Category Archives: Innovation

All posts that talk about innovation theory and technological innovations

Technological Layers and Layer Ownership

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This ars technica article outlines in extraordinary detail what is at risk in the smart phone wars. It discusses the various different layers involved with the smart phone industry. These layers are extremely important. Control of a layer allows you to move into another layer and can help you extract monopoly rents* from those layers as well. My friend Sean was complaining about bloatware** earlier today that comes a computer supplier. They are actually attempting to get into a different layer. If a PC company is able to provide support which can allow them to get money from a customer on a returning basis, monthly or yearly, they can help ensure return purchases on more expensive purchases as well as getting a lot more money out of first sale. Additionally, the manufacturer may also be using the bloat ware they install to subsidize the cost of the product you bought. If a third party asks to have software pre-installed the manufacturer could ask for money to put it on, which may be passed to you as a consumer, so you could get a computer at a slightly lower price.

Ars Technica, isn’t the only group of people that views this phenomenon as a stack with different layers in it. This is actually an economic model as well. Which was used in the original Microsoft EU case explaining how these different layers can be leveraged to foreclose on a new market.

Another way of looking at this is in a traditional manufacturing sense. When you are making a car you have many different suppliers. You have paint, tires, batteries, steel, etc… There are several different ways to make it cheaper for you to produce a car. You can become vertically integrated, with a very high production level, where you make the steel, tires, paint and the full car. If you were extremely good at producing steel you would be able to get the steel at cost whereas traditionally you would have to pay a higher cost so the producer could earn a profit.

We can see this same sort of thing happen within IT. There is serious concern with corruption of content and content providers, like Comcast, purchasing a wide range of companies. If they control the material and access to the material they could control what people can access and impact society in a serious manner.

I don’t think that Comcast is going to be able to significantly impact the smart phone layers as they have with TV. However, a company like Google or Apple definitely could. Google is actually attempting to get into every single layer in this market. They tried to purchase wireless spectrum (they are also installing a super fast network in Kansas City), they are going to purchase Motorola, they have an OS and they are an app provider.

I think that other technology companies are aware of this. This is part of the reason why Google is being attacked on all sides. While until Google gets a hold of Motorola, they will be mostly in the top most two layers, OS and Applications. Google is clearly trying to move into every layer possible. This will allow them to have the greatest likelihood of a customer going onto a website and click an ad to give them money.

To prevent this, almost everyone is suing Google or some aspect of their technologies. Google is trying to get around this. They want the control.

I’m going to be gone for a little while. My brother is coming into town and I’ll be in Amsterdam for the next few days and then Munich this weekend. Hopefully I’ll have a post up Thursday or early next week.

Further Reading: The New ICT Ecosystem by Martin Fransman

*monopoly rents means higher prices from controlling the market. It allows a manufacturer to sell a product for a higher price than they would be able to do under a competitive market. Microsoft is able to do this with Windows. However to protect themselves from other OS providers undercutting their prices, MS sells the same OS at lower price points. They give discounts to students and charge a lower price in poor countries. This allows them to increase their monopoly to new markets.

**excess software which slows down a computer or smart phone.

Antitrust and Cell Phones

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In my last three posts (one, two and three) I have been discussing the risks of antitrust for Google. With Android Google controls what applications are installed as the base as well as the search function. In South Korea apparently this is a big deal. Which took me the points of IE and WMP in my last post. Most people use the default programs on their computer or phones unless they have some external reasoning to use a different product. In the case of iTunes and WMP it was the iPod which drove the usage away from the default. However for many people that don’t have an iPod there isn’t much point is using anything else. Especially if you only play CDs on your computer or you have a very small MP3 collection.

There are, of course, other factors which may drive users to other products, such as seeking the ability to play lossless files instead of MP3s. On computers, in my opinion, it is much easier to take control over the device and install other applications or systems to replace the default. You just need to know how to find the program you want and install it. With phones this is much more difficult. I think that the Google Search functionality is going to be the first of many of these investigations.

