Four Roles for Marketing in Open Innovation

(This post is mostly directed to small companies. Larger companies may well find my observations self-evident and part of their best practices. That’s all the more reason why small companies partnering with large firms should take heed.)

Whether driven by the new “hyperinnovation economy”, shrinking product lifecycles, increasing competitive pressure from developing nations, it’s clear business is showing  massive interest  in Open Innovation (OI).  As Henry Chesbrough, the godfather of Open Innovation, points out in his latest book, Open Services Innovation: Rethinking Your Business to Grow and Compete in a New Era,

Innovating in today’s environment requires being open. Open innovation can reduce the cost of innovation, help share the risks and rewards of innovation, and accelerate the time required to deliver innovations to the market. This is true for services business as it is for product business. Being more open can also help turn a business into a platform for others to build on.”

In this post I refer to  Chesbrough’s fully nuanced definition of open innovation, namely, “the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.”  Distinct from the software industry’s open source movement, supply-chain management and user innovation movements, Chesbrough points out Open Innovation focuses on the business model of a company.

The figures below capture his views on shifting from the old vertically integrated model where companies were their own source of ideas and technology (shown at top)  to a new open model (shown below) fostering inflow and outflows of knowledge, crossing company lines. For anyone who worries about their company’s business model, Chesbrough’s trilogy of books on open innovation is just a cerebrally thrilling read.)

Source: Henry Chesbrough

Clearly, as an open innovation initiative is such a core strategic decision profoundly impacting company processes and culture, it makes sense that discussions mostly stem from and are directed to the sanctum sanctorum of corporate leadership: The majority of published discussions seem to focus on the roles of executive leadership, early stage R&D and the inherent complexities of managing intellectual property throughout the process.  For the most part, the role of marketing seems diminutized.

Is marketing really in the back seat?   As sure as communication is marketing’s mantra, OI consultant,  Stefan Lindegaard  has pointed out that communication is one of the  top three core skills in OI leadership. Certainly, as I’ve discussed earlier with respect to Open Challenge contests (close siblings of Open Innovation) such as the NetFlix $1 Million Challenge, marketing devices and methodologies can interweave with R&D to produce effective, contest design. Still most of the marketing discussions seem to revolve around marketing’s role after The Big Bang occurs – namely, after the OI initiative is set in place.

What if any, is marketing’s role in initial OI partner negotiations? In terms of public-facing marketing, it makes sense that marketing’s role is under emphasized: After all, to make a purposefully absurd example, there’s no place for broadcasting an open innovation strategy real-time,  as that would both taint in-confidence negotiations among parties as well as reveal core strategic moves to competitors. However, in here, I am speaking of the broader role of marketing executives, particularly their internal company and partner communication functions.

This post explores four key roles for the marketing function in for small companies initiating Open Innovation efforts.  As I’ll argue, several actors within the marketing department, from market research, corporate communications, channel marketing, to marketing programs, may all play key parts at the very outset of partner negotiations to decrease time to market and reduce of business risk.

By the way – some may challenge: Shouldn’t I qualify my discussion to small companies where the technology is on a short commercialization path or where marketing is an explicit portion of the partner exchange? Surely, these marketing considerations don’t apply to university ventures? Actually  I believe pure technology deals are getting increasingly more rare: If one acknowledges the global trend of  shortening product lifecycles, where a product is soon to be replaced by a still  better and newer “shiny object” (or service), even nominal technology-only licensing deals  may have to acknowledge and use marketing’s long muscular tentacles, pulling R&D projects out faster into commercial reality.  Sitting out here in the 21st century where knowledge-sharing has been democratized – this simply is not your father’s 80’s technology licensing game any longer.

Four Roles for Marketing in Open Innovation’s Big Bang

 

1. Early Round Partner Communications

One of the core assumptions of the OI model, vs. the traditional vertically integrated business model, is that rather than a company building out its products (or its services) itself, one pulls in partners to supply early stage  R&D components and, conversely, share components for other companies to build upon. Partnerships abound.

At the outset, one of the fundamental stumbling blocks to partners agreeing is understanding (and trusting) each other’s business model, core assets and target markets.  To the degree that these are not understood, there is suspicion of possible conflict and no joint technology ventures or licensing agreement can be struck.

