CE#375: Don Tapscott: Business Models for Five Industries in Crisis. WSJ

By Don Tapscott

Editor’s Note: Mr. Tapscott will take your questions in a live chat on Tuesday, July 12 at 4 p.m. London time, 11 a.m. ET. Ask your questions now.

In our 2006 book Wikinomics, Anthony D. Williams and I looked at dozens of companies that have used the Internet to transform their business models and achieve tremendous success.

However, in the five years since the book’s publication, we’ve noticed something striking: the rate of business model innovation has not accelerated. Yes, some individual companies have achieved competitive advantage by exploiting the web and networked business models. But overall the gains have been modest.

We’re beginning to understand the reason. Increasingly it’s becoming difficult or even impossible for companies to achieve breakthrough success without changing their entire industry’s modus operandi. From many examples let’s look at five:

1. Pharmaceuticals Can’t Fix What Ails Them One by One

Pharmaceutical companies are about to drop off what’s called “the patent cliff”. They will lose 25-40 percent of their revenue in the next 2 years as the patents for many blockbuster drugs expire. There is little individual companies can do to recover from this crisis and instead need an industry wide solution.

The global biomedical community is generating about 25 new medicines per year, but only a handful of these are “pioneer drugs” rather than “follow-on drugs”–variants, formulations or combinations of existing therapies.

Despite increased research spending the impact on the number of new medicines approved is negligible. Pioneer drugs address societal needs but also their discovery will allow pharmaceutical companies to grow because consumers are willing to pay for such innovation.

It is in everyone’s interest that those involved in the quest for pioneer drugs share rather than hoard information. Unfortunately, the current structure of drug research encourages the industry to protect its ideas and material with intellectual property rights or restrictive collaboration agreements. The public sector too has been encouraged to secure intellectual property on early-stage discoveries.

Nor is the clinical trial process as open as it could be. The outcomes of these trials, particularly if they fail, are not published until several years after the termination of the projects, if at all. A corollary is that the pharmaceutical industry is downsizing research and focusing on less risky activities.

Instead, the industry should share some of its clinical trial data, such as results from failed trials or from control groups. “This will not undermine the competitive advantage of companies,” says former Merck executive Stephen Friend, now a champion of the open source biology movement: “It will enable it, by changing the basis on which companies compete and setting a platform for a sustainable industry.”

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