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Online Markets for Knowledge

Gary DushnitskyAssociate Professor of Strategy & Entrepreneurship

TIP-OECD Workshop on Knowledge Networks and Markets (15 June 2011)

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Physical Knowledge

Offline

Online

Motivation

© Dushnitsky (2011)

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4Search Costs

(Hayek, 1945; Bakos, 1998)

Expropriation(Arrow, 1972;Teece, 1986)

Adverse Selection

(Akerlof, 1970)

• How do they play out in an online setting?

Economics of Knowledge Marketplaces

© Dushnitsky (2011)

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Data

• Sample:

– Two-sided online marketplaces

– Imposed quality checks

– Lexis-Nexis searches

– Result: 30 unique markets

• Two emerging online knowledge markets:

– VCM (Venture Capital Market)

– IPM (Intellectual Property Market)

• For details see:

– Dushnitsky, G. and T. Klueter. 2010.

"Is There an eBay for Ideas? Insights from

Online Knowledge Marketplaces"

European Management Review,

8(1): 17-32.

Firm Website

Flintbox*** www.flintbox.com

iBridgenetwork*** www.iBridgenetwork.com

Ideaconnection (IPM)* www.ideaconnection.com

Knowledgeexpress (Free eMarket) www.knowledgeexpress.com

NewIdeaTrade www.newideatrade.com

Patentcafe (2XFR website) www.patentcafe.com

Pharmalicensing www.pharmalicensing.com

Pharma-Transfer www.pharma-transfer.com

SparkIP www.sparkip.com

Taeus www.taeus.com

Techtransferonline www.techtransferonline.com

Tynax www.tynax.com

V-Capital (IPM)* www.v-capital.com

Yet2 www.Yet2

ACE-Net (ActiveCapital)*** www.activecapital.org

Angel Investment Network** www.midatlanticinvestmentnetwork.com

Angelsoft www.angelsoft.net

Bizbuysell www.bizbuysell.com

Businessfinance www.businessfinance.com

Fundingspost www.fundingpost.com

Go Big Network www.gobignetwork.com

go4funding www.go4funding.com

Ideaconnection (VCM)* www.ideaconnection.com

Ideacrossing www.ideacrossing.org

Mergernetwork www.mergernetwork.com

NVST www.nvst.com

Raisecapital www.raisecapital.com

VCAOnline www.vcaonline.com

V-Capital (VCM)* www.v-capital.com

vFinance www.vfinance.com

Firm Website

Flintbox*** www.flintbox.com

iBridgenetwork*** www.iBridgenetwork.com

Ideaconnection (IPM)* www.ideaconnection.com

Knowledgeexpress (Free eMarket) www.knowledgeexpress.com

NewIdeaTrade www.newideatrade.com

Patentcafe (2XFR website) www.patentcafe.com

Pharmalicensing www.pharmalicensing.com

Pharma-Transfer www.pharma-transfer.com

SparkIP www.sparkip.com

Taeus www.taeus.com

Techtransferonline www.techtransferonline.com

Tynax www.tynax.com

V-Capital (IPM)* www.v-capital.com

Yet2 www.Yet2

ACE-Net (ActiveCapital)*** www.activecapital.org

Angel Investment Network** www.midatlanticinvestmentnetwork.com

Angelsoft www.angelsoft.net

Bizbuysell www.bizbuysell.com

Businessfinance www.businessfinance.com

Fundingspost www.fundingpost.com

Go Big Network www.gobignetwork.com

go4funding www.go4funding.com

Ideaconnection (VCM)* www.ideaconnection.com

Ideacrossing www.ideacrossing.org

Mergernetwork www.mergernetwork.com

NVST www.nvst.com

Raisecapital www.raisecapital.com

VCAOnline www.vcaonline.com

V-Capital (VCM)* www.v-capital.com

vFinance www.vfinance.com © Dushnitsky (2011)

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Data (2)

• Venture Capital Marketplaces (VCM)

• Intellectual Property Marketplaces (IPM)

• VCMs/IPMs as online knowledge markets

– Facilitate search and exchange knowledge

– Key IPM websites expand to VCM

– Key VCM websites have dedicated IP sections

• Dichotomy of IPM and VCM

– Considered distinct in the media

– Markets distinct even if on a single portal

– VCM and IPM provide a natural dichotomy of IP regimes

for online knowledge markets© Dushnitsky (2011)

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Results: Adverse Selection

Disclosure Disclosure

RequirementRequirement

Contingent Contingent

PaymentPayment

No ScreenNo Screen TotalTotal

Total23%

(7)

67%

(20)

10%

(3)

100%

(30)

• Adverse selection:

– Easier market entry and (potential) anonymity of participants (Bakos, 1998, Ellison & Ellison, 2005)

• Markets seek to mitigate adverse selection:

– Contingent Payments

– Disclosure requirements

© Dushnitsky (2011)

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• Alternative explanation:

A story of revenue maximization

– Buyers accrue major benefits in

search online (Bakos, 1997)

– In our settings, buyers rather

than sellers are endowed with cash

– Contingent payments should at least

be equally applicable to buyers

• Sellers are the locus of adverse selection

– Imposing contingent payments on sellers rather than buyers signals

that markets mitigate adverse selection

– Supported (MWW z-stats = 3.895, p<0.01)

No

Participation

Fee

Participation

Fee

Buyer 83%

(25)

17%

(5)

Seller 30%

(9)

70%

(21)

Results: Adverse Selection (2)

© Dushnitsky (2011)

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Results: IPR & Disclosure

• Risk of imitation

accentuated due to

codification (Winter, 1987)

• IPR precludes imitation (Teece, 1986; Cohen et al, 2001)

• Disclosure requirements are more likely to be employed in

markets where IPR is strong, all else being equal.

