to go. Third is accelerating innovation on our own platform. A number of new features and capabilities will come online in the next two to three quarters which run the gamut from team project rooms that will allow large groups of individuals to work together to the ability to have an award amount that floats—in other words, market-based pricing.
X: How does InnoCentive make money? Can you explain your pricing model?
DS: In our model a company will pay, on average, about $15,000 for the ability to post a challenge on the network. That includes services from InnoCentive’s team of PhD scientists who can work with their organization to define their problem, articulate a problem statement, and administer the challenge for them. We also advise customers on what the right dollar amount for the award is.
X: So how much would a company end up spending? Walk me through an example.
DS: Let’s say the company has decided to offer a $50,000 award to get the network engaged. If they post a challenge and they do not get the solution they were looking for, they would pay just the $15,000 posting fee. If they do find it, they’ll pay the posting fee, plus the $50,000 reward, plus 40 percent to InnoCentive [$20,000 in this case] as a “pay-for-performance” premium. So they’d be out-of-pocket $85,000. Our revenue would be $15,000 if they didn’t get a solution and $35,000 if they did.
X: You mentioned intellectual property rights. How do you help clients make sure they have the right to use the solutions that solvers come up with?
DS: InnoCentive looks like a very straightforward online market, and we go to great pains to make it look that way, but the reality is we are dealing with commercial entities, and what that means is that IP rights become paramount. Solvers agree to a set of terms and they sign electronic NDAs. They understand that if they submit a solution, it will be one that they have all the intellectual rights to. Then in the background InnoCentive does a due-diligence exercise. We help the solver document that what they did is a piece of original work. If they work for an academic or corporate institution we’ll have them or the institution or the company sign a waiver saying that they don’t retain any rights. After doing this in 30 countries we’ve gotten quite good at it. Then, when the final exchange takes place, we essentially act like a title closing company, moving all the paperwork and waivers and signed documents from the solver to the seeker and moving the solution from the seeker to the solver.
X: Will you be marketing your services to new industries, or in new areas of the world?
DS: If you’d looked at the platform previously, you’d have seen it as a life sciences and chemistry platform predominantly. That’s no longer the case. Our clients today run the gamut from energy to aerospace to pharmaceuticals. Our customers are roughly two-thirds in the Americas and one-third in Europe. We also have a practice area that focuses exclusively on the non-profit sector, and we have a full-time government executive based in D.C. On the sales and marketing side, you will see a growing focus on the remaining verticals and a slow movement into other geographies. I would be surprised if by this time next year we did not have our first office overseas. But our focus right now is on large multinationals domiciled here in the United States.
X: I imagine that one area where you don’t put out a lot of challenges is in software development, where there are so many other ways to hire freelance talent. Is that true? And if so, will that change at all?
DS: You’re right, that’s a space that runs the gamut from TopCoder to Elance. Our customers do want us to do a lot of code development for hire, but that’s not the core of our model. If you look at one of the newest disciplines up on our site, mathematics and computer science, what our solvers are focused on is
