How Market Smarts Can Protect
Property Rights
Bharat Anand and Alexander Galetovic, Harvard Business Review, 2004
2013. 11. 09.
SoHyun Shin
MEIE881 ST: Advanced Technology Management
POSMIT Lab.
(POSTECH Strategic Management of Information and Technology)
Contents
1
Introduction
2
Six Market Strategies
- Nip It in the bud
- Prescribe a sedative
- Dig a Honey Pit
- Make a Bundle
- Move the Goalposts
- Let the Dogs Out
3
Conclusion
4
Discussion Issues
Introduction
The LAW
is often not the best defense
against theft of intellectual property.
Far more effective in such cases are
MARKET-BASED strategies
that KEEP PIRATES IN PORT.
3
Six Market Strategies for Protecting Intellectual Property
■ Companies facing threats to their intellectual property have a range of alternatives, from
defending their core assets to embracing the businesses that threaten those assets
■ The choice of strategies depends on the nature and intensity of the threat and the strength of
a company’s resources
Market Strategies
Defend Core Assets
Embrace the Threats
1
2
3
4
5
6
Nip It
in the Bud
Prescribe
a sedative
Dig a
Honey Pit
Make
a Bundle
Move the
Goalposts
Let the
Dogs Out
Preempt
Threaten
To retaliate
Create
Synergies
Marry assets
Expand into
rivals’
businesses
Reallocate
Resources to
Adjacent
businesses
Deny access
To
complementary
products
(Among related
businesses)
Out-innovation
Preserve
The core with
Add-ons
4
Narrow your
Own business
1. Nip it in the bud
■ What?
– Prevent misappropriation
■ How?
– Preempting Competitors
– Overwhelming Competitors
– Excluding Competitors
■ Preempting
– Being first to market so that you can capture profit of monopoly scale
• Intel preempts rivals by tightly managing its relationships with external constituencies
(Customers, Users, and Suppliers)
■ Overwhelming
– Capital One, the credit card issuer, overwhelms its rivals with a blizzard of new product
■ Keep Their Intellectual Property Out Of Sight From The Start
– For companies that lack Intel’s or Capital One’s resources and core strengths
• Coke’s recipe has never been deconstructed or revealed
5
2. Prescribe a sedative
■ What?
– Lower The Competitive Intensity
■ How?
– Cross-licensing Agreements
■ Cross-licensing Agreements
– “SEDATING” EFFECT on an underground market in weakly protected intellectual property
• Companies do not sue one another for infringement because they know they are likely to infringe the infringer’s patents
sometime in the future
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3. Dig a Honey Pit
■ What?
– Entangle key asset
■ How?
– Creating synergies
among related businesses
■ Create Synergies Among Related Businesses
– Company’s economic viability is usually tied to one or a few key properties
– By forging synergies between such properties and adjacent ones company can protect its profits from rivals
and poachers
– Hit television shows leads audiences to the next program and cross promote other shows on the same
network
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4. Make a Bundle
■ What?
– Combine secure
with insecure products
■ How?
– Marrying asset to
complementary products
– Preserving the core with add-ons
■ Marry Assets: (Enhanced value of the package )
– In situations where it’s difficult to establish property rights to an asset,
it can be wise to marry that asset to a complementary product
•
Excel, Word (stand alone software applications) can be easily copied and disseminated,
but the Microsoft itself enhances the value of the package so it makes more likely that a would-be copyist will pay for it
■ Add-ons
– Provides additional functions or customization for a core application
•
In the book industry, publishers sometimes insert a CD or sort of things in the back cover of their books.
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5. Move the Goalposts
■ What?
– Redefine the firm’s boundaries
■ How?
– Expanding
– Narrowing
■ Redefine Boundaries:
– Challenge for companies how to get a piece of COMPLEMENTS
• Unlike the increasing piracy rates in music industry, not all music-related businesses are vulnerable
• For example, blank CDs, computers with a CD burner , and portable MP3 players.
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6. Let the Dogs Out
■ What?
– Relinquish Your Core Assets
■ How?
– Reallocate resources to
adjacent business
■ Reallocate Resources To Adjacent Businesses
– For companies that have moved the goalposts and now encompass more viable businesses
– It may pay to disregard the decline in their core
• Several of music companies viewed the online customer as a threat, they tried to charge as much for downloads as they
did for CDS, even though the costs of online delivery are minimal
• By contrast, Apple wasn’t afraid to set prices low enough to change music –buying habits
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Conclusion
■ Six Market Strategies
–
–
–
–
–
–
Nip It in the bud
Prescribe a sedative
Dig a Honey Pit
Make a Bundle
Move the Goalposts
Let the Dogs Out
■ Summary
– Define the business you’re in as expansively as possible.
Greater value may lie in adjacent businesses.
– Do not be deterred by internal resistance.
Sister divisions in adjacent businesses are operating under different economic incentives.
– Do not be afraid to surrender your core asset. Doing so may be your salvation.
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Discussion Issues 1
■ If your company would enter a new market, what do you think about the most appropriate
strategy for protecting a technology and achieving a success among six strategies described in
this paper?
 Nip It in the bud (the most “Defend core asset)
I think that a company ,which will enter a new market, have to defend their core asset not
embrace the threat. For nipping the bud (for blocking other competitors who want to enter
a new market), you can dominate the new market (dominant design), thus you can succes
s in the new market.
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Discussion Issues 2
■ Give an real example for 4th Strategy (Make a Bundle).
 IBM
The threat is not to the company’s operating system business but to its hardware business. In res
ponse IBM has seen fit to invest $1 billion in the future development of the operating system kn
own as Linux, though it has become the paradigmatic “pirated” good since entering the public d
omain.
That $1 billion does not seem to have been wasted. IBM has built a business around selling prod
ucts and services for Linux; in the fourth quarter of 2002 alone, it sold $160 million worth of Li
nux servers.
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Q&A
Thank you
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