November 29, 2008

Biotechnological determinism

TED recently posted a talk which I think was incredibly interesting from an intellectual capital perspective. The talk is given by Bill Joy, one of the co-founders of Sun Microsystems, who now is one of the partners of KPMG where he reviews business plans. Bill talks about the dangers of future technologies in education, environmental improvement and pandemic defense, which relates quite a lot to his article “Why the future doesn’t need us”.

The "dangers" of technology
Bill talks about incredible scientific discoveries, such as the carbon nano tube, before moving on to his take on what the future technologies may hold for mankind. Bill states in his cover story (as well as in the TED talk video) that “Given the incredible power of these new technologies, shouldn't we be asking how we can best coexist with them? And if our own extinction is a likely, or even possible, outcome of our technological development, shouldn't we proceed with great caution?”. His suggested solution and recommendations are focused on restricting the free flow of information, in particular those technologies which can be leveraged to create many to one ratios of cost to damage. Bill seems to have a mindset of a social deterministic nature, believing that technology always is developed with a particular societal purpose or objective to benefit those that are capable of funding its development. This stands in contrast to the technological deterministic perspective, which says that social changes come about as a result of the new capabilities that the new technologies enable.

Creating societal ethics
It is difficult, if not impossible, to determine which of these views that is the true way of seeing things. My viewpoint however, is that predicting the capabilities, utilities, opportunities and threats of new technology is close to impossible in an early stage and restriction at this stage could potentially stifle our societal development. That is also why I experience it as worrisome when Bill mentions that we should have policies in place to govern the innovation process.
Legislating to create ‘societal ethics’ is a phenomenon that biotech has a long history of and is still experiencing. An example of this is the national laws around stem cells allowing for artificial fertilization for research purposes in some countries, e.g. Sweden, Belgium and the UK, whereas it is illegal within the countries to extract stem cells from human embryonal cells in Germany and Italy (... but which are both allowed to import these from the formerly mentioned countries). Another example are genetically modified plant varieties which are patentable in the US, but which are to be protected by plant variety protection governed by UPOV, within the EU, to enable a more open approach to proprietary genetic information.

All in all, I think that ethical considerations are governed by so many other aspects than the law, such as education, so my hope is that there will be other ways than stronger legislation to make this happen in the future.

Tobias Thornblad

November 25, 2008

Virtual Property and Capital

For some this might come as old news, for others this might be as intriguing as it is for me. As Venturebeat reported twice there are some serious working attempts att selling entirely virtual products. This idea of selling virtual swords, and one mans convincing presentation, always has a special meaning to me as it was what actually opened up my eyes to the knowledge economy. Below, I'll try to highlight, on a conceptual level, why I think this is so extraordinary

Ownership - what is owned and who owns it?
The first thing that comes to mind is whether something generated in a proprietary game becomes property of the player or the game (i.e. game developer). I have not dwelwed into this subject so I am not to decide, however instinctively I could argue for both. There is some legislation in the field
however that is related to SecondLife which is much more elaborate than e.g. WOW. Linden Lab who dictate SecondLife (and have every right to) could potentially create any kind of property law they want which users must adhere do once accepting the license (to my knowledge this has not been developed to such extent by Blizzard and others). But what happens when marketplaces are set up IRL, that are under conventional law (e.g. not giving players rights to their created characters) , we could end up with a lot of "dead capital" to cite DeSoto.
I must finish my thoughts on ownership by directing you all to a very interesting and award winning thesis, discussing in depth what I just touched upon.

The transaction - money in the bank or the beginning of a fall

As with ownership the object that is transacted upon might be hard for some people to comprehend, i.e. how people can pay for a digital sword. In my mind it is not anything different than a branded shirt or mobile ringtones. People spend money on things that delivers much connotations and a feeling of belonging / showing off / standing out. Being an ecnomist I love the fact of a new and evolving marketplace and an increase in liquidy caused by purely virtual products. I think the concept of being an intermediary and taking on some (in my oppinion modest) risk and taking a cut from each transaction - simple and effective way of generating win-win and revenue.
But there is also a part of me who can be sceptical and take the view of hardcore gamers who live for the game and would likely be slightly pissed of if lazy fair-weather players could buy level 11 characters - and in an instance we would have money killing all those long nights of creating an "invincible" palladin.
And should the hard-core gamers "die" (i.e. their characters) they would have "no" switching costs and would perhaps wonder off to other games more in their infancy and without established exchanges.

