Positioning Yourself to Exploit Secondary Markets

Positioning Yourself to Exploit Secondary Markets

While it is too soon to say that secondary innovation markets have arrived in most industries in most advanced economies, it is not too soon to plan for the emergence of secondary markets in your industry.  In industries like semiconductors, biotechnology, consumer products, chemicals, and mortgage banking, secondary markets have had powerful impacts upon industries when they do emerge. How can you assess whether and when secondary innovation markets are likely to impact your industry?  Here are a few questions to explore to guide your assessment:

  • Have any important technologies been introduced in your industry where one firm handed off the technology to another firm (via a license, JV, asset sale or spin out) at some point in the innovation process?  How often did this occur last year?
  • Did any university research projects turn into innovative new product or service offerings in your industry last year?
  • How many patents were reassigned last year in the patent classes that are closest to your core technologies?
  • How many times were you contacted last year with offers to license in someone else’s technology?  How many times are you contacted about licensing your technology?  How long does it take you to respond?
  • Did any companies in your industry go bankrupt last year?  What happened to their technologies, and the IP associated with those technologies?
  • How many sales and transfers of patents were you and/or your outside law firm involved with last year?  How many sales and transfers are they aware of in your industry?
  • Are any new firms entering your industry with IP-based business models?  (These are discussed in Chapter 7).
  • Are any innovation intermediaries (see Chapter 6) working for you or any of your major competitors?
  • How many of your internal R&D projects were shelved or cancelled last year, without any licensing or spin out activity resulting from it?

These questions should be the beginning of an internal process to determine the stage at which your innovation practices have opened and leveraged external resources. Based on the answers to these questions, it would be relevant to start assessing the new practices and strategies to pursue.

For more information, see Ch. 3 Open Business Models by Henry Chesbrough

How Can IP Markets  Enable New Innovation Opportunities?

How Can IP Markets Enable New Innovation Opportunities?

The experiences of Texas Instruments, Polaroid, and IBM illustrate the emergence of an important force affecting the external innovation environment: the growth of ‘intermediate markets’, referring to a market that emerges after the creation of a new technology, before that technology has been sold.

Mortgages and biotechnology drug development illustrate the emergence of intermediate innovation markets. The presence of such markets expands the number of ways a new technology can be used and promotes specialization among different participants in the markets. Some companies result specializing in creating new technologies, others specialize in developing new products and other focus on special services or niches.

These secondary markets are in media, finance, and biotechnology, as illustrated by re-releases of musicals, the mortgage-backed securities industry, and the growth of patent acquisition and licensing in biotech.  

 

 

For more information, see Ch. 3 Open Business Models by Henry Chesbrough

 

How to Connect IP Management to Open Innovation?

How to Connect IP Management to Open Innovation?

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“…if you don’t license, chances are very good that someone else has a very good technology too.  It’s rare that you’re the only game in town.  So do you want to participate in the licensing revenues, or not?” — Steve Baggett, Director of External Business Development at P&G

 

In the earliest phase of the technology lifecycle, it pays to be very open.  Neither you nor others know yet the best use of a particular technology, and no one has an appropriate business model to commercialize any applications either.  As the dominant design emerges, tightening the protection for one’s ideas becomes very important. In the mature phase, IP management must become more differentiated and segmented, to support different applications of the technology in different uses.  In the decline phase, firms can now aggressively harvest the fruits of their earlier investments in IP protection.

Managing internal and external innovations and IP within an open business model ultimately requires the construction and support of a rich internal innovation network, connected to a diverse external innovation community. This effort is worth it since this type of innovation will sustain the most enduring businesses of the 21st century.

The table below is very helpful to identify an organization’s current business model and to guide how it can improve innovation and IP management practices to transition successfully towards an open innovation strategy.

