10 Tech Trends to Watch in 2005 

FORTUNE v.151, n.1 10jan2005

Trend  1 - Why There's No Escaping the Blog
Trend  2 - Early Adopters' Paradise
Trend  3 - Is Wintel Out of Gas?
Trend  4 - Genetic Medicine's Next Big Step
Trend  5 - It Even Makes Calls!
Trend  6 - Kiss Privacy Goodbye
Trend  7 - China Tries to Kick the Piracy Habit
Trend  8 - Iraq's Robot Invasion
Trend  9 - Scanning for Dollars
Trend 10 - Nuclear Spring?

Tour Silicon Valley and it's hard to believe there ever was a dot-com crash. You'll hear geeks boast how the web is changing the world. You'll see search engines and blogs supported by online advertising popping up like mushrooms. Telecom, cable, and even electric companies are scrambling to sell bundles of telephone, Internet, and TV service. Computer and consumer electronics makers are duking it out over who'll control home entertainment. Pundits are back to predicting how all this makes Microsoft irrelevant.

What does the resurgence mean? Just this: The Internet is becoming the epochal communication and entertainment platform that the dot-commers envisioned—it just took longer than most of them thought. But some things have changed: This year's key tech arenas will be wireless and the home, not the office, while wars, both real and virtual, are bringing security issues into sharper relief.

Beyond infotech, neuromarketing, genetic medicine, and even nuclear power will make themselves felt as trends. And who'd have dreamed that China's tech sector would evolve so quickly or that its entrepreneurs would be clamoring for intellectual-property protection? But then, it's 2005, and more and more of the world is running on Internet time.

1
Why There's No Escaping the Blog

Freewheeling bloggers can boost your product—or destroy it.
Either way, they've become a force business can't afford to ignore

David Kirkpatrick and Daniel Roth

Early in the evening of Dec. 1, Microsoft revealed that it planned to take over the world of blogs—the five-million-plus web journals that have exploded on the Internet in the past few years. The company's weapon would be a new service called MSN Spaces, online software that allows people to easily create and maintain blogs. It didn't take long for the blogging world to do what it does best: swarm around a new piece of information; push, prod, and poke at it; and leave it either stronger or a bloody mess. The next day, at the widely read Boing Boing blog, co-editor Xeni Jardin opted to do the latter.

She titled her critique of MSN Spaces "7 Dirty Blogs" and hilariously sent up the fickle censoring filters Microsoft appeared to have built in. MSN Spaces prohibited her from starting a blog called Pornography and the Law or another entitled Corporate Whore Chronicles; yet World of Poop passed, as did the educational Smoking Crack: A How-To Guide for Teens. Within the first hour of Jardin's post, five blogs had linked to it, including the site of widely read San Jose Mercury News columnist Dan Gillmor. By the end of the day there were dozens of blogs pointing readers to "7 Dirty Blogs," a proliferation of links that over the next few weeks topped 300. There were Italian blogs and Chinese blogs and blogs in Greek, German, and Portuguese. There were blogs with names like Tie-Dyed Brain Waves, Stubborn Like a Mule, and LibertyBlog. Each added its own tweak. "Ooooh, that's what I want: a blog that doesn't allow me to speak my mind," wrote a blogger called Kung Pow Pig. The conversation had clearly gotten out of Microsoft's hands.

Typically Microsoft would have taken the hits and kept powering forward. That is the Microsoft way. For years such behavior has done little but make people feel defenseless against the company. But this time Microsoft deployed one of its most important voices to talk back: not Bill Gates or Steve Ballmer, but Robert Scoble.

Scoble has been at Microsoft only 19 months and has neither a high-ranking title (he's a "software evangelist" who works with outside programmers) nor such corporate perks as a window in his office. What Scoble does have is a blog of his own, Scobleizer, on which he weighs in daily with opinions about happenings in the tech world—especially the inner world of Microsoft. On a recent day he posted nine remarks, each averaging a paragraph, on topics ranging from how a company programmer had fixed a security bug to the fact that his wife is becoming a U.S. citizen. Nothing too profound or insightful, yet Scobleizer has given the Microsoft monolith something it has long lacked: an approachable human face.

When it came to the criticism emanating from Boing Boing, Scoble simply... agreed. "MSN Spaces isn't the blogging service for me," he wrote. Nobody at Microsoft asked Scoble to comment; he just did it on his own, adding that he would make sure that the team working on Spaces was aware of the complaints. And he kept revisiting the issue on his blog. As the anti-Microsoft crowd cried censorship, the nearly 4,000 blogs linking to Scoble were able to see his running commentary on how Microsoft was reacting. "I get comments on my blog saying, 'I didn't like Microsoft before, but at least they're listening to us,'" says Scoble. "The blog is the best relationship generator you've ever seen." His famous boss agrees. "It's all about openness," says chairman Bill Gates of Microsoft's public blogs like Scobleizer. "People see them as a reflection of an open, communicative culture that isn't afraid to be self-critical."

The blog—short for weblog—can indeed be, as Scoble and Gates say, fabulous for relationships. But it can also be much more: a company's worst PR nightmare, its best chance to talk with new and old customers, an ideal way to send out information, and the hardest way to control it. Blogs are challenging the media and changing how people in advertising, marketing, and public relations do their jobs. A few companies like Microsoft are finding ways to work with the blogging world—even as they're getting hammered by it. So far, most others are simply ignoring it.

