Lessons from the Rise and Fall of "General Magic"​

Photo by Josh Carter (source: http://joshcarter.com/images/magic_cap/PIC1000.jpg) - licensed under the Creative Commons (CC BY-SA 3.0)

What is "General Magic"?

If you are interested in technology, innovation, and the history of Silicon Valley, and you haven't watched the 2018 documentary "General Magic" yet, you really should. It's available to stream on several platforms (see the official General Magic Movie web site). The movie retells the story of the rise and fall of the company "General Magic" in the early 1990's, with footage and interviews with the key people of the company at the time.

Now, it's OK if you haven't even heard of General Magic before. No need to feel awkward. I hadn't heard of it either until I actually watched the movie. Of course, I was a child at the time, but the technology and dreams that were born at General Magic in Silicon Valley in the early 1990's have had a great impact on many of the impressive technology success stories and trends since then including social media, e-commerce, and mobile computing. Also, some of the key employees of General Magic went on to make major contributions in technology at large companies such as Apple and Google, as well as create great new technology companies such as Android and NEST.

But the reason you may not have heard of General Magic is because the company failed. Although it was greatly hyped at the time, and caught the attention of the media, investors, and major companies such as Sony, AT&T, and Motorola, General Magic failed to capture significant market share for its Magic Cap operating system and the smart devices built around it. In fact, after reaching valuations in the hundreds of millions after its 1995 IPO, the company was practically dead within a few years due to disappointing revenues.

"Failure is not the end, it's the beginning". 

- Tony Fadell

You can research all the fascinating details online, or better yet, watch the movie. The story has a lot of intricacies, and getting to know some of the key employees such as Andy Rubin (Android), Pierre Omidyar (e-Bay), and Tony Fadell (Apple, NEST) is very interesting.

But in this write-up, I wanted to share some of the key insights and lessons I learned from the rise and fall of General Magic.

1) Importance of Project Management

One of the key ideas that jumped out at me while watching the movie was the importance of project management. General Magic had an indisputably strong team of very smart, talented creatives who were building great technology. But what they lacked was the discipline to deliver within deadlines and within available resources. Having worked as a program manager at Google, some of what I saw happening at General Magic was not new to me. I had seen this happen before, and this has always made me appreciate the importance of project management of technology development.

Talented and creative engineers can go down rabbit holes and spend incredible amounts of time solving technical challenges and making amazing new technology happen. But in the real world, the engineering effort must be bound by the limits of available resources and time. There must be a link between the business goals of the company and the engineering team. The business goals focus on delivering a competitive product, capturing market share, and generating profits, and the engineers focus on solving technical challenges to make the product happen. The project manager provides a critical link of keeping the engineering work within the business constraints, and communicating engineering constraints back to the business.

2) Importance of Product Management

The General Magic team was too focused on technology. They fell in love with the idea of creating compact, connected mobile computing devices with easy user interfaces. They spend inordinate amounts of time making this technology happen. And they largely succeeded from a technology perspective.

However, they were missing a greater vision of a realistic product with a good market fit. A realistic product that real consumers would want, could afford, and would use regularly. And this is where strong product management comes in. To translate market requirements and needs into a practical vision and product road map, within the constraints of time and money.

The product has to be delivered within a certain time frame to be relevant in the market, and to ensure that the business does not run out of money before launch. The costs of development must also be constrained within available budgets, which may require sacrificing cool features. Similarly, the final product has to be affordable to the target customer, which dictates what features are possible to deliver within the product. The project manager, as explained in the previous point, helps to keep the engineers on track to meet all of these requirements.

Without a clear product vision, it is no wonder that the General Magic team didn't reach their final destination. They didn't have one in the first place.

3) Importance of being a "Lean Startup"

The General Magic story also highlights the importance of using a lean startup methodology of delivering a minimum viable product (MVP), and testing it with consumers early. Early customer feedback provides invaluable feedback on what you are building, and gives you the opportunity to pivot in new directions if needed.

The General Magic team focused on perfecting the technology. This single minded determination to make the technology work was truly admirable. But by waiting so long to perfect the product without testing it in the market, the team had no idea if they were building the right product. They had no idea whether the product they were building would be something that consumers would want, and if they would be willing to pay for.

This is the concept of "failing early". It is better to discover that you are not on the right early so you can react. You can adjust the technology, re-think the product, or design for a different price point. You should view failure as a learning opportunity. If you test the product early and get negative feedback ... well congratulations, you have learned what won't work! Now go back to the drawing board and find out what will. It is in this context that we can understand Tony Fadell's quote: "Failure is not the end, it's the beginning."

