Category Archives: Innovation

Are Google And Apple Using Patent Wars To Hinder Innovation?

News of late has me feeling that patents may in fact be hindering innovation. The exact opposite of what they’re intended to do.

Patent wars, let’s call them, are abounds. Samsung knows all about them with their Galaxy Tab 10.1 having been not allowed in Europe and Australia for half a year (“Australia court extends Samsung Galaxy Tab sales ban“). And Google bought Motorola who hasn’t made a successful phone in years (“Google makes money on Iphone, Motorola patents“).

The titans of the tech world are spending billions trying to maximise their competitive positions (“Google increases war effort against Apple, buys 1000+ patents from IBM“,””Consortium led by Apple buys Nortel’s patents for $4.5 billion“). But why?

Mobile Communications Related Issued Patents (1993-2011)

The simple answer is that it is smart for them to do so. Patents provide inventors lasting reward for innovation by limited others from profiting from their inventions for set periods of time. Generally, I imagine that this has been a very successful law in encouraging innovation and I don’t want to suggest otherwise.

Where it gets interesting however is when companies make acquisitions, what happens to the patents of the target company. Below is a good example of where acquiring a company’s patents might have been a reasonably good idea for Yahoo.

“Though Brin and Page had a good meeting with Yahoo founders Jerry Yang and David Filo, former Stanford students, Yahoo didn’t see the need to buy search engine technology.” [In The Plex: How Google Thinks, Works, and Shapes Our Lives by Steven Levy]

Good move Yahoo. Missed opportunities aside though, the scenario above seems pretty standard in my books. A big company could buy a smaller company with the hopes that it can use the smaller company’s technology to reach more people. It also probably has more money to throw at developing the technology if it chooses to.

Now, let’s think about this scenario where I think the lines are a little more blurred. Patents can cover the most minute of inventions that may also be incredibly useful parts of bigger technologies.

“While Jobs could not stop Google from developing the Dream version of Android, he apparently was successful, at least in the first version of the Google phone, in halting its implementation of some of the multitouch gestures that Apple had pioneered. Jobs believed that Apple’s patents gave it exclusive rights to certain on-screen gestures—the pinch and the swipe, for example. According to one insider, Jobs demanded that Google remove support of those gestures from Android phones. Google complied, even though those gestures, which allowed users to resize images, were tremendously useful for viewing web pages on handheld devices.” [In The Plex: How Google Thinks, Works, and Shapes Our Lives by Steven Levy]

So Jobs may have stopped the multitouch gestures being allowed into Android phones. Now fast forward a few years.

“The iPhone was still the royalty of smart phones. But as Android became the fastest-growing smart-phone operating system—by mid-2010, Google partners were selling 200,000 a day—Jobs increased the pressure. He sued the handset manufacturer HTC, alleging that its Android phones used techniques patented by Apple. Within days, Google rolled out a change in Android’s operating system: it would now support the pinch and stretch multitouch gestures that Jobs had demanded that Google remove. The capability had been hibernating inside the code base, and all Google had to do was switch it on in the next upgrade. Schmidt maintained that those developments were part of the normal course of competition. ” [In The Plex: How Google Thinks, Works, and Shapes Our Lives by Steven Levy]

What we see here is one company being limited from implementing technology created by another company. At least for some time. Regardless of whether Google’s intention is to make cash or don’t be evil, Google have not made some incredible innovations over the years that have significantly benefited billions of people. Stopping them implementing a small though useful technology here created by Apple stopped them from improving the Android technology for a period of time. This in turn affected tens of millions of people.

Apple and Google are both massive companies. Apple in fact had more cash on hand than the US Federal Reserve late last year. They’re not going hungry tonight. But, they’re obviously still protected by patent laws. I’m certainly not saying that they shouldn’t be but the example above shows that society can lose out in some cases due to reduced competition. Though, potentially just in the short term.

Taking it one step further than the example above, when companies specifically buy companies to acquire patents so they can block companies launching products, you really have to wonder if it is going too far. To be fair though, Google does seem to be very open with a range of their intellectual property.

Keeping this in perspective though, it is clearly a first world problem.