Marcus Malek

November 24, 2008

Tough times spur innovation

The current financial crisis has hardly slipped past anyone’s life unnoticed, and the life science sector is certainly no exception. Bloomberg’s article about recent biotech bankruptcies has been a major discussion topic in the biotech blog world lately (e.g. California Biotech Law Blog, The In Vivo Blog, etc). It is probably close to impossible to see any positive effect for those affected by the crisis, but I thought that I would elaborate on the competition question lifted in relation to my last blog post in the context of the current crisis.

Competition over financial resources forces strategizing
Scarcity of financial resources leads to strategy restructuring to gain competitive advantage in an increasingly fierce competitive environment. It seems as innovation becomes the major vehicle for differentiation when the economy goes down while cost-cutting becomes more of a simultaneous norm for the whole industry. Some recent examples include;
Astrazeneca announced, 20 Nov, that it as part of its company strategy, to focus on drugs available on prescription only, will sell a drug portfolio to Glaxosmithkline comprising prescription free drugs such as Alvedon and Reliv. This monetization, providing Astrazeneca with USD 253 million according to the agreement, takes place while the company is announcing closures of plants in Sweden, Belgium and Spain affecting 1400 employees.

A great example of how innovation does not only have to relate to products and portfolios is Infinity Pharmaceuticals Inc., which recently entered into an innovative strategic alliance agreement with Mundipharma International Corporation Limited. Mundipharma gains access to Infinity’s entire oncology-focused discovery and development pipeline for an initial (with options to extend for two additional one-year periods) term of three years. Infinity will retain US commercialization rights for all oncology products developed under these programs and is obliged to pay a (double-digit) royalty on US sales of these products to Mundipharma. Commercialization rights outside of the US are held by Mundipharma, which are also required to pay a (double-digit) royalty to Infinity for the sales of these products. As part of the deal, Mundipharma will pay all of Infinity’s R&D expenses until at least the end of 2013.
These are just two examples of how tougher times may spur innovation, it will be interesting to see what strategies other biotech firms will come up with to stay afloat.

Tobias Thornblad

Monty Python goes YouTube, is it enough?

Monty Python have now entered YouTube with some sort of official aim to stop the unauthorized clips of the group on the site. But is it enough?

YouTube has had problems with copyrighted material for a long time. The model which they have chosen consists of an active identification tool where they search the content against a reference library with copyrighted material proved by the rights holders. You can also file a complaint on one of the videos stating that it is unauthorized material. The rights holders can then decide on either to block the content, track the content or monetize from the content.

Monty Python have chosen to start uploading their own content to YouTube, they have so far uploaded 24 videos in their channel. A rather small number if they are serious with wanting to give access to good quality content. But I believe that their aim is more related towards getting attention than anything else. At least since 24 clips won’t stop the flow of Monty Python content, as now there are around 30 000 videos relating to the group.

Interactive advertizing and privacy

An interesting follow-up on the digital fingerprinting technology used by YouTube, to identify copyrighted content, is to start using directed advertizing in relation to the content shown in other programs and other places than the original one.

We still see the rise of video content on the web being monetized in a good way as something which is to come. Google are watching YouTube closely to find out how and where to make money from the service. One way can be to continue with the watermarking and ad based revenue streams, both on and off the platform.


I do however see problems in following the users too closely in their use of video content both on and off since it brings up privacy issues. I do especially see those issues arising when it comes to video since it is more disclosing of private issues than for instance music.

Although this can be somewhat solved with opt in or opt out alternatives for the users. It still is a problem since they are likely to get more and more used to the Big Brother like monitoring.

Where to go?

I think we are still in the emerging stage where the content providers are trying out different business models and different rights solutions to their content. Some, like Monty Python, are still in the setting where they think they will sell DVDs and use YouTube as an advertisement channel for the physical products.

My hope is however that the rights holders are going to see the potential in spreading the content, using the digital highways to expand their cake.

