November 10, 2008

Bundling intellectual elements into value proposition in Biotech

In this posting I aim to begin an analysis of the dynamic nature of intellectual offerings by exploring how business models are created in intellectualized business, in particular those stemming from bioscience. There are obviously a whole range of characteristics that differ intellectual objects from physical objects demanding completely different parameters for constructing business models, but I think that it is interesting to recognize that some elements remain the same in the eyes of the receiver of the value proposition (i.e. the customer/end-user or similar). The most basic, but also in my opinion most important, aspect that remains the same is the conception of scarcity. No one is willing to pay a premium price for something that is perceived to exist in abundance and is freely available. To illustrate: this is probably the notion that has changed among the general public in relation to music which a lot of people nowadays download from the internet for free while perceiving the action as a natural, and non-criminal, way of obtaining a non-scarce object (i.e. the mp3 file). Nonetheless, the value proposition of the concept ‘music’ still can be leveraged in a number of ways by packaging it in different business models and offerings such as concert tickets, Spotify (as explored by Johan in previous postings), ring tones, etc..

So what does this have to do with business models in Biotech? It is important to realize that all intellectual objects and offerings (incl. Biotech) are relying upon the intellectual conception that they exist in limited amounts, i.e. from an economical perspective - they exist in scarcity. This can be done in a number of ways including packaging them as exclusive offerings in terms of geographical scope, field of use and/or bundling them with physical artifacts (that do exist in scarcity). All of which having an enabling and more strengthening foundation in the fact that most of them are protectable by means of intellectual property rights.

An illustrating example of a immensely successful bundling of IP and material objects is the famous polymerase chain reaction (PCR) machine which by regulating thermocycles activates and deactivates the heat-stable DNA polymerase originally isolated from the bacterium Thermus aquaticus. The effect of this bundling of intellectual objects and physical objects results in a machine which may quickly replicate a stretch of DNA, but by zooming in and revealing the intellectual nature of the objects which are actually providing the functions (thermocyclers and mechanical parts aside) it is quite obvious that the assembling of DNA building blocks resulting in an exact copy of the template DNA is a spontaneous mechanism at certain temperatures. Capturing this process through intellectual property rights and offering the concept to other actors would probably had limited success as business model, whereas packaging the process in a physical object provides a valuable turnkey solution for actors interested in amplifying DNA.

Hence, it goes without saying that the value proposition has to be accepted and experienced by the receiver to be of any value. This obviously brings up a whole range of other questions, such as “how do you measure this value” as it would be an immense difference in value when offering a description in a patent of the above biological reaction to a biotech company in contrast to provide the same offering to an actor in the IT business. Well, my intention is to keep future blog posts somewhat shorter than my previous one, so this will probably be explored more in the future by me or someone of my fellow co-bloggers.

Tobias Thornblad

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