Everything Wrong With: "Illumina: The Measurement Monopoly" Part 7/8
Century of Biology still has ~10x the subscriptions I do… so I’m continuing my critical review of Elliot’s article on sequencing. Next we’re looking at this statement:
Using Helmer’s 7 Powers framework, we can see that Illumina developed five distinct business properties that enabled them to capture enduring value from their scientific inventions:
Cornered Resources — valuable chemistry and hardware IP
Switching Costs — genome centers want to avoid buying new instruments
Network Economies — Illumina sequencing became a standard protocol
Scale Economies — there are many fixed costs in tool development
Branding — sustained product excellence can lead to pricing power
Let’s go through these one-by-one:
Cornered Resources - valuable chemistry and hardware IP
Yes, I agree with this. In direct contradiction to our last quote, chemistry IP is likely the fundamental reason why Illumina has dominated in sequencing.
Since launch, Illumina has been the only viable player in next-gen sequencing. It’s only recently that we’ve started seeing other vendors (Singular, Element, MGI) producing comparable data quality.
Much of this1 is because the basic Solexa IP has now expired. Removing this IP moat.
Switching Costs — genome centers want to avoid buying new instruments
No, genome centers love buying new instruments. If there’s anything new or interesting about a platform they’ll acquire it even if it doesn’t strictly speaking enable new science. This is because:
New instrument = New papers
The pressure to publish is real folks. And if you can publish all your old work again because you’ve rerun your samples on a new platform even if it’s only a platform validation study that’s a win!
Exactly how much genome centers will be willing to pay will depend on how many papers they can get out of the platform. Many SOLiDs were likely placed, rather than sold because beyond those first few comparison papers… it didn’t provide much value.
But if your instrument gives some kind of niche advantage (optical mapping, longer reads, different error profile). Genome Centers will almost certainly keep at least one around.
Unfortunately this doesn’t work if your platform is basically the same as the old platform (Element, Singular, MGI) in these cases you’ll likely have to win them over on the economics..
Network Economies — Illumina sequencing became a standard protocol
If there are no competitors network economics doesn’t really come in to play. More recently realistic competitors (Singular, Element, MGI) have appeared. But I’ve never heard of not an “Illumina compatible protocol” being a major factor.
The protocol might be messier on some platforms which may put off some users. But this is not some kind of Illumina protocol lock-in effect at play.
Scale Economies — there are many fixed costs in tool development
This is a bit too vague for me to really comment on in detail. If we’re talking about instrument development then I would say building a NovaSeq-class instrument isn’t really an insurmountable barrier… recently we’ve looked at the HiSeq X and there’s no unobtainium in this instrument.
In terms of reagents too, Element, Singular, MGI and others have been able to develop reagents that perform well. Development cost does not appear to have been a barrier.
Branding — sustained product excellence can lead to pricing power
As far as I can tell no other vendor is significantly cheaper than Illumina across the board while providing equivalent data quality. Element show cost calculations based on the NextSeq 2000. But if you put in realistic Illumina discounts2. Things are less clear…
Of course, larger users will be using the NovaSeq X. And here I would be reasonably sure that Illumina will be beating Element’s modest cost benefit3.
So I don’t agree that Illumina have demonstrated “pricing power” based on branding4.
The only sense in which this may be true is that users seem to have more confidence in Illumina continuing to exist as a company than many of the new players with limited funds.
Summary
So I would rewrite Elliot’s statement as:
Using Helmer’s 7 Powers framework, we can see that Illumina almost entirely relied on the first power “Cornered Resources”. Their IP protected an approach that produced the best quality data available.
Subscribe for more nonsense (and some more serious articles too).
Element generally seem to say they didn’t need any of the expired IP. It may be fun to review this statement at some point.
There’s talk of higher throughput instruments from Element and other in the future so this could change.
This “power” seems to be defined as “A business that enjoys a higher perceived value to an objectively identical offering due to historical information about them”. Until recently no other vendor has been offering a similar offering. And currently none appear to be priced significantly lower than Illumina across the board.