Appropriability
Appropriability is the degree to which an innovator can capture the value created by an innovation rather than see it flow to others.
Creating value and keeping it are different problems. Appropriability is about the second, and it is where many innovators come undone.
Appropriability is the degree to which an innovator can capture the value created by an innovation, rather than seeing it flow to imitators, customers, or suppliers. High appropriability means the innovator keeps much of the value it creates; low appropriability means the value leaks away to others, however brilliant the innovation.
Why brilliant innovations can earn nothing
It is entirely possible to create enormous value and capture almost none of it. If an innovation is easy to imitate and poorly protected, competitors copy it, prices fall, and the benefit flows to customers and copycats while the originator, who bore the cost and risk, is left with little. Value creation and value capture are separate achievements, and innovators who assume the second follows the first are frequently disappointed.
What governs it
Appropriability depends on the strength of protection and the nature of the knowledge. Patents, copyrights, and trade secrets help, but their effectiveness varies enormously by industry; in pharmaceuticals patents are powerful, in many other fields they are easily invented around. Tacit knowledge that is hard to copy, control of the complementary assets needed to commercialise the innovation, and lead time over rivals all raise appropriability, often more reliably than formal protection does.
Designing for capture
The practical lesson is to think about value capture from the start, not after the innovation exists. An innovator should ask how it will keep the value: through protection, secrecy, speed, control of complementary assets, or a business model that makes imitation pointless. Where appropriability is inherently low, the answer may be to compete on something other than the innovation itself.
Appropriability explains one of the more painful patterns in business: the firm that pioneers and the firm that profits are often not the same. Innovation without a plan to capture its value is a gift to the rest of the market, generous and usually unintended.