4) Importance of Focus

One final lesson that came to my mind as I watched the General Magic movie is around the importance of focus. General Magic's product was built to do a lot of different things and to be used for many different purposes. It is admirable that they tried to build a revolutionary product that would replace so many of the manual office and communication tasks of the time. However, by casting such a wide net, they ensured that the product could not do any single function particularly well. There was not a single "killer" feature that was super easy to user, super reliable, and could cover all aspects of a specific task.

Although it may be counter-intuitive, this makes it harder to sell the product. If you tell a consumer that this device can solve all of your problems for a specific task, such as managing meetings, to-do lists, or tracking projects, it is a much easier sell than something that requires an overhaul of how they do everything all at once.

This is particularly true for B2C products aimed at consumers who want simple solutions with little or no learning curve to make their lives easy. More sophisticated business customers in B2B segments would behave differently, as they may spend months evaluating a major new product prior to purchasing it.

A great example of focus is the iPod. When Apple built the iPod, they built a super convenient and easy to use music player that decimated the competition. All it did was music, but it did it so well that the product was an instant success. Once they had "solved" the music market, they were able to build on this success, until they launched the iPhone.

What do you think?

If you have watched the General Magic movie, let me know what you thought in the comments below. Any other lessons or ideas you learned that you can share? I would love to hear your thoughts.

The best innovations are the ones you don't know you want!

Innovation or Science Fiction?

The best innovations are the ones you don't know you want! OK ... that's not entirely true. We often imagine amazing technologies and innovations that are often closer to science fiction than real innovations.

But what I mean to say is that the best and most revolutionary innovations are things that consumers don't realize that they want, at least not yet. In today's world, everyone is talking about innovation. It seems that every company out there has innovation as part of its vision. So we are bombarded with new 'innovations' every day. And yet, this stream of innovative products and services is often underwhelming, and often represents incremental improvements over existing products and services. These can be really nice and cool ideas, but they often don't have a huge impact, and consequently they rarely result in large financial returns.

Examples of Revolutionary Innovation

Revolutionary innovations, on the other hand, are often not even on people's radar at the time that they are introduced. Consumers may even dismiss such ideas when they first hear about them, since they can't imagine the scale of the innovation or the impact it will have. However, such revolutionary innovations can quickly grow to capture huge markets, destroying legacy companies in those markets along the way, and make a huge impact on the world.

There are many examples of this. Apple has been a great generator of such products over the years, including the introduction of the first graphical user interface personal computers in the 1980's, the iPod digital music player and iTunes for digital music downloads, the iPhone and iPad. Most people in the 1980's had no idea what they could use a computer for, much less express any demand for a graphical easy-to-use interface for computers. Before the iPod and iTunes, few people imagined that they could download music and store their entire library on a tiny device that they could easily carry in their pocket.

Before the iPhone, few people recognized what they could do with a "smart" phone, beyond making phone calls of course. At the time, leading mobile phone companies such as Blackberry, Nokia, and Motorola dismissed the full touchscreen design of the iPhone as a fad, much to their regret. They likely held customer panels and interviews in making that decision. The consumers they consulted, stuck in the mindset of their time, could not imagine the possibilities of what the iPhone could accomplish.

The same can be said of the iPad, which introduced a powerful computing device in a highly mobile and lightweight form factor. As a completely new market segment, tablet computing did not grow explosively like smartphones, but it still created a new market where Chromebooks and Microsoft Surface devices also compete.

But Apple is not the only example. Before Google was launched, did anyone imagine how revolutionary Google's corporate mission “to organize the world's information and make it universally accessible and useful” would be? Google's search technology went on to completely change the world and how people study, work and play. Who would have imagined that Google could make such an incredible impact on the world while offering access to this technology completely free of charge, and driven by text ads, completely revolutionizing the advertising industry as well.

Other contemporary examples include Amazon, Uber, and Netflix, each with its own unique story of disruptive innovation. But what lesson can we learn from all of these stories? As I alluded to in the title, the moral of the story is that the most revolutionary innovations are those that are unexpected, completely unimaginable to the average person of their time, and for which there may be no demand prior to their release.

Innovation Lessons for Startups and Investors

Many entrepreneurs and startup founders are taught to go out and measure demand for their product, or an MVP version of it, and iterate until they find something that works. This is the basis of the lean startup methodology, summed up in a sentence. It's great advice and a good methodology to follow to ensure your startup is building a product that is relevant, that solves a customer pain point, and that will have a viable market.

However, the most innovative products will be those that define new product categories, new markets, and new business models. Such ideas are likely to be initially rejected, or at least not understood. It takes a visionary and very persistent leader to push such ideas through and make them happen, to deliver them to the world and to sell them to people. The most successful entrepreneurs are those that recognize when such innovative ideas happen, and take risks on them to bring them to life despite initial market skepticism. Not all such seemingly revolutionary ideas will succeed, no doubt. History is littered with products that were once hailed as great innovations, but that never really caught on. Personal Digital Assistants (PDAs), such as those developed by Palm, are one such example. But those that succeed, are destined to change the world.

