Unit 8 Commercialization (FINAL VERSION)

UNIT 8:
COMMERCIALIZATION OF NEW
TECHNOLOGY-BASED PRODUCT

1
Entrepreneurship Dept,FBM (2009) ENT 600/UNIT 8: COMMERCIALIZATION
TECHNOLOGY ENTREPRENEURSHIP
(ENT 600)
Introduction
The word technology-based product in this unit
encompasses physical products, services and
processes.

New technology-based product is the output
developed from innovative activities that take place in
a successful R & D (research and development).

Research and development activities may take place
in public universities or research institutes owned by
government or private research institutions.
2 Entrepreneurship Dept,FBM (2009) ENT 600/UNIT 8: COMMERCIALIZATION
Technology-based Industry In Malaysia
The future of Malaysian technology-based
industry is very much dependent on locally
developed technology-based ventures.

The success of home-grown technology-
based venture is determined by the strength
and efficiency of commercialization of R&D
(research and development) output and
enforcement of intellectual property (IP) law
in Malaysia.
3 Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION
Commercialization of Research &
Development
The products of R&D will not generate revenue
unless they are successfully commercialized.

Commercialization of Research and Development
refers to efforts taken to introduce new technology-
based product to the market with the aim of gaining
commercial return.

The commercial value of a research is measured by
the contribution of the research findings to the
development of new process, new services or
product.
4
Entrepreneurship
Dept,FBM (2009)
Taking R & D Output To The Market
There are two approaches through which research findings
could be brought to the market by:
1. Disseminating innovation freely through academic
publication such as journals and proceedings of
research conference. This approach does not
promise maximum benefit to the innovator

2. Allowing the researcher (innovator) to monopolize
the benefits of research and development in the
form of intellectual properties (IP) and
commercialization of the IP.
5 Entrepreneurship
Dept,FBM (2009)
Options To Commercialize Research &
Development
There are five (5) options to commercialize R & D:
1. Outright sale of the R&D output before securing IP (intellectual
properties)

2. Get into licensing agreement with established private organization
after securing IP

3. Get into Assignation agreement with buyer

4. Spin-off by starting a new venture from within the established
research organization.

5. Spin-out by starting a new venture independent of the research
organization where the new technology-based product was
developed.
6 Entrepreneurship
Dept,FBM (2009)
Commercialization Pattern of R&D
Spin-off
Company
Established
Licensing Agreement
Established with Existing
Private Sector
Organization.
Production
Patent Application
R & D
Outright sale of
research product
before securing IP
Spin-out
Company
Established
Assignation Agreement
Established with
Existing Private Sector
Organization.
7 Entrepreneurship
Dept,FBM (2009)
Commercialization Options:
Outright Sale of The R&D Output
The researcher may decide to sell the R&D output before
applying for patent rights due to any of the following reasons:

Cost to secure a patent right is higher than the product
potential value

The new technology-based product is competing with a
promising substitute product (the developed technology is
already mature and facing substitution stage)

High market development cost required because market is
not yet ready for the product.

To avoid the hassles associated with patent application
8 Entrepreneurship
Dept,FBM (2009)
Licensing A Patent
Licensing a patent to an established business organization is
considered as one of the most viable means of commercializing
a new technology-based product.

A patent holder who licenses his patent is known as the
licensor, while the person to whom the patent is licensed to is
called the licensee.

When a patent is licensed to a licensee, the licensee is given
the exploitation right .

Exploitation right means the right to create, market and sell
something based on what the patent protects.

9 Entrepreneurship
Dept,FBM (2009)
Licensing A Patent..continue
In return, the licensor will expect financial return in the form of
royalties from the licensee.

A patent license basically is a legal contract that spells out
terms and conditions for examples:
The area of exploitation allowed by the licensing
agreement.
Performance obligation demanded by the licensor over the
licensee in order to ascertain consistent financial return.
The amount and frequency of royalties to be paid by the
licensee.

In this context a license is revocable or cancellable if certain
terms and conditions are not met.

10 Entrepreneurship
Dept,FBM (2009)
Patent Assignation
Patent assignation is an irrevocable exploitation right given
by an assignor to an assignee. The assignor refers to the
original patent holder, the assignee is one who receives
assignment of the patent.

Assignation is not like licensing:
Assignation entails the sale or outright transfer of the
patent by the assignor to the assignee.
Assignation is sought if an irrevocable exploitation right
is needed by the parties involved.

The disadvantage of patent assignment is that when
assignee failed to pay royalties this will not revoke the rights
that already assigned to the buyer.
11 Entrepreneurship
Dept,FBM (2009)
Valuing a Patent
Determining the monetary value of a patent is very
important because it helps the patent holder to
determine:
The right value to sell the patent to assignee
The right amount of royalties to be charged to patent
licensee.

