In September, Apple (NASDAQ:AAPL) unveiled the iPod nano. According to the company, in its first 17 days, the iPod nano racked up over 1 million units sold. Over the holiday sales period, it appears to have become a best seller, with some analysts suggesting the device has now topped 10 million units sold.

To be sure, the "nano" label is more a marketing gimmick than anything else and, as such, it might seem to be an apt metaphor for the emerging field of nanotechnology -- especially among critics feel who feel that nanotech offers more "sizzle" than "steak."

The past year, however, should disabuse people of that notion. A good place to start looking at "steak" is with the iPod nano itself. In its truest sense, the iPod nano cannot be deemed a nanotechnology product. It can, however, be deemed a nano-enabled product. That's because both Samsung and Toshiba supply Apple with memory chips manufactured with components under 100 nanometers in size.

These chips don't imbue the product with any new capabilities. Rather, they simply take an existing product -- like the iPod mini -- and make it better. In the iPod nano's case, the smallness of the components enables Apple to cram 4 gigabytes of flash memory into a stylish, pencil-thin device.

A look back at 2005
A quick look back at 2005 reveals how nanotechnology has improved not just the iPod nano but a number of existing products across a spate of industries.

For instance, in January, American Pharmaceutical Partners' (NASDAQ:APPX) (soon to be renamed Abraxis BioScience) stock jumped 50% on news that it had received FDA approval for its breast cancer drug, Abraxane. What made the drug so special was that its unique nanoparticles had been manufactured to selectively bind to naturally occurring proteins. This little trick meant higher dosages of the chemotherapy agent, paclitaxel, could be delivered to tumors.

The nanoparticles also had the simultaneous benefit of causing fewer side effects. This is because the nanoparticles don't require the drug to be manufactured with toxic solvents, and it's often these solvents that either limit dosages, or prevent people from taking the drug because they cause a variety of nasty side effects.

American Pharmaceutical's success was closely followed by an announcement that Roche had signed a deal with Elan (NYSE:ELN) to apply Elan's nanocrystal technology to a variety of drug candidates in an effort to improve the bioavailability of those drugs.

The benefit of this improvement for a company like Roche is that it would greatly minimize the need for running those sobering disclaimers (e.g., "This drug may cause severe hair loss, diarrhea, etc.) that so often make the viewing public recoil in horror at the end of a commercial touting some promising new drug.

While it's still too early to determine whether Elan's nanocrystal technology is the real deal, an early indicator for investors will be whether the FDA approves Johnson & Johnson's antipsychotic for the treatment of schizophrenia -- which utilizes Elan's nanocrystal technology -- in 2006.

R&D, acquisitions, IPOs, and venture capital funding
The year witnessed a flurry of promising R&D activity, especially among Fortune 100 companies -- a topic that will be covered in the second part of this article -- but it also saw a small, albeit growing, number of nanotechnology-related acquisitions, IPOs, and venture capital deals.

Invitrogen (NASDAQ:IVGN) continued its quest to become a major player in the application of nanotechnology to the diagnostic industry when it acquired Quantum Dot Corp. Many analysts believe the acquisition will significantly improve Invitrogen's advanced labeling and detection technology business because Quantum Dot's semiconducting nanocrystals -- which are smaller, brighter, and longer-lasting -- can be employed to help researchers to better visualize and understand cellular processes, as well as detect and diagnose cancer and other diseases markers sooner than is currently possible.

On the IPO front, it was a slow year. Only Cambridge Display Technology (NASDAQ:OLED) and Nucryst (NASDAQ:NCST) made it to the market. Both, however, appear poised to impact their end markets. Cambridge Display Technology is pioneering the development of polymer organic light-emitting diodes in next-generation flat-panel displays, and its nanoscale thin film-processing technology is believed to result in better and brighter viewing angles for consumers. Meanwhile, Nucryst's nanocrystalline technology has been demonstrated to inhibit more than 150 different pathogens -- thereby reducing the possibility of infection -- as well as help make wounds heal faster.

2005 also saw an uptick in venture capital funding for nanotech companies. Among the more active companies in this field was Motley Fool Rule Breakers recommendation Harris & Harris (NASDAQ:TINY). It invested in eight nanotech start-ups, including NanoOpto, NeoPhotnics, Nantero, Starfire Systems, Nanomix, Molecular Imprints, Kereos, and Cambrios.

Arrowhead Research also emerged in 2005 as a viable alternative to Harris & Harris for investors looking for another "pure-play" nanotechnology investment. Its business model is significantly different from Harris and Harris -- it invests in more basic nanotechnology research and development at the university level, and then takes a greater equity stake in the start-up companies that are formed to move those various nanotechnology-related developments to the commercial marketplace.

The year even saw the creation of the first publicly traded nanotechnology exchange trade fund in the U.S. Since it began trading in late October, PowerShares EFT Trust, which indexes the performance of over two dozen publicly traded nanotechnology companies, is up almost 15%.

All this activity leads me to the conclusion that 2005 was a mere prelude for what is sure to be an even more exciting year in 2006. For investors who have been holding off investing in nanotechnology because they thought there was more "sizzle" than "steak," the aforementioned developments offer plenty to chew on.

Want more big-time Foolishness on small matters? Check out these articles from 2005:

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Fool contributor Jack Uldrich thinks 2006 will be a big year for investors to think small. He is the author of two books on nanotechnology, including the forthcoming, Investing in Nanotechnology: Think Small, Win Big. He owns shares in Elan, but no other company mentioned in this article. The Fool has an ironclad disclosure policy.