As marketing professionals are taxed with precise verbal and graphic depictions of the company business model and strategy, they can serve key roles in early negotiations with OI partners, making sure that the crisp, concise description is provided to partners.   To the extent that the marketing communications (whether provided as white papers, powerpoints, etc.) are effective, they can contribute to accelerating negotiation.  (Think my reference here  is to somewhat poofie marketing veneer? Try fitting on one slide a company’s market sectors, sizes, products, problems solved and key competitive feature. When skillfully wrought – such “executive snapshots” are essential decision tools, providing a playbook for both sides of the negotiating table.

It’s important to say here that one of the best things a marketing exec can do is to anticipate early on the points in the partnership which will require tight integration of the two parties marketing teams.  So as much as it is important to convey your own company’s business model, it is equally important to actively listen and learn the partner’s company’s business model and marketing plan. Both sides of the marketing table must cooperate for a successful end result.

Key marketing actors: Marketing Strategy, Corporate Communications, Marketing Communications, Partner Marketing

2. Research of New Market Opportunities Enabled by OI

One of the key benefits Chesbrough describes is that OI facilitates new market opportunities for a company, ones which in the old closed model were unprofitable.

Chesbrough gives a splendid example in his description of the OI efforts of the biotechnology company, Amyris.   The company originally focused on developing a reliable source for artemisinan , an anti-malarial therapeutic, funded by The Gates Foundation.   However, Amyris granted a license to this technology to Sanofi-Aventis to  commercialize the malarial drug, then taking their industrial synthetic biology platform into the biofuels sector, a much larger market opportunity.

Such market movese depend on market research – a corporate function which falls within the domain of the executive marketing function.  Even before initial partner discussion ensue, market research is called upon to define and estimate total market size, competitors, geographical opportunities, as well as projected growth rates of the potential new market opportunities.  In this sense, marketing is not just sitting at the negotiation table; it is setting the table for the negotiation.

Clearly, most OI prospective partners conduct (and hopefully update) their market research well ahead of sitting at the negotiation table.  Coupled with each company’s core business model and intent of market pursuits, the research in fact implicitly guides many of the key parameters on the table, items like IP rights assigned by industry sector as well as the geographical scope of those rights.

In many cases, market estimates may even guide the proffered marketing obligation of the OI partners specified in the final agreement. For instance, consider two companies, Company A and Company B, engaged in a cross-licensing agreement where each company will incorporate the other’s technology into a product. If Company A has an existing presence in a market (say, healthcare) they may specify the number of accounts for channel access by Company B (ultimately translatable to a dollar value estimate). In turn, Company B, while it may have the rights to  another market (e.g. Automotive) which it currently has no presence in, it  may  specifiy in the final agreement a dollar value of marketing investment  it will contirubute to development of that channel. (I discuss these marketing obligations in greater depth in the fourth role.)

Key Marketing Actors: Market Research, Business Development, Channel Marketing, Marketing Programs

3. Synchronizing the Close-to-the-Vest Marketing Plan to the OI Initiative

Most companies are operating not only with a business plan but its closely related offspring, the marketing plan. In that document, all the details of product release dates, partners, events, promotions, new service announcements, etc.  are described over a 1-3 year timeline.  One of the marketing corollaries of an open innovation initiative is that these planned activities, and costs associated, will highly likely be subject to change.

In part, successful companies smoothly operate because this internally published marketing plan is shared with employees:  It’s the road map, signaling upcoming activities, priorities, employee responsibilities, headcount requirements over the period. But I am not talking about this company-published plan.

For in early partner discussions, it’s obvious there’s another close-to- the-vest marketing plan under creation, one which assumes the participation of the partner.  As much as this ghost plan is neither relevant nor shared with the company at large during early stage partner discussions, this doesn’t diminish its importance as a draft of future  marketing roadmap. As I discuss at greater length under Role 4, early identification of partner marketing resources leverages open innovation for the marketing department ‘s budget:  Specifically, it can identify cost savings and additional marketing opportunities your company can  put on the table as part and parcel of the final agreement. For in the end, there are fixed costs within a marketing budget that may well become variable or partner-borne costs.  For example, consider whether you will really need to increase your marketing staff load with the partnership?  Or can your partner assist you through one of their existing marketing programs?

