Innovation: Silicon Valley vs Wall Street

In preparation for The Greatest Innovations of Silicon Valley (BUS 117), I read a lot of papers about innovation and growth. Here's a good sentence from Bresnahan and Trajtenberg NBER/Journal of Econometrics (1995) paper "General Purpose Technology: 'Engines of Growth?'"

Economists have known for a long time that technical change is the single most important force driving the secular process of growth (Abramovitz, 1956; Solow, 1957).

From a purely financial (risk) perspective, Silicon Valley is an engine of growth because it is really good at developing uncorrelated assets using new technologies. That is, while everybody is happy with proven technologies, the creative crowd in the valley is willing to bet on something totally new. As the result — and in accordance with both the financial and economic growth theories — Silicon Valley innovations stimulate growth and at the same time reduces overall financial risks.

By contrast, Wall Street innovations create a trade-off between growth and risks. Therefore, when the Wall Street creates a lot of innovation the financial system becomes prone to disasters (or as Nassim Taleb calls them "Black Swans").

tags: innovation, theory, technology, silicon valley, course, stanford

Why patents don't protect.

Some rough notes on why patents don't protect and why the "pickets and fence" approach doesn't work ( in prep for the Patent Paradox, BUS 111.)

- Breach of a civil obligation is called a "tort", which is a French word meaning "wrong."

- Breach of a property right is called "trespass."

- Property rights focus on a static condition or status. The primary question is whether the complaining party owns land, a copyright, a patent etc.

- Once the property owner has proved the status of ownership, he or she has a nearly automatic remedy for even trivial interferences with the right. The property owner can win a case without having to prove fault or negligence on the part of the defendant. (Idea Rights, by H. Anawalt.)

Since patent is a property right, it is easy to think that it provides protection similar to rights on physical property, e.g. real estate. In reality, the same technology is covered by many patents and, as a result, nobody has the exclusive right to the property. Further, in most patent cases, it is unknown how many patents apply to the technology in question. Therefore, you never know who is going to show up and claim the "territory."

In Consumer Electronics and W3C the issue is resolved through a slow process of standardization, where multiple parties have sufficient time to discover, submit, and arbitrate their claims.

In IT capturing market share as soon as possible seems to be more important. Companies rush their solutions to the market without going through the slow and relatively expensive process of discovering patent rights. It's a good strategy, because if the product doesn't "stick," it doesn't make sense to make an upfront investment in legal resources. If the product is successful, its producer gets "surprised" with patent claims from others, which is a direct result of the initial business strategy.

tags: patents, course, control, theory

@ $730K per patent, Google buys Motorola.

Whatever the business wisdom behind buying one of the worst mobile handset manufacturers in the world, Google's acquisition of Motorola is great for patents. Assuming, generously, the value of Motorola hardware division is $0, Google paid about $730K per patent in the deal. On the per patent basis, this is 50% more, than in the Nortel auction won by Apple, Microsoft, and others. Now Google will have a free hand at ripping off Apple design and business strategies, hiring Apple's designers, and so on. Add to it Google's cloud capabilities, with Youtube, Docs, gaming, etc., and you get a very strong challenger, both in the consumer and enterprise segments. It might be a bit too early to sell Apple stock short, but the competition in the mobile world has be come a lot less lopsided. Unless, of course, Google suffers from the Not Invented Here syndrome, and tries to create its own brand of smartphones.

From an innovation theory perspective, this event is also significant because it confirms that Open Innovation does not have a working IP model, except costly patent acquisitions. Free software and open technology is great, as long as it does not involve a major commercial success.

tags: innovation, patents, growth, software, business, model, mobile, control, battle, theory

A review of The Mystery of Consciousness

Philosopher John R. Searle writes in The New York Review of Books:

Beauty as Truth

Murray Gell-Mann, a Nobel Laureate in Physics, tells us in his TED lecture that in theoretical physics beautiful ideas turn out to be true. The more beautiful, the truer.



He also talks about the heretical nature of scientific beauty. For example, Isaac Newton's ideas that we now take for granted could be considered quite crazy at his time.

"This principle of nature being very remote from the conceptions of Philosophers, I forbore to describe it in that book, least I should be accounted an extravagant freak and so prejudice my Readers against all those things which were the main designe of the book."

