Monetization - The first that matters

Summary : When does the innovation clock start: With the idea, with the first paper, with the first alpha tool, or who’s first to create value?

When it comes to any innovation, there's always an argument as to who was first as it's always a complicated question. The issue is when does the clock start for innovation to occur: With the idea, with the first paper, with the first alpha tool, or who’s first to create value (or ‘commercialize it’ as some might say to denigrate successful innovators). There is minimal value in an innovation that is just an idea or a paper. Ideas and papers may be the seeds of value creation, but the value from a solution can't be obtained until it's been converted into a product that people can buy. Which leads to a question most people don’t ask: Just exactly, what is value creation?

Value creation, in economic terms, is when something is made that others will pay more for than what it cost to produce. And it's not just about monetization, as the process of value creation is what creates jobs with paychecks. That money gets spent again, more jobs are created, and so on, in what is a virtuous cycle of the economy. Innovative value is not created with an idea or a paper. No paper or even a library of papers ever processed a wafer (I am sticking to semiconductors here). Papers and ideas may lead to innovative value, but they don’t create it. Innovative value is not created with an alpha tool either. History’s scrap heap is littered with alpha tools and companies that never made it. It’s what you do with the knowledge that comes from both that can lead to value creation. When it comes to semiconductor equipment, an organization has to convert that knowledge/technology into a practical and production worthy tool that can be supported around-the-clock globally.

With semiconductors, the critical step in the value chain is when the tool processes a wafer. To have value, a process tool must 1) get the wafer in and out without lowering the accumulated value added in prior steps (such as breaking it) and 2) add value that without it would make the wafer unsellable (such as skipping a deposition or patterning step). To create innovative value it must improve the value over-and-above the existing wafer. But this is the easy part. The hard part is convincing the chip maker that this is not only true in the demo, but will also be true after millions of wafers have passed though the tool. In semiconductor equipment, an idea must be converted into technology that can be converted into a practical and production-worthy tool that can be supported worldwide over many years. Failing to do this is a common factor in the demise of incumbent suppliers. Back in the early 80s the largest planar etch supplier in the world was Tokyo Ohka. But no one outside Japan knew who they were. Everyone thought the big competitors were LFE, Tegal, Branson, D&W, etc. Tokyo Ohka had field-of-dreams marketing and so they got passed by and never became relevant in etch outside Japan. What made Applied Materials, Lam Research, and TEL so great in etch, was that they were able to convert ideas to technology and ultimately, into reliable production solutions in the fab that customers were willing to buy in volume (hence, proving that value was created). The same is true for ASML and Nikon in lithography. And I could go on: KLA-Tencor, Hitachi High-Tech, Advantest, Teradyne, Kulicke and Soffa, BESI, and more. These companies create tens-of-billions of dollars a year in value, which converted into tens-of-thousands of jobs.

In semiconductors, the value creation in innovation is even more complex. They just can’t come up with a single process step, or even an entire process. The value capture from a chip or foundry wafer may come in the transaction. But customers won’t open their wallets unless all the software tools are there to take what they have bought and create more value in what will ultimately be sold as a system. Moreover they have to believe in their supplier’s roadmaps … that these suppliers will continue to deliver innovation over time. You can’t succeed as a one process pony. Distilled down it’s the ability to realize Moore’s Law in product solutions. This is not just for semiconductors. Value creation is a process that spans virtually everything in the economy. Moreover, they are the ones who the world remembers.

The concepts for the digital audio player and touchscreen cellular phone were there long before Steve Jobs figured out how to fit together the right technologies to create products that people would pay a premium for.

The auto industry is generally seen to have been created by Henry Ford, who used developments in automation to bring the cost of cars down to a level that ordinary people could buy them. Autos certainly existed long before that. But they were affordable to only the rich and royalty. Yet the key idea was the development of the float carburetor in 1885, by Wilhelm Maybach and Gottlieb Daimler, which made the internal combustion engine practical. Well before that, in 1826, Samuel Morey invented the first carburetor. But it was Ford who created the greatest value.

The bottom line is that being first with the idea or even a piece of the technology is not the first that matters. It’s being first to put all the disparate pieces of technology into a complete solution that’s appealing enough to customers for it to be monetized that matters.

By G Dan Hutcheson         Copyright © VLSI Research Inc.  All rights reserved.       

 

Annexure :

When it comes to any innovation, there's always an argument as to who was first as it's always a complicated question. There is minimal value in an innovation that is just an idea or a paper. Ideas and papers may be the seeds of value creation, but the value from a solution can't be obtained until it's been converted into a product that people can buy. Which leads to a question most people don’t ask: Just exactly, what is value creation?

 

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