micromachines, in other words, how micromachines canbe used in a virtual system. Hence, we considered
micromachine-based systems or systems of use that are
only possible with micromachines. Actually, two years
ago I spoke at this very symposium on "Micromachines
and the Market," and today I am talking to you about"Micromachines and Business Models," so I haveprogressed a little. This table lists the ideas that we cameup with at our research conference (see Table 1).
Experts in various fields came up with the details, so I
believe the table is reliable. We considered, for example,
data storage systems, printing systems, opticalcommunication systems, wearable systems, and microinspection systems. Regarding printing systems, weIndustries
Information Technology
IT Infrastructure
Precision Instrument
Measurement Instrument
Micro Factory
Maintenance
Medical and Health
Bio Technology
Environment
Automotive applications
Life and Household

Micromachine-based systems
Data-storage system
Printing system
Optical communication system
Wearable system
Micro inspection system
Micro factory system
Maintenance system
Medical Endoscope and catheter system
Personal health support system
Genetic and DNA analysis system
Environmental inspection system
Automotive related system
Electric household appliances system

Table 1 Micromachine-based Systems

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cellular telephones. In other words, the upper limit isincreasing constantly and the market size is
continually expanding. In a sense, I suppose businessmodels are also constantly being created.

viewed the development of new printers as anopportunity. We could come up with various wearable
systems, but here we will take up cellular telephones.
Therefore, we selected printers and cellular phones andthen quantitatively analyzed what form of market had
been created, what industries had been created, theirdifferences, whether they were a new type of usage, or
what part they played in the creation of a business model.
Specifically, while the facsimile machine was asubstitute for conventional communication means, aliquid crystal display (LCD) expanded the number ofapplications. As you know, the PC of today beganfrom a computer and later a word processor, and thenwas developed with a new use as an Internet terminal.
Clearly, we can say that a business model had beendeveloped. I would like to study each of thesetechnologies in more detail. As you know, a logistic
model is used to determine how large a new market
has grown. Over time, the size of the market(production volume) approaches an upper limit, that
is, an ultimate potential demand. This is a substitutemarket, wherein a new product is used as a substitutefor an existing conventional function.
We can also consider the occurrence of an
extremely major technological invention that greatly
expands the scope of users. Since the logistics of this
scenario take place in two stages, its model is called atwo-stage logistic model. As the market size of the
product nears an upper limit during a certain time
period, a major technological innovation occurs,
causing the market size to leap suddenly. The printeris one example that comes to mind immediately.
Inkjet, bubble jet, or laser printers and particular
inkjet are a good example of a product designed for
office use that suddenly became useful in the home,and moreover could print photos or other pictures.
Instead of just printing conventional text, it is now
conceivable to print pictures.
Next is an example of the upper limit itself growing
according to a logistic function. This is called a double
logistic model. In short, new usages are being createdconstantly, increasing the production volume more andmore. The cellular telephone fits this description, in
which new business models were created continuously.
We talked about analyzing each one individually.
The facsimile is a simple logistic model in which the
production number approaches a fixed value. Printers
follow more of a two-stage logistic curve. As you
know, printers were used to print characters and werelimited to use in the office. However, laser and inkjet
printers came out around the mid-80s. At the sametime, printing precision improved and the ability toprint in color was also added, clearly causing
production to jump a step.
If we assert that micromachine-based systems will
create new business models, I think they must
continually create new business models. A very recent
example that follows the double logistic curve can beseen if we look at the actual production data forConclusion
At the research conference, we studied various
micromachine-based systems, such as printers using
micromachines. We considered a business model of
on-demand printer systems that can be used in thehome and print when the user requests it (see Fig. 1).
Next, we considered a business model for order madeprinter systems in 2025, wherein users can custom
order printers with a desired design and shape and thecapability of printing on anything, not just paper. The
members at the research conference considered what
systems would be necessary to achieve this and what
technologies must be developed. When considering
future technological development, the members
concluded that it would be beneficial to promote thedevelopment of micromachine technology inparticular, which is capable of changing the world.
Such being the case, if you can imagine an industrial
business model, such as that shown in Fig. 2, extract
the technological issues from this model and attempt
to resolve them, I believe that there is potential andvalidity in taking that future direction. Thank you allfor your attention today.
current

2025

On demand printing system of books

Business
Model

Micromachine
based
Systems

2010

Order made printing system
Document printing system
Digital printing system On demand printing system
Photo printing system
Industry printing system
Metal, Polymer, Bio-medical printing system

2beam scanning Multi beam scanning
Integrated LED head 2D write head Direct printing headTechnologies
Piezo electric ink jet head
Integrated head
Thermal ink jet head
Super small particle Super precision Control
User

Office use

Personal use Factory / Industrial use

Fig.1 Micromachine Technologies for Printer Systems
Year 2025
Industrial "Business Model"
14 Applications
Year 2025
Micromachine-based System

Technological Challenge
Fig.2 What is technological innovation in future?

8