Matrix of Business Models Framework

Type Business Model Innovation Process IP Management Examples
1 undifferentiated None NA Mom and pop restaurants
2 Differentiated Ad hoc Reactive Startup technology companies
3 Segmented Planned Defensive Technology push companies
4 Externally Aware Externally Supportive Enabling Asset Mature industrial R&D firms
5 Integrated Connected to Business Model Financial Asset Leading financial firms
6 Platform Leading Identifies New Business Models Strategic Asset Intel – Pentium

Walmart, Dell

 

 

For more information, see Ch. 5 Open Business Models by Henry Chesbrough

 

Open Innovation and the Xerox-PARC Spinoffs

Open Innovation and the Xerox-PARC Spinoffs

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Ideas “on the shelf” are no longer being actively pursued by the R&D organization, nor are they actually being used by the business unit. These ideas usually do not flow outside because 1) companies think that if they cannot find a profitable use for their technology, no one else will either and 2) buyers may worry that the sellers of unutilized technologies will only offer the “bad” ones (adverse selection). While selling companies have significant prior information on a technology project, that information will be interpreted within the context of the company’s business model.  So, the buyer may see an opportunity that is not visible to the seller, due to a different business model.

I identified 35 projects that left Xerox after funding for the work had ended within Xerox.  Xerox judged that there was little or no additional value to be gained from continuing this work.  In 30 of the 35 projects, Xerox even gave a license for the technology to the departing spin-off, so most of these separations were consciously managed departures, not inadvertent oversights. In 24 of the 35 projects, there was little business success after separation.  But for 11 of the projects, each of which developed under a very different business model from that of Xerox, there turned out to be substantial value.  The collective market value of the companies that emerged from these 11 projects turned out to exceed the total market value of Xerox by a factor of two.

 

For more information, see Ch. 2 Open Business Models by Henry Chesbrough

 

Opening Your Innovation Processes

Opening Your Innovation Processes

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Unused ideas abound in many companies.  When Procter & Gamble surveyed all of the patents it owned, it determined that about 10% of them were in active use in at least one P&G business, and that many of the remaining 90% of patents had no business value of any kind to P&G (Sakkab, 2002). Yes, not letting these patents go to the market would prevent the cost of false positives but why not let these test with different business models? Taking these remaining patents to the outside might cause a lot of internal resistance but the costs of letting them remain unused are even higher.

There are subtle business models that have emerged in the “creative commons” arena.  One example of such a model is when companies voluntarily choose to donate portions of their intellectual property to a “commons”, so that they and others can practice their technologies freely without fear of being sued for patent infringement. This would boost the amount of innovative activity in the area, and effectively lower the cost of producing useful output for customers of this activity. Intel has boosted innovation by creating “lablets” that work closely with universities to collaborate on research that will be published, and not owned by Intel.   IBM recently created a powerful example of this in their decision to transfer 500 software patents to a nonprofit foundation in the open source community. Instead of having to pay Microsoft or another company for a proprietary operatinOpen Business Models g system, open source guarantees a cheaper alternative that will work well with IBM’s products and services.

Whether you are in a large organization or a small one, chances are you need to open up your innovation processes.  But in order to do this effectively, you must connect your business model to your innovation process.  Companies that are large typically enjoy strong business models but It is harder for them to change their business models, in order to exploit open innovation opportunities.  Small companies, on the other hand, lack the strong business model and resources to enable them to exploit the opportunities of open innovation without fear of being copied by a larger foe.  IP protection can only be one of many tools in their business model to strive to reach success.

Content:

For more information, see Ch. 2 Open Business Models by Henry Chesbrough

 

 

Evaluating Your Business Model

Evaluating Your Business Model

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Large companies tend to consider new products and services through the lens of their current business model.  For projects that align well with the current business model, this works well.  However, many of the Xerox spinoff projects were only able to create value once their founders moved away from Xerox’s copier and printer business model.  Venture Capitalists do not have a dominant business model, because they don’t make anything (except investments).  This frees them to evaluate new technology projects from a business-model-agnostic point of view.  
When supporting the success of their individual portfolio companies, VCs conceive a diverse set of models and ultimately adopt one that aligns the venture’s capabilities with the market’s demand. By contrast corporations search for projects that fit with the logic of their current business model, and discount the value of projects that don’t fit with that model.  For such projects, companies should adopt a more VC-like perspective.  Only when organizations use a broader mindset in developing business models, will they be able to fully realize the potential of the technology and products developed by their employees.

 

 

Content:

For more information, see chapter 3 in Open Innovation (HBSP, 2003) by Henry Chesbrough.