Lunch Talk: (@Google) Nassim Taleb

Nassim N. Taleb, author of
Fooled By Randomness and The Black Swan, talks about his new book.

Link

tags: lunchtalk, economics, strategy

Lunch Talk: (@GoogleTalks) The Lean Startup

Google hosts Eric Ries author of, "The Lean Startup"

The Lean Startup movement is taking hold in companies both new and established to help entrepreneurs and managers do one important thing: make better, faster business decisions. Vastly better, faster business decisions. Bringing principles from lean manufacturing and agile development to the process of innovation, the Lean Startup helps companies succeed in a business landscape riddled with risk. This book shows you how.

tags: lunchtalk, startup, business, strategy, control

Cone of uncertainty in Financial and Patent Portfolios.

The picture above is a screenshot from a lecture on Financial Theory. It shows how one can hedge his bets when facing uncertainty and risk. In the example on the board, the professor shows how to win a favorable large bet by making a series of small side bets using backward induction.
Since the future is uncertain, he builds a tree of possible futures, with certain probabilities assigned to each branch of the tree. In theory the tree is infinite, but in reality its internal branches lead to equivalent results (recombining tree); therefore, we can consider the whole tree growing inside a limited cone of uncertainty.
Below is a slide from one of my Stanford lectures on the relationship between innovation strategy and patent portfolio. It also shows a cone of high-tech business uncertainty. The cone covers technology development options, which tend to move sideways (yellow spot) as the world develops. If you target your patent portfolio toward the "bull's eye" of today's implementation, you portfolio is likely to be of low value in the future. Therefore, you have to hedge your bets with patents that cover the entire cone.

1. Similar to a hedged financial portfolio, the innovator would be better off by building a patent portfolio using backward induction rather than patenting today's implementations.

2. The difference between financial and patent portfolio hedging would be in the timing aspect. That is, because with patents priority dates are of paramount importance, the innovator has to hedge by a) inventing the whole tree (within the cone); b) trimming the patent tree to reality as the time progresses, by divesting from the earlier patent assets.

Quote of the Day: The Luck of Silicon Valley.

Gordon Moore:

I never fail to credit the element of luck.

My personal success stems in part from the fact that Fairchild’s timing and direction were extremely fortuitous. Semiconductor science and technology were evolving rapidly. Fairchild invented the planar technology that provided the basis for the integrated circuit. Intel made a lucky choice of a new version of the MOS technology using a silicon layer for the gate of the transistors.

The luck of this valley stems from the fact that it began with a fairly clean slate in a wide-open technology space.

Moore's insight about luck gives us an important attribute of a possible successful innovation: wide-open technology space. We should also realize that when Moore talks about technology he means the business of technology, not just the technical side of a specific implementation.
Similarly, when Steve Jobs introduced PC and, later, iPod he targeted a wide open business-technology spaces.

This aspect of luck can be captured by using my 4Q diagram approach (one of the topics of today's class at Stanford).

tags: 4q diagram, strategy, quote, innovation, business, model

Creative self-destruction of RIM.

When NTP sued RIM, the manufacturer of Blackberry phone/e-mail devices, for patent infringement, many people believed that patent trolls were the company's worst enemies. In 2006, after years of litigation, RIM ended up paying NTP a $612.5 million settlement.

It turns out, RIM's own management did a lot more damage to the company than any patent troll could even imagine. Because RIM missed on major innovation opportunities in the mobile industry, the company lost multiple billions of dollars in market value.

tags: innovation, patents, strategy, s-curve

Lunch Talk: Genghis Khan Biography

Always strike first and always take revenge. Genghis Khan learnt these lessons the hard way during a violent childhood. Son of a murdered father, Genghis grew up in the unforgiving environment of the Mongolian Steppe. But how did an outcast, raised in poverty, come to be the great Khan?

tags: lunchtalk, history, strategy

Patent battles: how media makes us clueless.

