Maligned innovators who start value chain with new products deserve their rewards

Some time back I was wandering around on a guided tour of an art exhibition when I remarked, “Oh come on, I could’ve done that!” about a Matisse cutout. “But you didn’t,” responded my girlfriend. She was right, of course. I hadn’t.

So, where do you stand in the debate? For copyright or for the right to copy?

In business it’s always enlightening to decompose the participating economics down the value chain created by a new idea or product, from initial idea to mass consumption.

The technology and healthcare industries are perhaps the most tempting examples. It is almost common cause that iPhones are designed by Apple in the US but produced in China, even if that’s not universally true. Significant industries have emerged in cellphones and all the related clones, copies, accessories and … whatever.

So, who makes the money? Everybody does. Who should make the money?

Of course, cellphones aren’t just phones anymore. They are serious computers, put in our hands and handbags by the wondrous advances in microelectronics. I don’t know the rules of value chain participation, but I do know that it’s not just about the phone. The latest model obviously costs more, but I’ll bet that the incremental unit cost is way lower than the incremental embedded technology gain, financed by the downstream feeders. It’s about the revenue-share models in data and the apps and the music and the e-mails and social media and all the other stuff that you can play with only if you have the device.

I’m pretty sure that sharing the economics of an Appleapproved app between the inventor and the facilitator has found an equilibrium that works for everyone — such is the nature of free markets. While there can be no doubt Apple got its share of everything, app developers have also worked out their value.

The economics of the patented and protected drugs that pharmaceutical companies produce are a little more complicated, partly because the final, relatively ignorant users are so far removed from the originators and regulators.

Again, it is almost common to whinge about the profits made by pharmaceutical firms, but I’m not sure that we should.

Inventions in medicine, be they miracle cures or popular dependencies or chronic necessities, influence the demographics of the planet and change human behaviour. But for every game-changing penicillin or salicylic acid or sildenafil or fluoxetine, there are any number of failures and exhausted research and development budgets. So, when you find a winner, a decomposable, immediately replicable chemical composition, you’ve got to protect it for a while, before the generics take over, so that you can fund the search for the next one.

Books and movies are no different. You have to have bestsellers to stay in the game.

Besides, what do the healthcare intermediaries that feed off a new drug have to complain about? There seems to be enough to go around between the medical aids, the pharmacies, the insurance companies and the administrators. Thank goodness people get sick, and thank goodness drugs are produced to keep them alive, at least long enough to get sick again.

At the centre of all of these concentric circles of economic feeding is that most valuable and rare of all things, the inquiring, resourceful, inventive, problemsolving human brain. Its reward isn’t usually fully measured in money, but rather in the joy of discovery, the conquering cure or the enabling microchip.

Enduring economic value only manifests after recurring, tested and proven success. It can take decades of predictable quality to achieve that most sought-after of badges: the valuable brand.

A brand ensures that a premium can be charged for products and leading-edge human capital can be attracted at the right price. This is not only true in the corporate world. Seeing the potential reward for original products and ideas also encourages and enables the funding of entrepreneurs.

Anyone can eat somewhere down the value chain, but the inventors have to be funded to start the sequence. That funding has to be recouped from very few success stories. The spark of discovery or invention is motivated by things more virtuous and pure than money, but you’ve got to eat.