Technology Commercialization

João Pereira
January 2022

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 Program

1. University commercialization of technology and its challenges

2. Intellectual property: sale, licensing, venture creation and informal

technology transfer

3. Commercialization of technology: strategy, innovation diffusion,

technology adoption and open commercialization

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Introduction: Innovation

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Types of product innovation

New to the world products

New product lines

Line extensions

Repositionings

Cost reductions

Incremental product improvements

Where do innovations come from?

Innovations don’t just appear

perfectly formed – and the
process is not simply a spark
of imagination giving rise to
changing the world. Instead
innovations come from a
number of sources and these
interact over time.

Sources of innovation can be

resolved into two broad
classes – knowledge push and
need pull – although they
almost always act in tandem.
Innovation arises from the
interplay between them.
Need pull (user centered) innovation

Or, …
Users are a rich source of innovation ideas and can help accelerate diffusion.
There are many variations on this theme – for example, ‘need pull’ can include social
needs, market needs, latent needs, crisis needs, etc.
Knowledge push innovation

Whilst the basic forces pushing and pulling have been a feature of the innovation
landscape for a long time, it involves a moving frontier in which new sources of push and
pull come into play.
Examples include the emerging demand pull from the ‘bottom of the pyramid’ and the
opportunities opened up by an acceleration in knowledge production in R&D systems
around the world.
Design driven innovation

Radical
change
Roberto Verganti introduces a
Technology push
third strategy, a radical shift in
perspective that introduces a
Technology bold new way of competing.
Design-driven
Design-driven innovations do
not come from the market; they
Market pull create new markets. They don't
(user centred)
push new technologies; they
Incremental
change push new meanings. It's about
Incremental Radical having a vision, and taking that
change change vision to your customers.
Meaning

Verganti, R. (2009) Design-Driven Innovation. Harvard Business School Press

Diffusion of Innovations

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Diffusion of innovations

• Diffusion is the means by which innovations are translated into

social and economic benefits.

• We know that the impact of the use of innovations is around four

times that of their generation

• However, the benefits of innovations can take 10–15 years to be

fully effected, and in practice most innovations fail to be adopted
widely, and so have limited social or economic impact.
Diffusion of Innovations

Rogers’ definition of diffusion is used widely:

“the process by which an innovation is communicated through certain

channels over time among members of a social system. It is a special
type of communication, in that the messages are concerned with new
ideas”

Rogers, Everett M. (2003) Diffusion of Innovations. Free Press

Rogers’ 3 types of innovation decision

• Individual, in which the individual is the main decision-maker,

independent of peers. Decisions may still be influenced by social norms
and interpersonal relationships, but the individual makes the ultimate
choice. Example: purchase of a consumer durable such as a smartphone.

• Collective, where choices are made jointly with others in the social
system, and there is significant peer pressure or formal requirement to
conform. Example: the sorting and recycling of domestic waste.

• Authoritative, where decisions to adopt are taken by a few individuals

within a social system, owing to their power, status or expertise. Example:
adoption of ERP systems by businesses.
Models of diffusion

In practice the precise pattern of adoption of an innovation will depend on

the interaction of demand-side and supply-side factors:

• Demand-side factors – direct contact with or imitation of prior adopters,

adopters with different perceptions of benefits and risk.

• Supply-side factors – relative advantage of an innovation, availability of

information, barriers to adoption, feedback between developers and
users.
The S-curve
The S-curve (continued)
Barriers to adoption

• economic – personal costs versus social benefits, access to information,

insufficient incentives

• behavioural – priorities, motivations, rationality, inertia, propensity for

change or risk

• organizational – goals, routines, power and influence, culture and

stakeholders

• structural – infrastructure, sunk costs, governance

Factors affecting diffusion and strategy

Factors to be considered in the strategy of commercialization of the

technology as they impact the rate of adoption (speed):

