Tag Archives: Innovation

Adoption of a new technology

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Based on my previous series we can see how disruptive technologies can impact the economy. What we don’t know is how these technologies are selected by the users. This in fact is a matter of great debate. In some cases looking back it’s obvious as to why a specific technology won over the other. However, during the standards war, or beginning of a new market, it’s unclear which technology will win. We’ve seen this play out repeatedly over the past few decades. The VHS victory over Betamax is an important case. I also believe that this example can play an important role for any new platform developer.

What happened with VHS and Betamax? They both were created in the 70’s (VHS 1976 and Betamax 1975), as a method to record video. Each had a different method and were competing standards. By a standard, i mean a products that achieve a specific result using a type of technology. In this example there are two technologies that achieve almost the exact same end result using incompatible technologies. Which is why we have a standards war. Both products are attempting to capture the same market segment.

About the technologies: Both products were produced by huge companies, JVC for VHS and Sony for Betamax. Betamax had the higher quality, however you had to pay for this quality. The Betamax was smaller than VHS. Betamax was sued by the MPAA in an attempt to prevent people from recording TV programs to watch without buying them. Betamax won.

So why did VHS win over Betamax? Well, in this case it’s well known that pornography producers selected VHS over Betamax because of the price difference. It was easier to produce a product at a high enough quality that they could sell.

What does this tell us? As a platform locking in content is extremely important. Since this was the first technology porn could play a huge role, now with several legacy video recording methods and the internet porn’s sway on the future standards for video storage is much diminished. In fact during most standards wars they would most likely sit out until the standards are decided.

I believe that Google actually learned from this example. They saw the benefits of content on the platform from the success of the Apple App store and worked to create a viable app store before the release of their initial product. They held contests and ensured that there was a vibrant app development community before the release of anything. While this did nothing to close the gap initially between iOS and Android app stores, it helped give people reason to adopt their product.

The value of a Copyright

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Just to make it clear, I’m going to say that there is some merit behind some copyright. A way to ensure a return on effort spent to produce the piece of work. That being said, it should not be the same right for every piece produced.

I don’t really need any sort of scientific survey to look into part of this. Most copyrighted material is absolutely worthless. However, is it afforded the same protection as a major blockbuster movie, for free. Depending on how I structure the copyright of this blog, it has the same protection as Transformers 3. Why? To me this doesn’t make any sense. Which is why I’ve decided to license my blog with a creative commons license. You can see it down at the bottom. However, I still got that copyright with no effort for myself. I have to do nothing to keep that copyright. 
The arts, sciences and technologies have had a strong interaction on each other throughout human history. We can see this with how our arts are pushing our technological limits. Video games push the limits of personal computers, recording studios push the limits of audio equipment and flawless video push the limits of TV and cameras. However, for any piece of art that was created on any of these technologies, they are afforded much more protection than the technology. The art also gains this protection for free, without any effort, whereas the technology has to go through a great deal of work to prove its worthy of the protection. 
As much as I would like to remove the auto guarantee of state protection on a work, I don’t think that’s feasible. However, I do think what is feasible and realistic is implementing a registration requirement for works older than a year old. This minimum level of effort demonstrates, at least to the owner, there is value in the copyright. If the content creator fails in this, the work should fall into the public domain. Thus freeing the vast majority of our culture from copyright. 
In the patent system there is a minimum cost for renewing the protection each year, which is considered the minimum value of a patent. This scale is graduated so that the the longer you want the protection the more expensive it is. For most firms this isn’t really that much money. I think we need to add something like this for copyright. However, our current copyright length is extremely long. Which brings us to another point, after 20 years, which is the maximum allowable protection length for a technical discovery, the yearly rates should be exorbitant. In the last 10 years the copyright should cost more than $1,000,000 per year to manage. There will be firms that are willing to pay it, but it will be a difficult choice. Because it would be for every single copyright. This would quickly reduce the numbers of items within copyright protection.
I also think that there should be a payment difference for levels of protection. So this goes a bit to the different types of creative commons licenses out there. However, I think the most basic cheapest level of protection is required source acknowledgement if remixed, and the right to license out the work. Anything more than that would be extra money. So, if you didn’t want it remixed for profit you would have to pay a significant amount of money more. Again, this is per copyright. There wouldn’t be any blocks for works on a CD as each song can be sold separately, which would require a separate registration. 
I think with a system such as this we would quickly understand what the true value of a copyright actually is. At this point we have an artificially high valuation of copyrighted material based upon an extremely small subset of copyrighted material. From my previous post on the value of patents, we saw that most patents were barely able to cover the value of owning the patent. Additionally, most wouldn’t cover the cost of litigation. 
We need to come to accept that most of our art at some point becomes economically worthless, if it ever was. That’s not to say it’s not emotionally full of worth, however, we can only truly understand that value when we have easy open access to it.
Further Reading:
Free Culture Lawrence Lessig: http://www.manybooks.net/titles/lessiglother04free_culture.html (Free ebook)

What is the value of a patent?

