Ideas For Sale
The Big Idea
A handful of entrepreneurs are building marketplaces designed to hook up creative thinkers with businesses that need them. Is the world ready for an eBay of ideas?
Anyone who has spent time hunting for his glasses only to discover them on the bridge of his nose can relate to Sanjay Goel's feelings when he finally came up with the business idea for which he had been searching for half a year. The idea was this: to build a Web site for ideas.
Ideas are now widely regarded as the lifeblood of the economy. By some measures the market for the transfer of intellectual property has hit $100 billion. Increasingly, organizations are looking outside the ranks of employees to find these ideas. Last year, for example, mining company Goldcorp Inc. offered a total of $500,000 for the best ideas for getting 6 million ounces of gold out from under a lake in Ontario. The incentive paid off so well that the Canadian company upped the ante in March, offering a total of $2 million for other stellar gold-mining ideas. You can't even say it's not rocket science: NASA recently called on the world at large to come up with a scheme for launching a probe to Pluto for less than $500 million, having scrapped its own, more expensive plans.
Meanwhile, hundreds of thousands, and possibly millions, of people routinely generate ideas that could conceivably make someone a lot of money or otherwise improve the lot of some subset of humankind, but they're clueless about what to do with them. Send them uninvited to a company? Call a patent lawyer? Hire an intellectual-property agent? Start a company? Take out an ad? All are avenues conventionally taken by those imaginative thinkers who don't simply let their ideas die on the vine. But maybe a better notion is to bring the Internet's aggre- gating capabilities to bear on idea matchmaking, in much the same way that eBay has brought together buyers and sellers of collectible goods.
And so it was that the company Goel and Sharat Singh founded, called Ideas.com, along with a small pack of competing Web sites, intended to pull in orphaned ideas and funnel them to businesses willing to pay cold, hard cash for the best of them. "We're creating a marketplace of ideas," says Goel. "The ideas that are now being wasted are extremely valuable to companies."
Trafficking in ideas, of course, entails complexities that Beanie Baby traders never had to worry about, including the daunting difficulties in determining and valuing ownership of ideas. But, as with so many dot-coms, the biggest barrier faced by Ideas.com and its competitors has been having to struggle with unproved revenue models in an investment market that has turned its back on Internet companies unlikely to turn a quick profit. Indeed, time may have run out on Ideas.com. On July 31, Goel and Singh were seriously considering shutting down the company. But in bringing his company as far as he did, Goel managed to raise a question that may continue to beguile companies and individuals for years to come: can the Internet help transport ideas across organizational boundaries and in doing so render obsolete the entire notion of corporate boundaries?
HIDDEN JEWELS: "The ideas that are now being wasted are extremely valuable to companies," says Sanjay Goel, founder of Ideas.com.
Sanjay Goel was born in Delhi, India, to parents who expected him to become an engineer or a doctor. But Goel was fascinated with business and by age 12 had cofounded a thriving neighborhood magazine-rental stand. He dutifully trudged off to the Indian Institute of Technology in 1984, where he studied electrical engineering and secretly planned to start a business when he graduated. But, like many of his classmates, he felt obligated to first grab a master's degree in the United States, and he ventured to UCLA.
After a stint as a robotics researcher in Japan, Goel returned to California in 1990 and reinvented himself as a programmer specializing in finance. "I had zero background," he says. "My whole thing is I'd rather fail doing something very ambitious than succeed doing something that's not ambitious." After a year of programming, Goel decided it was Wall Street or bust, so he loaded up his aging Honda Civic and headed cross-country.
In New York City he had several interviews, to no avail. His credit cards were maxed out, so Goel decided he'd drive a taxi to make ends meet -- only to learn that a taxi driver's license would cost $300 -- $290 more than he had. Still, he wouldn't budge from his goal. "I'm either going to do what I want or nothing," he says. "There's nothing in the middle." He was counting his change to see if he had enough money for a meal when Citibank called and offered him a position in its investment-banking division.
