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Observations Lab
• Macro Thoughts

Who Captures Value in a Global Innovation System? The case of Apple's iPod

The retail value of the 30-gigabyte video iPod that the authors examined was $299. The most expensive component in it was the hard drive, which was manufactured by Toshiba and costs about $73. The next most costly components were the display module (about $20), the video/multimedia processor chip ($8) and the controller chip ($5). They estimated that the final assembly, done in China, cost only about $4 a unit.
Greg Linden, Kenneth L. Kraemer, Jason Dedrick
Personal Computing Industry Center (PCIC), An Alfred P. Sloan Foundation Industry Center, The Paul Merage School of Business, University of California, Irvine, June 2007

Introduction

Innovation is held to be the key to U.S. competitiveness, but there is little understanding of who captures the value from a successful innovation. This paper is a preliminary report on a study that will answer the question for specific examples of innovation.

Here, we present a framework for analysis and use that framework to look at one member of Apple’s iPod family, part of a thriving ecosystem that has upended business models across the consumer electronics, computer, and entertainment industries. The iPod is a perfect example of a globally innovated product, combining technologies from the U.S., Japan and a number of Asian countries.

 

Conclusions

So what can we say about who captures the value of innovation, based on this initial analysis? First, the biggest winner is Apple, an American company, with predominantly American employees and stockholders who reap the benefits. If the iPod had been made by Sony or Samsung, the value to the U.S. would be considerably less.