Some issues has to be solved, and they are in the emerging of being solved. The first one is to find good models to take in revenue. Ad based or subscription, or some other innovative way.

The second one is to go global on the rights. We live in a globalized world where it makes no or little sense to have diversified rights to digital content. There could be diversified rights to the revenues, but the access has to be global. More on that in a later post.

So, Monty Python might be funny. This is why 24 clips will not be anywhere near enough to stop the unauthorized content of them on the web.

When will I be able to watch “the dead parrot” with complements from Cleese and the boys?

Johan Örneblad

[Via DN]

November 23, 2008

RE: Abbreviated Pathways to drug development

I would just like to add some thoughts, on the money side of things, regarding Tobias' interesting thougts. As pharma is a huge ecosystem changes wont come suddenly and definately not without a noticable fight! Below I put down my thoughts on the situation, although perhaps not entirely correlated.

Sharing is caring - also in pharma ?
Almost everyone is writing about pharma collaborations with academia and how that will generate openness, speed and lower costs. Just having researchers work together and streamlining NDA's and disclosure policies lowers transaction costs for development. My question is if (when?) some BigPharmas will take it one step further and come togehter and own entire universities, paying for tuition in exhange for all research results.

I'm envisioning special purpose, e.g. gastrointestinal, (PhD) universities. These would paid for entirely by e.g. 4 bigPharma companies and would give scholars a PhD degree and the companies lots of input. My idea is that BigPharmas would focusing on getting more brainpower rather than the a selected few. Also that they would start sharing the most valuable substances that are discovered. Simple maths show that a blockbuster is needed to make up R&D costs of all non-profitable drugs, especially now when "only" the western world is buying drugs.
But what if the hit/miss ratio of drugs get's improved, by sharing knowledge and goals in the universities I envision, maybe sharing expense/income on blockbusters would be enough. And also - costs need to be cut when India and China catch on.
The natural concern for this would be on the competition-law side, as I can envision a good 'ol gentlemans agreement when dividing the markets.

Generica deteriorating Pharma innovation ?
A recent ruling in California (well commented here and here) basically says that Pharma companies are liable for side effects etc. caused by generica using the same substance.
To me the situation becomes quite perverse as generica companies would operate on a totally risk free basis if they would also be excluded from litigation. In relation to Tobias' post even shorter times before generica becomes available could turn into an interesting pricing situation.
Firstly - shorter times mean shorter times for ROI on drugs. As R&D costs likely won't drop substantially, by all laws of finance a price increase is to be expected.
Secondly - if big Pharma are liable for damages caused by the substance as such rather than the drug, this would either result in an increase of litigation costs or large insurance policies (if someone is willing to write one in these days). It would likely impose a cost on BigPharma.

Bottom line - costs go up for patients/consumers. That could create a very interesting marketplace for drugs. The high price means makes it analogous to drilling for oil in remote locations. If the price is high enough it would mean that more players could find the market feasible. I see that this could have any of the following implicatons:

1) A surge in pharma R&D as a blockbuster with the new high price could mean even higher revenues. Perhaps smaller VC-funded labs could be the way to go as splitting that large revenue could be enough to see ear-marked VC funding for drugs.
2) A more dismal scenario would be a standstill in the innovation and patenting pipeline as fewer actors would see the financial benefit.
3) Forum shopping for lower R&D costs, i.e. pharma development follows the path of heavy industry and moves production and research to remote locations.

The big question is really - when will pharma markets as we know them change?

Marcus Malek

November 22, 2008

Abbreviated pathways to drug development

Recently a study was published by Teva Pharmaceutical Industries Ltd., where Alex Brill analyzes the article recently written by Duke University economist Henry Grabowski’s which explores the number of years that a biologic drug should enjoy exclusivity before a generic equivalent is introduced. The basis for this analysis is the fact that the US Congress is considering to legislate an abbreviated pathway for the FDA to approve biogeneric therapies, much like the Hatch-Waxman Act in relation to chemical equivalents (ANDA).

