Knowledge Commerce: Commercializing Knowledge

Dr. David J. Skyrme

This is a synopsis of a presentation given at the Knowledge Summit '99, London (23-24 Nov 1999). There is a related Insight No. 26: K-Commerce - Profiting from Knowledge. Also an article (WfW6 format: 91K) 'Knowledge Commerce: Succeeding in a Global Knowledge Marketplace' .

This presentation reviews the trends in the knowledge movement. While many organizations are still pre-occupied with an internal perspective on implementing knowledge management, this presentation highlights the opportunities and challenges of exploiting knowledge assets externally. The rapid growth of Internet usage and investment in accompanying software and services is fundamentally changing the way in which goods and services are traded. The emergence of widely accessible electronic market places provides new opportunities to sell knowledge assets and knowledge-intensive products. Exploiting these to their full potential requires new thinking about packaging knowledge and new approaches to marketing. Analysis of trends and of the experience of the pioneers suggests strategies and guidelines that are most likely to lead to enterprise success.

The Trends

Three megatrends that are shaping the environment for trading knowledge are:

1. The power of technology and especially the acceptance of the Internet as a key tool of business and commerce
2. Virtualization: the ability to work and trade over large geographic distances.
3. The emergence of knowledge as a key focus of policy and strategy.

At the macro-level, there are a number of trends discernable in knowledge-based strategies. Last year at Knowledge Management 98 I suggested ten (see presentation) . This presentation explores three of them:

1. From Inward Focus on Knowledge Processes to External Focus on Knowledge Businesses - companies will identify how their knowledge assets can be recombined to create new knowledge-based businesses. For example, an engineering/manufacturing company might create an engineering consultancy business.
   
   
2. From Knowledge Codification and Databases to Tradable Knowledge Assets. Although publishers have done it for some time, many other companies are now realizing the opportunities from trading their databases e.g. fleet car managers and car reliability information.
   
   
3. From Knowledge Communities to Knowledge Markets - Communities, which bring together people who have shared interests, have proved an effective vehicle for knowledge exchange. But as knowledge acquires value, and becomes 'productized' as objects these communities will develop payment mechanisms and other trappings of a market place.

Packaging and Commercializing Knowledge

Knowledge is packaged and commercialized in many ways. Many of these involve some form of codification from tacit knowledge to knowledge in more explicit forms such as documents databases and computer software. What starts as uncodified knowledge, often a set of ideas, is gradually shaped through dialogue and expression into something more tangible, such as a process description or a product design, that finally emerges as products for sale (slide 14).

Much knowledge in organizations is neither explicitly codified nor commercialized. Thus many knowledge management initiatives identify important tacit knowledge, held by a few experts, that is capable of codification and would benefits many other people. Knowledge can be commercialized in several ways: selling it as part of an advisory service; developing methodologies as part of a consultancy; developing training courses; converting it into information products such as databases or publications etc.

Value and Volatility

In general, the greater the degree of codification of knowledge the more easy it is to reproduce and disseminate. Thus, the latest versions of computer operating systems and office software contain over a million lines of computer code, but are packaged onto a CD-ROM or downloaded over the Internet. Suppliers could charge a very high price for software (indeed some software packages do cost $10,000 or more), to recoup their multi-million dollar development costs. However, a common strategy is to take advantage of the potential market and price low hoping to gain a far higher volume and overall revenues. This is also a driving strategy in many loss making Internet businesses, who believe that high market share will ultimately lead to profitable revenues. Valuing knowledge is much more of an art than science. Some common ways to enhance the value, and hence marketability of information and knowledge are shown in slide 18.

Generally commercialization means making a trade-off between value and volume. Higher value knowledge is generally specific to the context and generally involves human interaction. A consultant, for example, charges much more than the book he or she has writer, since they are supplying the relevant knowledge from their vast store of expertise to the specific situation. But they cannot be as widely shared as their book! An important feature of the Internet is that it can alter the shape of typical volume-value graph (slide 17). At the high value end, consultants can be much more efficient, drawing on existing knowledge more readily. At the low-end, the low Internet delivery costs, means that prices can be significantly reduced, again stimulating higher volumes.

Knowledge Markets

There are already many examples of trading different types of knowledge. There are established content industries like publishing and broadcasting. There are also people-based industries like management consulting (selling the know-how of their people) and recruitment agencies (trading in human capital) are examples. The more that uncodified personal knowledge is involved, the more the marketing has traditionally relied on developing face-to-face relationships. The development of knowledge markets on the Internet, though, is starting to change these traditional methods.

Iqport offers an interest example of an important knowledge market enabler - a knowledge trading platform. It is a joint venture of, among others, NatWest bank, Lotus and Oracle. Describing itself as "the knowledge market for people in the know" it brings together several key elements into a single online marketplace, including a classification system, standardized 'knowledge wrappers', accrediation and supporting communities or guilds.

The 7Ps of Internet marketing

Trading knowledge over the Internet requires a fundamental rethink of the marketing approach. Traditional marketing has for many years been focused around the marketing mix of 4Ps: Products, Price, Promotion, Place. Their nature changes with the Internet (slide 24), but in addition success on the Internet demands attention to a new set of 7 Ps - Packaging, Positioning, Portals, Pages, Payments, Progression and Performance (slides 25-26).

One of the most effective ways of developing viable strategies, especially in this fast changing marketplace, is to closely monitor and learn from what others selling similar products and services are doing. The great advantage of the Internet is that it is easy to do much of your learning and competitor analysis online.

There is, of course, more to knowledge markets than packaging and trading knowledge on the Internet, but mastery of the Internet as a channel to market and potential delivery vehicle is essential for any organization wanting to maximize the return on their investment in knowledge.

Successes and Failures

The pace of change is fast. The speed of development of Internet products and services is measured in days (typically 100 days) not months or years. Some very large organizations have put hundreds of millions of dollars into unsuccessful ventures. Many of those mentioned earlier may not make it to next year. As an example, Pointcast led the world in push technology (where users receive in background mode on their PC news stories filtered according to their interests). But two year later its offering was looking old and obsolete and the company was subsumed into Backweb. Europe Online, aiming to be Europe's leading Internet Service provider, backed by $200 million from publishing house Bertelsmann and others, went into oblivion as America Online (AOL) surged ahead. Peoplebank, an online recruitment service, launched in 1996 with nearly $10million investment and closed a year later. For every successful amazon.com (and even today they are not making a profit) there are several others who do not make it.

However, because electronic commerce will be so pervasive, and the world's telecommunications infrastructure makes global knowledge trading so viable, the risk of ignoring these developments, in terms of loss of personal and national prosperity, is even greater. Value will flow to where the best knowledge is, to those who best package and commercialize it for different user needs, and those who and those who trade it and provide the enabling mechanisms.

© Copyright. Dr David J. Skyrme. 1999. All Rights Reserved.

David Skyrme Associates provides consultancy services and workshops on knowledge commercialization and knowledge management that address the topics covered in this article.

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