The media does a major disservice to the public when they describe current patent disputes between various parties in the mobile industry. For example, the headline in Wired reads: Google Thumps Oracle In Heavyweight Bout Over Android. What's behind the headline? A minor change in the number of patents asserted against Google.

Dec 29, 2011. Wired -- Just before the Christmas holiday, as reported by Groklaw, the US patent office effectively invalidated one of the seven patents Oracle asserted against Android in a suit filed in August 2010.

Instead of 7 patents we've got 6 patents active in the lawsuit - big deal. And what if Oracle prevails, which is a highly like outcome? Wired claims "the case could have a very real effect on the mobile phone and tablet market." What's the impact?

The two sides would enter a “hypothetical negotiation,” Dergosits says, where each hires economists to estimate Google’s revenue from the product and what it’s paying other licence holders. The jury would then award damages based on these estimates.

Based on industry discussions, top estimates for licensing fees for Java are about $5 per unit. If Google wanted, they could've negotiated a volume discount, similar to the deal Microsoft made with Samsung. But Google provides Android for free and makes money on search and other services, which default to Google properties on Android phones. This way Google can claim losses on Android and try reject demands for licensing fees, which are customarily calculated as a percentage of revenue. Usually, the seller of software operating system includes the fees into the price. But ... Android is "free." Tricky, tricky, tricky.

It's funny though, that a dispute about a method of calculating licensing fees is presented in the media as a battle for or against innovation. 

tags: business, strategy, mobile, google, patents

Why patent trolls sue and win with weak patents.

Joshua Walker, the CEO of Lex Machina will be one of the guest speakers at The Patent Paradox, a course John Kelley and I will teach this quarter (Winter '12) at Stanford University Continuing Studies program. The 2010 NBER paper Joshua co-authored with John R. Allison (University of Texas, Austin) and Mark A. Lemley (Stanford University) analyses the quality of highly litigated patents. The authors discover a strange phenomenon:

But what we found was dramatic and unexpected: the patents and patentees that occupy the most time and attention in court and in public policy debates—the very patents that economists consider the most valuable—are astonishingly weak. Nonpracticing entities and software patentees almost never win their cases.

That is, patent trolls sue with very weak patents. Most, if not all of the patents, get invalidated in the process. Why do they do that? The authors of the paper are buffled:

Finally, our results are a bit of a puzzle for the most common law and economics models of litigation. ... they do beg the question of what is motivating the parties in these cases.

I think the answer to this puzzle can be found in Daniel Kahneman's book "Thinking Fast and Slow." In the Fourfold Pattern chapter he describes risk-related behavior with low-probability loss outcome.

The key to understanding is not the troll's, but the defendant's behavior. The defendant in a patent suit faces a very low probability of losing against a weak patent portfolio. Since the defendant, usually a large corporation, is loss averse and the probability of loss is non-zero, he is willing to settle under unfavorable conditions (lower-right corner.) On the other hand, the troll with a weak portfolio is facing a high probability of loss; therefore, he is risk seeking (upper-right corner.)
The most likely outcome of this confrontation is an out of court settlement which favors the troll.


References:
Patent Quality and Settlement Among Repeat Patent Litigants. 2010, John R. Allison, Mark A. Lemley & Joshua Walker.
Thinking Fast and Slow. 2011. David Kahneman. 

tags: patents, control, game, business, model, strategy

British Telecom sues Google for patent infringement

Dec 18, 2011. PCWorld -  Google Music and Android were cited by BT as examples of Google's violation of U.S. Patent No. 6,151,309 for service provision system for communication networks, also referred to in the suit as the Busuioc patent. This patent is "directed to systems and methods for accessing content in a mobile environment where network constraints vary across networks".

