‘Oh come on, I could’ve done that!’ ... ‘But you didn’t’
At the centre of all the concentric circles of economic feeding is that most valuable of all things: invention
Some time back I was wandering around on a guided tour of an art exhibition when I remarked: “Oh come on, I could’ve done that!” about a Matisse cut-out. “But you didn’t,” responded my girlfriend. She was right, of course. I hadn’t.
So, where do you stand in the debate? For copyright, or for the right to copy?
In business it’s always enlightening to decompose the participating economics down the value chain created by a new idea or product, from initial idea to mass consumption.
The technology and healthcare industries are perhaps the most tempting examples for scrutiny.It is almost common cause that iPhones are invented by Apple in the US, but produced in China, even if that’s not universally true. In any case, significant industries have emerged in cellular telephones and all of the related clones, and copies and accessories and … whatever.
So, who makes the money? Everybody does. Who should make the money?
Of course, cellular phones aren’t just phones anymore, they’re serious computers, put in our hands and handbags by the wondrous advances in microelectronics. I don’t know the rules of value chain participation, but I do know that it’s not just about the phone. The latest model obviously costs more, but I’ll bet that the incremental unit cost is way lower than the incremental embedded technology gain, financed by the downstream feeders. It’s about the revenue share models in data and the apps and the music and the e-mails, and social media … and all the other stuff that you can only play with if you have the device. I’m pretty sure that the sharing in the economics of an Apple-approved app, between the inventor and the facilitator, have found an equilibrium that works for everyone – such is the nature of free markets. While there can be no doubt Apple got its share of everything, as once the most valuable corporation in the world, app developers have also worked out their value.The economics of the patented and protected drugs that pharmaceutical companies produce are a little more complicated, in part because the final, relatively ignorant users are so far removed from the originators and regulators.
Again, it is almost common cause to whinge about the profits made by pharmaceutical firms, but I’m not sure we should?
Inventions in medicine, be they miracle cures or popular dependencies or chronic necessities, influence the demographics of our planet and change human behaviour. But for every game-changing penicillin or salicylic acid or sildenafil or fluoxetine, there are any number of failures, any number of exhausted research and development budgets.
So, when you find a winner, a decomposable, immediately replicable, chemical composition, you’ve got to protect it for a while, before the generics take over, so that you can fund the search for the next one. Books and movies are no different – you have to have bestsellers to stay in the game.
Besides, what do all of the healthcare intermediaries that feed off a new drug have to complain about? There surely seems to be enough to go around – between the medical aid profits, the pharmacy margins, the insurance companies and the administrators. Thank goodness people get sick, and thank goodness even more that drugs are produced to keep them alive, at least long enough to get sick again.At the centre of all of these concentric circles of economic feeding is that most valuable and rare of all things, the inquiring, resourceful, inventive, problem-solving human brain. Its reward isn’t usually fully measured in money, but rather in the joy of discovery, the conquering cure, or the enabling microchip.
Enduring economic value only manifests after recurring, tested and proven success. It can take decades of predictable quality to achieve that most sought after of badges – the valuable brand. A brand ensures that you can charge a premium for your products and attract leading edge human capital at the right price. This is not only true in the corporate world. Seeing the potential reward for original products and ideas also encourages and enables the funding of entrepreneurs, albeit often later absorbed in what may be described as preemptive market share protecting takeovers.
Anyone can eat somewhere down the value chain, but the inventors have to be funded to start the sequence. That funding has to be recouped from very few success stories. I believe that the spark of discovery or invention is motivated by things more virtuous and pure than money, but you’ve got to eat.
Mark Barnes is CEO of the Post Office.