Internet payoff
Companies are now using the Net not only to assess what they have but also to make the most of it.
OK. So now what? Low doesn't think accounting rules are going to change soon. (The Financial Accounting Standards Board this year may approve a new way for accountants to keep the intangible assets of acquired companies on their books, but this won't affect most businesses.) But, Low says, "companies need to get into the game of analysing their own intangibles now." And the Internetâ€"which got us thinking more about intangible capital in the first placeâ€"is a great mechanism for analysing and exploiting it. Companies are now using the Net not only to assess what they have but also to make the most of itâ€" from wringing more value out of patents, trademarks, and technology, to harvesting employees' ideas and turning them into money.
The "hardest" intangible asset, and therefore the easiest to value, is intellectual property. Patents and trademarks are licensed for real money every day, and the advent of online patent and idea exchanges makes it easier to extract value from this form of knowledge capital. The Patent & License Exchange not only lets companies post patents they want to license and search for technology they need, it also provides a mathematical formula for approximating the value of a patent. The formula is based on the widely used Black Scholes model for valuing options, which, like patents, are assets with an uncertain future value and an expiration date. The Patent & License Exchange is one of at least a dozen online idea exchanges, nearly all less than two years old, meant to serve as dating services for companies and technologies.
Yet2.com, another such exchange, was born in early 1999 and now lets companies shop for innovations like "nanofibre-in-nanopore technology that enhances the electrical characteristics of piezoceramics" and a "new rotating device that can perform as a seal, bearing, or pump." Companies become members of the exchange for up to $50,000 per year for unlimited posting and searching (the entry level for limited use is $4,000). Yet2.com takes 10 percent of any completed transactions, to a maximum of $50,000 per deal. Conrad Langenhagen, Yet2.com vice president of finance and strategy, says the average technology posted on the system is worth about $5 million in R&D.
GE Industrial Systems, which sells more than 100,000 products ranging from voltage regulators to portable buildings, uses several of the online technology exchanges. "The nice idea about exchanges is that you do it once and you can get some really broad exposure for the technologies you're trying to market, with really very little resources expended," says Dave Christensen, manager of intellectual property for that unit. "Typically, technology licensing is a very resource-intensive, expensive process, so you tend to do it only with technologies you're likely to get very large paybacks on." Online exchanges let GE offer a wider range of technologies, at reasonable rates. For example, GE internally developed a system it uses to manage its own intellectual property licensing agreements; now it offers licenses to that software via the online networks.
Procter & Gamble is both a user and an early backer of Yet2.com, seeing it as a new way to monetise intellectual property, says Wally Murray, manager of licensing and external ventures for Procter & Gamble. "We only use 10 percent of our patents, and that isn't unusual for big companies like us. You spend a lot on research, and you invent a lot of stuff that doesn't fit. Over the years we've built a huge inventory of intellectual property assetsâ€"worth an enormous amount of moneyâ€"and quite frankly the whole world just recently figured out it would be a good idea to start selling this stuff."
By Don Steinberg, Smart Business
FRIENDS - Regarding Corporate America, think you will enjoy the first 3 chapters of my upcoming book, I LEAP OVER THEIR HEADS!, regarding General Electric (GE) and their reprehensible behavior. You can read them by going to www.edwardbaskett.com.