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The truth of the matter is that most patents are worthless. What? How can that be with so many people suing over these patents? Why has there been a HUGE increase in patent activity in the past few years? Just because something is worthless doesn’t mean it can’t be useful. However, that being said, most patents are still useless. A patent on how to swing some one in a swing, is in fact, worthless and useless (real patent) (Jaffe and Lerner, 2006). In fact, I would argue it has negative value as it cost substantial money to have it patented. Granted the father was the patent attorney, however, there are still expenses that has to do with the procedures to get it patented.

In 2008 a study was published on the values of patents based on a survey asking both inventors and managers what they felt the value of a patent would be. As can be see in the figure below it’s a greatly skewed graph with the vast majority of the patents being worth less than €1 Million ($1.5 Million). This value is related to how much an inventor or manager would have sold the patent for as soon as it was issued.

Gambardella et al, 2008

But wait! That’s not worthless. In fact that’s worth a lot of money! Is it? For a person yes. For a company maybe not. R&D is not cheap. Let’s say it took three years to develop the technology and a staff of 5 people making €50,000, that alone is a cost of €750,000. You’d barely recoup the expenses of that let alone the materials. However, most economists would argue that those costs are sunk and shouldn’t be factored into the cost of the patent. I do agree with this assessment, however there are other costs to consider as well. One of the biggest costs is risk of lawsuits. Which as you can see below are growing at an alarming rate.

In a lot of ways, patents are worthless until you sue someone. There are arguments that a patent has no value until you try to actually use it, or prevent some one from using it. Thus, the fact you’re suing means it has inherent worth. Additionally, as there are requirements to pay for patents, a certain fee each year, there is a certain bottom level threshold to indicate the value of a patent. Shifts in this value will impact different patent holders differently. Increasing it towards the end could drive up litigation, while decreasing it, means that no patents will lapse.

So what can we take from this? With the rising numbers of patents, and the rising numbers of law suits, it could be argued that there is a sense of an increased value of patents. However, I think we need to be very careful with this sort of argument. As, we could just be letting bad patents get approved because of changes in the USPTO (there has been more of an increase in the USPTO than at the European Patent Office). In the end, the value of a patent is truly decided in the market when people purchase a product. Unfortunately, the person that gains value out of the patent may not be a true innovator. They could be a troll like Intellectual Ventures http://www.thisamericanlife.org/radio-archives/episode/441/when-patents-attack

References/Further Reading:

A.B. Jaffe & J. Lerner (2006). Innovation and Its Discontent.  NJ: Princeton
University Press.

Alfonso Gambardella, Dietmar Harhoff, Bart Verspagen (2008). The value of
European patents. European Management Review (2008) 5, 69–84.

Technology Incubators and You

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So, I had a discussion on faccebook that went from discussing the cost of labor for a dutch bike mechanic (€40 for about 15 minutes for work to install wheel (i did it myself in 30 minutes instead of paying that)) to a discussion about technology incubators. It got me thinking about incubators and how people think of them. Technology Incubators come in a variety of forms and while many are attached to universities there have recently been a few where they are unaffiliated and some 18 year old kid makes one. But what is an incubator? Well, at the most basic level an incubator is a place that allows a firm to grow from an idea into an actual business. When it graduates it’s at the stage where it’s making enough money to support itself, or it has gotten Venture Capital (VC) backing so it has enough money to expand to a larger facility.

My first experience with an incubator was the Machine Assistance Center (MAC) at the University of Pittsburgh where I did my undergraduate. I thought it was the coolest idea. It was this old warehouse that was converted into separate mini-factories with a few different companies in it. The rent was free or dirt cheap, and there was equipment, like lathes, drill presses and a 6 axis CNC machine. The firms were able to rent time on these tools to create their product, make new prototypes and train new employees. The university also used these tools to train community members on how to use them to gain new skills for employment. Eventually these firms were making enough money that they were able to move out of the MAC get their own place and set up shop there.

I know that in Pittsburgh there are at least two other incubators. I’m sure there are more. Carnegie Mellon started the other two I’m aware of. However, these ones are software based start ups. So these firms have very different needs than physical product based firms. The Innovation Lab at Eindhoven University of Technology, in Eindhoven The Netherlands, where I’m pursuing my master’s degree, has a different model than either. It has spaces large enough for firms that need to manufacture products, but it also has a lot of offices for consultation firms as well. So, there are many different models for an incubator and non are exactly the same.