 

Five Theories About The Future Of Innovation Online

Google, Facebook, Amazon and Ebay have grown to massive online companies. The network effects of these companies might affect the trend of innovation amongst internet start ups for years to come.

Amazon buys Book Depository, Ebay buys Magneto. Google, Facebook and Yelp start Groupon style deals websites. Google starts Google +. All in 2011 and all in my short term memory.

All you need to do is read Techcrunch and within no time you’ll see many more stories along these lines. But so what right? Big companies have been buying small companies and copying the ideas of others for hundreds of years.

A history of Internet Mergers

Since the Internet began its meteoric rise in the late nineties, plenty of Internet companies have been bought and sold. It probably started with big non-internet companies buying successful Internet companies at massive premiums to try and get in the game (think AOL / Time Warner and Myspace / News Corporation). That didn’t turn out too well for the buyers but thankfully a few guys are most likely downing Caipirinhas on some Brazilian island thinking of Rupert Murdoch.

Somewhere along the line, Internet companies began buying each other or competing directly for the top spot. Think of the search engine race; Yahoo, Google, Askjeeves, Lycos, Metacrawler (click here to see where they are now). No prize for whoever guesses the winner of that battle.

Friendster, Myspace, and Facebook…. I could put a “click here to login to Facebook” button to show who won that one.

For a more complete look at the online landscape of buyouts and mergers see this brilliant mashable post.

Network Effects Emerge

However, until the last few years, I couldn’t have confidently said very many Internet companies had won their respective battles (though I could have predicted some were likely to win – Google, Amazon, Skype and eBay come to mind).

It is true that these companies will still have to hold their position due to the very low switching costs online. But, the winners of the Internet game (so far) have grown to sizes where another factor really starts coming into play. That factor is network effects.

Network effects increase the value of a product or service as more people use it. They create barriers to entry for competitors looking to break into the space. And finally they provide a platform for these massive companies to break into new markets.

How the Internet Landscape could change

Seeing the very fast movements that great start up ideas can make on the Internet has interested and inspired me for years. Think Google Maps, Facebook, Tripadvisor, Airbnb, Groupon, online travel booking, Evernote, Twitter, Kickstarter. If you don’t know any of them, Google them. The speed at which good ideas have been able to get going has also increased as the Internet has grown older.

But now that Google, Amazon, Ebay and Facebook (amongst others) have grown to the sizes that they have, they have the customers, cash flow and technological edge to run the show unless start ups really put up a fight (that they may be unable to win). They could emulate most of the ideas above if they wanted to and then expand them onto their network of users.

5 Theories about Innovation Online

When Amazon recently bought Book Depository, I was genuinely a little annoyed. Book Depository had a completely different business model by offering free delivery worldwide and cheaper books. They also didn’t ream Australians for living far from the US. Now that Amazon owns them, this may still continue but only if Amazon allows it to. Whilst the Depository family might be on an island spending the purchase price (and good on them), this example shows the extent of Amazon’s power. And with little in the way of a multinational anti-competition organisation, who will stop them?

Theory 1 – If you do something interesting online and want your idea to go to completion, you’ll may have to withstand the forces of multimillion dollar offers to get it there.

Theory 2 – The Internet superstars can set the course for a large proportion of online innovation.

Facebook deals, Google offers are both direct copies of Groupon’s business model (which is probably a direct copy of someone else). Thankfully for the social networking giants, copyright protects the form and not the idea.

So if you’re a start up with ideas in the making, do it knowing that if one of them does take off, it is now very simple for Facebook or Google to copy the idea, maybe do it better and then launch it to a worldwide audience. If you’ve managed to grow a start up that has 10,000 users and $1M a year in revenue, your idea could be worth massive multiples of this to a company like Google or Facebook.

Theory 3 – If you have a start up idea that is likely to succeed, consider your launch plan carefully.

Theory 4 – It is perhaps easier and cheaper for them to simply copy your idea and trial it on their network than to buy your company.

Theory 5 – Your idea is worth more to them than it is to you. If you’re going to sell, don’t sell cheaply.

As an aside, I’m not certain any of these theories are anything but adaptations of ideas already visible in the real world. But I do feel that there are very few ideas that a company like Google or Facebook couldn’t go after online.