– Not supported (MWW z-stats = 1.08)

Disclosure

Requirement

No Disclosure

Requirement

IPM 14%

(2)

86%

(12)

VCM 31%

(5)

69%

(11)

Total 23%

(7)

77%

(23)

© Dushnitsky (2011)

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Summary

• An eBay for inventions?

– Online marketplaces have had a transformational impact in

the physical product space but we have yet to observe

the eBay equivalent

• Stylized facts:

• Evidence of mechanisms to mitigate adverse selection in online

marketplaces

– Disclosure requirements

– Contingent payment applicable to inventors/entrepreneurs

• No evidence of sensitivity to IP regime

– Disclosure requirements do not differ between VCM and IPM© Dushnitsky (2011)

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Expanding the Application Set

through the Market for Ideas

© Dushnitsky (2011)

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Research Question

• Do online markets for ideas expand the Technology-Application landscape?

– Robert Hirsch, managing director/licensing and DuPont

Ventures... "But it's quite unlike process licensing, where we

know who the potential customers are. It requires a very

different marketing approach. Often their potentialcustomers are from industries we would nevernormally have considered,” (Chemical Week, Dec. 2002)

© Dushnitsky (2011)

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Market for Ideas: Benefits?

• Broaden the feasible application set for any

entrepreneurial invention

• Current challenges

– Cognitive myopia

– Resource constraints

– Idiosyncratic (path dependent) ‘best use’

• Benefits of the Market for Ideas

– Heterogeneous parties (cognitive)

– Heterogeneous parties (capital)

– Heterogeneous parties (complementary assets)© Dushnitsky (2011)

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Technology-Application Space (1)

Application Space (SIC)Application Space (SIC)

Te

ch

no

log

y S

pa

ce

(I

PC

)T

ec

hn

olo

gy

S

pa

ce

(I

PC

)

© Dushnitsky (2011)

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Technology-Application Space (2)

Application Space (SIC)Application Space (SIC)

Te

ch

no

log

y S

pa

ce

(I

PC

)T

ec

hn

olo

gy

S

pa

ce

(I

PC

)

© Dushnitsky (2011)

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Technology-Application Space (3)

Application Space (SIC)Application Space (SIC)

Te

ch

no

log

y S

pa

ce

(I

PC

)T

ec

hn

olo

gy

S

pa

ce

(I

PC

)

© Dushnitsky (2011)

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Tech-App Matches: A Seller’s Perspective

• Examine underlying mechanisms, which allow firms to

broaden application space

– Examine the number of applications

considered for each invention

– Focus on established firms

• Unlikely inflated reports

– applications per invention

(mean 2.26, median 1)

• The more general an invention,

the larger the number of

reported product applications

– Negative binomial regression

at the invention level (418 obs)

Technology Characteristics

No. of Applications

Generality (NBER measure)

+ (p<0.01)

Forward Citations

+ (ns)

No. of Claims - (ns)

No. of Inventors - (ns)

Technology Age - (p<0.01)© Dushnitsky (2011)

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• Resource constraints

– Slack resources enable

pursuit multiple applications

– Inventing firms vary in

level of slack

– ‘Slack poor’ firms

report / make public

more applications

• Online markets involves

heterogeneous partners

– Unconstrained by

inventing firm’s slack

• Results

– Slack remains salient

Technology

& Firm

Characteristics

No. of Applications

(1) (2) (3)

Generality (NBER measure)

+ p<0.01) + (p<0.01) + (p<0.1)

Firm Slack + (p<0.01) + (p<0.01)

Generality *

Firm

Slack

- (p<0.01)

Forward

Citations

+ (ns) + (ns) + (ns)

No. of Claims - (p<0.1) - (p<0.1) - (ns)

No. of Inventors - (ns) - (ns) - (ns)

Technology Age - (p<0.01) - (p<0.01) - (p<0.01)© Dushnitsky (2011)

A Seller’s Perspective: Resource Constraints

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• Idiosyncratic (path dependent) ‘best use’

– Inventing firms are either

focused or diversified

– Focused firms’ have fewer

complementary assets

and thus locked into

fewer applications

• Online markets involves

heterogeneous partners

– Unconstrained by

inventing firm’s

complementary assets

• Results

– No effect of diversification

Technology

& Firm

Characteristics

No. of Applications

(1) (2) (3)

Generality (NBER measure)

+ p<0.01) + (p<0.01) + (p<0.01)

Firm

Diversification

+ (ns) + (ns)

Generality *

Firm

Diversification

- (ns)

Forward

Citations

+ (ns) + (ns) + (ns)

No. of Claims - (p<0.1) - (p<0.05) - (p<0.05)

No. of Inventors - (p<0.1) - (ns) - (ns)

Technology Age - (p<0.01) - (p<0.01) - (p<0.01)© Dushnitsky (2011)

A Seller’s Perspective: Path Dependence

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Summary & Future Steps

• Inventing firms are constrained in pursuing novel

applications to novel technologies

• Online markets may relax existing constraints

– Resource constraints

– Idiosyncratic (path dependent) ‘best use’

© Dushnitsky (2011)

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Future Steps

• Map landscape

– May facilitate interactions across a broad set of parties with

heterogeneous profiles (capital, application domains, etc.)

– Yet, susceptible to dynamics that can narrow scope

• Industry focus (may limit tech-app matches)

• Geography (legal regime, language barriers)

• Uncover and communicate value

– Uncover novel technology-application matches

– Identify the factors driving value creation

• Nature of factors

• Magnitude of impact© Dushnitsky (2011)