Ok, that’s great, why should I care about these things? Well, it matters because some of these are tax payer subsidized or were created through your tax dollars (Tax Euros? Just doesn’t sound right). Earlier this year Obama started the win the future campaign, which put a couple hundred million into both VC, public groups and incubators to help reduce the barriers to entry for new companies. Many policy makers believe that these incubators or hubs of heavy start up activity could spawn another Silicon Valley, or greatly boost the economy through job creating companies. Sadly, most of these companies actually only employ a few people and don’t become huge firms like we’d like them to be (Clarysse et al, 2005). However, this activity still can help the economy of the region to some extent.

So what do we do about it? Well, I plan on studying these and their impact for my master’s thesis, so we’ll see what I find. I probably won’t post to much about it as I might try to publish a paper about it. However, when I do that I’ll write about my findings on here. Until then, I say we should be supporting these incubators. Lowering barriers to competition will eventually lead to new products, services and lower pricing. That’s what we, as consumers, want right? Besides, I want to start a company some day and I’d like some help in getting me to the point where I can get VC funding 😉

Moar?
Here’s an article about the “Win the future” campaign from when it was first announced: http://techcrunch.com/2011/01/31/startup-america-a-campaign-to-celebrate-inspire-and-accelerate-entrepreneurship/

References:
Clarysse, B., Wright, M., Lockett, A., Veld, E. Van de, Vohora, A. (2005) “Spinning out new ventures: A typology of incubation strategies from European research Institutions”, Journal of Business Venturing. Vol. 20 pp 183-216 http://www.feb.ugent.be/nl/Ondz/wp/Papers/wp_04_228.pdf

Patents and Innovations

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So, I think that the news that Apple and Nokia decided to drop lawsuits against each other is a good starting point for this discussion. Here’s the BBC article discussing the decision. Basically, Apple decided to license several patents from Nokia. Which in itself has some implication for innovation within the Smart Phone market.

I plan to do several of these types of posts. However, in this one I will focus specifically on smart phones. This will extend to many other product spaces, but not to software or business models.

So first what are some implications of this agreement by Nokia and Apple? Well, the most obvious is that they aren’t suing each other any more. The less obvious is that neither of these cases was heard by a judge or a jury. This doesn’t allow us, the observer, to actually know if these patents were valid or not (see my post on patents to see what a valid patent is). In some cases the patent office, whichever office, may approve a patent that is invalid. This could be due to prior art, like the PB&J sandwich described in my patent post, or that it’s an obvious invention. The only way that a patent’s validity can be overturned is by a jury or a judge. Let’s say that Nokia is also suing HTC over the exact same infringement. HTC doesn’t believe that the Nokia patent is valid so they were also counter suing saying that it’s an invalid patent and HTC has the reasons why. So, this case goes to trial and Nokia is now able to say that Apple is currently licensing this patent from them. This claim will give a great deal of credibility to Nokia’s claim. At this point HTC may have to decide to license with Nokia to avoid the potential of a huge fine.

In this case Nokia has a tract record of being an innovative firm. What happens when the firm isn’t an innovative firm or has no products though? Well, these cases happen all the time. For instance a few years ago RIM, the maker of BlackBerry was hit with a lawsuit that would have effectively shut down the Blackberry network, or prevent emails. Here’s a link to when it started. While at the time it was a $60million fine, it eventually got up to $612.5 million. The firm suing BlackBerry NTP, doesn’t actually produce anything. They are a patent management firm. In other words, a patent troll.

So what does this do to our economy when it’s based upon innovation. Patenting is supposed to protect innovative firms from competition so they can exploit their invention. It’s supposed to grow the economy, as these firms can license out the patent and allow other people to manufacture the product. Well, in this case it took $612.5 million from the pocket of a firm that was innovating and creating a product and put it into the pocket of a firm that doesn’t produce anything. That’s not the best for innovation.

There are some good things about the patents though. For instance, once the Xerox patent expired for the copier, there was an explosion of innovation in the field and Xerox nearly lost all market share. It had to sprint to catch back up. How did this happen? Well, you are allowed to work on a patented technology for research and development. Xerox’s competitors didn’t sit idle while Xerox was dominating the market. They were waiting until they were able to sell a product and then unleashed pent up innovation onto the market. This was an excellent thing for consumers. We can thank the fact that this patent ran out for our 3 in 1 printers.