Fundamentally, the Open Innovation (OI) approach adopted by Google for its Android OS does not have a matching IP model. The company and its customers are going to pay through the nose for the "free" software.

tags: strategy, patents, control

Solving dilemmas: Odysseus and the Sirens. [Separation in Action]

In two previous posts (1, 2) about the separation principles we considered the dilemma Odysseus encounters when he approaches the island where the three Sirens live:

[Odysseus]... faces a dilemma. On one hand, he wants to listen to the Sirens' song because it is the most beautiful song in the world. On the other hand, he doesn't want to hear the song because it will cause him to forget himself and run his ship into deadly rocks.

In Homer's poem, Odysseus resolves the dilemma in space and I propose another, more modern solution, using separation in time.

The third key TRIZ principle for solving dilemmas is Separation in Action [Interaction]. In the Odysseus dilemma we have two important incompatible interactions: a) listening to the song of the Sirens (Action 1); b) steering the ship away from the rocks (Action 2).

To get the best of both worlds, i.e. experience the song and not crash the ship on the rocks, the actions have to happen in the same space and in the same time, but independently from one another. In other words, the crew, including Odysseus, should be listening to the song (Action 1), and the ship,
independently from the crew, should be steering away from the rocks (Action 2).

A natural implementation of this concept would be a ship that steers itself. For example, the ship can be on auto-pilot or steered by a robot. This solution was not available to Odysseus, but is available to us. Further, a combination of separation in Action and Space can give us steering by remote control ( or by the will of gods.) You can think up other solutions as well.

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To summarize all three posts: When solving dilemmas it is important to be patient, i.e. deploy slow deliberate thinking, and explore multiple potential solutions using all three separation principles as well as their combinations. Some of the ideas will be ripe for immediate implementation, others for future development. Since patents last 20 years, it usually makes sense to write up all of the ideas, not only the ones that are going to work immediately.

tags: triz, separation, problem, solution, example, strategy

Comparing apples to amazons.

Comparing Apple's and Amazon's hardware/content strategies, people tend to forget that Kindle Fire is a general purpose shopping device, not just e-book reader. Content purchases, though not to be ignored, is one of many categories of products sold through Amazon's superstore. On top of that, Amazon provides cloud services, which means developers will have an end-to-end solution for all their smartphone/tablet application needs.

(11/10/11. VBeat) Amazon CEO Jeff Bezos has made the bet that getting low-cost hardware into hands of consumers will pay off immensely when they buy more digital content to make up for hardware losses. That’s the exact opposite approach of Apple, which makes its money on hardware sales and not as nearly much on content.

(11/10/11. VBeat) - E-book sales as a whole for book publishing are still minuscule compared to print, but e-books are becoming more popular. In 2009, e-book sales accounted for 3.2% of the industry’s sales, but in 2010, they accounted for a much larger 8.3% percent. Forrester Research thinks e-books could reach $3 billion by 2015, compared to $441 million in 2010.

tags: 10X, content, information, strategy, business, tool, source, commerce

Winning in patent courts, by design.

Emphasizing design not only helps Apple convince consumers buy Apple products, but also allows the company to attack its competitors in court. Instead of using a more traditional IP litigation strategy based on utility (technology) patents, Apple leverages its cache of design patents to speed up court decisions. Litigating utility patents takes years, while showing similarity of design decisions makes infringement analysis very simple. Here's the latest from Apple's battle with Samsung:

Oct 13, 2011. San Jose, California. (Reuters) - Apple sued Samsung in the United States in April, saying the South Korean company's Galaxy line of mobile phones and tablets "slavishly" copies the iPhone and iPad

Koh [U.S. District Judge] frequently remarked on the similarity between each company's tablets. At one point during the hearing, she held one black glass tablet in each hand above her head, and asked Sullivan if she could identify which company produced which.

Additionally, at the hearing Koh said she would deny Apple's request for an injunction based on one of Apple's so-called "utility" patents.

So far, Apple is winning the battle.

tags: patent, strategy, integrity, control point

And the world's best user experience creator is...