Generic alternative drugs (a.k.a biogenerics, biosimilars) to innovative approved drugs, in the US, are generally not required to include preclinical (animal) and clinical (human) data to establish safety and effectiveness when submitted to the FDA. Hence, the term ‘abbreviated’ pathway. The approval instead relies on data that can prove that the drug is bioequivalent, e.g. by demonstrating that the rate of absorption and the amount delivered of the active ingredients are the same as the innovator drug.

Abbreviated Pathway as Technology Platform
Conclusions suggesting an earlier introduction of competing drugs could certainly be debated when the study is sponsored by the largest generic drug manufacturer in the world (as also indicated in Patent Baristas). Generating productivity and market efficiency through competition is hardly a revolutionizing thought though, albeit an important one. However, I wonder how the concept of an ‘abbreviated pathway’ could be used as a platform for accelerating the innovative drug development process instead of ensuring that market competition is maximized.
An ‘abbreviated pathway’ for generic approval versus a new innovative drug would obviously be different than an accelerated pathway for developing completely new drugs. For instance, there exists reliable reference data for the former but no standardized reference points at all for the latter. This means that the standardization would have to be located in another layer, where in my perspective the actual methodologies and tools used would be a more relevant focus of interest, e.g. by commercializing biomarkers in different ways.

A very interesting approach is taken by the Innovative Medicine Initiative, which focuses on speeding up the principle causes of delays and bottlenecks such as; predicting safety, predicting efficacy, bridging gaps in knowledge management and bridging gaps in education and training. This not only opens up opportunities for big pharma (which optimally would increase the drug/invested R&D ratio), but also provides new markets and business models for biotech actors, small as well as larger ones, based on tools, data, and knowledge management. More exploration of this to come.

Tobias Thornblad

November 20, 2008

McCartney and Guns N' Roses songs for free

More and more artists are starting to understand the power of free and that you can with much more on spreading your music than trying to stop the crowd from listening.

The latest in this is Paul McCartney and Guns N' Roses which will launch music on MySpace for exclusive previews. It is for Guns N' Roses the album Chinese Democracy which they will release in the US on November 23 and for the ex-Beatle an album from one of his side projects.

The fact that McCartney is in on this, raises the hopes that the whole catalog of Beatles music will be available digitally in a not too distant future.

But, in line with the development in general when it comes to content on internet, it is access which is important. Not to actually own the music. Keeping the use of the content on a access level will also ease up the rights issues since there will not be any rights handed over to the end licensee. Only a limited time access right which do not imply any more use.

So, we will probably see more of access. Either as free in some aspect or as a paid for service. But access is here to stay.

November 18, 2008

Ip in search

The issue might seem easy but the following video from UC Berkeley show interesting issues which can arise when regulations of the past meet new ways of expressing information.

I know, the video is starting to feel a bit old. I find myself thinking that “is that really a problem still”. Because, some of the issues brought up by Jason Schultz in his lecture are settled or best practices has developed over the three years since it was recorded.

The most recent one is the one on Google books project. The Association of American Publishers and Google have settled on how to compensate the alleged copyright infringement of the authors of which books are provided mostly in snippets through the search engine.

The lecture also discusses the difference in trademark infringement between buying a search term on Google and using a trademark in the ad text itself. This is an issue which now has ended up in a quite easy to understand policy. But the problems brought up in the video show the difficulty in applying an old economy thinking on to the new world of information. We see lots of confusion and protective measures, instead of embracing the future which is already here and start to use it.

I will continue to look in to the issue of IP and search engines with the next stop at Google books. Stay tuned.

Johan Örneblad

November 17, 2008

Credit Crunch IP

I have a hard time to trying to hide my obsession regarding the financial situation and the worldwide economic downturn. Here are some IP-related thoughts I have absorbed during the last months from various sources.

Venture Capital

Many start ups get funded on the promise and vision of turning their intellectual assets into valuable intellectual property to enable value extraction or be acquired by bigger fish. The current economic climate seems to restrict the flow of new capital to the VC funds. Moreover the model of VC funding is, according to some, about to change. This will probably change the innovation ecosystem and have an effect on IP generating possibilities for start-ups relying on venture capital. According to Bob Kagle and VentureBeat, about half of all VCs going out of business.