For other applications that serve the same function as the search, it may be difficult to acquire a different app. At the app store for whatever phone you’re using, there’s a gate keeper (is there a confused keymaster too?). In the case of Apple they reject applications that duplicate a program which comes preinstalled on the phone. I’m fully expecting that these rejections will eventually become the target of some antitrust investigation. Google is better than Apple in this regard, however there is control over what goes into the app store. Interesting note there are at least 4 Bing search apps in the Android market place.

Google does allow third party app stores on Android. I think that this is a really smart move. This will actually prevent some future antitrust investigation that I think Apple will have to face. There will be a market of app market places that cater to different kinds of needs or may be phone company specific. For instance Samsung has their own app store on my Galaxy S. I would not be surprised if Steam, EA and other digital content providers are already planning on creating app stores for the phones. While some of the major game developers aren’t creating games for phones yet, I believe that will change in the future. With Windows 8 going to be used for PCs, Tablets, and phones why wouldn’t larger game developers created stripped down versions of their games to be played on phones?

However, I’ve wandered a bit from my initial point. While phones are different than computers in some pretty significant ways, they are small computers. They are more powerful than the computers I grew up with. Google will need to be aware of this and will need to evolve how it deals with the android system. The controls put on users in phones will eventually be forced out of existence by law suits and users demanding more freedom over their phones. Eventually, phones will require as much freedom as a PC, especially as we start to bridge between the two platforms.

Google’s Anti-Trust problems III

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In my last two posts (one and two), I’ve been discussing the current problems as well as potential problems that will be facing Google in the antitrust arena. Yesterday I mentioned I was going to discuss Windows Media Player (WMP) and how this pertains to Google. However, I realized I need to go one step back first. First, we need to look at what happened with Netscape and Internet Explorer (IE). Initially Netscape was THE internet browser. It was the browser to program websites to be displayed on, IE wasn’t even really on the radar. Also, at this time with the web, these programs were being sent out by CD, it would take an extremely long time to down load this application. Why? because it was over a telephone line. A modem that was getting about a tenth or less of the download speed you have now with whatever your broadband connection is. That and your mom would probably pick up the phone to call some one while you were trying to download the software, or while playing War Craft 2 against a friend.

Since the medium of delivery for the browser was over CD it was a level playing field for both browsers to compete. You’d get one in the mail for whatever browser, Netscape, IE, AOL, etc. However, Microsoft realized the importance of this market. They figured out a way to leverage their desktop monopoly to foreclose on the browser market. They started installing IE onto all of their operating systems. Then went as far to integrate everything together to ensure market dominance. It worked because of slow connections and the fact that people are lazy. If something already works they will use it.

Flash forward about 5 years. MP3s have gotten popular through Napster and other digital Peer 2 Peer file transfer systems and the next big market is music players. Winamp was a major player at this time and WMP was not really any sort of competition for it either. In Windows XP WMP got a major over haul and was at least able to compete with Winamp. Microsoft decided to bundle the software in the same manner they had done with IE.

This is where the story changes though. The EU filed suite against this claiming this was anticompetitive. At this time the iPod had just come out and there was no reason to expect the product to come to the PC. It seemed like it was a long way from happening. Plus, even if the iPod was going to PC it was still going to be a niche market. So, the law suit. We all know now that because of the pace of technology and the fact that there were other factors involved with the selection of the music player it prevented market dominance of Microsoft. Without the requirement for iTunes with the iPod who knows what player would have won the market.

How does this relate to Google though? Well, looking at the search engine suit from Korea I mentioned yesterday, I think this has some pretty significant implications. Using a platform to control the method in which you use other functions can be shown to be anticompetitive. Google search engine is the first for mobile phones, however, I see no reason why it will be the last.

More on this topic in my next blog.

Google’s Motorola Future

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According to Eric Schmidt of Google the purchase of Motorola Mobile is also it’s own foray into physical products. This is promising but it’s also dangerous for Google. While 98% of Google’s revenue comes from ads as of 2008, the majority of its revenue stream is free of a great deal of risk from patent infringements.  This is double true because the majority of Google’s patents are related to search and locating data. The products that it produces that people use on a regular basis have been designed around open standards which enables them to get around patenting and use licensing instead. If any of these technologies are accused of patent infringement Google can pull up the original source code, the version and the date. While this may be more expensive than the patent examiner finding this during the patent examining procedure, it still can save Google millions of dollars in patent suits. However, it hasn’t prevented them from having to pay a good deal in licensing fees despite this as I mentioned in my previous post.

