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TL;DR - Do standardised concepts ever make money?


Recently I have been wondering if conceptual ideas ever make money, more specifically whether a conceptual idea that is standardised ever makes money? If so, how does it do this? If not, why do they not make money?

An example of a concept that has become a standard is the OSI model, the OSI model is a conceptual idea which governs how traffic passes through a network from the physical layer (layer 1) right up to the application layer (layer 7). This concept has become a standard idea and guideline in networking so much so we now "speak in OSI" what that means is, if there's a cable issue it's a "layer 1 problem" and if there is a routing issue it's considered to be a "layer 3 issue"

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This question is hard to answer because it can take so many perspectives. The only way I find to approach it is using examples.

Could John Nash profit from his paper in game theory? Could Einstein profit from general relativity? Yes, with prizes and recognition, but not everytime the concept is used. Not in a way analog to the copyrights of music or publishers.

If you talk about standard methodologies or standardized concepts, in the business world, several organisations strive for developing and enforcing standards, notably ISO and GS1. They do have revenue, mostly from consulting or memberships, but they are not-for-profit organisations, as having profit can drive standardisation away.

The history of Thunderbolt demonstrates how trying to make money of a standard (through royalties) can sometimes drive consumers to use another standard which is free, even if inferior.

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    $\begingroup$ index funds made a ton of $ in the 80's and 90's and probably still do. Sometimes the question of whether something makes money has more to do with sales and marketing than the actual concept. if an index fund salesperson can convince people-pensions fund managers-asset managers that they need to invest in index funds, , that's the most important step. the actual concept is pretty straightforward. margin's have dropped dramatically since the 80's but index funds are still out there so someone is making money offering them. $\endgroup$ – mark leeds Jul 10 '18 at 6:17
  • $\begingroup$ @markleeds your comment made me remember of the concept of dominant design: the index funds became, at the time, the dominant design for high risk investments. Similar to what Apple made to touch-screen phones. $\endgroup$ – JoaoBotelho Jul 10 '18 at 18:40
  • $\begingroup$ interesting. I never heard that term before so thanks.. obviously they're still around and margins have become really thin ( because of technology mostly ) but they still generate profits. $\endgroup$ – mark leeds Jul 11 '18 at 20:56
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The United States, in particular, has an institutional framework for the granting of so-called method patents. These are patents that, rather than describing something very concrete like a machine or technological device, cover more abstract inventions such as new business methods or procedures.

Method patents are sometimes used to protect ideas that might be deemed conceptual. One (notorious) example, was amazon's patent for the idea of a one-click checkout (now expired). Once an inventor holds the patent to a method, they have exclusive rights to permit its use. In amazon's case, it allowed the firm to extract licensing fees from others, such as Apple, who wished to use the method in their own products.

A bit closer to home, various economists have patented ideas for how to design well functioning markets (e.g. here), which might be perceived as conceptual. These exploit the same method patent framework as the 1-click case.

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  • $\begingroup$ That's interesting. One would assume we have the same sort of thing in the UK. However, having a patent doesn't necessarily generate revenue, does it? Forgive me if my terminology is off, I am in no way educated in economics or any related field at all. $\endgroup$ – J.J Jul 10 '18 at 9:51
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    $\begingroup$ @Joshua.J The UK is party to EU patent law. In the EU, methods patents also exist, but are treated less specifically than in the US. As for the revenue point: no, a patent does no directly generate revenue. But the main challenge to profiting from conceptual ideas is preventing others from freely imitating them. A patent does exactly that. This means the inventor can either profit from the exclusive right to use the idea, or extract a license fee payment for the right to do so. This is analogous to how books and music earn money because copyright prevents people from freely copying them. $\endgroup$ – Ubiquitous Jul 10 '18 at 10:21
  • $\begingroup$ Makes perfect sense, thank you. Although after Brexit we won't be subject to that patent law so I would assume we also have our own in place in some form. $\endgroup$ – J.J Jul 10 '18 at 10:26
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Do concepts ever make money? Yes, of course they do. But not on their own. They need effort putting into them to turn the concept into intellectual property, product or service that can then be licensed, hired, rented or sold.

For example, for a long time, Adobe Flash was the standard for interactive animations on web-pages, that Adobe monetised through selling the software to write and compile Flash objects.

It is not necessarily the case that having a standards organisation as for-profit prevents the uptake of the standard. As Mark Leeds has written in a comment, the index fund is an ingenious concept that has reaped huge profits, as index funds have become widely adopted.

Furthermore, some standards organisations do make money: they do have a turnover. They can even make a profit: it just doesn't get called a profit, it gets called a surplus. Being a not-for-profit doesn't mean that they can't make a surplus - it just means that profit is not their reason for existing, nor their primary objective.

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