Innovation, Commercialization, and IP Rights: Apple and Amazon

Introduction to Innovation, Commercialization, and Intellectual Property

Ideas are part of the grand process of business. Businesses create unique products and services that are then marketed to a customer base. This involves the use of innovation, commercialization, and intellectual property rights to create something unique, develop the ability to market it, and secure the rights to protect it. Without any of these aspects, it can be difficult for a business to generate something worthwhile.

The case study of Apple Inc. and the iPhone is one that provides the hallmark of innovation. People like Steve Jobs work hard to contribute something to their respective industries that is one of a kind, thus making their companies highly successful. To be a pioneer in an industry is to gain a chance to dominate in an emerging or established market. The iPhone represents the epitome of a new product revolutionizing the cell phone and electronics industry.

Without the hard work and dedication involved in protecting the rights and marketability of the iPhone, it would not be the most popular smartphone in the world. It is therefore critically important to maintain a proper balance of commercialization and innovation while having a firm understanding of property rights. Without any of these, products like the iPhone and the Kindle would not be what they are today.

This paper provides insight into the definitions of innovation, commercialization, and intellectual property rights, and presents business case studies on Apple Inc. and its flagship product the iPhone, and Amazon Inc. and its Kindle. Additionally, concepts like the innovation and commercial funnel are discussed to offer an overview of how these concepts are executed in the real world. The aim is to provide a foundation from which these key concepts can generate a better understanding of what it takes to be a successful company in a world of constant change and product evolution.

The two organizations selected are Apple and Amazon. Apple Inc. was formerly known as Apple Computer Company from 1976 to 1977 and Apple Computer Inc. from 1977 to 2007. With the unveiling of the iPhone, it became simply Apple Inc. As of the 2017 fiscal year, Apple's international revenue was $229 billion. With a high level of brand loyalty, Apple Inc. has become one of the world's most valuable brands (Janssen, 2017).

The reason for this success is the revolutionary iPhone. The first of its kind, it provided customers with the feel of a computer in the palm of their hands. What began in 2007 with Steve Jobs and his team of developers evolved into the App Store in 2008 and the iTunes Store in 2009 (Janssen, 2017). Steadily, Apple became synonymous with success, and people began to buy iPhones and other Apple products, driving continued brand loyalty.

Many people attribute this upsurge to the meshing of design and marketability. Apple Inc. marketed their products effectively with celebrity endorsements of their iPhone models (Janssen, 2017). These endorsements, along with appealing commercials, made the iPhone and other Apple products desirable to consumers of all ages. The trend continues today, with many celebrities routinely photographed with the iPhone logo in full display. The association of Apple products with status created an enduring bond with consumers, allowing iPhones and other Apple products to maintain their price points and continued sales.

Defining Innovation, Commercialization, and Their Connection

The other company to have similarly disrupted an established industry is Amazon.com Inc. What began as an online bookstore has become a juggernaut of online retailing. "Amazon.com began as Earth's biggest bookstore but has become Earth's biggest everything store. Its website still offers millions of books, as well as other media, home furnishings, clothing, pet supplies, office products, and hundreds of other product categories" (D&B Hoovers, 2018). Among its many innovative products, the first and most significant has been the Kindle e-Reader. The Kindle and the subsequent Kindle Store made texts available online and on compact devices, providing avid readers with the convenience of carrying their entire library on one device.

Amazon's CEO Jeff Bezos first encountered the technology that would eventually lead to the creation of the Kindle in 2004. "Jeff Bezos first saw the Librie being demonstrated by E Ink at a conference in 2004. 'Uh-oh,' he said, 'This is a machine that could destroy my business.' He ordered 30 Libries for his staffers to play with" (Slywotzky, 2018). Recognizing the potential competition posed by the Librie, he began to cultivate a culture of innovation within Amazon. The Kindle e-Reader launched in 2007, followed by the Kindle DX in 2009. From there, Kindle came to dominate the e-Reader market and provided consumers with a compelling reason to move from physical books to digital e-books.

