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The Valuation of Innovation Service Providers / Management Systems

January 30, 2014 15inno 5 Comments

A follower of my blog recently asked me this question:

“In your opinion, what is the market value of the companies that offer crowd sourcing solutions? I mean smaller players that work within one nation or with a couple of larger organizations as well as bigger players like innocentive.”

This is a tough question in general and even harder for me as I do not know much about valuation.

What I can do is to offer some comments related to the valuation of such companies:

• I have seen endless numbers of such small companies around the world over the last years. Many of them are not sustainable and will either close or become small consultancy firms

• There is a need for consolidation in the industry and we will see the bigger players get even bigger. An example is the Spigit and Mindjet merger / takeover.

• The last 5 years have been tough and we still need to see how profitable this niche industry really is.

The person who asked the question would very much like to have a discussion on this. Now, you got my starters. Please share your views.

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Currently there are "5 comments" on this Article:

  1. Edward Boze says:

    Does the industry need consolidation? It depends upon what you mean by need. Needed for their survival. That depends upon how quickly the market catches on. . I am certain 10 years from now it will seem insane that companies did not routinely provide a means for employees to contribute beyond their normal role.

    Towards moving the market along, I would like to see some standards on inter-operability so that companies who adopted different platforms could engage in open innovation more easily.

  2. I think I good proxy is what is happening to the quantitative consumer research market. In this market we have been seeing a lot of M&A in the past years, with more and more global players with global operations appearing through mergers and acquisitions. At the same time more and more niche and specialized players are thriving. The middle segment is getting squeezed in. In a nutshell we see hat both economies of scale and economies of scope are features of the market.
    By the same token I would say this is going to happen to the crowd-sourcing solutions providers. There will be definitely consolidation with truly global players leading the market and mostly working with top fortune 500 companies; on the other side there will be niche players able to provide sector specific services.

  3. Basil Peters says:

    Excellent question. I agree the industry will be consolidated. It's early, but I think we are close to seeing some M&A activity.

    Our firm is starting to see interest in open innovation companies from strategic and financial acquirers.

    I'd be interested in hearing from anyone who is interested in either buyer or selling open innovation businesses.

  4. That is the old question about size.

    The industry is still very fragmented and from a client point of view I find it great. I don't believe consolidation will improve the quality of service providers and will certainly reduce the diversity and competition amongst them to provide the best solutions to clients.

    As I am working for one of the market players I can assure you that in this industry small is beautiful as it forces players to be more creative, efficient and flexible to serve clients and their specific needs.

    Of course I would prefer ourselves to be larger but always due to organic growth and not via consolidation. In fact I even think larger players (and in this case larger is very subjective…) are not as flexible, customer-oriented and "creative" as we believe to be.

  5. Paul Wagorn says:

    I believe that valuation must take into consideration the market as a whole, and not just the specific player in question.

    The market is growing, and as Basil points out, we are starting to see some serious money interest in the space.

    My sense is that this is because there is growing market acceptance, and the financial industry is starting to clue in to this. There are now entire departments of companies set up to explore and take advantage of the open innovation offerings of various companies.

    Yes, the market is fragmented, but the timing is right for consolidation. Many companies have clearly demonstrated value, and we are still early enough in the cycle that, as Stefan says, valuation is still difficult. Sure, that means risk, but it also means potentially huge opportunity for investors.

    The right investment could pay off quite well for the smart investor.

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