That will get harder: According to blog search-engine and measurement firm Technorati, 23,000 new weblogs are created every day—or about one every three seconds. Each blog adds to an inescapable trend fueled by the Internet: the democratization of power and opinion. Blogs are just the latest tool that makes it harder for corporations and other institutions to control and dictate their message. An amateur media is springing up, and the smart are adapting. Says Richard Edelman, CEO of Edelman Public Relations: "Now you've got to pitch the bloggers too. You can't just pitch to conventional media."

Of course, it's difficult to take the phenomenon seriously when most blogs involve kids talking about their dates, people posting pictures of their cats, or lefties raging about the right (and vice versa). But whatever the topic, the discussion of business isn't usually too far behind: from bad experiences with a product to good customer service somewhere else. Suddenly everyone's a publisher and everyone's a critic. Says Jeff Jarvis, author of the blog BuzzMachine, and president and creative director of newspaper publisher Advance Publications' Internet division: "There should be someone at every company whose job is to put into Google and blog search engines the name of the company or the brand, followed by the word 'sucks,' just to see what customers are saying."

It all used to be so easy; the adage went "never pick a fight with anyone who buys ink by the barrel." But now everyone can get ink for free, launch a diatribe, and—if what they have to say is interesting to enough people—expect web-enabled word of mouth to carry it around the world. Unlike earlier promises of self-publishing revolutions, the blog movement seems to be the real thing. A big reason for that is a tiny innovation called the permalink: a unique web address for each posting on every blog. Instead of linking to web pages, which can change, bloggers link to one another's posts, which typically remain accessible indefinitely. This style of linking also gives blogs a viral quality, so a pertinent post can gain broad attention amazingly fast—and reputations can get taken down just as quickly.

No one knows that better than Dan Rather. In a now infamous episode, the anchor fell like Goliath to the political bloggers during the presidential campaign. From the start, it was clear that these nobodies with laptops were going to have an impact. Conservative blogs, like the hugely popular InstaPundit, run by Glenn Reynolds, a University of Tennessee law professor, and Little Green Footballs, written by web designer Charles Johnson, or left-leaning sites like Markos Moulitsas's DailyKos, were rallying their hundreds of thousands of daily readers to whatever cause they alighted on. Then, in mid-September, came what the blogosphere—the term used in the blogging world for the blogging world—calls Rathergate. On 60 Minutes, Rather scooped rivals with memos that offered proof of George W. Bush's dereliction of duty while in the Texas National Guard—or that seemed to. Within a half hour of the broadcast, bloggers started questioning the authenticity of the memos. Others picked up on the suspicions and added their own thoughts and findings. After denying it at first, CBS later admitted it could "no longer vouch" for the memos. Soon after the election, Rather announced his retirement and the blogosphere declared victory—to the chagrin of the mainstream press. "We used to think that the news was finished when we printed it," says Jarvis. "But that's when the news now begins."

Just as Rathergate was breaking, corporate America got its clearest sign of blogger muscle—in this case, brought on not by memos but by a Bic pen. On Sept. 12 someone with the moniker "unaesthetic" posted in a group discussion site for bicycle enthusiasts a strange thing he or she had noticed: that the ubiquitous, U-shaped Kryptonite lock could be easily picked with a Bic ballpoint pen. Two days later a number of blogs, including the consumer electronics site Engadget, posted a video demonstrating the trick. "We're switching to something else ASAP," wrote Engadget editor Phillip Torrone. On Sept. 16, Kryptonite issued a bland statement saying the locks remained a "deterrent to theft" and promising that a new line would be "tougher." That wasn't enough. ("Trivial empty answer," wrote someone in the Engadget comments section.) Every day new bloggers began writing about the issue and talking about their experiences, and hundreds of thousands were reading about it. Prompted by the blogs, the New York Times and the Associated Press on Sept. 17 published stories about the problem—articles that set off a new chain of blogging. On Sept. 19, estimates Technorati, about 1.8 million people saw postings about Kryptonite (see chart).

Finally, on Sept. 22, Kryptonite announced it would exchange any affected lock free. The company now expects to send out over 100,000 new locks. "It's been—I don't necessarily want to use the word 'devastating'—but it's been serious from a business perspective," says marketing director Karen Rizzo. Kryptonite's parent, Ingersoll-Rand, said it expects the fiasco to cost $10 million, a big chunk of Kryptonite's estimated $25 million in revenues. Ten days, $10 million. "Had they responded earlier, they might have stopped the anger before it hit the papers and became widespread," says Andrew Bernstein, CEO of Cymfony, a data-analysis company that watches the web for corporate customers and provides warning of such impending catastrophes.