How much a patent is worth depends on the following
factors:
1. The size of the potential market.

2. The value of comparable patents.
12 Entrepreneurship
Dept,FBM (2009)
3. Validity of the patent (the risk of the promoted
patent to be invalid if the inventor does not meet
the statutory requirement for obtaining the
patent).

Example:
They were not the inventors
Had published the information about the
invention
Had offered the invention for sale before
the date of application

13 Entrepreneurship
Dept,FBM (2009)
Valuing a Patent.continue
Valuing a Patent.continue
4. Determine if the patent overlaps with other
patents, the higher the probability that a patent
may overlap with another, the lower the value of
that particular patent.

5. Assess how much it costs for someone to use the
next best patent instead of buying or subscribing
license of your patent.

6. Determine the reasons for selling or licensing the
patent.

14 Entrepreneurship
Dept,FBM (2009)
Spin-Off Into A New Venture
Alternative to licensing and assignation, an innovator may
choose to commercialize his invention through the creation of
a new technology-based venture.

In this context the innovator assumes the role of a
technopreneur by creating a new venture from within an
established organization like a university or a company

In venturing into the spin-off company the technopreneur
himself exploits the patent rights he had secured.

Prior to venturing into a new technology-based business a
technopreneur needs to develop a business plan, determines
financial requirements and seeks sources of financing.
15 Entrepreneurship
Dept,FBM (2009)
Spin-out Into An Independent New Venture
Besides venturing from within the established R&D institutions,
universities or established business organizations the innovators
may also have the option to leave the parent organization and
established an independent new venture to commercialized the
patent he owned. In this context the innovator assumes the role
of a technopreneur by creating a new venture independently

Similar to a spin-off venture, in a spin-out venture the
technopreneur himself exploits the patent rights he had
secured and needs to develop a business plan prior to venturing
into the new venture.

However, in the case of a spin-out venture the technopreneur
has to bear the risk of the new venture alone.

16 Entrepreneurship
Dept,FBM (2009)

The Risk of A New Venture

In spinning off or spinning out into a new venture,
the technopreneur faces the following risks:
1.Technological uncertainty
2.Strategic uncertainty
3.Uncertainty in first time buyers

1. Technological uncertainty is associated with:
To determine order winning product configuration.
To determine the most efficient production technology
To determine the level of difficulty to develop this
technology.

Entrepreneurship
Dept,FBM (2009)
17
The Risk of A New Venture (continue)

2. Strategic uncertainty
New products are often characterized by the absence of
a proven marketing strategy. Hence firm needs to utilize
more resources in order to ensure success.

3. Uncertainty in first-time buyers
Customers of a new venture normally are first time
buyers. The marketing task is to substitute what buyers
used to purchase and to encourage these buyers to
make initial purchase of the new products.

Entrepreneurship
Dept,FBM (2009)
18
Barriers To Entry
A new venture may face difficulty to establish entry into a
particular industry.

Entry barriers refer to the accessibility of a new venture
into a particular industry. Factors that contribute to entry
barriers are:
The cost of adopting technology in the industry
Access to distribution channel
Access to raw material
Cost inefficiency due to lack of experience
The cost of capital required to launch the new venture
Some of these barriers disappear as the industry
develops.
19 Entrepreneurship
Dept,FBM (2009)

Considering Business Incubators To Increase The
Chance For New Venture Survival

Business Incubator means a facility with adaptable space
that a new venture can lease on flexible terms and at
reduced rents.
The purpose of an incubator in the early stage of the new
venture is to increase the chance of survival for new start up
business.
Business incubators offer financial, managerial, technical,
and administrative support services which are available on
sharing basis.
Most incubators limit the time for new venture occupying
space in the facility ranging from two to five years
20 Entrepreneurship
Dept,FBM (2009)
Technology Life Cycle
The performance of technology and product has
a recognized pattern over time

This pattern can be very helpful in the strategic
planning process of the technology-based
venture

Thus, managing a technology venture requires
deep understanding of the life cycle of the
technology, product, process and system.
21 Entrepreneurship
Dept,FBM (2009)
Technology Life Cycle (continue)
A technological rate of performance
improvement is dependent on the effort such as
research and development devoted to the
technology improvement.

A newer technology may have higher limit of
performance for the same parameter and may
replace the older technology at certain period of
time.

Entrepreneurship
Dept,FBM (2009)
22
Technology Life Cycle (continue)
Technology performance is expressed in term of
any attribute such as density in electronic
industry (for example number of transistor per
chip), speed in mile per hour, energy
consumption in K Watt per hour or fuel
consumption in mile per Km.