By 1998 Goel had already been named the division's managing director -- a career rise of unheard-of velocity in the staid world of big-time investment banking. Despite the success and his indulgence in on-the-edge hobbies -- he carried his parachute with him on business trips, began flying airplanes and helicopters, climbed Mount McKinley, and started motorcycling and windsurfing -- Goel became increasingly restless. In 1999 he realized that, for all his daring exploits, he had been keeping his back turned on the biggest adventure of all: building a company from scratch.
Goel came up with a sensible course of action: develop a business plan, get funding, and then resign from his position. He then promptly rejected his own advice and quit on the spot. "It had to be a clean break," he says. "I have enough confidence in myself to know that for the second time in my life I was going to restart my career."
Goel had already come up with what he thought was a golden business idea: an innovation marketplace. Now he had to figure out how to make such a thing work. He took to spending his days at the New York University Law Library, reading about innovation. "The books were telling me that companies understand the value of innovation, but that they haven't found an optimal way to deal with it," he says. But what sort of business could close that gap? For months Goel researched the problem and couldn't nail down an answer. Then, as if in tribute to the adventitious nature of idea generation, the solution came to him in his sleep. "I woke up and said, 'Now I'm ready for this," he recalls.
The idea behind Ideas.com was simple enough. Anyone could post to the site a brief description of an idea. Corporate executives in need of an R&D boost paid a fee to become affiliated with the site, along with monthly fees to maintain their affiliations. The executives perused the postings, and if they liked what they saw, they could negotiate directly with the poster. Postings described such things as a Web-based system for taking opinion polls; a laboratory bench that prints documents; and a heated, rollable pad for covering a sidewalk before a snowstorm. Companies paid commissions to Ideas.com of as much as 30% on ideas that they bought. (Neither Goel nor his customers will divulge how high any of those fees ran, except to say that the prices depended on company size and other unnamed variables.) Idea contributors paid nothing.
If Goel had had any doubts about the plan's viability, they evaporated when he shared his idea in late 1999 with Venky Harinarayan, a former UCLA classmate who had sold his own dot-com, Junglee, to Amazon.com in 1998 for $250 million. "I had been talking about it for 30 seconds when he told me to stop. I thought he was going to kick me out of his office, but he immediately offered to invest," Goel says. Harinarayan brought in his two Junglee cofounders, and the three chipped in $1.2 million to get Ideas.com off the ground. It launched last November with 15 employees. Among the executives who joined the start-up's board of advisers was John Seely Brown, the near-legendary former director of Xerox's ultrainnovative Palo Alto Research Center.
Things can get prickly in the field of idea vending when, for starters, a potential buyer notifies an idea poster that he or she wants to hear more about the idea. To sell the idea, the author must spell it out to the prospective purchaser. But once the idea is explained, the business could take it and run with it without paying. "How do you simultaneously advertise what an idea is while maintaining it as a secret?" asks Stephen Margolis, head of the economics department at North Carolina State University. For that reason, he says, economists call an unshared idea a form of "impacted information," meaning that it is hobbled by a breakdown in market forces.
Goel was well aware of the dilemma. "It was the first and main issue we had to deal with," he says. To get around it, the site encouraged idea sellers to ask prospective buyers to sign nondisclosure agreements (NDAs). Sellers were urged to enlist the "principle of incremental disclosure" -- that is, to unveil the idea in layers of increasing specificity. After each layer was revealed, the buying company could demonstrate its good faith with a payment or by upping the price it was proposing to pay for the idea. If negotiations broke down, the buyer left the picture, in theory without having seen enough details to implement the idea. Thus one Ideas.com contributor listed an idea for a "Computer Mouse (special type)" in this oblique manner: "It is a normal mouse with some very useful additional features." More details were available to "serious buyers," he or she noted.
