July 21, 2006 4:00 AM PDT

With 'open innovation,' no idea is left behind

MOUNTAIN VIEW, Calif.--Companies used to think of product development in terms of a sieve: Lots of ideas were thrown in and most got filtered out along the way, with a few eventually becoming shippable goods.

But many businesses have come to view the sieve as a tool that's too rigid for modern times.

In its place is a model in which ideas come from both internal development and by licensing technology from others. Some ideas result in products for the company that came up the concepts, while other ideas can be licensed out.

The result, proponents say, is a model of "open innovation" in which good ideas are not lost simply because they don't fit with the company that developed them.

"We actually have to open up our business models," said Henry Chesbrough, who wrote a book titled "Open Innovation" and serves as executive director of the Center for Open Innovation at the University of California's Haas School of Business.

Chesbrough was part of a panel that discussed the shifting innovation model Wednesday at an event at Microsoft's Silicon Valley offices.

The panel was tilted heavily in favor of those who say the shift is both happening and mandatory.

"Big companies, they are either going to have to learn from this or they are going to have to die," said panelist Jim Huston, a former Intel Capital executive who's now a managing director for Blueprint Ventures, a San Francisco Bay Area-based firm that helps big companies spin-out ideas that don't fit with their business plans.

Chesbrough said the sieve notion made sense when big companies were responsible for the bulk of research spending. "In the recent past, the logic really eroded," he said

That's because a growing amount of research is coming from smaller companies. In 1981, companies with more than 25,000 employees accounted for $7 out of every $10 spent on research and development. By 2001, they accounted for less than $4 of the $10 dollars spent, with a quarter of research money coming from companies with less than 1,000 employees.

Microsoft was held up as a leader among big companies, even though it's only in recent years that the software powerhouse has really stepped up its licensing effort, both to bring technology in and to serve up its unused know-how to other companies.

Microsoft announced in December 2003, that it would boost the licensing of its technology. The company began focusing attention on technology stemming from its research labs. A month later it said it would also look to partner more with start-ups that want to build a business around its technology. This week, the company announced the latest such deal, licensing its TouchLight 3D-image visualization technology to Eon Reality.

It's been a challenging shift, said David Kaefer, one of the lawyers who leads Microsoft's intellectual-property licensing effort.

"In any large company there is some skepticism about opening up your stuff to other people," Kaefer said. "What I've observed, over time, is a greater willingness to go experiment."

Chesbrough pointed out that the software industry is one that's heavily affected by the shift, but he said all manner of fields are touched, noting that Kraft Foods has a senior vice president of open innovation. There are some disciplines that are less likely to see the product development process open up.

"The nuclear power industry is not going to open innovation anytime soon," he said.

But in the software industry, he said, all kinds of new business model possibilities will emerge once intellectual property is seen as something that can freely move back and forth.

Companies have emerged and will continue to spring up to buy technology that is not being fully used.

"You can start to imagine bounty hunters who go out and look for this stuff," Chesbrough said.

CONTINUED: Secondary markets...…
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3 comments

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Patent Troll Business Model
I just summarized this two page marketing non-sense
into 4 simple words.
Posted by Johnny Mnemonic (374 comments )
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Re: Patent Troll Business Model
I'm afraid I'd have to agree with you.

Charles R. Whealton
Charles Whealton @ pleasedontspam.com
Posted by chuck_whealton (521 comments )
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Not quite right
A patent troll is someone who buys up patents and then tries to enforce them in the courts. The article is about people spinning off ideas they have developed but can't use and either licensing or partnering.
Posted by P. Jackson (17 comments )
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