So when we think about the importance of a complementary asset,
we wanna think about dependence.
So we can think about it both from the perspective of the innovation and
from the perspective of the asset.
So here we have a little chart where we say, all right, one axis on the y axis,
we have the dependence of the asset on the innovation.
How much does that asset need this innovation to be able to execute?
On the other axis on the horizontal axis,
we have the dependence of the innovation on the asset.
How much does that innovation require that asset to be able to execute?
So let's consider something that might be high on dependence from the innovator
standpoint, but low on the dependence from the asset side.
Think about a company coming out with a novelty item, that basically the main
distribution channel is going to be a large retailer like Walmart.
Well in that case, the innovator is highly dependent
on Walmart as the distributor of their product.
That becomes a specialized asset controlled by the asset holder.
Walmart on the other and, really doesn't have to use just that innovation to be
able to realize their business model.
They obviously have thousands of products that they're selling through their stores.
So that gives them great bargaining power now, with the innovator in that situation.
We could imagine situations that are reversed.
Perhaps someone has designed a particular service tied to an innovation.
There are numerous kind of retail establishments that have grown up around
eBay, the online trading platform.
There, those companies could be very tied and
dependent on eBay as an innovator in order to be able to execute there.
And then you could imagine situations where eBay could make demands of them, and
bargain with them because of that advantageous position.
Now, if dependency is low we're really in a world of generic complementary assets,
and they just simply aren't that important then to our worries and
concerns about appropriability.
If they're both high, now we're in this kind of co-specialized
world where we both need each other, and there's this bi-lateral dependence, or
mutual dependence between the asset holder and the innovation.