Amid the conversation of copycat start-ups and cloning vs. originality in emerging markets, there is a related but perhaps more ethically palatable opportunity to profit: transferring technologies across traditionally disconnected sectors and domains.
Some brief vignettes to frame this discussion:
- A historic example is how Palantir took the fraud-detection techniques developed for complicated datasets at PayPal and founded a separate company that improves counterterrorism and intelligence analytical methodologies.
- A future example, I believe, could be taking social media analytical tools developed for marketing and brand management firms and using them as a tool for making investment decisions at fundamental value-based investment firms.
The long-standing divisions between the public and private sectors, between emerging and developed markets, have limited transfer of relevant niche technologies. These divisions become even more dramatic when examining the divide between particular sub-sections. For instance, the systems used for intelligence analysis in the government have not cross-pollinated with investment due diligence tools, even though they face similar data collection and analysis challenges. Technologies already developed can be leveraged for applications in new domains.
These opportunities, which could be considered a form of intellectual arbitrage, have several appealing facets:
- They provide an opportunity for entrepreneurs with unique but well-rounded backgrounds, who might traditionally think themselves poorly equipped to compete with mainstream engineering/product management/business development talent in the most developed markets.
- They often focus on sector verticals that are too small to be worth the full attention of the best technology provider in a particular sector, who therefore may be more open to a licensing or partnership agreement than they would in the case of a emerging-market copycat. (This is a distinction in the attractiveness of a partner who increases scope of verticals served versus a partner who only increases scale of total customers.) An analogy might be made here to the numerous developers who build on a given platform or ecosystem – the difference here is that that the underlying partner is one who has previously not operated in a platform capacity, and indeed may be focused on very tailored enterprise solutions in a different vertical.
Elaborating on the second point, in attempting these kinds of tech transfer, the first major choice that must be made is between partnering or replicating the given technology. This decision depends on the nature of the potential partner: How mature are they – do they realize a need for outsourced business and product development or do they think they can do it all themselves? What is the likelihood of disintermediation – how much unique IP are you bringing to the equation that would be prevent the partner or your potential clients from later going direct? How badly does the partner want to maintain developmental control/branding? Many of these considerations favor seeking out big companies that have settled on a particular identity and do not want to stray into new verticals. However, these same types of companies can be sink holes of time and resources in the potential partnership stage before revealing themselves to be dead-ends.
My own belief, in full disclosure, is that there is an enormous opportunity in such creative bridging between previously unrelated domains, and to that end have co-founded a company which specializes in this line of work. Such tailored solutions can scale well within the new vertical, and the uniqueness of expertise required (because the two now connected domains had minimal previous interaction) creates high barriers to entry.