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Business Models for Five Industries in Crisis

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In our 2006 book Wikinomics, Anthony D. Williams and I looked at dozens of companies that have used the Internet to transform their business models and achieve tremendous success.

However, in the five years since the book's publication, we've noticed something striking: the rate of business model innovation has not accelerated. Yes, some individual companies have achieved competitive advantage by exploiting the web and networked business models. But overall the gains have been modest.

We're beginning to understand the reason. Increasingly it's becoming difficult or even impossible for companies to achieve breakthrough success without changing their entire industry's modus operandi. From the many examples, let's look at five:

1. Pharmaceuticals Can't Fix What Ails Them One by One

Pharmaceutical companies are about to drop off what's called "the patent cliff". They will lose 25-40 percent of their revenue in the next two years as the patents for many blockbuster drugs expire. There is little individual companies can do to recover from this crisis and instead need an industry wide solution.

The global biomedical community is generating about 25 new medicines per year, but only a handful of these are "pioneer drugs" rather than "follow-on drugs"-variants, formulations or combinations of existing therapies.

Despite increased research spending the impact on the number of new medicines approved is negligible. Pioneer drugs address societal needs but also their discovery will allow pharmaceutical companies to grow because consumers are willing to pay for such innovation.

It is in everyone's interest that those involved in the quest for pioneer drugs share rather than hoard information. Unfortunately, the current structure of drug research encourages the industry to protect its ideas and material with intellectual property rights or restrictive collaboration agreements. The public sector too has been encouraged to secure intellectual property on early-stage discoveries.

Nor is the clinical trial process as open as it could be. The outcomes of these trials, particularly if they fail, are not published until several years after the termination of the projects, if at all. A corollary is that the pharmaceutical industry is downsizing research and focusing on less risky activities.

Instead, the industry should share some of its clinical trial data, such as results from failed trials or from control groups. "This will not undermine the competitive advantage of companies," says former Merck executive Stephen Friend, now a champion of the open source biology movement: "It will enable it, by changing the basis on which companies compete and setting a platform for a sustainable industry."

2. Rethinking the Music Recording Industry

Used properly, the Internet could deepen the bond between musicians and their fans. Instead, the music recording industry has become the poster child of failed digital opportunities.

Instead of clinging to late-20th-century distribution technologies, like the digital disk and the downloaded file, the music business should move into the 21st century with a revamped business model that converts music from a product to a service.

All music labels and performers should put their music into a commons in the cloud. Instead of purchasing tunes, listeners would pay a small fee-say $4 per month-for access to all the songs in the world. Recordings would be streamed to them via the Internet to any appliance of their choosing -- such as their laptop, mobile device, car, or home stereo. Artists would be compensated based on how many times their music had been streamed.

The system would immediately eliminate "illegal downloading" because the problem of copyright protection would vanish. There are companies like Spotify that are attempting to provide such a service, but the record labels have resisted putting all their music in an exchange whereby they and artists get compensated each time a song is streamed.

With a restructured music industry, companies would have an incentive to nurture new artists.

Tapscott's discussion of Banking, Sustainable Manufacturing and Transforming Healthcare is continued at Wall Street Journal's The Source.

Don Tapscott is the author of14 books, including (with Anthony D.Williams) MacroWikinomics: Rebooting Business and the World. He is an Adjunct Professor at the Rotman School of Management, University of Toronto. Twitter: @dtapscott.

Join Tapscott for a live Q and A at 11 am ET Tuesday.

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