Three different ways you can make money from clever stuff.
Paul Adams talks about his latest column on NBR Radio and on demand via MyNBR Radio.
To build your own NBR Radio playlist and enjoy instant on-demand access to any audio, sign up for our FREE smartphone-only subscription to NBR ONLINE.
Historically New Zealand has been an exporting nation, growing or making physical products and selling them to people.
In recent times we’ve realised we need to add more value to our raw goods but we are still wedded to putting that clever value-added tangible product into a container and literally shipping it. For “the most distant from market” developed nation on Earth, that’s an odd way to earn a living.
There are actually three different ways you can make money from clever stuff (commercialise your intellectual property). These business models are:
Each of these business models require different levels of inputs, being risk, resources and time. Basing decisions solely on the level of inputs required could make selling your intellectual property the obvious choice over licensing or deploying that intellectual property yourself. However, the outputs (the rewards) you gain from each model vary. While selling intellectual property requires fewer inputs, ultimately the rewards will be lower as well. In short: the more you put in, the more you’ll get out.
So, doesn’t that mean if we want to make some serious money from our intellectual property we should deploy it ourselves?
Actually the answer is no. This is because the output or rewards represent a business’ absolute return, not the margin or return on investment. For example, the deployment model requires significantly higher inputs and even though it might generate absolutely more outputs when compared to the risk, resource and time put in, you might in fact be better off licensing or selling your intellectual property. What this means is that we shouldn’t focus on just one of these business models. Instead we need to expand the repertoire of commercialisation models we choose from to include the sale and licensing of our intellectual property.
One of the most effective ways to assess which model is going to suit your business best is by analysing your intellectual property. Some forms of intellectual property lend themselves more to one model than another. For example, content (such as a movie or music) or code (software) are typically protected by copyright and lend themselves more to licensing (but can also be sold). Others such as knowhow or confidential information may tend toward deployment (but can also be licensed). Brand (protected by trademarks) is some of the most valuable intellectual property and can be extremely lucrative when licensed. A strong patent can be usefully leveraged via any of the three approaches. The various models can also be combined: for instance you can deploy in one territory or market segment and license in another. You can also sell your intellectual property and license it back for use in your industry while the buyer uses it in others.
If you have intellectual property that is either not being utilised or falls outside your core business, then selling or licensing that intellectual property is an effective model for generating additional revenue or releasing capital back into the business. In the early 1990s for example, IBM’s enormous intellectual property spend led it to switch from a protection-focused intellectual property posture to actively licensing its intellectual property – within three years it moved from intellectual property being a net-cost centre to generating over $1 billion in high margin revenue. Closer to home last year we helped multiple clients to sell their intellectual property, including transacting an unused patent for a 00,000,000 sum, generating a 45 fold return on investment for the client.
In short, there is more than one way to skin a cat. New Zealand is good at the deployment business model but in the 21st century high margin returns are increasingly owned by those who create clever intellectual property to license and sell, either instead of, or in addition to, solely making the end product.
Paul Adams is CEO of EverEdge IP.
To build your own NBR Radio playlist and enjoy instant on-demand access to any audio, sign up for our FREE smartphone-only subscription to NBR ONLINE.