IP (patent) liquidation
The strategic focus of the usage of IP will be to generate money to support the operations. The companies have to turn their intellectual capital management to become a profit center instead of a cost center. This includes increased IP transactions and more focus on alternative costs since money in the bank is more attractive then IP assets with no clear purpose except a potential FTO function. To tie on to Marcus' blog post some while ago, perhaps a increased number of transactions can be a driver for a common market place for IP to reduce transaction costs.

Technology transactions
Is this the time where open source and open platforms gets the formal recognition in the corporate world? I am not completely sure that open source solutions, when speaking of software, is less expensive. However, the cost is distributed in another way to reduce upfront costs.

Moreover, open collaborations or outsourcing could be measures to lower costs in development activities or in day-to-day operations. To what extent this will actually happen is yet to see. To manage relationship and results in open platforms are demanding. My view is that not many firms have developed capabilities in relation to this, but I am too inexperienced and lack some insight to do a proper prediction regarding the adoption level dependent on corporate capabilities.

Strategic research
Less capital and commitment to strategic research. Cost cutting means lay-offs. Lay off could implicate loss of knowledge and research momentum . The impact of this will be hard to predict. Some claims that the societal value of having companies doing strategic research will decline vastly during the downturn period. The

That's all for now. Given the media buzz regarding the economic downturn and the effect on our lifestyle and future this topic will be revised in the future.

Mathias Hellman

November 16, 2008

Is McDonalds McDonalds without McDonalds?

McDonalds are launching two new concept stores in Japan, featuring the Quarter Pounder, without any direct brand connection to McDonalds.

I have tried to understand if this is only a new type of viral marketin
g to create a buzz around the fast food chain or if it really is a new concept, perhaps to be launched somewhere else as well.

The choice in the stores consist of two set menus featuring either the Quarter Pounder or the Quarter Pounder with cheese.

This could as I see it be a way to strengthen their brand offering in the
"real" restaurants as well. Having a clear focus on parts of their products and clearly define the concept at the new store can add value to the more diversified core offering.

McDonalds in Sweden have long had a focus on trying to rebrand themselves in the direction of being more healthy than what typically is expected from a fast food chain. This is why I could see a development in the same direction in Sweden as i Japan, with concept stores. The difference could however be that the Swedish restaurants would focus on healthy food.

For McDonalds to open this type of "healthy restaurants" would strengthen their brand as a healthy company (which I do not say that they are) since it will focus the attention to what they want you to perceive.

So, when will we see the new McSalad restaurants in Sweden?

Johan Örneblad

Here, here, here and here are more posts on the topic.
The picture were taken from here.

November 13, 2008

Business model book business model

The model where different parties collaborate on one outcome is not new but the problems with rights to the results are still there. The model with customer participation in the development is still interesting from different views.

One recent example of the collaborative model is the Business model and design blog and it's book chunk project. The readers are supposed to pay USD 24 to receive the upcoming book in small parts, perhaps every chapter. They are also asked to contribute and do some sort of "beta testing" of the book.

There are mostly positive comments on thins on the blog even though some of the readers suggest that the subscribers also would receive a copy of the finished book.

So far so good. As long as it is used in a thought through way I do only see good outcomes from such collaborations. But there might be rights issues to the end result which has to be solved in some good way.

There are already existing models for collaborative creation of software. But they are created more as licenses and perhaps not good in a situation as the one described above where two "main writers" only use the ideas of others as it fits them. Not as a main part of the whole creation process.

As I understand the Business Model book project it will only use the readers for input and not as much for contribution, but still there might be a need to think through how to construct the models for larger collaborations, online or offline.

Perhaps is it enough with some sort of acknowledgment to fulfill the rights of the contributors, but there might be cases where there is need for new models for cowriterships and how to share revenues and rights. I see the rise of crowds as creators as something which we will see more of.

One good example of how this is used is the Wikipedia book project in Germany. It is allowed under the Wikipedia agreement to reproduce but it has to be under the same terms as the basic texts. The revenues will however, as I have understood it, stay at the German publisher.

This will rise the need for a good model for revenue sharing in collaborative environments where the content is jointly created but the economic extraction is proprietary.

Have anyone good examples how this is done today, or has there not been any need for this yet?