Key Marketing Actors: Marketing Executives

4. Marketing  Responsibilities in the Final Partner Agreement

It never ceases to surprise me how this particular point is lost on many. Most companies fully appreciate that the final contract agreement, even in so much as it may be initially be broached as a technology licensing agreement, must clearly outline the specific technologies under discussion, specific R&D efforts, milestone dates for engineering collaboration, documents to be transferred, IP rights of both parties, even identify specific markets for which each party is permitted or excluded .

Much less appreciated is the immense value of including specific marketing obligations (separate and mutual) of the partners directly into the final agreement. 

I learned this lesson in early Internet 1.0 days from one of the marketing powerhouses of times yore, namely, Microsoft. Working as a VP of Marketing at a small internet startup in Seattle, I participated in several technology agreements with the 800 lb gorilla. As is protocol, our mite-sized company was obliged to use a Microsoft contract as the initial draft template agreement. In all cases – no matter how deep-down R&D related our technology agreement (e.g. a license to use a component of a TCP/IP stack), I noted that Microsoft included marketing obligations in the contract. And I mean nitty-gritty details of  specific web promotions, co-participation in joint marketing opportunities, brand and style guides, press release approvals and more — the whole nine marketing yards. I could have been a complete marketing dunce and reaped many benefits — as long as I stayed within their boundaries.
.
Why is it  beneficial, perhaps imperative, to  include marketing components in a technology agreement even with small company partners?

  • First, it forces you to think ahead to who has what role in promoting the joint or licensed technology.
  • Second, it identifies marketing resources one partner may hold that may be available to the other partner. This is especially important for small companies.
  • Third, there’s the defensive benefit of protection of brand. As an example, consider  if both companies intend to market separate products using each other’s technology at the same industry conference. How will this play out – without confused messages? (In reality, large company partners are never going to omit  marketing obligation. So CYA.)
  • Fourth and most important,  it supports the entire agreement with contract-enforceable marketing activities – not leaving important marketing details on the table, to fall to chance, perhaps never to occur. (Translation: You just left money on the table).


Too many companies walk away from the table, high-fiving over a great tech agreement, only to waste the leverage of specifying the required marketing efforts which would aid in brining the final product  to market more quickly, with less risk and to a wider audience.

Key Marketing Actors:  Marketing executives in collaboration with IP counsel.

Extending the Open Innovation Funnel

It strikes me that marketing not only deserves  a seat at the starting rounds of an Open Innovation partnership, it can facilitate the critical communication process.  In the best case, clear enunciation of marketing obligations as part of the negotiation process allows both parties to extend the savings benefits of Open Innovation beyond R&D, into marketing itself.

By explicitly embedding downstream marketing responsibilities into the  OI partner agreement, you better guarantee more cost savings benefits of Open Innovation are realised. So I say cautiously, while I’m not one to unduly complicate the classic OI funnel diagram, and as much as I understand Chesbrough always included marketing’s involvement in OI – still I think small companies may find it useful to visualize the the classic funnel diagram extended explicitly into downstream marketing. (I have done this in the diagram below.)

 

 

Supplying the missing “marketing/sales” stage of the product cycle reminds smaller companies to pull forward future marketing costs into the initial negotiation. The bottom figure shows a  detailed view, showing just a few example inbound and outbound open marketing activities. (This deserves another post.)

Are marketing considerations left out of the “courting stage” of your open innovation projects?

Or am I swinging at windmills here – focusing on a best practice that is already adopted by even small companies in open innovation partnerships?

Image 2 credits: photo, illustration

 

Six Marketing Lessons of the NetFlix Crowdsourcing Experiment

Here we follow up on the marketing highlights of last week’s post on the $1 Mn NetFlix Prize announcement.

Why did the NetFlix Prize attract so much attention?

Here’s one reason.

At a time when many companies are still afraid of social media   –  here’s NetFlix crowdsourcing their engineering knowledge, offering up customer data, knowledge often safeguarded inside a company’s IP sanctum sanctorem.

It’s bold.  As many other  news sources and this blog reviewed last week, it’s probably the best use of crowdsourcing to date.  And, to many,  it’s scary.