• relative advantage (better in cost or financial payback [invariant], convenience,

satisfaction or social prestige [perceptions, can vary from adopter to adopter])
• compatibility (perceived as consistent with the skills and practices, and values and
norms, or requires changes in the innovation or organization)
• complexity (perceived as being difficult to understand/to use or requires the adopter
to develop new skills and knowledge)
• trialability (can be experimented with on a limited basis, reducing uncertainty; allows
learning by doing, and sometimes divisibility – risk can be broken down into small steps,
rather than requiring a full commitment at the outset)
• observability (the easier it is for others to see the benefits of an innovation, the more
likely it will be adopted).
Crossing the chasm:
High-tech marketing

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Nature of High-Technology Markets
• Market uncertainty
• Customer resistance to trying a new technology
• Customer needs changing at a rapid pace
• Technological uncertainty
• Can the technology meet customer needs?
• What is the rate of obsolescence?
• Which features matter?
• Competitive uncertainty
• Competitors may come from outside the industry
• Know-how, complexity, and velocity effects
• Tacit knowledge (experience, context) creates a significant advantage
• The speed at which know-how increases accelerates as more people become
proficient at using the technology
The Technology Adoption Cycle

Moore, G. (1999) Crossing the Chasm. HarperBusiness

Building Critical Mass for a Tornado

• Crossing the chasm is needed to be adopted by the mainstream market

and become the standard
• Seek out niche markets and encourage early adopters to develop new applications
• Develop niches in multiple markets to create critical mass that will propel
the company into a tornado
• Mainstream market switches to the new technology
• Demand exceeds supply
• Focus shifts to manufacture and distribution
• After the tornado, the company shifts focus to satisfying customers and
building sustainable relationships
Determining a Marketing Approach

• Technology products differ from other types of products

• The value proposition does not endure – customers seek the latest version
• Tech products are often part of a system governed by an architecture or rules
• They are the result of significant embedded tacit knowledge
• Challenge in conveying the benefits to the customer
• Radical technology exacts high switching costs from customers

• Entrepreneurial marketing is different from marketing management

• First goal is survival – find market niche where the pain is greatest
• Entrepreneurs are bounded by limited resources (effectuation) – act and learn
• At a larger company you’re in a "why buy mine" situation (positioning), but at
a seed-stage company you’re trying to see if anyone wants to buy what you’ve
built – find market-fit fast
Commercialisation

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Alternative strategies

• License the technology

• Transfer rights to further develop, manufacture, or distribute
• Sell the technology
• Technology does not fit the core capabilities or mission
• Potential buyer is better positioned to commercialize
• Form a strategic alliance
• Gain access to resources, skills, and knowledge too costly to develop or that
are complementary
• Consider vertical alliances up and down the value chain or horizontal with
companies in same position on the value chain
• Start a company
• Good when the technology is not easily licensed or there are no companies
capable of further development
Deciding licensing, selling or to form an alliance
Commercialization Questions/Factors to Consider
(Opportunity)
➢Does my technology need significant complementary assets (i.e., capital
Complementary equipment, other intellectual property, etc.) to make it viable?
assets
➢Is there a large production volume required before the technology is
viable?

➢Will commercialization require significant expertise in related fields or

functions that will be expensive to access?

➢Will replicating the necessary assets impose a cost burden on a new

company trying to commercialize the technology (e.g., the cost of new
equipment, compared to the cost of existing infrastructure, reduces or
eliminates the value obtained from the new technology)?

➢Is the value creation from my technology dependent on other products

and/or services?

➢Will the value creation from my technology be limited by a small sales and
distribution infrastructure?
Deciding licensing, selling or to form an alliance (cont.)

Commercialization Questions/Factors to Consider

(Opportunity)

Intellectual property ➢Is my technology limited by “freedom to operate” issues (e.g., do

any other companies have blocking patents, or do any other
companies have control of enabling patents)?

➢Will my technology’s value creation be limited if it isn’t augmented

by significant R&D expenditures in related fields, or in continuous
novel developments?

