Intellectual property (IP) is fast emerging as one of the most exciting technology and business areas in the industry. By capitalizing on the designer's desire to procure the best technology in the shortest amount of time, IP vendors with the right business model have enormous opportunity. Unfortunately, many IP companies aren't employing a successful business model today, and the losers aren't the stockholders or investors-they are the customers, forced to pay up front for IP that may or may not be "best in class" and that may or may not help them achieve their design goals on time. If IP is to become a standard design element that customers embrace, the industry needs to rethink the model for selling it.
To understand the business model needed, IP companies need look no further than some familiar and longstanding electronic-industry business models. For example, system designers have relied on printed-circuit boards as their system-integration medium, with "IP" encapsulated in plastic packages known as integrated circuits or components. How do these "IP suppliers" do business? Component suppliers ply the system designer with data books, application notes and free samples for prototyping. The idea is to provide such attractive technology, support and pricing that a supplier's components achieve system "design wins" that will turn into volume orders and fuel business growth. Customers pay as they go. If the supplier can help them be successful, everyone benefits. If the customer fails, the supplier fails to profit. This total goal alignment makes for a good customer/vendor business relationship. Everyone is focused on getting to volume quickly.
For another example, consider the ASIC industry-the birthplace of the system-on-a-chip dream. In the classic ASIC model, suppliers such as LSI Logic, NEC, Toshiba, etc. provide their customers with design kits and IP for free. In many cases, they also heavily discount the cost of design NREs and prototype silicon. In this scenario, the suppliers only benefit if their customers are successful in getting end products to volume. Customers pay as they go. Once again, this leads to total goal alignment and a good customer/vendor business relationship.
The IP industry does not need to invent a new business model; it can simply emulate these common and proven ones. Most IC design groups and fabless IC companies are working with a limited budget. Soon, a complex IC will be defined as containing tens of millions of gates of logic. Designing these ICs quickly will require a lot of high-powered and high-value IP. The day will come very soon when meeting the up-front cost of the needed IP will not be possible. The answer is a classic, volume-based business model.
This model requires faith that the IP products are good enough to achieve design wins, and the patience to wait until designs go to volume before being paid. These are viewed as serious obstacles by some IP vendors. However, the tremendous benefit is that IP suppliers become true business partners with their customers. Everyone must work together, through thick and thin, until volume is successfully achieved.
IP suppliers need to stop looking for a fast licensing buck and instead focus intensely on the success of their customers. Indeed, this is the most durable characteristic of the two models described: Suppliers must either focus on their customers' long-term success or go hungry.
It sounds right, doesn't it?
— Mark Templeton is president and chief executive at Artisan Components Inc. (Sunnyvale, Calif.).