Innovation has various meanings. A widely used concept defines it as the creation of a new practice, object, or idea. "Rogers (1995) defines an innovation as 'an idea, practice, or object that is perceived as new by an individual or other unit of adoption'" (Tan and Hunter, 2002, p. 227). Those who innovate provide the public with something perceived as original and never before experienced. Steve Jobs is a figure commonly associated with innovation — he became an innovator through the introduction of the iPhone. "Steve Jobs was a master of innovation. A survey of his products revealed this deep-seated habit of innovation. Innovation exuded from everything Jobs touched" (Toguchi, 2017, p. 63). The iPhone enabled the reinvention of the cellphone and electronics industry and provided the foundation for what would become the smartphone.

Von Stamm also provided a key definition of innovation as creativity and design (Von Stamm, 2008). Stamm identifies multiple kinds of innovation. Architectural innovation, for instance, defines a product or process's basic configuration, establishing marketing and technical agendas and guiding further development. Regular innovation involves incremental change, building on established production and technical competence and applying it to existing customers and markets, thereby entrenching existing resources and skills.

Revolutionary innovation disrupts and renders established production and technical competence obsolete while still being applied to existing customers and markets (Von Stamm, 2008). The iPhone, for example, made conventional mobile phones obsolete. The market became the existing one with the same customers, yet the smartphone now stood at the forefront of telephony — this is what Stamm identifies as revolutionary innovation.

Commercialization is an integral part of innovation. Implementation combines several aspects: idea selection, development, and commercialization (Von Stamm, 2008). While creativity is essential to the process, the definition of commercialization is complex. Different interpretations debate what properly constitutes commercialization — for example, whether it encompasses only direct sales or also includes revenue types such as funding and licensing fees. Whether sales to government agencies are included further shifts the meaning. For general purposes, however, sales serve as the defining benchmark: commercialization is the act of making something sellable (Von Stamm, 2008).

When Steve Jobs first created the iPhone, he had to implement a design that made it sellable to both new and existing customers. People hailed the iPhone as a marvel because its design and interface were so elegant (Toguchi, 2017). The functionality and aesthetics worked together to produce a product that is both appealing and reliably performant, ultimately making it sellable to millions of customers worldwide (Toguchi, 2017).

When a product is sellable, it provides a means of profit for companies. Whether through advertisements or fundamental design changes to appeal to new tastes or market trends, businesses take deliberate steps to make their products and services marketable.

One cannot have innovation without commercialization. There is little point in having an innovative product if it cannot be marketed effectively. As noted earlier, Von Stamm identifies commercialization and creativity as essential to manifesting innovation. On pages 254–255 of her text, Stamm introduces the concept of "Management of Knowledge," noting that managing ideas and storing information from past and current projects is key to developing both innovation and commercialization.

If a company wishes to produce a new product, it must draw on information from past projects — and notably past failures — to understand what will work and what will not. "In fact, I would suggest that all major stages of a new product development should be covered in a company's approach towards model management: idea management, development and review, commercialization and monitoring" (Von Stamm, 2008, p. 255). For example, should a company wish to revamp a toy line by adding a new product, potential candidates could emerge from unfinished projects or reimaginings of older ones. Through data collected from prior work, the company can produce a new toy that can then be marketed to an existing customer base.

To commercialize such a product — making it marketable to an existing customer base — it must not be overly controversial and must suit the needs of customers. Commercialization and innovation together form a complicated but essential process. Without each other, a product cannot fully appeal to customers or become something that defines a company. There is an integral and necessary connection between the two concepts.

Von Stamm describes the development funnel as beginning with business strategy, followed by development goals and objectives, project portfolio planning, and project management and execution. The final stage inside the funnel is post-project learning and development. The funnel helps frame a better understanding of innovation through its various strategic categories — for example: product extension, existing products, and blue-sky concepts (Von Stamm, 2008). Part of Amazon and Apple's success lies in their engagement with global innovation: cutting costs, increasing efficiencies, and reducing complexity and duplication. "Along with globalization strategies, companies often increase centralization as this is seen to be necessary to coordinate brand consolidation and reduction of product variety. Pooling resources, better integrated portfolio management…" (Von Stamm, 2008, p. 73). To make products like the iPhone and Kindle e-Reader appealing to a global audience, both companies had to account for differences in customer habits and preferences, as well as differences in company law, environmental requirements, and general legislation.