A data-driven view on Steve Jobs' design contributions to user experience:

Steve Jobs is cited as an inventor on 313 patents and is the first listed inventor on over 10% of them. Almost all are design patents, running the gamut from MP3 players to power adaptors to the stairs in the Apple Store. Pretty interesting for someone with no formal design or technical training, much less the CEO of a major corporation.
...
Designer Jonathan Ive was named as co-inventor on 64% of those 313.

Design patents cover non-functional ornamental aspects of the implementation. They are used to protect functionality-related aesthetics of the product: the look, the feel, the touch. Here's a couple of examples of Steve Jobs' patents:

(D638,835. Electronic device with graphical user interface  -- looks like iPhone 4):

(D641,021. Keyboard):

 

Compared to utility patents, the process for getting design patents is short and inexpensive. You can align it with the launch of a new products, so that copycats have harder time to sell knock-offs 1-3 years after the initial introduction. A good strategy for a market leader in consumer products/services.

tags: patent, apple, innovation, creativity, interface

Amazon: making long-term innovation bets.

Jeff Bezos, the Amazon CEO, talks about his company's approach to invention and innovation:

we started working on Kindle almost seven years ago….  There you just have to place a bet. If you place enough of those bets, and if you place them early enough, none of them are ever betting the company. By the time you are betting the company, it means you haven’t invented for too long.

If you invent frequently and are willing to fail, then you never get to that point where you really need to bet the whole company.

We are stubborn on vision. We are flexible on details…. We don’t give up on things easily. Our third-party seller business is an example of that. It took us three tries to get the third-party seller business to work.

Most of our customers shop with us from desktop or laptop computers, but people have a different posture with tablets,” he said. They “lean back on their sofa. People leaning back on their sofa, buying things from Amazon, is another tailwind for our business, so I’m very excited about that.

via venturbeat.com

Tablet is going to be a huge boost to e-commerce and many other ways of content creation/consumption. The sooner the Internet sheds shackles of the browser,  the better.

tags: 4q diagram, bus75, course, bet, innovation, strategy 

Google's secret weapon discovered: Copy-Paste.

Here's the latest from the social networking battlefield.

In an attempt to find the difference between Google+ and Facebook, a consumer tracking study discovered that Google+ innovators did an excellent copy-paste job:

During their research, EyeTrackShop found that both social networking sites work almost exactly the same.

The pictures below show how user eyes scan the page. Looks like one of those "Find the difference" puzzles in children books.

Facebook

Google

A strategic false belief in trade-offs

In his seminal paper "What is Stragegy?", cited 4367 times on Google Scholar and included into every business strategy textbook, Michael E.Porter writes:

But a strategic position is not sustainable unless there are trade-offs with other positions. Trade-offs occur when activities are incompatible. Simply put, a trade-off means that more of one thing necessitates less of another. An airline can choose to serve meals - adding cost and slowing turnaround time at the gate-or it can choose not to, but it cannot do both without bearing major inefficiencies.

Anyone who flew on a commercial flight recently can attest that the latter part of statement is false (italic, bold - ES). Airlines do serve meals AND they make money on this service by charging for the food. They also charge for luggage and other conveniences, more than compensating themselves for the inefficiencies.

U.S. airlines collected $3.4 billion for checked luggage last year, according to a government report issued Monday. That’s up 24 percent from 2009 and a big reason the industry made money again after three years of losses. In 2010, the major airlines made a combined $2.6 billion in profits, less than they collected in bag fees.

The trade-off once considered fundamental by the top business strategist turned out to be a false belief into what can or cannot be done - a simple lack of imagination. People believe in trade-offs because they are taught to believe in them. Once somebody figures out a way to break the trade-off - puff! - the whole business strategy based on it falls apart.


tags: trade-off, strategy, business, barrier, constraint, soft, trend, innovation, breakthrough, model, quote

Patents and business models

Steve Blank, a successful Silicon Valley entrepreneur, offers an interesting definition of a startup business: a startup is an organization formed to search for a repeatable and scalable business model. He further explains:

Think of a business model as a drawing that shows all the flows between the different parts of your company. A business model diagram also shows how the product gets distributed to your customers and how money flows back into your company. And it shows your company’s cost structures, how each department interacts with the others and where your company fits with other companies or partners to implement your business.