In fact, incremental disclosure is the means by which the business world has long handled the sale of trade secrets. Trade secrets are designs and processes that aren't patented, typically because their owners fear that competitors will glean the secret from the patent file and find a way to implement it without violating the strict confines of the patent. (Think Coca-Cola recipe, which has never been patented.) Incremental disclosure became particularly popular in the 1970s, after Asian companies proved maddeningly adept at turning U.S. businesses' own innovations against them. "Certain offshore organizations with far more experience than us would send armies of guys over to look at information on the pretext of evaluating the company for a joint venture," says Kathryn Rudie Harrigan, Henry R. Kravis Professor of Business Leadership, at Columbia Business School. "These people were actually intellectual-property vacuum cleaners, and they got away with it until U.S. companies became more savvy and found ways to break their information into pieces with a pricing schedule."
Goel concedes that NDAs and incremental disclosure don't offer ironclad protection against unscrupulous companies bent on stealing ideas. But he insists that most idea sellers recognize that unethical companies are the exception. "Individuals generally have a sense that companies will treat them fairly," he says. "It's in a company's interest to reward someone for contributing an idea. The value of an uncooked idea is generally a small fraction of the value which the company is going to derive from it. Buying an idea isn't a one-shot transaction, it's a magnet for attracting the best ideas going forward." In other words, the best way to make sure smart thinkers send you their most valuable ideas -- as they come up with them -- is to buy their half-baked ideas now.
Ronald S. Jonash, managing director of Arthur D. Little's Global Technology and Innovation Management Practice and chief of innovation at ADL, agrees that companies need to be cautious about leaving idea generators feeling exploited. Jonash has worked with the automotive-supply industry and says that employees at many supply companies are not inclined to share new ideas with General Motors because of its reputation for taking ideas and developing them on its own. Chrysler, meanwhile, paid some suppliers to develop promising ideas in exchange for the exclusive rights to the resulting product for two years. That -- along with other creative relationships with suppliers -- is why Chrysler became the preferred customer of more than 75% of all suppliers, says Jonash.
HIGH RISK, HIGH REWARD: "I'd rather fail doing something very ambitious than succeed doing something that's not ambitious," says Goel.
Even if an Ideas.com posting attracted a company that wanted to do the right thing, the formidable task of placing a value on the idea remained. Typically, the buyer and the seller would take their own shots at coming up with a value and then the negotiations would begin. "When it comes to assessing an idea's worth before the idea is implemented, wilderness is a good word for describing the position you're in," says North Carolina State's Margolis. In cases where a reasonable sales estimate can be made for products based on the idea, he notes, a royalty of 2% to 10% of revenues is a rough rule of thumb. But if the product couldn't exist without the idea, he adds, the figure is frequently 30% of revenues and can go even higher. The amount may dip to a tiny fraction of a percent if the idea represents a slight improvement in an established product, such as a better knob in a car.
Things only get more complicated from there. In most cases, it's not clear up front whether an idea will end up being worth implementing at all, let alone how well the resulting product will sell. "Generally speaking, an idea by itself is worth nothing," says Mel Lazar, managing partner of Lazar Levine & Felix LLP, a New York City accounting firm that specializes in business valuation. "The question is, Can you take that idea and put it into a business in a form that will generate income?" For that reason, Lazar thinks the chances that a company will pay much money for an idea it spots in a Web-site posting are small. And even if it is willing to pay, it will probably enlist a hardball negotiator to get it cheaply. "The average guy would get run over," he says.
Goel doesn't argue with the suggestion that the majority of posters are unlikely to score big financially. But he points out that for many idea authors, money isn't the main point. "A large number of people are very happy just seeing their idea taken to fruition, even if they never get paid for it," he says. "If you come up with an idea for a new windshield wiper and it gets implemented by an automaker and before you know it millions of cars around the world are using it, that's a very powerful experience." Of course, the man who had that experience, an inventor named Robert W. Kearns, spent decades in court trying to get automakers to pay up, eventually receiving $30 million. Still, Goel has a point: the average person who comes up with a modestly good idea isn't likely to hold out for big bucks at the almost certain cost of seeing the idea ignored.
