Chocolate and Gold Coins

Monday, November 06, 2006

Idea Contests

In my previous post, I mentioned as an afterthought an idea for giving partial protection for creating entirely new types of products that cannot be completely protected by a patent. I gave the pumpkin carving kit as an example, but there might be better examples. Think of the automatic toilet cleaner. People have been waiting for some time for this and it hasn’t come. I don’t expect it to come soon. I’m sure that someone can invent one but what then? You do a lot of hard market research for the guy who will swoop down and steal your business.

Here is a good example: Lotus developed the first really good spreadsheet: Lotus 123. A few years later Microsoft came out with a knock-off: Excel. Excel was a bit better – but they had second-mover advantage (and deep pockets). They took over and made the lion’s share. I’m not against competition but I recognize that Excel would not exist without Lotus 123 and Lotus 123 would not have happened if the developers could have known that they would lose out in the end to Microsoft. New products may never see the light of day without some partial protection.

Sunil asked a reasonable question: “[D]on't you think something like that would be hard to enforce? How does the company prove it was first, and not the knock-off?.” It is an important point – there will always be disagreements about who is deserving and who is not.

My proposal is to conduct a contest for the best such invention that solves a well-defined problem. The winner gets a five-year monopoly. No one is harmed here: there aren’t likely to be automatic toilet cleaners in the next five years anyway so what is the harm in granting a monopoly to something that otherwise would never exist?

In practice, entrepreneurs who already have a prototype that they want to protect will suggest most of these contests. But there will be enough time for someone else to finish their model and submit it as well.

The monopoly gives the entrepreneur the ability to do the vital market research necessary to determine if the market is really there for this product. People need to be educated about a new product that no one knows anything about – like a personal computer. And the firm needs to learn how much people are willing to pay for an entirely new product.

The competition will soon have their chance. Five years passes quickly. But a five year running start gives the first-mover a real chance to make a quality product that can take on the competition. Everyone thought Barnes and Noble would crush Amazon dot com but they moved too slow and Amazon grew into the behemoth we see today. It just shows what a difference a few years might make.


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