Those who have tried to game the blogosphere haven't done much better. Mazda, hoping to reach its Gen Y buyers, crafted a blog supposedly run by someone named Kid Halloween, a 22-year-old hipster who posted things like: "Tonight I am going to see Ministry and My Life With the Thrill Kill Cult.... This will be a retro industrial flashback." He also posted a link to three videos he said a friend recorded off public-access TV. One showed a Mazda3 attempting to break dance, and another had it driving off a ramp like a skateboard, leading in both cases to frightening crashes. Other bloggers sensed a phony in their midst—the expensively produced videos were tip-offs—and began talking about it. Suddenly Mazda wasn't being hailed; it was being reviled on widely read blogs. "Everything about that 'blog' is insulting," wrote a poster on Autoblog. Mazda pulled the site after three days and now says it never intended it to have a long run. "It was a learning experience," says a spokesman. Tig Tillinghast, who runs the respected advertising industry blog Marketingvox.com, calls Mazda's blogging clumsiness "the moral equivalent of doing an English-language print ad that was written by a native French speaker."

"If you fudge or lie on a blog, you are biting the karmic weenie," says Steve Hayden, vice chairman of advertising giant Ogilvy & Mather, which creates blogs for clients. "The negative reaction will be so great that, whatever your intention was, it will be overwhelmed and crushed like a bug. You're fighting with very powerful forces because it's real people's opinions."

It all sounds like so much insanity: a worldwide cabal ready to pounce on and publicize any error a company makes. Yet it's not as if corporations are just sitting ducks. For one thing, not every negative voice is that influential. For every Rathergate or Kryptonite, there are thousands of other posts that disappear into the ether. Simply railing against Wal-Mart or repeating the latest conspiracy theory about Halliburton doesn't guarantee that the blogosphere will take notice.

More important, obsessive blogs can mean obsessive customers. The witty blogger behind Manolo's Shoe Blog may bash Birkenstocks and Uggs, but he drools over Coach, Prada, and, of course, Manolo Blahniks. Before blogs, finding someone like him—a person who probably helps others make buying decisions—would have been difficult and costly. Now it's just a matter of Googling or searching on any of the blog-specific search engines like Technorati or Feedster. For those who want to go deeper, firms like Intelliseek and BuzzMetrics use sophisticated software to analyze the blog universe for corporate clients. They use this growing online database of constantly updated consumer opinion for marketing and product-development ideas.

But how to speak directly to this swarm? Wary of a Mazda-like fiasco, most companies that want to blog try to walk a fine line: telling employee bloggers to be honest but also encouraging evangelism. Corporate propaganda almost always drives readers away; real people with real opinions keep them coming back. At the GM Smallblock Engine Blog, employees and customers rhapsodize about Corvettes and other GM cars. Stoneyfield Farm has several blogs about yogurt. Not surprisingly, the earliest adopters have been tech firms. The biggest chunk of the 5,000 or so corporate bloggers comes from Microsoft, but others work at Monster.com, Intuit, and Sun Microsystems—where even the company's acerbic No. 2, Jonathan Schwartz, gets in on the action. (A recent Schwartz post openly criticizes competitor Hewlett-Packard: "Yet another series of disappointing announcements.")

At best, these blogs can act like tranquilizers in an elephant: slowing a maddened charge against a company but not stopping it. Macromedia three years ago set up a few employee blogs to give customers a one-stop place for info and tech support. The blogs, and the employees running them, quickly became an important resource to customers—as well as to the company. When Macromedia in 2003 released software that was maddeningly slow, the company bloggers quickly acknowledged the need for fixes, helping ease some of the tension. "It was a great early-warning system and helped us frame the situation," says senior vice president Tom Hale. "It accrued a huge benefit to us."

"I need to be credible," says Microsoft's Scoble. "If I'm only saying, 'Use Microsoft products, rah rah rah,' it sounds like a press release, and I lose all ability to have a conversation with the world at large."

Unfiltered conversations aren't exactly the kind of things in-house counsel encourage, though. And employees have been fired at Starbucks, Harvard University, Delta, and social-networking software company Friendster for blogs the organizations apparently deemed offensive, though none will comment. Even blogging boosters Microsoft and Sun have hit bumps. Microsoft fired a temp who posted photos of Apple computers sitting on a company loading dock. Sun CEO Scott McNealy was urged not to blog after he showed trial posts to company lawyers and colleagues. "I've got too many constituents that I have to pretend to be nice to," he says.

As big companies try to maintain a delicate balance, it's often the smaller players who are nimbly working blogs to their advantage. Entrepreneurs like Shayne McQuade have learned that bloggers can be an easy—and free—marketing arm, if used right. McQuade, a onetime McKinsey consultant, in 2002 invented a backpack with built-in solar panels that enables hikers and Eurotrippers to keep their gadgets charged. He spent $15,000 getting the company up and running, outsourcing design and manufacturing to jobbers in Asia and warehousing and shipping to a company in New Jersey. The only thing left for him was getting the word out: He ended up outsourcing that to bloggers.

In late September, just after McQuade received an early sample of the Voltaic Backpack, he asked a friend, Graham Hill—who runs a "green design" weblog called Treehugger—if he'd mention the product. Start up the swarm! Within a few hours of Voltaic's hitting Treehugger, the popular CoolHunting blog mentioned McQuade's product, which got it seen by Joel Johnson, editor of Engadget competitor Gizmodo. Each step up in the blogging ecosystem brought Voltaic to a broader audience. (Yes, for all its democratic trappings, there are hierarchies of influence in the blogging world.)