In any case, even if the site had been frequented by the most fair-minded of buyers, the vast majority of ideas posted there didn't seem destined for the big time. Consider this posting, from "skankinARTboy," for a "Wider Salsa Container": Hey tostitos -- i am a lazy college student. I buy nachos and chips all the time, and i personaly hate that i cannot dip my chips into your tiny containers. Half-way empty your container becomes impossible to dip into. I undestand you can pour it out but guess what? America is lazy, and convience is the key to marketing. So shorter but wider container, same glass cost, it hold the same amount and it is better for all lazy people who sit and eat your chips and salsa on the couch.
To help idea buyers skip the junk and root out the gems, Goel worked on "reputation engines" that would have enabled at least some site visitors to rank idea sellers. But he warns that ranking ideas isn't as reliable as ranking baseball cards on eBay. "It's hard to say that an individual who in the past has not come up with good ideas will not come up with good ideas in the future," he says. Conversely, he adds, someone who has had one good idea may not ever come up with a useful idea again. He would not allow sellers to rank buyers. "Everybody believes their idea is very powerful and that it deserves significant reward," he says.
Clearly, posting a random idea in the hope that a company will seek it out and buy it is a long shot. But Goel built some twists into Ideas.com that were intended to strengthen the odds. One was that a company could pay Ideas.com to allow posters to submit ideas for that company only. In fact, of the 50,000 ideas that the site received, 48,000 were such "dedicated" ideas. Unfortunately, many of them were addressed to companies such as Apple and GM that didn't pay Ideas.com for the privilege of receiving ideas. But Goel didn't mind. He used the homeless missives to entice those companies to join.
Of course, corporations have always received unsolicited ideas from eager innovators, and in general it's caused them giant headaches. Ideas from the public tend to be not only less than earth-shatteringly useful but also not unique. ADL's Jonash explains that even in-house ideas typically aren't original. For instance, after a recent productive brainstorming session that ADL had with a corporate client's scientists and managers, research revealed that most of the resulting ideas were already known to the industry. But try telling that to the proud idea submitter who is promptly blown off by a corporate R&D manager, only to see his or her idea appear in a product the next year. Large companies are so routinely hit with lawsuits by such sincere but misguided idea producers that, notes Margolis, many have set up departments whose sole function is to ensure that over-the-transom ideas almost never make it to the desk of any employee who might be working on a similar project. From that perspective, a steady stream of unsolicited ideas doesn't seem like the answer to the business world's dreams.
That's one reason more-experienced inventors and idea producers often turn to intellectual-property agents who shepherd submissions to corporate buyers and negotiate deals. That's all well and good, says Goel -- if you don't mind paying commissions of 15% or more and waiting a year to get an answer. Why not let the Internet do what it's best at? Goel asks -- which is avoiding the need for a middleman and eliminating the friction.
In fact, Goel Offered an even more compelling use of the Internet than giving idea generators a chance to promote their ideas to corporate buyers. He helped companies put their problems in front of idea generators. When a fee-paying company wanted the public to try its hand at coming up with a winning idea, it posted an "Idea Quest." Coca-Cola offered $5,000 each for two Idea Quests: "an energized packaging system" and "a new fun and healthy kids' drink." And Sears ponied up $5,000 for the best idea for "hand and bench tools for the 21st century."
Ideas.com also wrote its own Idea Quests. Those quests were by far the more interesting, including "new personal handheld devices" and "a better election process for the U.S." The Idea Quests from outside companies, in contrast, had a public-relations feel to them. Which was exactly as it should have been, says Jonash. He argues that the real benefit of soliciting ideas from the public is not to get usable ideas but rather to make customers feel like part of the team and to provide market research.
Steven Kirn, former vice-president of innovation and organization development for Sears, agrees that opening up a dialogue with customers is one of the big payoffs of soliciting ideas. "We wanted an effective and efficient way to make customers feel there's a point of contact where they can tell us what they're thinking," he says. But Kirn also insists that Sears was pleased with the results of the Idea Quest. "Out of 130 to 150 ideas sent in, probably about 12 to 15 of them were pretty viable," he says. "That's not a bad ratio of ideas to ideas worth thinking about." The winning idea -- for an improved wet-dry vacuum attachment -- might never have made it to the right person's attention at Sears if it hadn't been for the contest, he adds. "In the past Sears didn't have a consistent way to deal with submitted ideas," he says. "Some might have made it to the fast track, but some probably withered."
