Why the Patent Wars Matter

I was dozing off to sleep when the news had its mindless snippet after the sports at 11:25 PM. The come on was how barbeques would never be the same again.  Engineers at MIT have developed a coating that allows ketchup and honey and other things to flow easily out of a bottle.  Liquiglide.  Patents pending.

I laid there rooting for these guys, thinking I would rather hear of them making it big than Facebook CEO Mark Zuckerberg.  I knew of a guy made independently wealthy by coming up with the two-barred paper snap packet for salt. Or what of the guys who thought up trivial pursuit over their weekly pizza meals where they asked each other questions? (And hence why the game board and player tokens are shaped like a pizza.)

Now think of Facebook.  Stolen idea? It’s certainly an idea Zuckerberg discussed while under the employ of the Winklevosses seeking to get their own social site up and running as the movie The Social Network attests. Was the equity distribution fair and reasonable between Zuckerberg and the Winklevosses who got 1.2 million shares and $20 million in cash after protracted legal battles with him?  Zuckerberg is worth $19B, give or take a billion here and there.

And disruptive technological forces do nothing if not quicken our time to intelligence.  Cloud means scale no longer serves as a barrier to entry.  You do not need capital to build out a datacenter to analyze information.  You can subscribe to a cloud service and get going in your garage in no time flat.  Big business sheds datacenters and moves IT spend from CAPEX to OPEX.  Pharmaceutical companies now partner more with competitors to spread risk. 

IT as a Service quickens the pace at which people can innovate off, or build upon, other people’s ideas in the marketplace.  (See this blog that touches upon product lifecycles from the social media lens if interested.)  In technology we talk of product rev levels and coined marketing phrases like “Web 2.0.”  In short, we have improvement upon what came before it.   

So, for example, a lot of the baseline for smartphones came from RIM.  They pioneered the market.  Like most trailblazers, as my mentor would joke, the second to market usually finds the pioneer face down on the trail with an arrow in their back as the second to market passes them by. The second to market sometimes has the time to bury the pioneer, and other times the second to market just keeps on going up the trail.  Either way, the second to market stops to pick through the pioneer’s belongings before moving on.

Now consider RIM who pioneered the smartphone market and looks like a dead man walking at the moment with upheaval in upper management and intimations in analyst calls that they have put the for sale sign on the front lawn of their corporate headquarters.  RIM has a lot of patents.  A lot of IP that can be protected and monetized.  And IP’s rising economic value as we become a services economy makes it more attractive to protect litigiously.  We generate knowledge, and we can more quickly come to discover knowledge through analytics with a leveled playing field between big and small economic concerns as computing becomes as vital and low cost a utility consumed by commerce as simple electric current.

This is why patent lawsuits will proliferate. Technology both shifts the nature of commerce and quickens it pace.  It compresses product lifecycles.  It narrows exploitable competitive advantage gaps, so if you develop marketable innovations, you have to protect them from theft at the same time that you, as Steve Jobs preached, seek to develop your own products and services that will render them obsolete.

So, what are the market implications in addition to a spike in patent infringement cases and a higher valuation on patents in M&A analysis that leaves me convinced RIM will have value to someone based on their pioneering the smartphone market.

More “co-opetion” and joint ventures

Pfizer, for example, has made clear it will do more branded drug research in collaboration with others.  Joint research minimizes risk.  Pfizer likewise has moved to more mobile, collaborative approaches to clinical research to make more nimble and faster investment decisions against their development portfolio. 

Comcast, Time Warner Cable, Cablevision, Cox Communications, and Bright House Networks LLC have entered into an agreement for free Wi-Fi platform sharing to overcome geographic restrictions to their business operations to compete against telecom companies in the United States.

IBM states the cost of rolling out Watson requires joint ventures with customers to commercialize the technology by applicable industry segment.

Pushback on the notion of “vendor agnosticism” in the IT space. 

TBR research in the professional services space indicates this shift to be gaining rapid traction and swinging the pendulum away from vendor agnosticism, suggesting IBM to be poised for a resurgence in relevance while I personally wonder what we will be saying about Microsoft once it brings Windows8 to market.

CIOs do not want to be in the business of constructing computing engines or to be worrying about business data security on worker devices.  They want proven technologies and a trusted advisor.  In the past IT Decision Makers remained leery of established IT Provisioners being too wedded to one proprietary technology view.  But the velocity of commerce and the need for instantaneous technological innovation to maintain competitive advantage has the business market shifting away from that approach.  ITDMs want to be told by a trusted advisor what pieces work well together, and in the age of 99.9999% uptime demands, that also means knowing the companies work well together in the event of a system outage.

 

Brand Still Matters

Apple’s consumer cache and IBM’s resurgence rests on this.  Apple for the user experience and IBM for the security assurance that the pieces pitched to business IT performs as promised, deliver value to business, and will be supported and extended through continued research investments on a par with the $15B IBM spent on Watson for analytics innovation quickening business time-to-intelligence.

Patents protect drugs to allow firms to recoup the development costs in an industry where only 16% of research investments receive FDA approval.  It’s high stakes and unforgiving even before the consumerization of IT cranks up the RPMs on the velocity of commerce, and Pharma is but one example.

Technology Market Implications

Technology patents and intellectual property in our industry will rocket forward as critical business assets in our industry as it transforms from delivering products for business to assemble over to services quickening a business’ time-to-intelligence.