In came a flurry of orders. Ironically, McQuade—who had helped research Net Gain, a seminal book on how the Internet would change business—was unprepared. "Overnight what was supposed to be laying a little groundwork became my launch," he says. "This is the ultimate word-of-mouth marketing channel."

These are still the early days of blogging, and the form is still morphing. Blogs that host music and video are popping up, people are starting to blog text and photos from their phones, and sites like NewsGator, using a technology called RSS, allow people to subscribe to blogs. Plus, an arms race is building behind the scenes. Venture capitalists last year invested a still tiny $33 million into blog-related companies, but that was up from $8 million the year before, according to research firm VentureOne. Blog ad companies, which place ads and pay per response, are enabling bloggers to earn money from their sites. And blogging publishers have emerged. Two of the most prominent, Jason Calacanis and Nick Denton, are going head-to-head with stables of popular blogs (Engadget and Autoblog vs. Gizmodo, Gawker, and Wonkette, among others). More important, some of the most competitive companies in tech are throwing their weight behind blogging.

The newest kid on the blog block, Microsoft, has already seen what the sites can do for it. Now it thinks it has a chance to grab the youth market. Blake Irving, the VP who oversees Hotmail, the e-mail service, with 187 million users, and MSN Messenger, with 145 million IM accounts, views MSN Spaces as "the third leg of the communications stool," one that Microsoft hopes to turn into an advertising-fueled business. MSN is already selling ads on some Spaces for things like Lacoste shirts at Neiman Marcus online. E-mail is for old people, says Irving; kids prefer to communicate by phone and IM, and, now, by keeping blogs. So Spaces is tightly integrated with the latest version of MSN Messenger. Says Bill Gates, who claims he'd like to start a blog but doesn't have the time: "As blogging software gets easier to use, the boundaries between, say, writing e-mail and writing a blog will start to blur. This will fundamentally change how we document our lives."

Google, the company that Microsoft is playing catchup with (its Blogger.com division is the largest blogging service right now), also expects blogs to become as important as e-mail and IM. Right now, it's working on ways to better help people find content they want in blogs, says Jason Goldman, Blogger's product manager. But if Google's internal use of Blogger is any indication, it also sees it as an essential business tool. Since 2003, when it bought Pyra Labs, the company that launched Blogger.com, Google's employees have created several hundred internal blogs. They are used for collaborating on projects as well as selling extra concert tickets and finding Rollerblading partners. Google's public relations, quality control, and advertising departments all have blogs, some of them public. When Google redesigned its search home page, a staffer blogged notes from every brainstorm session. "With a company like Google that's growing this fast, the verbal history can't be passed along fast enough," says Marissa Mayer, who oversees the search site and all of Google's consumer web products. "Our legal department loves the blogs, because it basically is a written-down, backed-up, permanent time-stamped version of the scientist's notebook. When you want to file a patent, you can now show in blogs where this idea happened."

But when you live by the blog, you die by the blog (or at least feel serious pain). Perhaps the best example comes from Mena and Ben Trott, the husband and wife team who founded Six Apart, creator of Movable Type, the blogging software that now runs some of the most prominent blogs on the web, including InstaPundit and Jarvis's BuzzMachine. The Trotts, both 27, started the company after the success of Mena's blog, Dollarshort.org. ("A day late and a dollar short," she says. "A lot of my stories were about people picking on me and being a dork.") Unhappy with the software she was using, Mena enlisted programmer Ben to design their own blog software. They announced the product in October 2001 with just a post on Mena's blog, and had 100 downloads the first hour. Companies paid a flat rate of $150 and individuals were invited to pay what they thought the product was worth. "If we got $50 or $60, that was nice," says Mena.

The Trotts soon started a hosting service for blogs, called TypePad, and lured $11.5 million in venture financing—along with some big customers, including Disney, the U.S. Air Force, Fujitsu, and Nokia. Yet until May, Six Apart was relying on its original pricing scheme. The Trotts decided to upgrade. Mena posted a long message describing the new fee structure on her company blog, Mena's Corner. Less than three hours later, the first comments started rolling in. "Looks like I'll be dumping Movable Type soon" was the first. Many others echoed that outrage in what became a total of 849 customer comments in about ten languages.

Six Apart didn't erase any of the comments, even the most negative ones. Mena read every comment in full, then kept posting notes explaining why the company had changed the pricing structure and that it was still working on revising it. Looking back now, she says, "We made people feel heard." And she knows that sooner or later, the process will start all over again. Says CEO Barak Berkowitz: "When everybody has a tool for talking to the rest of the world, you can't hide from your mistakes. You have to face them. Once you commit to an open dialogue, you can't stop. And it's painful." As the impact of blogs spreads through global business, that pain—and promise—will be something companies will have to deal with. And if they don't? You're bound to read about it in a blog.

2
Early Adopters' Paradise

The siren call of the digital home has computer and entertainment giants jockeying to
colonize your living room with slick new gadgets and services.
That means a confusing 2005 for most of us, but a
happy hunting ground for gizmo lovers.

Adam Lashinsky

For the electronically fashion-forward, the Roku HD 1000 digital media player is one of the sexiest new gadgets around. This sleek $300 device that sits near your big-bucks flat-screen high-definition TV heralds the arrival of something pundits have predicted for years: the digital home. The Roku lets you display digitized photos and art on the screen, which is part of what the digital home is all about: connecting TVs, stereos, PCs, and game machines all around your house and making them swap images and music and files for your enjoyment.

