Google bought Motorola Mobile last year along with its 17k patents, while a consortium including Apple, Microsoft and RIM bought 6k from Nortel as it withdrew from the market. Owning patents is important if you get involved in infringement cases, such as those in the smart phone and tablet area right now: however it’s much more important in the creation of innovative and successful offerings. There are a number of considerations. In particular:

 

  • R&D – the amount spent on R&D (and sometimes including Engineering as it does at Dell) is related to the types of products being designed; software companies spend the most, while those hardware companies putting their own IP into products tend to have their own development labs (more in the case of component manufacturers such as Intel and AMD); a few suppliers (IBM, HP, Microsoft and Toshiba for instance) have their own research labs from which patents are produced for long-term future products and components
  • Acquisition – the recessions in 2008 and 2011 have driven large vendors to become more vertically integrated – building solutions from their own resources; to supplement their offerings most have acquired smaller companies with interesting technologies – especially in the storage area – Dell is a good example in having shifted from being mainly a reseller of EMC products to a company with its own IP following the acquisition of EqaulLogic, Ocarina, Compellent and Exanet’s assets; of course it’s also possible to purchase companies or their assets mainly for the associated patents
  • Patents – those companies with their own research labs tend to be the ones registering the largest number of patents; in 2011 the most successful were IBM (6,180), Samsung (4,894), Canon (2,821), Panasonic (2,559), Toshiba (2,483) and Microsoft (2,311) according to IFI; although counting the number of patents granted to a company is not the only measure of their success in innovation, it is worth noting that peripherals suppliers come close to the top, especially due to the proprietary nature of the engines they build
  • Products – product portfolios differ to the extent to which they include a supplier’s own IP or are based on ‘industry standard’ components designed by others; acquired companies and assets tend to add new types, with the acquiring company then having to spend time adjusting APIs to make the whole portfolio work together; those companies with their own IP from research labs and patents can design them from the outset to be compatible with existing offerings of course and are perhaps more likely to create market-changing offerings

Measuring the interaction of R&D and acquisition on product innovation

We looked at a number of suppliers to see what relationships there were between R&D, acquisition spending and revenues for their last published full year results, as shown in our chart. It demonstrates some interesting differences, although you need to also consider each company’s actual revenues – a failing supplier will have bigger proportions and visa versa (as is the case for Apple, which has experienced tremendous revenue growth). Of our sample NetApp and Oracle spent the highest proportion of their revenues on R&D, while HP and Oracle did on acquisitions. Oracle’s acquisition spending was even higher (35%) the previous year due to purchasing Sun, while HP’s number includes the $11 billion it spent on Autonomy. IBM’s strategy is currently to acquire many smaller companies, especially in the software area, to add to its consistent investment in basic research. Our research also suggests that Dell is frugal in both areas.

What makes you a Rainmaker?

Balancing the variants will make you a rainmaker and the recipe will be different dependent on which sector of the market you’re participating in. In particular:

  • Chip manufacturers need to invent new process to overcome the hurdles of miniaturisation, while pre-empting user needs in 7 years’ time
  • Systems suppliers need to invest more in R&D as well as acquisition if they want to become vertically integrated
  • Mobile hardware vendors should not just acquire assets to defend themselves against patent violation cases
  • Peripherals suppliers should not just invent new ways to prevent users from filling up their cartridges with cheaper ink

For smaller companies looking to be acquired, attracting capital investment may well the first step. Fot larger suppliers the issues discussed above are important in making you more successful in a changing market and need to be navigated carefully.
Resource Efficiency is one of the themes we follow – click here to find out how we evaluate suppliers.

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