Not surprisingly, many entrepreneurs see potential in a marketplace of ideas. Some, like Rob Brazell, coauthor of a 1995 book called The Idea Economy, have focused on mass-market ideas -- that is, ideas aimed at Joe Consumer. Brazell, who founded a site named Ideaexchange.com, says, "I wanted the everyday useful idea that would deliver immediate return on investment to consumers."
The ideas that appear at Ideaexchange range from the mundane (how to keep your shoelaces from untying) to the offbeat (how to improve your singing range) to the esoteric (how to double your cattle yield without cutting your wheat yield). Idea buyers rate ideas. I bought an idea for $5 about how to reduce the number of lost signals on cell phones. I'm prohibited from revealing the details. But I can report that the notion was simple and helped a bit.
People can also post idea requests on the site. I found one from a businessperson looking for an idea for a Web company, another from someone seeking a shark repellent, and one pleading for antiwrinkle secrets. Brazell is convinced there is gold in such trivialities. He charges idea generators for listing an idea for sale; they name their own price for their ideas. The seller splits any revenues with Ideaexchange. Brazell won't disclose revenues or profitability but says he has $22 million to work with, all raised from private investors. By this past summer Brazell had expanded his vision of the company and planned to eventually provide paid content of many kinds, including a deep well of how-to information. He recently purchased the assets of the bankrupt eHow, a site that offers thousands of tips on everything from how to feed an orphaned kitten to how to save money on taxes.
But Goel's more direct competition came from sites like IdeaDollar.com, BrightIdea.com, and NewIdeaTrade.com, all of which are gunning for business-oriented ideas. Those sites don't seem as polished or as well stocked with ideas and idea solicitations as Ideas.com did, but each has its own twist on the concept. It's too soon to say which of those sites will catch on. Niaz Ahmed, founder of NewIdeaTrade, says that his willingness to let businesses access all ideas on the site without paying any fees gives his advertising-supported site a competitive advantage -- at least for the time being. Ahmed, who won't disclose the company's financial details, admits, "How long we'll be able to continue to offer this service for free, I don't know."
Ideas.com's short life is, of course, just about over. Visitors had downloaded more than a million pages by the summer, Goel says. The company had raised a second round of financing but was unable to raise a third. At press time Goel and Singh had laid off all their employees, and Goel was jetting off to London to interview, once again, for banking jobs. But Goel, ever upbeat, still believes in his dream. "One day," he says gamely, "someone's going to make a lot of money from it. It's just not going to be us."
Had his financial prospects allowed it, Goel planned to expand his services. He wanted to set up a branded version of the site accessible through Coca-Cola's Web site; there, visitors would have submitted ideas only to Coca-Cola. Creating branded idea sites was supposed to become an important source of revenues for Goel's company as more and more businesses recognized the value of soliciting ideas but didn't want the cost and hassle of building their own idea-handling system from scratch. And he was working on offerings that would have enabled client companies to set up versions of Ideas.com accessible only to specific groups -- employees, for example, or suppliers and customers or outside professionals likely to be useful contributors. "These companies already spend a lot of money to reach out to these groups for ideas, even though they might already be members of their commu- nity of interest," he explains. In fact, Goel had recently changed the name of the company to Ideation Networks Inc., to emphasize that Ideas.com was just one manifestation of a grander plan to set up many different idea-collection engines.
Steven Kirn, for one, thinks that's the right way to go. "Where I think we're headed is that there will be some problems that we'll want everyone in the world's ideas on, and others where we'll establish relationships with communities of inventors," he says.
Jonash, too, believes that companies will want a portfolio of "idea banks." Some of the most successful idea networks, he notes, involve large corporations' paying for the expertise of small companies. Most of the large pharmaceutical companies now work closely with small biotech companies, he points out, and in the computer industry Cisco has created a successful model for providing generous funding to small enterprises and then acquiring them on friendly terms if their technology pays off. Coca-Cola, meanwhile, recently created a sort of in-house incubator called Fizzion to fund and support start-ups whose services could be of value to Coca-Cola. Other large companies are likely to follow those models, and online idea swapping could become a standard part of corporate R&D.