Johan Örneblad

November 12, 2008

Biotech scarcity revisited

I would like to continue where I left off the last time in my exploration of intangible offerings by answering some questions that I have received about the blog post. There were some questions in regards to how the conception of scarcity can be more important than the uniqueness, brand value or connection to other brands. The point that I argue is that the perceived uniqueness or attached claims (e.g. brands, other objects, values) are the types of necessary parameters to create the illusion of scarcity. It is only by intellectually coupling the offering to something scarce that the receiver/customer/end-user will experience the object as being of any value. Few known examples of this comes to mind in regards to biotech, but some more widely known examples are for instance CD records (music + physical discs), Nike shoes (Michael Jordan’s “brand” + physical footwear), Nespresso coffee (coffee gourmet concept + physical plugs of ground coffee beans), all of which most of us (including me) gladly pay premium prices for.

This is to some extent still an untapped market for the biotech industry since the regulation for marketing is different than for everyday goods, but it is not impossible to imagine that future biotech drugs could be associated to celebrities having a certain (probably mild and non-visual) disease. An example, that we are bound to hear more about in the future in relation to the retail DNA test kit, from 23andMe, that I wrote about in a previous posting is the company’s connection to Google since one of its founders, Anne Wojcicki, is married to Sergey Brin.

The sort of loyalty and trust that we see in brand values, such as Google’s connection to 23andMe above, constitutes a promise of future value that we as customers experience as real, and therefore would be willing to invest in. Thinking about this makes it quite intuitive that most of experienced values in the biotech industry is built upon this very notion of trust, e.g. the next big blockbuster drug will soon reach the market, candidate drug X will soon enter Phase III trials, etc.. These are the types of promises that makes us “see the value” in these intellectual objects as it would be close to impossible to distinguish these claimed visions from the actual objects (which in this case would be a drug candidate molecule). Even the word “drug candidate” has a normative impact on how we perceive the molecule in question, in the same way as we experience a “patentable invention” more valuable than a simple invention. The article The Seven Deadly Sins of Business Development implicitly uses this way of creating value by stating in the first “sin” that the negotiators should focus on the utilities by discussing the market value and future potential of the drug rather than going into the functional facts about the Science behind. The bundling of IPRs and claims (e.g. of reputation, goodwill) is further emphasized in one of the latest Bioentrepreneur articles Five IP Tips to Spread Your Business Wings.

So do I think that this is wrong? Absolutely not, but I feel that it is important to understand and fully utilize these underlying structures to create tomorrow’s biotech innovations in an ethical way and that is why I will continue this deconstruction in a later blog post.

Tobias Thornblad

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

November 9, 2008

Spotify premium service to promote user base

I am getting back to Spotify and their model (hopefully) changing the music industry.

It is not new with teasers or previews offered to specific audiences. Which is why it comes pretty natural when the new album with the Swedish artists Orup and Lena Philipsson, Dubbel, is offered to premium users in Sweden almost a week before the public release date. It is interesting to see how the music industry this way, sort of at least, show that they approve the new way of distributing music.

Still, I have not seen the agreements between Spotify and the record labels, it might be so that they share the different revenue streams in some interesting way. But it might also be so, which I think to be more likely, that the record company sees Spotify more as a way to promote other sources of revenues then to strengthen the Spotify model. The service is all too young to be a trusted way of income for the record labels.

It is however interesting to see that it is only the premium service which gets the early access to the preview. Could this be a sign of that it is not enough with the commercials every sixth song to differentiate the two levels of the service? It might. But I strongly doubt that it was not thought of as a way of separating the two in the planning of the business model. It will rather be a continuous process to offer good value for the around €9 the premium service cost each month. It will otherwise be easy to switch to the ad-based level.

Next interesting part in all this is of course as I wrote above, the models of revenue streams between Spotify and the rights owners. Perhaps is it more profitable for both parties to have lots of users using the ad-based one. A hint in this direction is that they only account for that between 2 and 15 percent of the users will use the subscribed versions of the service, according to Martin Lorentzon. Then, still the question is why to offer the early release to the premium costumers?