Consider licensing, selling or an alliance:

◼ Complementary assets required are far greater than afforded by a start-up

◼ Answered “Yes” to a majority of the above questions

Contractual and Vertically-Integrated Modes

• A company’s value chain can be:

• Vertically integrated when a company owns all parts of the value chain
• Contractual when a company signs an agreement with independent firms to
provide part of the value chain (works better when technologies are discrete
rather then when they are part of a system, and knowledge is easily codified,
not tacit)
• Contractual forms of doing business are composed of:
• Technology licensing, cross licensing
• Joint ventures
• Strategic alliances
• Vertical (between firms at different stages of the value chain)
• Horizontal (between firms at the same stage of the value chain)
Standards and Open
Commercialisation

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Technical Standards

• Specifications that ensure that different components are compatible

• Permit independent companies to produce different components for

the same product

• Standards are of particular importance to start-up firms, which

generally cannot, due to capital, produce all the components needed
to make a product
The Development of Technical Standards and Dominant Designs

• Technical standards develop because:

• Of chance occurrence
• One technology is superior to another
• Governments mandate them
• Industry trade associations or standards-setting bodies establish them
• Companies take strategic action
Technical Standards and Customer Adoption

• Technical standards influence customer adoption because:

• Customers don’t want to adopt products that might be abandoned
• Customers desire compatibility, particularly for systemic products
• Makes products more functional
• Facilitates creation of complementary products
Standards Battles

• Companies often battle to control technical standards because:

• Products that conform to the technical standard can be sold at a premium
therefore create a higher profit margin

• Suppliers will have to adhere to the company’s technology, giving leverage

over them, and allowing to capture a large portion of industry profits

• Competitors will have to adopt the technology if it is the industry standard,

which puts them at a competitive disadvantage
Winning battles and defending standards

• To win a standard battle, companies may:

• Gain the support of producers of complementary products
• Have complementary “killer application” making technology much more attractive
• Make the product backward compatible
• Manage customer and competitor expectations
• Keep customer switching costs high:
• Make the products more functional, adding features or peripheral components
• Set up long-term supply of complementary products or services
• Make future generations of the product backward compatible
• Make the products or services incompatible with the alternatives offered by
competitors
Open Versus Closed Standards

• Open standard: a standard for which specifications are known by

other companies
• Closed standard: a system for which those specifications are not
known by other companies
• Open systems are valuable because they:
• Facilitate the availability of complementary products that create a positive
feedback effect
• Encourage other companies to adopt your technology
• Permit the rapid creation of a large installed base
Open Standard Disadvantages

• The loss of control over the technology, which could lead to a loss in
sales
• That licensees might change your technology in a way that makes it
unnecessary for them to pay you royalties
• An open standard demonstrates to competitors how the technology
works, making it easier for them to imitate it
Types of Open Systems

• Proprietary – help providers by reducing competition, giving them

control over the development of the technology, and providing a
strong incentive to support the system

• Non-proprietary – have the advantage of being more attractive to

customers; they are neutral, don’t require royalty payments, and are
easier for customers to use
Positive Feedback in the Development of Linux
Prerequisites:
#1: Broad adoption (to make money)
#2: Primary credibility (availability to offer direct support)
Open commercialization in software (business models)

• Support: sell deployment and integration services, production-oriented “insurance

policies”, certified binaries, trainings, bug fixes, etc., to businesses deploying the project
in production.
• Hosting: fully-managed version offer so users wanting to try out the project, or even
deploying it in production, they can spin up a remote server with the software in just a
few clicks (i.e., not worry about backups, downtime, upgrades, etc.).
• Restrictive licensing: providing an open-source license with slightly onerous terms, such
that anyone using the software in production is highly incentivized to strike a
commercial deal with the vendor. Examples: GPL and AGPL licenses, as well as the newly
created Commons Clause.
• Open-core: the majority of the code base is open-source, while a smaller percentage
(targeted at production or enterprise users) is proprietary.
• Hybrid licensing: intermingles open-source and proprietary software in the same
repository. Users can choose to use both the open-source and proprietary bits (available
under the proprietary license).