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Tesla Motors: Unorthodox, Innovative Business Strategy

Tesla Motors recently announced that they are making their intellectual property available to anyone interested in using it. This is an unusual move—the development, validation and legal protection of IP is one of the primary objectives of an innovation project. Why would a successful company such as Tesla then simply decide to give away their crown jewels? Simply put: They are not.

Businesses commonly treat their IP in one of two ways. For new ideas and technology that can be easily re-created by a competitor or that directly interact with services/products from another provider, businesses typically seek patent protection. This prevents a competitor from taking those original ideas and approaches and using them as-is for their own benefit. Alternatively, a company can choose to not obtain a patent on their intellectual property, provided that they have the infrastructure in place to prevent the distribution of the IP. This is typically referred to as a trade secret.

By making the use of the intellectual property described in its array of patents unencumbered, Tesla is paving the way for anyone from hobbyists to large auto manufacturers to develop the technology further. In all likelihood this will lead to cooperation between Tesla and other automakers. The development of an electric vehicle charging network, if undertaken by Tesla alone, would be daunting. However, if other providers start participating in this endeavor by both creating new charging stations and producing additional compatible vehicles, electric vehicle prices will potentially decrease significantly and adoption soar. We could only dream.

The situation reminds us of the early days of cellphones. A mobile phone did no good if you were not in an area with cellphone network coverage. The use of cellphones could only grow as coverage improved and expanded and handset costs lowered. Had the interaction of handsets and networks remained completely proprietary, the mobile landscape might have looked quite different today. Fortunately network development and handsets were developed against a common specification (GSM).

With an organically growing charging network, fueled (pardon the pun) by the ideas and resources of other entities, Tesla Motors can still strongly leverage its remaining cache of trade secrets used to design, build and improve their vehicles. Making available some of their intellectual property thus does not pose any competitive disadvantage to the company (otherwise they would not have done it). It will, however, in the long run benefit them in the sense that their investment requirements will potentially decrease, furthering the altruistic goal of making the world a better place.

The question that remains is this: Who will be first to use this intellectual property to develop a competing product? Detroit seems at present to be doing their best to keep Tesla at bay, lobbying heavily to disallow Tesla’s direct distribution model. The US market has also been reluctant to adopt the use of diesel compared to Europe, Africa and the East, even though diesel vehicles are considerably more fuel efficient.

Regardless of the fact that advocating the fierce protection of intellectual property is generally the preferred route to market, Tesla Motors’ decision should be commended. It strikes a balance between developing a grossly beneficial market environment while still serving both the interests of current and future customers and competitors. It’s a brilliant example of unorthodox business strategy.

Photo by Brian Miller.