The same article in Dagens Nyheter suggest that they believe to have 20 million users in 2 to 3 years. A quite large customer base which they have pretty good user information about, due to their music preferencies. I reckon customized commercial spots can be made with quite good accuracy based on that information which makes the community pretty valuable for advertisers. Or perhaps third party use in some way.

For now I still think it is safe to assume that Spotify will continue to offer premiums to the subscription service, in one way or another. Mostly I base this on that you as customer are more eager to use a service which you have actively decided to use. You are also probably more interested in talking to and inviteing your friends to the service as long as it offer good value. This way creating a stable base of users subscribing and becomming part of the "Spotify tribe". The same tribe inviting their friends and promoting Spotify.

But the most important part is however the diversification of the offer towards the costumers. In order to fulfill the diversification needs, there has to be differnet values assigned to the different alternatives. Which is why we will see more early releases and designated content in the premium level of Spotify.

Johan Örneblad

Thoughts on building an IP marketplace

In light of recent Ocean Tomo success and the ever growing interest in IP and intangibles (especially as it makes out 80 percent of market cap.. or what did Pat say ;) ) there are many ideas floating around and lot of effort put into thinking about an IP-marketplace. This will be a first post of hopefully many as I will try to focus on the financial / transactional side of IA / IP.

One could go on in eternity regarding the contextual nature of IP valuation and whether accounting principles are up to date - but that is not my intent. In this post I'm thinking about the actual markets. In light of CDOs I won't debate the future existance of securitzed IP to generate leverage - that is bound to happen. What I am interested in is governance, transparancy and liquidity.

First of all I would like to tip my hat to Ocean Tomo - true pioneers and deserve all appraisal. But what if (or when?) success (i.e. hight returns) leads to competition (as market theory has shown) and we all of a sudden have multiple OT's where some only take 8% of the cut and others 7% etc. Where would the buyers and sellers want to be?

How would markets attract both buyers and sellers if they require physical presence?
Would it be entirely online-based with a search function for all markets?
Would biotech complexity always be handled at high end 10% marketplaces with nice prospectuses?
Will we see an overall "garage sale effect"? (i.e. steep fall in percentage of lots sold as companies would try to sell all kinds of "crap" IP - perhaps to boost liquidity in light of the turmoil).

I personally trust market forces on this one out. But wait a minute - there might be a regulatory issue overruling it all as Ocean Tomo have some interesting pending applications.
As interesting they are on their own I see the following two key issues:
1) How will the infamous Bilski ruling affect these applications
2) If granted - will OT go open (á lá DNA), closed or somewhere in between?

Interestingly, they are not alone in this field. Wonder how Bilski influences this one?

Finally, some food for thought. It could be an interesting system if:
1) All corporations understand the potential in leveraging IP (i.e. not only as a legal necessity)
2) IP markets start growing
But the markets and securitization are privately owned (and governed ?) and you have to pay a royalty for calculating a value on IP you want to acquire.

Please share your thoughts on where the "IP market" ship is heading.
All aboard !?

Marcus Malek

November 8, 2008

The beginning of a new open biotech era?

TIME recently announced the Best Inventions of 2008 and the first prize went to the Retail DNA Test, which is a $399 saliva collection home-kit that is sent to 23andMe Inc. for analysis. 23andMe, Inc. is a privately-held company founded in April 2006 by Linda Avey and Anne Wojcicki. Its investors include Genentech, Google, and New Enterprise Associates (NEA). Products are shipped to the US, Canada and most countries in Europe. Customers can access their accounts 4-6 weeks subsequent to having submitted their samples to learn more about their individual genomes and the potential susceptibilities that they may have. Over 90 traits and diseases are currently covered by the database and tested for, of which 23 are supported by clinical reports and 68 by research reports.

The intention of the Retail DNA Test seems to be to provide a quick and convenient way of getting tested in the privacy of your home, and protecting the integrity of the genetic information by storing the data in a “secure, encrypted system”. The website states that genes are not your destiny, and being aware of possible susceptibilities and certain inclinations should therefore inspire customers to take more active responsibility for their own health and well-being. Furthermore, easily obtainable specifications of each and everyones’ genomes to an affordable price is certainly a step towards the vision of personalized gene-tailored medicine.