A 12-person Silicon Valley startup, Roku is proof once again that key technological innovations often come from small companies. But Roku has sold only 7,000 or so of the devices, which proves another point: The digital home—and pups like Roku—won't thrive until the big dogs of IT and consumer electronics get their acts together. Sony, Intel, Apple, Philips, Microsoft, Hewlett-Packard, Samsung, DirecTV, Comcast, Verizon—the list goes on and on—all are pushing visions of the digital household. But they have not yet settled on standards and other conventions that will make ordinary users feel truly welcome.

While iPods, digital video recorders, DVD players, and even digital TVs have found their way into many of our lives, consumers haven't generally begun to connect the devices—even though the devices can in fact connect. Even Wi-Fi, the most broadly accepted wireless networking technology, is installed in just 6% of U.S. households, according to Forrester Research in Cambridge, Mass. Says Josh Bernoff, who follows digital trends for Forrester: "People are not going to spend money to connect all their devices if they don't see any advantage to it."

The bottom line is that 2005 hardly stands to be the year most households will network their gadgets. Yet for early adopters, the year will be paradise. They're the small minority of consumers who are willing to spend gobs of money to be first on the block with a new technology, and who are prepared to tolerate the inevitable missteps and duds.

So, do you feel like pulling up stakes and moving your household to the digital frontier? You could buy a Windows Media Center PC that's part TV, part TiVo, and part computer. The device—built to specifications developed by Microsoft and licensed to manufacturers—is currently in its third version and made by 80 companies. Or you can experiment with a Windows Media extender from Cisco's Linksys division. The $250 unit will link the various digital devices in your home. Philips has a new line of Streamium TVs that use Wi-Fi to connect multiple sets. Apple pioneered using Wi-Fi to ship music from computers to stereos.

Trust us, spending the money will be easy. Anticipating which gadget will be in style a year from now—that's where you need a pioneer spirit.

3
Is Wintel Out of Gas?

Screwups and pesky competitors are challenging computerdom's most potent alliance

Brent Schlender

As IBM's jettisoning of its PC business in December reminds us, total dominance in IT can be ephemeral, even when you invent the most important commercial product in your industry. So the titans of Wintel are learning. While Microsoft and Intel are still growing and are both strikingly profitable, their hegemony has been fraying at the edges as the relentless march of technology has begun to outflank two near monopolies that once seemed impregnable—Microsoft's Windows operating system and Intel's Pentium microprocessor.

In part, that's because the full consequences of ubiquitous networking and the Internet are finally being felt. A profusion of devices and software services has sprouted from the web, vividly demonstrating to businesses and consumers that Wintel hardware and software are no longer the only way to go, or even necessarily the safest bets. Microsoft is locked in what has become a holy war with purveyors of open-source software that hope to make operating systems and standard applications like Office into low-cost commodities. Intel, meanwhile, finds itself playing catch-up with AMD, a scrappy rival one-tenth its size that seems to have a better sense of what PC and server buyers really want.

The dynamic duo's ebbing pre-eminence is partially their own fault. Though Microsoft dodged being broken up by the Department of Justice, it is still paying the price for that celebrated antitrust case. "Microsoft's reputation of being nasty and overly aggressive and not a good global citizen severely hurt the brand," says Mark Anderson, a longtime IT watcher and publisher of the Strategic News Service. "It could've been a cakewalk for them as the world moved to smart phones and interactive entertainment, but instead, repairing the damage will take years." Then there are Microsoft's problems in execution. Not only are its operating systems chronically prone to security problems, but it also can't seem to meet its own deadlines for developing products.

And speaking of execution problems: Intel, which has always been an exemplar of tight management, stumbled repeatedly in 2004. It fell behind AMD in certain microprocessor markets and had to delay and even cancel high-profile chip projects it had touted as keys to future growth.

Neither company is in deep trouble per se. But both have steadily lost market share in recent years and have discovered that inventing sources of revenue and profit is no slam dunk. Microsoft spent billions trying to break into cellphones, make it big online, and work its way into the living room, but it hasn't a whole lot to show for those efforts. Intel has struggled to establish itself in communications and consumer electronics. Of course, the Windows and Pentium monopolies are tough acts to follow. Perhaps more important, however, the greater obstacle for Microsoft and Intel is the simple fact that as new digital platforms emerge, nobody else in IT or telecommunications or consumer electronics wants to see a rerun of what happened in PCs, a game in which two companies ended up hogging all the profits.

Even the Wintel alliance is showing signs of erosion. The partnership was always a marriage of convenience, and the companies often tangled behind closed doors. Now both are openly dallying with each other's chief rivals in ways no one could have imagined five years ago—Microsoft is working closely with AMD on both the high and low ends of the PC hardware market, and Intel is becoming a big proponent of the nemesis of Windows, the Linux operating system and other open-source software. Clearly, the best days of Wintel are behind us.

