1. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 1 Selecting Technologies Robert Conway Senior Manager, Business Development and Licensing Carnegie Mellon University Center for Technology Transfer and Enterprise Creation

2. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 2 References Teece, David J., “Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy”, UC Berkeley, School of Business Administration, June 1986 Teece, David J., “Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy”, UC Berkeley, School of Business Administration, June 1986 Porter, Michael, Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York, Simon & Schuster, 1998 Porter, Michael, Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York, Simon & Schuster, 1998 Porter, Michael, Harvard Business School, various published articles on “Porter’s Five Forces”, beginning in 1980, e.g. www.quickmba.com/strategy/generic.shtml Porter, Michael, Harvard Business School, various published articles on “Porter’s Five Forces”, beginning in 1980, e.g. www.quickmba.com/strategy/generic.shtml

3. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 3 Technology Transfer Process Overview Researchers create a technology Inventors Center forTechnologyTransfer Invention Disclosure form Does CMU own it? Who else has rights? Is there commercial potential? Should we protect it, e.g. patent, copyright? Market the technology to potential licensees Negotiate license Licensee creates product Licensee License revenue to CMU Product sales generate revenue Negotiate license Monitor licensee performance Half of net proceeds Commercialization, patent costs Industry Roundtable Half of net proceeds Public Dedication

4. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 4 Market Characteristics What is the market – who will pay, and how much? How will the resulting product/service be positioned? What is the market – who will pay, and how much? How will the resulting product/service be positioned? Market size Market size Market growth rate Market growth rate Industry sector: concentrated or fragmented? Industry sector: concentrated or fragmented? Competitors Competitors Complimentary assets Complimentary assets

5. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 5 What problem does it solve? What pain does it remove or risk does it reduce? What problem does it solve? What pain does it remove or risk does it reduce? Revolutionary leap or evolutionary improvement? Revolutionary leap or evolutionary improvement? Product differentiation - benefits Product differentiation - benefits Substitutions or comparables Substitutions or comparables Regulatory environment Regulatory environment Network effects Network effects Protected technology? Protected technology? Technology Characteristics

6. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 6 Industry Stage Preparadigmatic phase: Preparadigmatic phase: many designs, no industry standard yet many designs, no industry standard yet complementary assets not yet a critical factor complementary assets not yet a critical factor Paradigmatic phase: Paradigmatic phase: industry standard has emerged industry standard has emerged complementary assets critical to success of technology complementary assets critical to success of technology

7. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 7 Complimentary Assets Complementary assets may prove a hindrance to selling, marketing, distributing, or supporting products based on this technology. Complementary assets may prove a hindrance to selling, marketing, distributing, or supporting products based on this technology. Complementary assets are generalized and easily accessible (no hindrance) Complementary assets are generalized and easily accessible (no hindrance) Complementary assets are specialized and are available (at some cost, which needs to be considered) Complementary assets are specialized and are available (at some cost, which needs to be considered) Complementary assets are specialized to the product and not available Complementary assets are specialized to the product and not available One or more critical complementary assets are owned by one or two firms One or more critical complementary assets are owned by one or two firms Complementary assets necessary for commercialization are not available and may require considerable investment to develop Complementary assets necessary for commercialization are not available and may require considerable investment to develop List companies that maintain critical complementary assets List companies that maintain critical complementary assets

8. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 8 Appropriability Regime Tight or weak appropriability Tight or weak appropriability Tight - technology can be protected through patents, copyrights or trade secrets (tacit knowledge) Tight - technology can be protected through patents, copyrights or trade secrets (tacit knowledge) Weak – cannot protect, easily learned or discovered process or knowledge Weak – cannot protect, easily learned or discovered process or knowledge Technology is easy to protect: includes both easy to defend patent and tacit knowledge Technology is easy to protect: includes both easy to defend patent and tacit knowledge Technology is fairly easy to protect with some tacit knowledge Technology is fairly easy to protect with some tacit knowledge Technology is not easy to protect and knowledge is easily transferable or copied Technology is not easy to protect and knowledge is easily transferable or copied Technology is difficult to protect. Technology is difficult to protect.

9. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 9 Time to Market Investment Long Period Short Period Minor Invest ment OK if timing is not critical Full Steam Ahead Major Invest ment Forget It OK if cost position tolerable Source: Teece, David J., “Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy”, UC Berkeley, School of Business Administration, June 1986

10. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 10 The Acid Test 1. What is the value of the invention over existing methods? 2X, 10X, or 100X better than existing products? [<10X do not pursue] 2. What is the economic or other benefit benefits over present products? (cost, quality, benefits = competitive advantage) 3. Can other solutions achieve the same result? 4. Is there sufficient potential demand to provide an ample ROI? 5. How much product development is required? (Invention maturity - time required for product development, marketing and sales) 6. Can it generate significant revenue in the first five years? 7. Are there other applications for this invention? (Identify specific companies in each industry that might want a license) 8. Do you have personal contacts at companies that may be interested? Who will you call first, next, etc.?

11. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 11 Could this be a startup company?

12. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 12 Startup Assessment Tool (StAT) Inventor Focus – startup interest, startup experience, protected knowledge, industry relationships Inventor Focus – startup interest, startup experience, protected knowledge, industry relationships Market Focus – emerging market, platform technology, network effects Market Focus – emerging market, platform technology, network effects Competitive Focus – market size, complimentary assets, regulatory barriers, substitution Competitive Focus – market size, complimentary assets, regulatory barriers, substitution Other – subjective factors (appropriability regime, industry stage, etc.) Other – subjective factors (appropriability regime, industry stage, etc.)

13. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 13 Industry Roundtable Evaluation Four to seven industry experts plus the inventors Four to seven industry experts plus the inventors Related industries Related industries Serial entrepreneurs Serial entrepreneurs Experienced business people – government regulations, union rules, tax implications, sales, marketing, insurance, etc. (IT, HR, accounting) Experienced business people – government regulations, union rules, tax implications, sales, marketing, insurance, etc. (IT, HR, accounting) One hour One hour 5 min – introductions 5 min – introductions 10 min – inventor presentation 10 min – inventor presentation 45 min – moderated discussion 45 min – moderated discussion No NDAs – no enabling or proprietary information No NDAs – no enabling or proprietary information

14. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 14 Porter’s Forces and Generic Strategies

15. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 15 Porter’s Five Forces Industries have different profitability – some of this difference is determined by industry structure Industries have different profitability – some of this difference is determined by industry structure Professor Michael Porter - Harvard Business School – described five forces that drive competition within an industry (1980) Professor Michael Porter - Harvard Business School – described five forces that drive competition within an industry (1980) The intensity of rivalry among existing competitors The intensity of rivalry among existing competitors The threat of entry by new competitors The threat of entry by new competitors Pressure from substitute products Pressure from substitute products The bargaining power of buyers The bargaining power of buyers The bargaining power of suppliers The bargaining power of suppliers

16. SUPPLIER POWER - Supplier concentration - Importance of volume to supplier - Differentiation of inputs - Impact of inputs on cost or differentiation - Switching costs of firms in the industry - Presence of substitute inputs - Threat of forward integration - Cost relative to total purchases in industry BARRIERS TO ENTRY - Absolute cost advantages - Proprietary learning curve - Access to inputs - Government policy - Economies of scale - Capital requirements - Brand identity - Switching costs - Access to distribution - Expected retaliation - Proprietary products THREAT OFSUBSTITUTES -Switching costs -Buyer inclination to substitute -Price-performance trade-off of substitutes BUYER POWER - Bargaining leverage - Buyer volume - Buyer information - Brand identity - Price sensitivity - Threat of backward integration - Product differentiation - Buyer concentration vs. industry - Substitutes available - Buyers' incentives DEGREE OF RIVALRY - Exit barriers - Industry concentration - Fixed costs/Value added - Industry growth - Intermittent overcapacity - Product differences - Switching costs - Brand identity - Diversity of rivals - Corporate stakes Diagram of Porter’s Five Forces

17. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 17 Porter’s Generic Strategies Three generic business strategies regardless of industry Three generic business strategies regardless of industry Strategies depend on market size (broad/narrow) Strategies depend on market size (broad/narrow) Industry leaders pursue a single strategy Industry leaders pursue a single strategy Often the strategies are incompatible Often the strategies are incompatible Combining strategies can lead to stagnation Combining strategies can lead to stagnation Corporations create separate businesses to follow different strategies Corporations create separate businesses to follow different strategies Strategic focus does not guarantee success – companies are still vulnerable to those that can undermine their position Strategic focus does not guarantee success – companies are still vulnerable to those that can undermine their position

18. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 18 Generic Strategies

19. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 19 Broad Industry Strategies Cost Leadership Cost Leadership Low cost provider Low cost provider Larger market share, lower profits Larger market share, lower profits Differentiation Differentiation Superior features Superior features Smaller market share, higher profits Smaller market share, higher profits

20. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 20 Focus Strategy Cost or differentiation advantage in narrow segment Cost or differentiation advantage in narrow segment High customer loyalty deters rivals and new entrants High customer loyalty deters rivals and new entrants Lower volumes result in less supplier bargaining power Lower volumes result in less supplier bargaining power May pass higher costs to customers since substitute products don’t exist May pass higher costs to customers since substitute products don’t exist Vulnerable to imitators and changes in customer preferences Vulnerable to imitators and changes in customer preferences Other focusers may be able to control sub-segments Other focusers may be able to control sub-segments

21. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 21 Forces and Strategies

22. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 22 Selecting Technologies Robert Conway Senior Manager, Business Development and Licensing Carnegie Mellon University Center for Technology Transfer and Enterprise Creation

23. Research $42.3 billion Invention 17,382 disclosures 1 per $2.43 million IP Protection 9,536 new patent applications 1 per $4.4 million Commercialization 4,932 licenses and options 628 company starts 2005 AUTM Survey

24. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 24 New Product Introductions 527 new products first available in 2005 3641 new products introduced from 1998 to 2005 Source: Association of University Technology Managers survey FY2005

25. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 25 628 new company startups in FY2005 5171 startup companies formed since 1980 New Company Startups Source: Association of University Technology Managers survey FY2005

26. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 26 4,300 disclosures received 4,300 disclosures received Approximately 30% were licensed Approximately 30% were licensed 50% of the licenses produced less than $10,000 50% of the licenses produced less than $10,000 Only 30 deals generated $1,000,000 or more cumulatively Only 30 deals generated $1,000,000 or more cumulatively Of the 378 licenses generating any royalties, only 39 generated $100,000 or more Of the 378 licenses generating any royalties, only 39 generated $100,000 or more Only one out of 4,300 was a blockbuster Only one out of 4,300 was a blockbuster Source: Katherine Ku, Director Stanford OTL Stanford Experience over 30 years:

27. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 27 Carnegie Mellon 1993-2005 Start-ups related to Carnegie Mellon: 171 Start-ups related to Carnegie Mellon: 171 74% within the Pittsburgh region 74% within the Pittsburgh region Average per year: 12 (peak of 29 in 2000; 8 in FY06 to date) Average per year: 12 (peak of 29 in 2000; 8 in FY06 to date) Licenses to small, local companies: 68 Licenses to small, local companies: 68 Technologies licensed to local companies of all sizes: 114 Technologies licensed to local companies of all sizes: 114

28. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 28 CMU Inventions by School (%) Source: CTT 2005 Annual Report

29. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 29 CMU Technology Transfer Statistics