Read an interesting article, “Capture more value” by Stefan Michel in the latest HBR issue (October 2014). The article talks about how companies while putting in efforts in value creation often lose focus on value capture, thus leaving money on the table. It describes 5 different innovation categories in value capture – Changing the price setting mechanism, changing the payer, changing the price carrier, and lastly changing the segment.
Most of us in the semiconductor industry would confess to be “techno snobbish “. Working at leading edge technologies and in the scaling race, we often miss out the salient point – customers want technology benefits and not technology per se. While we are steadily moving towards treating the hardware chips and systems as modes for creating value and not just solely numbers in nanometres, we have a long way to go in exploring various possible and often innovative ways on how we can optimally leverage the value we create. Value capture is sadly under prioritized.
Let me take a few examples on some varying stages of value capture in this industry…..
Capturing value by changing the price setting mechanism: The idea is to set the price according to the product’s value or worth to the customer. Memory (DRAM and NAND Flash) pricing is a good example here.
Changing the price carrier: Price carrier is what the seller is hanging the price tag on. Semiconductor IPs is a good example here. IP vendors have evolved their IP strategies from treating IPs as fillers for differentiating hardware sockets in a system towards ensuring that the IP works not just as an isolated unit but also in the complete system. It subsequently evolved towards IP plus services and then is moving towards offering the customer a complete IP (hardware, services, software) platform solution. The price tag has moved from the die space to differentiating value provided to the customer and then the complete valued package. Bundling and unbundling of various EDA licenses is another example where the EDA company is changing the price carrier.
Changing the payer: It may not always be the case that it is only the consumer of the product/offering who pays for the value he receives. Like in some media where content is offered free to the public, the costs are shared by the advertisers. An example I see here is that of Qualcomm’s push to the China fabless design houses to design using its cores. Am not sure of the veracity of this but understand that in China, Qualcomm recovers its IP royalty not from the local design houses but from the system houses which use the design solution (with the Qualcomm core) from the design houses there.
One of the potential big biz for us is in the Internet of Things….. and it is especially in this space that the semiconductor industry needs to think hard and differently from its traditional value innovation and capture strategy – if it doesn’t want to be left out with just a fraction of the pie. I will do a separate post on this shortly.
Do you see other examples of value capture in your industry? What is your opinion on this? Would be keen to hear your ideas and perspective on this.