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.