Intellectual Property Rights and Their Importance

The innovation or development funnel was developed by Stephen Wheelwright and Kim Clark, two Harvard Business School professors (Von Stamm, 2008). The funnel encourages "managers to take an integrated approach to new product development. Rather than making decisions on individual projects, their approach suggests the management and coordination of product development activities from a company-wide perspective, starting with a link to company strategy" (Von Stamm, 2008, p. 58). The methodology revolves around coordination and management from a company-wide viewpoint, moving away from a focus on individual projects. Although existing literature sometimes treats the development funnel as a variation of stage-gate processes, its emphasis on generating numerous ideas and then narrowing them down sets it apart from other frameworks.

The first and largest component of the funnel is Business Strategy, encompassing market assessment and forecasting as well as capabilities assessment and forecasting. When Amazon and Apple began development of their respective products, they paid close attention to the existing market. The iPhone, for example, was the first of its kind with no real direct competitor, whereas the Kindle e-Reader was developed explicitly to compete with the Librie.

The Capabilities Strategy and the Product/Market Strategy attempt to identify core competencies and clarify priorities and positions in new markets (Von Stamm, 2008). Apple and Amazon launched their products knowing there was little to no competition and that they would be among the first to truly bring such products to market. Within the funnel, objectives, planning, management, execution, and post-project assessment allow companies to monitor how well their new products are performing. Both Amazon and Apple launched dedicated stores — the Kindle Store and the iTunes/App Store — approximately one year after their respective initial product launches. These stores further strengthened each company's competitive advantage and reinforced their leadership positions within their industries.

Von Stamm briefly covers various development funnel realities, one of which illustrates a commercial pathway involving quality control, research, customer input, market engineering, and strategic planning. For a product like the Kindle e-Reader or the iPhone to succeed commercially, sound marketing strategies must be grounded in research that takes into account the existing customer base. Apple's existing customers were accustomed to cell phones with little to no internet access and no touchscreen; Amazon's customer base was used to physical books. These products had to be developed in consideration of those existing habits and needs.

Apple Inc. and the iPhone: Case Study

The process moves from initial investigation through development and on to shipping. Both Amazon and Apple identified a genuine market need for their respective products, prepared their marketing accordingly, and then revealed their innovations through trade shows and presentations that highlighted the new product's capabilities.

Intellectual property can be a complex term to define. While some definitions provide only partial meaning, the most comprehensive approach is to understand it as the sum of its legal parts. "Intellectual property is the enumerated sum of its legal doctrines; is the enumerated sum of the objects it regulates; is a type of property; is whatever the law stipulates it to be; and is whatever it is intuitively felt to be" (George, 2012, p. 51).

Intellectual property is what helps someone sell and maintain rights to an object. Using the iPhone as an example, Apple Inc. holds the intellectual property rights to the design and name of the iPhone. Without those rights, competitors could copy it and produce similar products. The reason Apple has managed to survive various economic downturns with their products rarely discounted is that they are the only ones who can deliver the authentic iPhone experience.

Part of innovation is creativity; the other part is commercialization. When a company owns exclusive rights to a product, it can market and sell it on its own terms. Without intellectual property protection, it would be extremely difficult for any business to remain relevant and profitable with its flagship products. The electronics industry in particular faces constant competition and new releases every year, which is why having a unique and highly marketable product is rare and must be protected to maintain both its allure and its profitability.

The iPhone is the flagship product of Apple Inc. (Mazzucato, 2015). While Apple has several notable products, it is the iPhone that established the company as one of the great innovators in the electronics and mobile industries, leading the development of smartphone culture and the app ecosystem (Mazzucato, 2015). Before achieving this success, innovators like Steve Jobs had to find a way to create a product that was not only highly marketable but could also translate into multiple successive models. When beginning what would become the iPhone, Jobs and his team had to learn how to operate a device in an entirely new way. Apple's goal was a personal computer revolution through the merging of three personal devices into one pocket-sized supercomputer (Tetzeli, 2015).

It was in 2004 that Jobs decided to shift Project Purple from a tablet to a phone (Tetzeli, 2015). This pivot made it possible to extend Apple's tablet concept into what became the iPhone — maximizing the device rather than miniaturizing an iMac (Tetzeli, 2015). To achieve this, they used ARM-based microprocessors instead of power-hungry Intel chips. ARM-based processors have since become a mainstay of the smartphone industry, and their influence has extended into server computing as well (Takahashi, 2018).