Small companies especially may be big beneficiaries of idea networks, since they're less likely to have experts in-house. And they typically don't have an army of people that they can send to conferences and trade shows to scope out new ideas, although those are among the best places to find them. Consider Cirrus Design Corp., a small manufacturer of aircraft in Duluth, Minn. Dean Vogel, vice-president of research and technology at Cirrus, notes that some of the company's ideas for aircraft features come from randomly encountered sources. As an example, he offers the fellow who was ogling one of the company's planes at an aviation show. The man casually observed that a minivan-style sliding door would make it easier to get into and out of the plane. Vogel overheard him, and Cirrus execs have since been thinking about how a sliding-door mechanism could be made lightweight enough for the plane. "If you can reach out to the world, you'll be harvesting a lot more brains than you could afford to hire," says Vogel.
Goel had been planning to push the envelope even beyond Ideation Networks. For example, he speaks of creating networks that would enable everyone in a company's "value chain" -- that is, suppliers through customers -- to put their heads together not just to trade formal ideas but to interactively solve problems, meet needs, and create new opportunities.
But he appears to have also discovered that his concept for commercializing ideas is one idea that the world may not yet be ready to pay for. Even if that's the case, Goel is not likely to give up permanently on his ambitions. "I don't like to dabble," he says. "I like to take my adventures all the way."
David H. Freedman is a contributor to Inc.
Hold That Thought
When does a simple thought become transformed into something you can buy and sell? Reporter Kate O'Sullivan spoke with some inventors, investors, and experts who've struggled with that question. Steve Jurvetson, managing director of venture-capital firm Draper Fisher Jurvetson, invests in early-stage companies. Kevin Rivette is coauthor of Rembrandts in the Attic: Unlocking the Hidden Value of Patents. Scott Randall founded FairMarket, which builds online auctions for such businesses as the Miller Brewing Co. John Kowalski, CEO of Load Hog Industries, turned his unlikely invention into a product that attracted the attention of Ford Motor Co. (See " The Pickup Artist," June 2001.) And Paul Moller built a company around his own invention -- a flying car. (See " This Is Rocket Science," July 2000.) Here's what they said about idea marketplaces.
Is an online idea marketplace a valid business concept?
Steve Jurvetson: "At some level I do believe that there's a worldwide marketplace for information. ... But I'm not sure there's a thriving market for patentable ideas."
Paul Moller: "In the early '70s I could have benefited if I had had such a process available to me. It would have maybe been a great way to get exposure for some of the other products I've developed."
What would it take to make something like this work?
John Kowalski: "They'd have to build some credibility. Any exchange of soft product is really hard to track. Who's buying? Who's selling? What's been sold? I would think anyone with a substantive idea would be concerned about throwing something like that into the barrel. It might be knocked off, and then you don't get paid."
What could cause such companies to fail?
Kevin Rivette: "If I'm going to download my novel idea into somebody else's database, that completely eliminates my ability to get patents in other places in the world. Once you've made a publication for sale, bingo, you can't get patent rights. Once you've put it up on the site, you've published it for sale. That is the triggering event at which point you should have filed for your patent application in most of the world."
What do you think of the notion of corporations' offering branded idea marketplaces?
Scott Randall: "I love the democratization of the idea-collection process. This is the truest form of listening to your customers. The goodwill generated would be enormous. Consumers will shower tremendous loyalty on those companies that are perceived as listening best to their needs. The major caveats would be the legal ownership questions, the potential disputes around people submitting similar ideas but not getting credit, and the royalties associated with paying the inventors."
Is this concept ahead of its time?
Paul Moller: "Oh, no. I don't think it's ahead of its time at all. I think, like a lot of things, there will probably be half a dozen [companies] that come and half a dozen that go, and I think there will be one who eventually separates himself from the pack."
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