Why Competing Successfully Is About A Lot More Than Just Copying The Technology

from the not-quite-so-easy dept

Last week, we kicked off quite the discussion following my post suggesting that Apple's iPhone patents weren't necessary. One of the commonly used arguments against that is that without the patents, others would simply copy Apple and there would be no ability for Apple to profit. I had hoped that the original post showed why that was wrong -- in showing that copying a product isn't as easy as just being able to reverse engineer it, but perhaps I didn't make the point strongly enough. Copying the technology is just one aspect to competing, and if the market is dynamic, by the time you catch up to whoever you're copying, they're way ahead of you. Witness the iPod. Apple continues to be innovative and pushing the boundaries of what can be done, and while competitors have made similar products, they're always immediately behind when Apple launches something new. Partly because of that there's also the perceived value or brand value associated with getting an iPod as opposed to a competitor's product. Even if it's an exact copy, people know and trust Apple, and trust the quality of its work. They also recognize that since Apple has established itself as a market leader, there's an ecosystem around it that helps support the value of the iPod over other solutions. The iTunes store is one example (supplied by Apple, obviously), but also all of the other accessory makers out there who design products to work with iPods, but not with competing devices. It's clearly a situation where even if someone could copy the technology, that's not really enough to hurt the originator. Apple can still sell its products at a premium, because of a variety of factors.

Now we have another example as well. Microsoft has long viewed Google as a serious competitor, and apparently Bill Gates and the folks in Redmond have been pulling out all the stops to compete with Google. In many cases, they've created products that seem as good, if not better, than Google's versions. Yet, despite all of that, they're losing traffic while Google gains it. Once again, it's not just about the technology, but the perceived view people have of Google as compared to Microsoft. Microsoft just hasn't been able to convince that many people that its search and mapping solutions are as good or better than Google's. Despite the claim that there are "no switching costs" for users to go elsewhere, that's not quite true. The perception that Google is better (and the feeling that it's "good enough") means that there's no reason for people to look elsewhere, and a Microsoft offering would need to be not just better, but significantly better to attract attention. Alternatively, they can work on increasing their brand value as well, in the space of online services. In other words, there are plenty of things that go into being able to innovate and build a successful product -- and simply copying someone else's technology is often a small part of that (and usually not a particularly good strategy). Patent protection only protects that aspect of copying (business model patents are another issue completely), but if they're supposed to encourage innovation, and the technology is only a small part of innovation, then the incentives are mis-aligned. The market can reward innovation without needing government monopolies and protectionist policies. The trick is to continually innovate, not just in the technology, but in the quality, the service and the brand as well.

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  1. identicon
    misanthropic humanist, 16 Jan 2007 @ 2:26pm

    artifact vs mechanism

    by the time you catch up to whoever you're copying, they're way ahead of you

    This is one of my main arguments against patents in a very dynamic market like software. Unless you copy code verbatim (and violate copyright) you can keep that lead while the others play catch up.

    Dudetastic: you have to be one generation ahead

    I disagree somewhat. It's nice to have a long advantage on second place, but even a small lead is all it takes to remain king of the hill.

    "In many cases, they've created products that seem as good, if not better, than Google's versions. Yet, despite all of that, they're losing traffic while Google gains it."

    This goes back to my post where I used the example of microphone manufacturers to illustrate the power of the brand. Against all expectations the "generics" offering arguably better product copies for less money failed to destroy the expensive originals. Google is synonymous with search. I think that even if MS did offer a substantially better product than Google they would never quite shift the powerful image that company has in relation to its product.

    another: "Your argument semi breaks down when it comes to pharmaceutical products."

    Yes, agree somewhat, but this is a much more complex area. Stay with me please, because this isn't an easy argument.

    A piece of technology like an iPod is the sum of its parts, ergo - you can dismatle and reverse engineer an iPod and understand exactly how it works in every important respect. Drugs are different. They require a complicated context that is human medicine. So, say my company BigPharm does a whole lot of research on a ancient Indian plant remedy. My team spend 10 million on extracting and purifying the active ingredient. What have I done to add value that deserves protecting?

    i) I have identified and isolated the active ingredient
    ii) I have developed a process to extract it.
    iii) I have spent considerable money on trials to approve the safety of my product.

    All those are non-trivial investments. But what research knowledge do I have (presumably kept back as trade secret) that is valuable to me? None at all. Anybody can come along and produce generics of the active ingredient. And of course it is morally abhorent to try to control any use of a plant that is an ancient remedy, to prevent another company from trying to identify and extract through their own process the same chemical compond. The fact that I as leader of the market spent the money on approving the safety of the active ingredient appears unfair, but it is a fact of life. The ingredient is now approved, for everyone. (Maybe there could be a fair law that allowed a generic to share in that cost, but that's another problem)

    Now - consider another scenario.

    Instead of leveraging ancient public knowledge my team of wizard biochemists at BigPharm create an entirely new synthetic drug based on years of biomolecular research. No such counterpart exists in nature.

    What assets do I now have?

    i) As before I have the active ingredient
    ii) Also I have my patented process
    iii) And I have the FDA approval like before.
    iv) This time however I have an additional asset. I know the mechanism of the drug.

    This last part is by far the most important aspect of any medical advance. As it stands I can patent i, ii and iii, but keep iv as a trade secret. While that does not "advance the arts and sciences", if I am the only one who understands why that drug works I am infinitely further ahead of all my competitors.

    I can improve on my drug, while my competition cannot.

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