4
Genetic Medicine's Next Big Step

Now nearing clinical trials, intravenous RNAi could be the key to attacking cancer and more

John Simons

Long promised yet never delivered, genetic medicine has finally taken a giant step toward becoming real. In November scientists at Alnylam Pharmaceuticals in Cambridge, Mass., pioneered a process that let it cut cholesterol levels in mice. The process itself is the breakthrough: Alnylam found a way to slip a biotech drug intravenously past the body's defenses, a scientific first.

But let's back up. In recent years Alnylam and rivals like Acuity Pharmaceuticals of Philadelphia have been racing to target disease using a form of biotech known as RNA interference. RNAi, as it's called, is a way of jamming sinister genetic signals in diseased cells, such as those that initiate the proliferation of viruses. Discovered in 1990 by a botanist attempting to infuse petunias with a purple pigment gene, the technology works in animal and human cells too. Scientists now think RNAi will let them attack ailments from AIDS and cancer to heart disease and Parkinson's. "RNAi has the potential to become a powerful therapeutic modality," says biotech analyst Edward Tenthoff of Piper Jaffray. "The approach could address a broad range of disease including some that cannot be treated by traditional drug classes."

Sounds great in theory. But researchers have been stymied in attempts to deliver synthetic RNA to diseased cells—the immune system detects it and destroys it before it can work. That is where Alnylam comes in: Its intravenous treatment found its way to the target (in this case, cells in the liver and small intestine that help digest fat and sugar), triggering a cholesterol drop of as much as 50%.

RNAi could be just what the doctor ordered for the struggling drug industry (see "Biotech's Billion-Dollar Breakthrough" in the fortune.com archive), and Alnylam leads the field. Founded in 2002 by all-star geneticists including Nobel laureate Philip Sharp, the company holds a clear edge in the number of patents it owns and the wealth of collaborative development deals it has penned. Last May it raised $35 million in an IPO. Watch for the company to seek permission to conduct its first human trials soon.

5
It Even Makes Calls!

When does a cellphone have too many whiz-bang features? We're about to find out

Stephanie N. Mehta

The cellphone is fast becoming the Swiss Army knife of consumer electronics. Brace yourself for a wave of compact wireless devices that can do seemingly everything: Snap high-quality digital photos, browse the web, send e-mail messages, play MP3 music files, record short videoclips—and oh, yeah, let you make phone calls. The only thing missing is a corkscrew.

Consumers can credit technological advances for the proliferation of such turbo-charged handsets. Phone companies finally are rolling out high-speed networks that can support multimedia functions, such as downloading music. And speedier, smarter microchips are allowing cellphone makers to cram more features into a single device. Also helping stoke the trend: fierce competition between cellphone purveyors such as Motorola and Nokia and makers of other kinds of gadgets like PalmPilots and Gameboys, which increasingly are adding voice service. One of today's hottest products is PalmOne's Treo 650, a PDA that happens to deliver really good voice calls.

These all-in-one devices aren't for everyone. For starters, they cost way more than your typical camera phone. Sony Ericsson's 910a, which boasts an MP3 player, digital camera, web access, and other business and entertainment features, retails for around $500. Skeptics wonder if anyone will ever use all that stuff anyway. (When was the last time you took a picture with your camera phone?) And with so many items on the menu of these handsets, might quality end up compromised?

John Maeda, a professor at MIT Media Lab, argues that in technology, more isn't necessarily better. Consumers may think they're getting good value when they buy a device that does 20 things, but often they just need a phone that makes calls. "If you were going to a deserted island, would you bring a Swiss Army knife or a cooking knife?" he asks. "You'd probably bring the Swiss Army knife and wish you'd brought the cooking knife."

Analysts suspect the proliferation of high-end devices this year will lead to more niche marketing of phones and wireless services designed for every type of user: A heavy e-mail user may buy a handset designed for messaging that also happens to let him play interactive games. A music lover may go with an MP3 player that can also make calls and surf the web. The only users who may be disappointed are people who just want a plain old cellphone.

6
Kiss Privacy Goodbye

Post-9/11 snooping technologies are evolving faster than laws to control their use

Peter H. Lewis

We all know that the world can be a dangerous place, and we're learning that the online realm can be dangerous too. An increasingly popular strategy for warding off threats ranging from terrorism to identity theft is to gather information on and verify the identity of everyone, looking for signs that indicate a potential troublemaker. The conundrum is that to gain a little more security, citizens are being asked—or told—to give up a lot more privacy. Often people part with their personal information willingly, but in a growing number of cases technology is being used to gather information surreptitiously.

Surveillance devices aimed at humans are proliferating at an unprecedented rate, from lasers that can monitor members of a crowd for abnormal vital signs, to biometric scanners that pick out individual travelers at a distance and link them to vast commercial and government databases containing their detailed personal information. Although the exact figures are unknown because some surveillance spending is hidden inside "black budget" military or spy agency programs, the federal budget for 2005 shows double-digit spending increases for research into systems designed to gather information on, well, you.

Kush Wadhwa, a director of research at the consulting company Biometric Group, expects worldwide sales and licensing of fingerprinting, facial recognition, and other biometric devices to jump to more than $1.8 billion in 2005, from $719 million in 2003. By 2008, he says, global biometric revenue will be $4.8 billion just for the gear, not counting billions of dollars more in services.

