Cospecialized assets are a critical concept in the economics of innovation and strategy, referring to a situation where an innovation and the complementary assets needed to commercialize it are mutually dependent.
This bilateral dependence means that the value of the innovation is significantly enhanced by the complementary asset, and conversely, the value of the complementary asset is significantly tied to that specific innovation.
Here’s a breakdown of what that entails:
- Bilateral Dependence: This is the defining characteristic.
- The innovation (e.g., a new technology, a product) relies heavily on the specific complementary asset to be successful.
- The complementary asset, in turn, is most valuable or even only useful in conjunction with that particular innovation. It cannot be easily redeployed or used for other purposes without losing substantial value.
- Idiosyncratic Nature: Cospecialized assets are often unique or highly specific to the innovation. They are not “generic” assets that can be easily bought or sold in the open market. This makes them difficult to acquire or replicate. Examples include:
- Specialized Repair Facilities for a Unique Engine: Mazda’s rotary engine required specialized repair facilities and trained mechanics. These facilities were cospecialized with the rotary engine technology; they were invaluable for maintaining the engine but had little use for conventional engines. Similarly, the rotary engine’s value was diminished without these specialized repair services.
- Biotechnology Patents and Pharmaceutical Capabilities: A groundbreaking biotechnology patent might be highly cospecialized with the marketing, distribution, and regulatory expertise of a large pharmaceutical company. The patent holder may not have the resources or capabilities to bring the drug to market, and the pharmaceutical company’s existing infrastructure is optimized for existing drug types, making it a perfect complement.
- Software and App Stores: Apple’s iPhone innovation is cospecialized with its App Store. The vast ecosystem of applications developed for the iPhone significantly enhances its user experience and value, while the App Store is primarily designed to serve iOS devices.
- Strategic Implications:
- Competitive Advantage: Control over cospecialized assets can be a significant source of sustainable competitive advantage. If an innovator owns or controls these assets, it becomes much harder for rivals to imitate or compete.
- Transaction Costs and Governance: The presence of cospecialized assets often leads to high transaction costs if the innovator and the owner of the complementary asset are separate entities. This can incentivize vertical integration or strong partnerships (like joint ventures or exclusive licensing agreements) to ensure the assets are aligned and their combined value is realized.
- Risk of Exploitation: If an innovator lacks control over crucial cospecialized assets, they risk having their innovation exploited by the owner of those assets, especially if the innovation itself is easily replicable. This was a key point in David Teece’s work on “appropriability.”
In essence, cospecialized assets highlight that the success and profitability of an innovation often depend not just on the invention itself but also on the tightly integrated ecosystem of supporting resources and capabilities that make it viable in the market.