— Isaac Newton (Opticks: Or a Treatise of the Reflections, Refractions, Inflections & Colours of Light-Based on the Fourth Edition London, 1730) 

tags: science, theory, quote,  system, recursive

The will to think.

I pulled the quote below from a 1976 paper by William Shockley, Nobel Laureate, inventor of the junction transistor.

A competent thinker will be reluctant to commit himself to the effort that tedious and precise thinking demands - he will lack “the will to think”- unless he has the conviction that something worthwhile will be done with the results of his efforts -- and, of course, there is always also the risk that his hard thinking may not produce any creative ideas.

A meaningful simplest case stimulates the will to think by reducing the threat of being forced to accomplish repugnant and tedious tasks.

Models often provide such meaningful simplest cases. For example, Copernicus' planetary system was a meaningful simple case that explained a lot of very complex astronomical data. The proverbial apple that fell on Newton's head was instrumental in making the gravitational theory simple and relevant despite all the calculus that had to be invented from scratch to prove the theory.
In my own experience, Altshuller's trade-off resolution technique is the easiest concept to explain in TRIZ. It's also the least powerful one. As a result we have a problem: people perceive something that is used to wake up their "will to think" as the real thing. Which is unfortunate because it prevents them from pursuing better invention methods.

References: W.Shockley. The Path to the Conception of the Junction Transistor. IEEE Transactions in Electronic Devices., Vol ED-23,   No 7,  July 1976.


tags: theory, problem, quote, education, triz, theory

The structure of the chasm.

I am reading "Rationality in Action", a fascinating philosophy book by a UC Berkeley professor John Searle. In the book, Searle not only critiques the so-called Classical Model of Rationality that, among other things, serves as a basis for today's thinking about organizations, but also provides a modern framework of rationality that can be applied to the theory and practice of innovation.

He makes a case for desire-independent reasons for action that are created by people who assume responsibilities, e.g. within an organization, when the take on certain roles. One immediate implication would be that Christensen's Values/Resources/Processes framework is incorrect in at least its Values and Processes aspects. That is, employees don't act in a certain way because they suddenly get company values when they join the organization. Rather, by joining it, they assume non-contractual obligations that set essential conditions for employment, and these conditions are enforced by organizational culture and a system of monetary and other incentives.

Searle also talks about gaps "between causes in the form of your beliefs, desires, and other reasons, and the actual decision that you make." The gaps are as follows: 1) decision-making, when you have to make up your mind with regard to a course of actions; 2) action-making, i.e. the gap between decision and action; 3) activity-making, when you need to sustain the initial action to carry on a complex activity. Being aware of these three gaps is very important for designing and analysis of technology, i.e. a series of complex actions that involve equipment, people, management procedures, interfaces, and etc. (Chapter 1. p.14-15).

tags: theory, innovation, control, process, course, book

A graph from a 1954 article by Ernest Jawetz in Annual Review of Medicine looks remarkably similar to the Gartner Hype Cycle "discovered" in 1995. Both graphs have an enthusiasm peak, a disappointment pit, and a productivity plateau (see below).

Gartner Hype Cycle (courtesy wikipedia.org)

With Twitter we are probably still in the early stages of the cycle (see Google Timeline snapshot):

tags: innovation, cycle, diffusion, pattern, theory, book, infrastructure, niche construction, constraint

Is Facebook a status function?

Philosopher John Searle describes a certain type of invention, he calls it status function, instances of which exist only because people collectively believe in their functions:

Think of the difference between a knife and a 20 dollar bill. The knife will cut just in virtue of its physical structure. But the 20 dollar bill will not buy just in virtue of its physical structure. It can only function as money if it is recognized, accepted, and acknowledged as valid currency. The knife function can exist for anybody capable of exploiting the physics, but the status function can only exist if there is collective representation of the object as having the status that carries the function.

He claims that humans create their civilizations by inventing various status functions:

I regard the invention of the limited liability corporation, like the invention of double-entry bookkeeping, universities, museums, and money, as one of the truly great advances in human civilization. But the greatest advance of all is the invention of status functions, of which these are but instances. ... without them, human civilization, as we think of it, would be impossible.

Status functions seem to be essential for scalability. From a system point of view, they are instances of the Control component.

Source: John Searle. 2005. What is an institution? doi:10.1017/S1744137405000020

tags: invention, ideality, theory, function