Biometric scanners are just one facet of the people-surveillance industry. The Central Intelligence Agency has been funding ways to spy on Internet chat rooms. Black-box computers in rental cars use global-positioning satellite technology to track and map a vehicle's travels, alerting the rental company if, for example, the driver speeds or crosses into Mexico in violation of the contract. Republican leaders in Congress say a top priority this year will be to set nationwide standards for driver's licenses, which critics fear could lead to a de facto national ID card.

Indeed, surveillance technologies appear to be developing faster than legal safeguards to protect the privacy of citizens. Decrying what they call the government's "significant redirection in science funding toward the development of systems of mass surveillance," a group of prominent computer scientists and privacy advocates issued a statement last fall warning of "a fundamental risk to political freedom, privacy, and Constitutional liberty." Meanwhile, through such laws as the U.S.A. Patriot Act, passed in the weeks after 9/11, judicial oversight of intelligence gathering has been curtailed.

In a report prepared last year for Secretary of Defense Donald Rumsfeld evaluating the privacy implications of a proposed universal database holding billions of pieces of information about ordinary citizens, a panel of independent experts concluded that today's privacy laws are often inadequate to keep up with new technologies for snooping. "That inadequacy," the report continued, "will only become more acute as the store of digital data and the ability to search it continue to expand dramatically in the future."

7
China Tries to Kick the Piracy Habit

All of a sudden, China's entrepreneurs are asking for protection from intellectual-property thieves

Daniel Roth

Ben Ye is one of China's many rising young stars. At 24, he won the first round of a business-plan competition at Beijing's prestigious Tsinghua University with a proposal for a web-conferencing company. Rather than stay in the competition, Ye took his idea and started a business called V2 Technology. He has been able to raise $1.3 million and build a 70-person company, yet the plan didn't account for one potentially fatal threat: pirates. Two years ago, when V2's software hit the market, resellers called to say that cheap, illegal copies were already being hawked.

Ye's lawyers declared that the only way to get relief was to find the pirates, collect evidence, and bring it to the cops. "We said, 'Forget it,'" says Ye. "We aren't Sherlock Holmes." He eventually engineered a solution—new versions of the software will work only if the user plugs a V2 "dongle" into a USB port on a computer, the digital equivalent of a car's ignition key. But coming up with that fix took time and resources that could have been spent improving the software.

Ye's situation is hardly rare in China, a country that has all but replaced its red flag with the Jolly Roger. The U.S. Patent and Trademark Office says that 66% of the counterfeit goods seized at American borders now come from mainland China, up from 16% five years ago. Inside China's booming market, things aren't much better. A recent study by tech researcher IDC, paid for by the Business Software Alliance trade group, found that 92% of all software used in China is counterfeit. China is now tied with Vietnam as the country most likely to steal.

U.S. firms have spent decades trying to persuade China to crack down on IP theft. Now, due largely to the influence of entrepreneurs like Ye, China finally seems to be getting the message. With the nation producing homegrown intellectual property, IP protection suddenly seems like a pretty good idea. Says Thomas Tsao, a partner at Gobi Partners, a venture capital firm in Shanghai: "This is about domestic company vs. domestic company. There are people who are innovating and people who are pirating. China wants to reward the innovators."

Antipiracy in China doesn't exactly work like The Untouchables. So far the government has made small workaday moves like requiring all government branches to use legally obtained software and allowing courts to issue cease-and-desist orders in cases of suspected IP theft. But bigger shifts are on the way. The nation recently invited U.S. patent authorities to help teach judges and prosecutors how to find and try IP cases; it's also reviewing its laws on copyright and patents. A recent study by the powerful Ministry of Information Industry found that 37% of Chinese software companies were suffering from piracy problems. Noting that the burgeoning IT industry—and in particular the $19 billion software and systems integration sector—is a driving force in China's economic boom, the report said that the bandits must be defeated.

China watchers are cautiously optimistic. Attorney Carmen Chang, a partner at Shearman & Sterling in Menlo Park, Calif., who frequently works with Chinese and U.S. tech firms, says she still requires that almost all deals done in China allow for arbitration in the U.S. Yet she also says China's starting to get it: "China doesn't want to be the cheap manufacturing center. They want be an international global center of tech development." If antipiracy becomes a reality in China, Western businesses can start worrying more about competition than copyright theft.

8
Iraq's Robot Invasion

To help keep U.S. soldiers out of harm's way,
the Pentagon has put robot R&D on quick march

By Peter H. Lewis

Just like in the movies, robots are about to start packing heat. In 2005 the U.S. will begin deploying war-fighting SWORDS robots, made by Foster-Miller in Waltham, Mass. The machines, which resemble miniature battle tanks, will come armed with .50-caliber machine guns or rocket launchers.

Radio-controlled by a human operator up to a mile away, the robots move almost silently, climb stairs, right themselves if they stumble, and never get scared or tired. Using advanced cameras, laser sighting, and thermal and night-vision sensors, they are said to react faster than any human could, and to hit their targets with deadly accuracy almost 100% of the time, while allowing troops to stay out of harm's way. At least 100 robots, similar but unarmed, are already used to patrol streets in Iraq and Afghanistan, detecting and disarming roadside bombs. There have been some casualties. "The engineers take it pretty hard when we lose one," a spokesman for iRobot of Burlington, Mass., says of robots destroyed in action, "but we realize the goal is to save the lives of our soldiers."