The technology performance become vulnerable
to substitution or obsolete when a new or better
technology emerges.
23 Entrepreneurship
Dept,FBM (2009)
Technology Life Cycle
Physical Limit
Time
Technology
Performance
Parameters
NEW
INVENTION
PERIOD
Embryonic
Technology
Improvement
period
Growth
Maturity
Mature
Technology
Period
Aging
The S-curve of technological progress

Source: Tarek Khalil (2000), Management of Technology; the Key Competitiveness
And Wealth Creation, McGraw-Hill International Ed., Singapore, (pg 81).
24 Entrepreneurship
Dept,FBM (2009)
Stages in the TLC

Technology progresses through a three-stage
technological life cycle (TLC):

1. The new invention period known as the
embryonic stage.
2. The technology improvement period, also
known as the growth stage.
3. The mature technology period or maturity
stage.
25 Entrepreneurship
Dept,FBM (2009)
TLC Stages:
New Invention Period or Embroynic Stage

The new invention period is characterized
by a period of slow initial growth. This is
because experimentation and initial
problems are worked out of the system.
Entrepreneurship
Dept,FBM (2009)
26
TLC Stages:
Technology Improvement Period
or Growth Stage
The technology improvement period is
characterized by rapid and sustained
growth.

Also known as the growth stage
Entrepreneurship
Dept,FBM (2009)
27
TLC Stages:
Technology Mature Period
or Maturity Stage
The mature technology period starts when
the upper limit of the technology is
approached and progress in performance
slows down. This occurs when the
technology reaches its natural limit.

Entrepreneurship
Dept,FBM (2009)
28
TLC Stages:
Technology Mature Period or Maturity Stage (cont)
The technology become vulnerable when
technological substitution takes place or when
the technology becomes obsolete. That is when
better new technology emerges.

Investment in the on going technology at this
stage may be riskier even though some may
thrive in the declining technology.
Entrepreneurship
Dept,FBM (2009)
29
TLC and the Market
In commercializing new technology or product
one must identify the stage of the technology in
its life cycle.
Technology under development stage has no real
income-producing value and the technology that
is not being marketed (technology on the shelf)
provides no return.
When technology reaches the market it
generates income.

Entrepreneurship
Dept,FBM (2009)
30
The Technology Market Life-cycle
As technology develops along with the
recognized technology life-cycle, the
technology begins to penetrate its market
and subsequently experiences market
growth.
The corresponding market growth phases
of the technology is called the Technology
Market Life-cycle and is expressed as
market volume
31 Entrepreneurship
Dept,FBM (2009)
The Technology Market Life-cycle Phases
Over time the technology will experience
six phases of market life-cycle:
A. Technology development phase
B. Application launch phase
C. Application growth phase
D. Technology mature phase
E. Technology substitution phase
F. Technology obsolescence phase
32
Technology Market Life-cycle
Technology Development Phase
At the Technology Development Phase the market
does not recognize the technology at all.

During this time the researchers are putting in much
effort and utilizing significant amounts of resources to
create the technology, develop proto type and testing
the new technology.

During this period revenue is not generated and
where ever possible, time spent in this phase has to be
reduced.
33
Application Launch Phase
This is the phase where the technology is
launched on the market as a new application
(e.g. a new product or process)

Once the new technology application is
launched the market volume will pickup with
the path of the technological progress.

It is characterized by slow beginning and
followed by rapid growth.
34
Entrepreneurship Dept,,FBM (2009) ENT 600/UNIT 8: COMMERCIALIZATION
Application Growth Phase
In the Application Growth Phase the
technology application will begin to penetrate
or go deep into the market

Extend of penetration of the technology into
the market will depend on the rate of
innovation and the market needs of the new
technology.
35 Entrepreneurship
Dept,FBM (2009)
Technology Mature Phase
In the Technology Mature Phase, the market
growth rate slows down as the technology
approaches its maturity. The market volume
may reach a peak and then start to decline.
36 Entrepreneurship
Dept,FBM (2009)
Technology Substitution Phase
The Technology Substitution phase is
characterized by declining market volume as
the technology is faced with being substituted
by new technologies

Companies that continue to utilize the old
technology will begin to experience decline in
market share and revenue.
37 Entrepreneurship
Dept,FBM (2009)
Technology Obsolescence Phase
In the Technology Obsolescence Phase the
technology application has become obsolete
and has little or no value at all.

Investment in the technology during this phase
is not attractive
38 Entrepreneurship
Dept,FBM (2009)

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