Whether to license a product or to market it directly will depend on a company's resources and the product itself, says Alan Richardson.

To license or not to license? You might like to believe this is a simple question. You have developed a new product or technology and want to decide how to maximise your return on investment. Do you exploit the idea directly yourself or do you licence it to other parties? There isn't a simple answer, although the business model should be thought through during the development process because it may well affect how you invest in the idea.

The critical first question is: 'Do you have the attributes, resources and capabilities to exploit the idea completely?' These could include development resources, market channels and manufacturing and support capabilities.

In the general product area, I would say successful companies built on licensing are rare. The attributes I would look for are: a platform technology with a broad range of applications; a technology that can go into products whose principal differentiation in the market place arises from technology and features outside the licensed technology; protection of the intellectual property (IP).

Also, for a sustainable business as opposed to a one-off deal, the technology must be amenable to non-exclusive licensing; for firms with strong market channels in particular territories, licensing might be an appropriate means of addressing international markets.

For example, ARM's microprocessor is the heart of a vast number of silicon chips each year. In marketing the technology as a core, rather than developing a discrete number of devices, they have made it much easier for their customers to design the technology into diverse products. ARM's technology has the attributes of the first four points above. Many of those integrated circuits (ICs) incorporating ARM cores require capabilities outside the microprocessor field and by licensing the microprocessor to design teams everywhere, ARM has succeeded in maximising the commercial potential of their development.

Cambridge Consultants varies its licensing policy according to the technologies it needs to market

Within Cambridge Consultants, we are a developer of new technologies and product ideas. However, we are a professional service business whose main business is the development under contract of breakthrough products for third parties. IP development arises naturally in our business because of the creative technologists we employ. So what do we do with this IP?

We use it in our standard fee-for-service business to differentiate our contract product development service using the standard infrastructure and market channels of our business. Within such contract product development, we may license the technologies we pre-own as an added-value risk reduction and/or differentiation of the end product.

Finally, if the technology is more appropriate for a product business and is sufficiently leading edge, we would license this technology to a start-up company (very often exclusively) and take our return through equity in that company. In this case, we are crucially interested in only founding companies that contribute to the brand value of Cambridge Consultants of converting innovation to value and we are not interested in building professional service competitors.

Over the past 20 years we have developed platform technology in short range position measurement radars and have exploited this both within our standard business or through licensing. For example, we've developed a family of missile scoring products, which is a low volume market and one that we service through our market channels. We also licensed the underlying technology to an instrumentation company for a liquid level measurement system as the target customers are not within our client list. The result of this deal was royalties for the lifetime of the product.

In the third category, we developed a capability in the implementation of radio on bulk complementary metal oxide semiconductors (CMOS) in the early-mid 1990s. When the Bluetooth specification was first published in the late 1990s, we recognised an opportunity to develop a world-leading solution based on a single chip solution. In 1998, we formed Cambridge Silicon Radio (CSR), with a founding team of nine technologists and a licence to IP from Cambridge Consultants in return for an equity stake in the company. The company became the Bluetooth silicon market leader with a global market share of more than 50 per cent. At the time of the initial public offering of CSR in 2004, Cambridge Consultants owned around 11 per cent of the company, whose value has grown since from £200m to more than £1bn. It is inconceivable that this could have been achieved if this business had been kept within Cambridge Consultants.

So when debating whether to license or not, decide whether you have, or can build quickly, the market access required by the technology. If you can't, then either sell the technology to someone who can or, if there are multiple segments, then consider the licensing approach. The value of the proposition will depend crucially on the barriers to entry in general and the IP protection in particular. Some propositions can be totally devalued by not getting IP protection with broad enough geographical coverage.

Alan Richardson is chief technical officer of Cambridge Consultants