I find business model-based approach highly useful in developing invention and patent strategies, especially, for startups. The purpose of an IP portfolio is not to protect your technology, but create prohibitive risks for competition attempting to enter your newly discovered business space. Technology is just one element of the model. Protecting technology with patents will only create a false sense of security, because at the time of patent writing (remember, you are still in search mode), you don't know which patent claims are going to be allowed by the Patent Office.

Patenting, in contrast with invention, is about business risk creation. Therefore, it should be guided by the business model search, e.g. with conscious efforts to discover business model weak spots and directing inventions and claims to attack the vulnerabilities.

P.S. The 9-screen view and 5-element analysis provide much better tools for business model analysis than the standard Osterwalder drawing. The tools have multilayer flow-based concepts built-in, which allows for easy identification of control points.

tags: patent, strategy, business, model, system, 3x3, five element analysis, startup, scalability

Inventions and tech transfer in universities

...start-ups are used to commercialize new technologies that are radical, tacit, early stage, general-purpose, provide significant value to customers, involve major technical advances and have strong intellectual property protection. Licensing to established firms is used to commercialize new technologies that are incremental, codified, late stage, specific-purpose, provide moderate customer value, involve minor technical advance and have weaker intellectual property protection.

Fred Pries, Paul Guild, Commercializing inventions resulting from university research: Analyzing the impact of technology characteristics on subsequent business models, Technovation, Volume 31, Issue 4, Managing Technology, April 2011, Pages 151-160, ISSN 0166-4972, DOI: 10.1016/j.technovation.2010.05.002.
(http://www.sciencedirect.com/science/article/B6V8B-50F45TB-1/2/25ef253dd866cbdc56c355446cf1a7fc)

Risk tolerance seems to be the deciding factor in technology transfer: high risk (mitigated by better IP protection) for startups, low risk (defined by better distribution capabilities) for large companies.

tags: innovation, patent, strategy, technology, business, model, distribution, source, tool, education

From China with patents.

NYT reports on China's ambitions in technological creativity:

In 2009, about 300,000 applications for utility patents were filed in China, roughly equal to its total of invention patents, which have been growing slightly faster than utility filings in recent years. But even if just half of China’s total filings in 2015 are for invention patents, the national plan calls for a huge leap, to one million, by 2015. By contrast, patent filings in the United States totaled slightly more than 480,000 in the 12 months ended in September, according to the patent office.

China’s patent surge has been evident for years. In October, Thomson Reuters issued a research report, forecasting that China would surpass the United States in patent filings in 2011. “It’s happening even faster than we expected,” said Bob Stembridge, an intellectual-property analyst at Thomson Reuters.

Here's a link to an English translation of the original Chinese Government's IP development strategy document.

It looks like they are going for quantity, which is not necessarily a bad idea during a period of rapid growth.

tags: patent, china, strategy, innovation, invention, growth

How easy it is to intimidate scientists with patent-related legal threats! Andre Geim, a 2010 Nobel laureate in physics, somebody who defied authority and common wisdom in his own field, believed empty talk served to him by a corporate lawyer. Here's an excerpt from Geim's interview to the Nature magazine:

Q: You haven't yet patented graphene. Why is that?

A: We considered patenting; we prepared a patent and it was nearly filed. Then I had an interaction with a big, multinational electronics company. I approached a guy at a conference and said, "We've got this patent coming up, would you be interested in sponsoring it over the years?" It's quite expensive to keep a patent alive for 20 years. The guy told me, "We are looking at graphene, and it might have a future in the long term. If after ten years we find it's really as good as it promises, we will put a hundred patent lawyers on it to write a hundred patents a day, and you will spend the rest of your life, and the gross domestic product of your little island, suing us." That's a direct quote.