Why is this a risk for Google? Well, every one of those patent lawsuits that were targeted at Motorola is now directly targeted at Google. Google is sitting on a huge pile of cash. Enough cash to outright buy Motorola. Additionally, any lawsuit that is directed towards an application of Android on a Motorola phone that Google will eventually be selling, is going to be directed towards Google now. Previously, when there was something infringing in an application on Android most of the risk was shifted towards the manufactures of the phones and away from Google. Google does have to pay Lodsys/Intellectual Ventrues for one of their patents which allows things to be purchased through apps. Like using the Android Market place. Google also has one other lawsuit related to Android at this point, which is related to a Java Patent. This is kind of an ongoing lawsuit, which Oracle has had to remove a blog post from a former Sun employee praising the use of Java in Android.

There’s got to be some sort of potential for payout for Google to take this risk though. Yes, I do think there is. Despite the fact that Google is going opening itself to direct lawsuit battles with Apple, it also allows its engineers another outlet for creativity now that Google has shuttered Google Labs. Engineers from the Motorola Mobile side will be able to have more freedom and the engineers that work in Google will be able to play more with Android to make a more superior product. Google will have direct control over their handset opposed to farming it out to HTC like they did with the Nexus One.

Are there any other risks besides the ones you’ve mentioned already? I think there’s one big one. Anti-trust case. Google is already in the cross eyes for an investigation. In my next blog I’ll discuss the case against Microsoft which the US and EU handled and then how the precedence could impact Google.

Google’s misstep with Patents

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Google has been in the news a lot recently related patents. Why? Well, I think they’ve managed their intellectual property in a naive way. Not an incorrect way. Just one that wasn’t keeping up with the behavior of competitors and trolls in the market place. To date Google has 782 patents, for a company that has produced as many innovative products as it has, this is not very many. Google has been around for 13 years now, founding in 1998. Comparing Google to Apple, looking at patents filed after 1998, is not a good comparison. Apple has filed and received 2600 patents. Sure they’ve been busy working on products and had an established market already. The iPod had already come out by then. Regardless, this indicates that Google has made a major misstep in regard to patents.

I fully applaud Google’s efforts to minimize the number of patents they own. It’s clear from a glance at the patents, they have focused their patents on the ability to search for data as well as data management. They are sorely lacking when it comes to most software. This is most likely why Google has licensing agreements with companies like Intellectual Ventures. To combat the growing web of lawsuits surrounding it’s handset manufacturers and developers Google has been on a spree of both purchasing patents (1,000 from IBM and 12,000 with the purchase of Motorola Mobile) and propaganda against software patents.

Motorola will give Google the patent expertise and experience at defending its patent claims as well as a huge number of patents it will need to defend. I believe this will create a great change in the way that Google deals with intellectual property in general. I’m not entirely sure this is a good thing either. Google may take the route of IBM which both patents things specifically so that other companies can’t patent them and publishes technologies in obscure journals which can be later used to invalidate patents as a form of prior art. However, Google could easily take the route of Apple. This would be extremely bad in my opinion. The route where Google continues to invest in new technologies but patents everything and then makes it difficult for other companies to use that technology. Google has the innovative capabilities to become a huge patent troll.

I think the only good that would come out of that is if Google went after patent trolls.With open source technologies some of the problems with software patenting does go away. As anything with an open source license is technically released into the public and becomes part of the prior art. Unfortunately, that’s also a huge problem with open source. It would be impossible for a patent examiner, who typically has 3 days to approve a patent, to actually find a given software technology which is already being used as open source.

Overall, I think Google is currently attempting to address its misstep with patents. I think that Google will push for patent reform for software patents. I think that with a large enough group of people, including billionaires like Mark Cuban, there could be a significant change in the manner in which software patents are issued. Gaming companies, search engines, and software developers need to work together to address this issue though.