What specific lessons does the NetFlix Prize teach  that can deployed inside and, more importantly, outside, your own company?  I see six lessons for companies. (BTW – what’s scary about any of this depends on which, if any, of these lessons appears alien to your company culture.)

1.  Share with your industry’s research community.

In order to improve their recommendation engine’s accuracy in predicting the movie likes of their subscribers, the starting point for the NetFlix contest was their offer of a precious data set:  100 million ratings from over 480 thousand randomly-chosen, anonymous customers on nearly 18 thousand movie titles.

To win and take home a prize, the NetFlix contest rules also specified

….. you must share your method with (and non-exclusively license it to) Netflix, and you must describe to the world how you did it and why it works.

 If you look at Wikipedia’s definition for the open source process, we see from the first few paragraphs that NetFlix pretty much followed it. (You only need  substitute the word “database” for “source code”) In the full open source tradition,  NetFlix didn’t  just sequester the submitted solutions for their own company use – they fed it back into the community knowledge base.

2.  Maximize the number of prizes you give away.

In many ways, NetFlix really offered many prizes to many different shades of stakeholders. (BTW- here’s a key concept in crowdsourcing. Broaden your definition of who is a company stakeholder.)

 Note several of these “prizes” are free, posing no additional cost of goods for a company. (This doesn’t mean some of these prizes, such as the customer data set, aren’t tricky to manage, as NetFlix’ current vexations with consumer privacy advocates now show.)

 

3. Keep them motivated for the long haul.


Tough challanges like solving a design problem, optimizing a movie database recommendation system for subscribers, can take months or years to make progress. In fact, the more valuable the problem being solved is to your company, the longer it will take.

The answer: Milestone or Progress Prizes. Per the NetFlix contest rules

Serious money demands a serious bar. We suspect the 10% improvement is pretty tough, but we also think there is a good chance it can be achieved. It may take months; it might take years. So to keep things interesting, in addition to the Grand Prize, we’re also offering a $50,000 Progress Prize each year the contest runs. It goes to the team whose system we judge shows the most improvement over the previous year’s best accuracy bar on the same qualifying test set.

 Complementing the Progress Prizes, NetFlix offered a leaderboard  for the contestants and media to watch.

 Why is this  gaming approach a key strategic element? Not only did this give contest entrants a sense of momentum, more significantly, it allowed NetFlix to incorporate incremental improvements into their product along the way.

4.  Use competitive energy.  Build in a “Last Call”.

After each prize submission, NetFlix  made  a public announcement that allowed all other teams to submit a better alrogithm within a 30-day window.

(For an idea of the sporting drama this lent to the final days and even minutes of the competition between BellKor’s Pragmatic Chaos and The Ensemble teams, check out Wired’s piece.)

Marketing-wise, this “Last Call” phase resulted in heightened PR and media attention to the contest, with the top tier media and techno blogosphere all tracking the contest’s progress with bated breath.

5.  Keep the attention of the virtual talent — even when it’s all over.

To maintain the momentum (and perhaps preempt advances of companies seeking use of the newly identified talent) NetFlix launched a new contest on the very same day of the award announcement.

6. Warning: This new marketing territory may be No Country for Old Men

 Okay – this one’s definitely scary.

It’s a new day when open systems, crowdsourcing and bold marketing combine.

Are the rules changing?

NetFlix along with the many others bravely deploying crowdsourcing indicate they are changing.

Too often marketing and engineering are separate silos within a company.   What NetFlix did here breaks across several  silos, brilliantly interweaving a marketing initiative in and out of the R&D process, while also outreaching to the wider research community – giving them a virtual engineering department of  51,000.

For those  afraid of open source process as putting their IP at risk – perhaps its time to think of the risks of not doing it, namely, much longer product cycles than your competitors.  

As in the movie No Country for Old Men, it really pays to know in advance what you’re looking at: Is it an oxygen tank or an air compressor used as a weapon?  So too could be crowdsourcing in the hands of your competitors.  PH…SSSST!

 

Useful new articles from others

ComputerWorld: Crowdsourcing takes Center Stage at DEMOfall 09

EbizQ   Crowdsourcing: Five Reasons it’s Not Just for Startups Anymore

 

 

Bookmark and Share