Scale drives a manufacturing economy; ideas drive a services economy; and our rapid transition into a services economy dictates taking all necessary measures to protect intellectual property.  Look at the fierce protection of music and film rights in the media and entertainment industry; it’s coming to our industry.

The next Mark Zuckerberg will have to pay more than $20M to make their $19B off someone else’s earlier idea, and the folks at MIT deserve their financial due for Liquiglide when it hits ketchup bottles and drives a big revenue spike for Heinz or one of its competitors.

Who Do You Trust, Facebook or GM?

If you are reading this, you know the details.  GM has come out and rained on the Facebook IPO Valuation Parade by saying they will stop advertising on Facebook, as GM does not see the value.  Not good.

Or is it?

GM?  Marketing genius?  Really? 

GM may be a lot of things, but a marketing juggernaut is not what comes to me top of mind for a firm who squandered their dominant market position through institutional arrogance, poor labor expense management, and some rather squirrely technology moves such as buying and spinning off EDS and sinking billions into automated Saturn plants.

Marketing juggernauts do not need government bail outs to survive. 

Now this excoriation of the Gang That Couldn’t Shoot Straight does not necessarily mean Facebook will be the next Microsoft, Apple, or IBM.  The current explosion on social valuations certainly smells a lot like the internet bubble that burst at the turn of the century, but this IT industry transformation has greater legs than that one.

Consider the following when trying to decide if Facebook will be a flash in the pan or not.

Consumerization of IT

I know.  It’s a shop worn phrase, but it happens to be very real.  We as consumers and office workers live on the internet through multiple devices.  Our time on the internet will not abate.  Hence we see industry valuation shifting to those who dominate the device space.  To wit: Apple.

Therefore it stands to reasons spots consumers access with those devices such as eBay, Amazon, Facebook, etc will come along for the valuation ride.  Whether or not it will implode remains to be seen.  There will be an influx of entrants, a run up, and a consolidation.  Facebook has a leadership position.  Then again, so have firms like Apollo Computer and Borland.

Google

Google sits pitted in a three way dog fight for device dominance with Apple and with Microsoft.  Microsoft sat here before against IBM when IBM sought to take back the device space with its OS/2 operating system. That was a classic David and Goliath struggle with Microsoft in the role of David.  Now, however, Microsoft is the Goliath and Google is the David.

And Google concerns itself far more with advertising revenue streams than it does with software license revenue streams.  And, as such, Google wants to track as much of our personal activity as possible.

And there could be backlash on that over time akin to consumers pushing back against telemarketing calls.  We will undoubtedly self select into groups or communities.  We will then “trust” that community to determine what ad reach outs flow to us.  Facebook has potential to serve that function.  Google certainly gets this as well given Google Circles, for example.

Zynga

Divorced, I had a facebook page I ran for my daughter 3 years ago when she was 10.  She liked Farmville, so I was sucked into the thing to harvest her crops on nights she was with her mother, and my brain had to do something or I might have hung myself with my belt out of the boredom.  Likewise, I was too cheap to slap down my credit card to buy gas for the tractor that would have made the task easier for me.  

NFW.  Principal.

So I started looking at the underlying analytics of the game.  I ran the numbers.  I did the math on the crop yields, boring my daughter to tears in what I hoped would be a fun exercise to hone math skills.  (Instead, I just got called Rain Man by the little darling.)  I imagined the operations behind the imaginary rat bastards selling me the seeds and housing kits at ridiculous prices.  I thought of operational linkages.

And it became clear to me there was a business in this stuff as I wrote in a blog in July of 2010:

“Playing it [Farmville from Zynga] fascinated me, too, from a business perspective.  The underlying analytics kept me enthralled pondering the possible push marketing that could come from it.  I understand the nature of the market information and data gleaned from choices, preferences, friends, and where we went through Farmville on the internet.”

So Zynga is onto something.  What do they know that General Motors does not?

Impulse Commerce

Folks buy cars infrequently.  A big ticket item, they take a lot of time and care in making the acquisition.  So it could well be that GM has this one right for THEIR product set, but few consumer product sets cost as much as a new car.  A recent snippet flew across my tweet feed showing that retail purchases have dropped considerably given the impact of on-line commerce.  Consumers hammered Best Buy through demonstrating product at Best Buy bricks and mortar outposts and then racing home to buy on price over the internet.  We will buy more over time through the internet given age maps closely to technological familiarity, and so as time progresses so, too, will this purchase preference.  

Conclusion

GM needs this press more than Facebook will be hurt by it.  It is partly the hype but it is also partly the nature of an automobile purchase cycle versus less expensive items such as clothing, books, videos, travel destinations and the like.

Consumer preferences do change rapidly however, as Yahoo!, AOL, and Compuserve can attest.  Technology enablement greatly speeds up the velocity of commerce and means the rise and fall of corporate entities in this social space will be breathtakingly fast.  Facebook admits it is not a mobile company, lacking the ability to push ads in that format today.  The cash they're amassing will certainly be funneled into determining a way to make (or rapidly acquire) capabilities in that arena.  

That said, I seriously question what in GM’s track record positions it to be a trusted advisor on social media investment decisions. 

If you do trust GM’s business acumen, then I bet they have a Spring Hill Manufacturing Plant they may want to try to sell you.