Steve Jobs created the iPhone within a predetermined budget. Looking at the original specifications of the iPhone, one can estimate the scale of investment required for research, development, and the transformation of the original P2 device concept into a touchscreen phone. "The original iPhone, code-named M68 and device number iPhone1,1, had a 3.5-inch LCD screen at 320×480 and 163ppi, a quad-band 2G EDGE data radio, 802.11b/g Wi-Fi, Bluetooth 2.0 EDR, and a 2-megapixel camera" (Ritchee, 2018). The research and development budget for the original iPhone must have been substantial given the lack of any comparable baseline model. Being the first of its kind, the iPhone required innovation through the adaptation of other designs into a more portable and user-friendly form.

Although precise initial cost estimates for the original design are scarce, 2018 estimates place the manufacturing cost of a single iPhone X at $389.50 (Do, 2018). Translating this into the cost of the original smartphone development effort — accounting for initial research, prototype production, patent submissions, and copyright registration — an estimated budget of approximately $5 million is plausible. Once the initial model was produced and tested, subsequent versions would become progressively less expensive to manufacture, which explains why the per-unit production cost of the iPhone X stands at $389.50 today.

The main objective was to become a leading competitor within the mobile phone industry. The iPhone allowed Apple not only to become a frontrunner in mobile phones but also to maintain that leadership position for over a decade. "Hardware design: Apple is the hardware leader for all six generations of its iPhone" (Gong, 2013, p. 135). A second objective was to create a product that is difficult to replicate, thereby enabling the highest possible profit margins. The iPhone is typically purchased at full retail value or through cellular contracts (Curwen and Whalley, 2016).

Von Stamm identifies three avenues of external funding that entrepreneurs can pursue: business angels, venture capital trusts, and corporate venturing (Von Stamm, 2008).

Business angels are private investors who invest directly in small companies or start-ups in exchange for an equity share (Von Stamm, 2008, p. 344). These investors often join the company's board and provide both capital and managerial expertise, frequently at the very earliest stages of product development. Apple Inc. received venture capital at various stages of its development. Business angels function as an informal form of venture capital — "private individuals with a high net worth" (McKelvey and Lassen, 2013, p. 64).

Venture capital trusts specialize in specific technologies or industries that meet set criteria. "The process tends to be more formalized than with individuals; in fact, the type of investment they can make is regulated" (Von Stamm, 2008, p. 344). One benefit of venture capital trusts is their ability to provide private investors with tax incentives. Amazon.com benefited from this type of funding in its earlier stages: "The fund's largest single investment is not Amazon.com or Yahoo!, but CMGI" (Laderman, 1999, p. 174).

Corporate venturing involves a non-financial corporation making funds available for investment in other companies, either directly or through a subsidiary venture fund (Von Stamm, 2008, p. 345). Investments typically align with the investing firm's strategy — gaining access to a specific market or technology or enhancing competitive advantage. Amazon, for example, pursued this model through its partnerships with Audible.com and Twitch to generate revenue via Prime subscriptions.

For the iPhone specifically, business angels represent a suitable funding source given their informal nature and the fact that Apple had already implemented several major changes in its latest models. Steve Jobs himself resorted to informal means during Apple's early days, selling personal property to raise startup capital and convincing a supplier to extend thirty days of credit on parts after confirming a purchase order (Score, 2018).

There are varying types of participation and degrees of creativity within any complex project. Von Stamm distinguishes between artistic creativity and scientific creativity, spanning a spectrum from engineers and chemists to inventors and artists. Steve Jobs occupied the middle ground as an inventor, drawing on both scientific and artistic creativity to design the iPhone.

The key stakeholders in the iPhone project were:

Conclusion and Recommendations

In conclusion, Apple Inc. and Amazon.com Inc. are two very successful companies that led the way toward the renewal of their respective industries. Through the innovation and commercial funnel, one can understand how each company moved from an initial idea or concept to a highly marketable and successful product. Apple and Steve Jobs determined that miniaturizing the personal computer into a smartphone would give them the competitive advantage needed not only to generate ongoing profit but also to remain leaders of the mobile phone industry for more than a decade. Amazon.com and Jeff Bezos drew inspiration from existing technologies like Sony's Librie to outpace their competitors and secure the leading position in both the book market and the newly emerging e-Reader market.