IoT Disruptive Innovation & Patent Exploitation

I. Disruptive IoT Innovation

HBS professor Clayton M. Christensen coined the concept of the “disruptive innovation.” Christensen explained the disruptive innovation in his famous book “The Innovator’s Dilemma” as an innovation that disrupts an existing market in ways that the market does not expect, and eventually create a new market. PCs replaced the mainframe computers, 3.5 inch floppy disk drive replaced 5.25 inch drive and digital cameras replaced film cameras are some examples of the disruptive innovation. Key features of the disruptive innovation that differentiate it from the traditional (sustaining) innovation are as follows.

·         The products/services provided by the disruptive innovation underperform demanded by the current mainstream market. Thus, the incumbents in the current market ignore the opportunities provided by the disruptive innovation. The speed of performance improvement of the disruptive innovation is, however, faster than that of the traditional innovation supporting the current market demand. Thus, the products/services provided by the disruptive innovation can serve the future market demand.

·         The performance of the products/services provided by the disruptive innovation does not need to surpass the performance of the products/services provided by the traditional innovation. The products/services provided by the disruptive innovation will create a new market by either offering comparable performance or meeting the customer’s expectation at lower cost.

Interconnected IoT (Internet of Things) devices enable the development of the disruptive products/services by meeting the customer’s expectation at lower cost. For example, a prefabricated house with built-in IoT applications for the smart home can provide the comparable quality of life at lower cost. Interconnected IoT (Internet of Things) devices also can provide the disruptive products/services by offering comparable performance. For example, the telemedicine system equipped with interconnected low cost medical devices can offer comparable performance of the traditional healthcare system with high cost and high performance medical devices.

II. Patent Exploitation for the Disruptive IoT Innovation

One way of exploiting patents for the development of the disruptive IoT products/services is to open patents owned by the incumbents to the business ecosystem collaborators in diverse industries (the “Open IP Innovation”). By letting the collaborators develop the disruptive IoT products/services exploiting incumbents’ patents, the incumbents can keep focusing on the current mainstream market in addition to effectively prepare the emerging market created by the disruptive IoT innovation. A practical method to exploit patents for the development of the disruptive IoT products/services through the Open IP Innovation is to apply the new product/service development methodology in the “Blue Ocean Strategy” (the “Blue Ocean Patent Strategy”).

In “Blue Ocean Strategy,” the authors provide a framework and tool set for creating new products/services, and thus a new market (blue ocean), through the value innovation such that maximize the value proposition and minimize the cost to provide the value to customers. To achieve the value innovation the authors suggest the companies ask the following four questions (eliminate-reduce-raise-create framework):

a. Which of the factors that the industry takes for granted should be eliminated?

b. Which factors should be reduced well below the industry standard?

c. Which factors should be raised well above the industry standard?

d. Which factors should be created that the industry has never offered?

These four questions can be converted into the strategy canvas (level of value proposition v. value proposition factors) to create a new value curve. In “Blue Ocean Strategy,” the authors use strategy canvas to analyze the competitive environment of the market (red ocean). Drawing a strategy canvas does three things. First, it shows the strategic profile of an industry by depicting very clearly the factors that affect competition among industry players (BLUE OCEAN FACTORS). Second, it shows the strategic profile of current and potential competitors, identifying which factors they invest in strategically. Finally, it shows the company’s strategic profile- or value curve-depicting how it invests in the factors of competition and how it might invest in them in the future.

The basic principle in the Blue Ocean Patent Strategy is to exploit patents to achieve the value innovation by using the patented technologies to create a new value curve, and thus, to provide new products/services. Following figure illustrates the basic principle of the blue ocean patent strategy.

For example, a company in the consumer electronics industry that wants to develop the IoT medical devices can exploit existing patents that cover the factors of the strategy canvas. By deciding which factors (that are covered by the existing patents) are really crucial, and thus, needed to raise and/or create the value curve, new medical devices that serve the customers in fundamentally different ways can be developed. Patents regarding superior UI/UX, compact/portable design, robust wireless connectivity are the good candidates for the BLUE OCEAN FACTORS. The exploitation of existing patented technologies not only allows the low cost IoT medical devices development but also provides the protection against competitors’ infringement.

For details regarding the patent strategy for the disruptive IoT innovation, please contact Alex G. Lee (alexglee@techipm.com).

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