outsourcing innovation

Filed in archive Technology on August 12, 2003

While the internet has been started by researchers and technologists it took a good while until the first electronic exchanges for intellectual property (IP) have appeared.

The transaction costs for finding and acquiring IPs have always been quite intense. Companies like yet2.com, Innocentive or NineSigma provide direct access to foreign IPs via an electronic marketplace. It has become much easier for R&D departments to screen for innovation, Benchmarking own R&D efforts and base innovation on acquired IPs.

yet2.com has used an initial investment of USD 20mio. in 2001 to build a brand standing for excellent content. It has been aquired in 2002 by Scipher. Trusting the website it has been a rather bad deal for initial investors in yet2.com.

Both Innocentive and NineSigma haven't opted for VC. NineSigma seems to put a bit more effort to reach liquidity, i.e. to actively sell patents to new, not listed R&D departments.

In my opinion this is another good example how to decrease transaction costs via the Internet. However unsatisfying some recent legal decisions about patents are, my guess is that the value of IP's in developed markets will increase. Continued pressure to innovate combined with cost pressure will make the buy, instead of make decision for parts of R&D, more and more interesting. But as it is with all exchanges, only 1-3 survive after a fierce consolidation. The market leader is not necessarily the first mover. So there might be a more successful investment story than yet2.com was in some years....