Genetic tests are obviously always connected to a number of ethical concerns. The customer could be surprised to learn that his or her father is not their biological father or that they may be the carrier of a gene which may give them a higher susceptibility to a certain disorder. The question a customer needs to ask themselves before ordering the kit is; Why do I want to know this and how will I use the result? It is a rather simple decision to eat less sugar due to a higher susceptibility to diabetes in comparison to decide whether to tell your 12 year old kid that you have a high-risk profile for Alzheimer’s and that he could be in the risk zone as well. The handling of the genetic information also becomes very problematic in relation to life-insurances, and similar, which from a moral perspective could be seen as fraudulent to sign up for with the incomplete information sharing between the two parties that would result if they were not allowed access to the data. On the other hand, if the information would be transparent for all parties, new problems would arise since certain employers would want to discriminate high-risk profiles due to safety reasons.

It is important for the general public to realize that the DNA test may not test for the same genes that they read about in the daily newspaper to have recently been found since there may not be enough scientific data about these or they could be proprietary and hence too expensive for 23and Me. Some somewhat expected examples of the latter are high-risk mutations in the BRCA1 and BRCA2 genes proven to be involved in breast cancer. Myriad Genetics has built up a business model around these that allows few actors to use them for genetic testing to a high price, which makes it close to impossible for low-price genetic testing tools such as 23andMe to include these to a reasonable price.

Inexpensive genetic tests for home use provides a brand new channel for biotechnology companies which already have a number of genes in their patent portfolio and which are looking for many small revenue streams while maximizing societal benefits by adding value to affordable diagnostic tools. I wonder how these new opportunities to directly add value to the end-user experience will be received by the biotech community where many actors since long have relied on royalty-based licenses to other actors. The tragedy of the anti-commons is often brought up whenever biotech patents are discussed in media, but I wonder if not cheaper genetic tests will be one of the key drivers that could create a market where a number of business models can be constructed around the use of genes rather than restricting access to genetic information. This will certainly require the biotech community to change the often common mindset of denying access and instead focus on opening up their upstream research to standardization efforts and open innovation thinking. It is therefore comforting to see that 23andMe seems to keep an open mindset in true Google spirit, which may not be surprising as Google is one of its founders, in relation to their new statistical methods and technological innovations which are “shared with our colleagues” according to their website. So the 1-million dollar question remains to be answered, is this the beginning of a new biotech era?

Tobias Thornblad

November 5, 2008

Is Spotify the model?

Have we now seen a shift, or at least an approach to shift, in the music industry by some recent activity? From using their IP in a protective way to actually understand the preferences of the new economy and rise above the physical carriers of music.

Spotify opened up to the public about a month ago and has since then received excited reviews. The service builds on either an ad based model or a premium monthly subscription model. Both models have been around for quite some time but the music industry has not yet really embraced them in a good way.

Earlier attempts to stop piracy with lawsuits, drm and other protective measures have obviously not been fruitful since there is almost everything you want on for example the Pirate Bay. To offer downloadable tracks for $1 each is way too much for something which is, although illegal, readily available for free.

Providing full access to almost all songs and still make money on it is a good deal for both the users and the rights holders.

Two of the main obstacles for Spotify are that they do not provide “all” music and that you need internet access. Sure, this will probably be solved in the future. Adding more content to the service must be one of the top priorities for the company. The access problem might be harder to overcome; even though it runs on 3G connection you hardly have your computer with you when running… I do assume the service will be available on mobile devices as well in the future.

The mobile market is already starting to be explored by the large manufacturers offering different deals where the handsets are bundled with music. Nokia’s Comes With Music offer is one of them and Sony Ericsson have similar deals. The device to carry the service is for me of less importance. But the breadth in the offerings of similar services will probably establish an acceptance for the model, both on the consumer side and more important on the rights holder’s side.

We are getting more and more used to that access of information is offered to us, not one at a time but instead unlimited for a specified time. This will bring new revenue models to us, either they are ad based, prepaid or in some other innovative way. We are still in the start of the new economy of access, some have come further and some are just beginning. But the main point is that you cannot any longer stay in the model of providing goods one by one. We are used to choice and instant access and will find the best and most convenient way to get it.

Perhaps Spotify will be a good step on the way.

Johan Örneblad

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