Licensing continues to grow in importance as a source of revenue for US companies, helped both by the continued explosion of technological innovation and by increasing protections for intellectual property (IP). Released last June, the PricewaterhouseCoopers 2005 Technology Licensing Marketplace Study revealed a rapidly growing marketplace for US technology licensing, dominated by large companies.
A new PricewaterhouseCoopers study reveals that companies with small licensing portfolios (those with fewer than 250 licensing agreements and revenues around $20 million) are facing a tough new reality. During the technology boom of the 1990s, small companies could grow organically both by innovating and by licensing that innovation. This dynamic is changing dramatically. While small companies continue to be the source of innovation, they now face two choices: to become a company worth acquiring, or to face a steady decrease in licensing growth.
In a significant shift, PricewaterhouseCoopers research reveals that venture capital spending is largely being directed to more mature start-up technology and software companies that have been created specifically to support traditional players.
Why does licensing at small (those with less than $20 million in revenue) and medium-sized US companies grow more slowly than licensing at large US companies (those with total revenues of $100 million or more)? The evidence reveals a more complex relationship between revenue, growth, and portfolio size than has previously been understood. At the root of this relationship, a network effect appears to fuel competitive advantage for first movers and companies that have larger licensing portfolios relative to their competitors. As IP rights and licensing revenues become more important to small US companies, those companies also face increasing pressures, including piracy, revenue leakage, large-company muscle, and globalization. Small companies must continue to grow their IP portfolios rapidly or face the threat of a decreasing revenue base.
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