On the home front, domesticated robots are finally finding gainful employment. The $5-billion-a-year global robotics industry has been dominated until now by industrial automatons that perform repetitive, high-precision factory tasks. According to a new report by the UN, however, the industry will more than triple in size by 2010 as a result of a population explosion among "service robots"—machines that mow lawns, vacuum floors, wander the house to keep a glassy eye on the house and kids, and serve as companions or assistants for disabled or elderly people.

Science fiction? Hardly. Consider this: iRobot, besides having sent a small squadron of robots to Iraq to help detect and disable roadside bombs, has sold more than a million Frisbee-shaped Roomba robotic floor vacuums in a little more than a year, at $150 to $280 each. Robotic lawn mowers, including a solar-powered one from Sweden's Electrolux, patiently chew the grass and alarm the pets on tens of thousands of lawns while their owners sip mint juleps on the hammock. Less glamorously but perhaps more lucratively, RedZone in Homestead, Pa., thinks there will be a $4 billion-a-year business just from sending submersible robots down to inspect and repair an estimated one million miles of America's aging sewer pipes. And perhaps you noticed that the hot toy this holiday season was the WowWee Robosapien, a knee-high robot with attitude. More than two million sold at about $100 each. Wowee indeed.

9
Scanning for Dollars

Never mind what you think you like;
marketers are using brain scans to track your real desires

Julie Schlosser

Will a voluptuous babe leaning against a silver sports car entice you to buy it? No need to answer. Marketers now have a way to let your brain talk for you. A powerful scanning technology known as functional magnetic resonance imaging (fMRI) is making its way out of the labs and into marketers' toolkits for studying consumers' emotions and motivations. Essentially a $2.5 million tricked-out version of the MRI machines in hospitals, an fMRI detects the ebb and flow of blood to the brain's centers of pleasure, thought, or memory. Research by Baylor College of Medicine neuroscientist Read Montague suggests that when you like what you're seeing, blood flow increases in certain parts of your prefrontal cortex. This does not mean science has found humankind's buy button, says Justine Meaux, a neuroscientist at BrightHouse, an Atlanta consulting firm; too many other factors intervene between desire and action. "I love wine," she says, "but if you put me in a scanner after I have a big breakfast and show me wine, my brain might not show a preference response."

Even so, companies are beginning to experiment; Ford ran a market test using brain-scan studies in Europe, and Hollywood is interested too. To test viewers' reactions to movie trailers, neuroscientist Steven Quartz of Caltech and Tim McPartlin of L.A.-based Lieberman Research Worldwide have created an fMRI service for filmmakers and plan to offer fMRI studies on everything from logos to packaged goods. Quartz even conducted an fMRI water taste test. The result? While we might think bottled water is cool, he says, our subconscious usually prefers the taste of tap.

10
Nuclear Spring?

Even some environmentalists are learning to love
America's most reviled source of energy

Nicholas Varchaver

Environmental sage James Lovelock sparked a debate in England last spring when he published an impassioned defense of nuclear energy—on environmental grounds. "I am a Green," he wrote, "and I entreat my friends in the movement to drop their wrongheaded objection to nuclear energy." His argument: Splitting atoms is the only way to generate huge quantities of electricity without producing the volumes of global-warming gases that plants fired by coal or natural gas emit.

Lovelock's view hardly qualifies as a groundswell—especially in the U.S. Yet there are hints of a resurgence in respectability for the most maligned of power sources. The bipartisan National Commission on Energy Policy included it in a December proposal to "end the energy stalemate." Columbia University's Earth Institute was willing to consider the option in its State of the Planet assessment. And Richard Smalley, a Nobel Prize-winning chemist at Rice University who has been delving into energy issues, echoes Lovelock: "We ought to, and probably will, start building nuclear power plants again."

It's a measure of how low the industry has sunk that even its leaders hesitate to proclaim a rebirth. "We're on the edge of a comeback," says Marilyn Kray, president of NuStart Energy, a consortium of nuclear utilities and equipment vendors. Says GE Energy CEO John Rice: "The stars are beginning to align." A confluence of factors is driving renewed interest in nuclear power, which now generates 20% of U.S. electricity: high natural-gas prices, energy-security fears, and worries about climate change. A new generation of technology being developed by Westinghouse and GE is being touted as safer, simpler, and less expensive.

Despite perennial disaster concerns—exacerbated now by the dread of terrorist attacks—the most crucial factor may be cost. Most experts agree that nuclear power can't compete with coal or natural gas without significant federal subsidies. It is the Bush administration's support for such measures that stokes industry enthusiasm. A production tax credit could be offered if the President's tax bill passes. And the Department of Energy announced in November that it will pay to help two nuclear-power consortia navigate a new, streamlined licensing process. Among other things, federal rules now let companies seek approval for a site long before they ever decide whether they'll build there. (Exelon, Dominion, and Entergy have applied for such licenses.)

Nuclear power has far to go. No company has announced plans for a new plant, and it is extremely unlikely any will open in less than a decade. Still, says GE's Rice, under the Bush administration the industry has its best chance in decades. "If something is going to happen," he says, "it's going to happen in the next two to three years."