The answer is because it’s more cost-effective to license rights to a market ready IP than developing it from scratch.
Timing is everything when it comes to licensing. The market is dynamic, meaning it’s always changing. That’s what creates the window of opportunity for your IP. Changing technology, customer demand, legal regulations, and a score of other things are constantly changing the marketplace demand for innovation.
One big driver of demand for IP is the rapidly growing economies of many developing countries. Businesses of all sizes in these countries are scrambling to find innovative IP to meet their market demand for new products and services as their economies continue to grow. China is on of the biggest examples.
That’s why licensing is such an ideal strategy. It’s the process that’s used around the world to get rights for new innovative IP. It lets you strike while the iron is hot, and take advantage of the growing demand for innovation.
Take the pharmaceutical industry. Their business model was one of investing tens of millions in decades in research and development of new drugs. But their internal R&D is too expensive and too slow – especially for a rapidly shifting and more competitive marketplace. It’s faster, cheaper and better to source IP through collaboration. This strategy lets them get new products into the market faster by focusing on their strengths – production, marketing and distribution.
Other industries such as computers, electronics, consulting, consumer products and more are also shifting to the licensing model. Big players including IBM, Microsoft, Philips and P&G not only license out their IP, but also use licensing to develop new products and services. In 2000, less than 15% of P&G’s new products used outside IP. Today, its increased to over 40%.
Making and selling your product requires setting up the manufacturing, distribution and sales. You must develop or acquire the skills to design, manufacture, and market your IP. And that takes lots of time and money. Licensing is a faster, cheaper and less risky way to make money with your IP. With licensing, you only need a phone, fax and email to develop a licensing deal.
Innovation and new products are the lifeblood of every business. Rather than spending their time and money trying to develop and test new product ideas, companies today are looking for innovative market ready IP. Licensing a company who’s got the know-how and resources gets your IP into the market faster, at a lower cost, and with less risk then trying to do it yourself.