For investors, a similar lesson can be learned. You can invest in ideas and technologies that are seemingly the great next step for any given market, and you may achieve solid returns doing so. Perhaps a new battery technology that charges faster or holds more energy, or a faster processor to power the next generation of mobile devices, or a great new app that connects a new audience to a service or product they need on demand. However, the greatest returns will be reserved for those investors who have the vision to invest in technologies that lead to brand new markets and business models. Yes, those are highly risky, especially for the first investors to enter these markets. But these are the innovations that can make a real difference in the world, and deliver out-of-this-world investment returns.

Embracing Innovation

One final lesson is for consumers. I have always been an early adopter, not just of new technology, but of new products, services and ideas in general. I love to try new companies, new products, and new business models. And it pays off, not only for me personally as a consumer, but also I find that it keeps me ahead of the curve professionally as well. So my advice to consumers is: don't be afraid to embrace bold new visions.

I'm still surprised by the number of people and entire organizations that have not embraced cloud technology, and continue to lose their data, work and productivity due to their attachment to legacy products. I'm shocked at how often I'm still asked to complete paper forms that get filed in physical filing cabinets, and how people develop elaborate schemes to try to keep track of all that paper and to find the information they need when they need it. And I can't believe how many companies, including supposedly sophisticated technology companies, expect highly talented job applicants to spend hours entering data into a job application system, one field at a time. At the core of each of these issues is often a reluctance by individuals to embrace new ideas quickly and to be flexible to learn new ways of doing things.

So I encourage us all to think big, aim for the stars, and embrace new technology that can make the world a better, safer, and more fun place for everyone.

What do you think?

What's your view on innovation and technology? What defines the best innovations? Do you embrace new technology, or do you feel that we should be skeptical and suspicious? Let me know in the comments section below, I genuinely want to know your thoughts!

The 6 Top Virtual Reality Growth Opportunities

Photo credit: VR - Mobile World Congress 2016 via photopin (license)

As smartphone and tablet sales start to flatten out, and companies race to emerging markets to try to maintain their high growth rates, a new competitive battlefield is emerging that could provide high growth for the next decade. This new technology is Virtual Reality (VR).

Many technology commentators have declared 2016 as the year of VR technology. For the first time, real VR technology available to consumers is coming onto the market. While VR technology has existed for many years in theory, it has never been as reliable and available to consumers as it is now. In fact, Google was a leader in VR with the cardboard product released in 2014, which converted any Android smartphone into a VR device.

In 2016, more refined products are becoming available. Samsung's Gear VR is compatible with certain Samsung Galaxy phones. The Oculus Rift was also released, and so has HTC's Vive VR system. Each system has certain advantages, and while still expensive, they are easily within the reach of consumers who are used to paying high prices for high end smartphones and tablets.

Later in 2016 or 2017, Sony Playstation VR and Microsoft Hololens are scheduled to arrive. There are also a multitude of smaller players developing their own VR systems and competing for niche markets or on lower price points.

Now that VR technology has arrived and is becoming mainstream, what are the key growth opportunities that will drive the next cycle of technology advancement? I will discuss three related to software and content, and three related to hardware in the sections below.

Growth Opportunities Around VR technology:

1) Developer Ecosystems - Software & Apps

One of the critical aspects that will determine the success of these emerging VR platforms will be the software ecosystem that will develop around them. The availability of innovative applications that introduce a multitude of new uses for VR will make these systems popular. We already saw this in the case of the iOS and Android ecosystems. They achieved success in large part due to the developer communities they built up that provided an almost unlimited supply of apps. Creating a successful and vibrant developer ecosystem will be essential to the success of VR platforms.

At the same time, this presents a huge opportunity for developers. Those who enter this new market while it is still young, and grow with it as it expands rapidly in the coming years, will be well positioned to become market leaders. The opportunity is not only open for existing software and gaming companies who will no doubt jump into developing VR applications, but also to new entrants. Startups that can think of new and innovative VR experiences have the opportunity to ride the wave into a rapidly growing market.

2) Gaming, Entertainment, Communications & Social Networking

The growth potential for VR technology appears to be limitless, given the nearly unlimited use cases for such technology. The obvious and most immediate use of VR will be gaming, and this will by itself become a huge market. However, beyond games, VR systems can enhance all types of entertainment activities, such as watching videos or movies, listening to music, and social networking to connect with friends in innovative and new ways.

Companies are investing heavily in communication tools including text, audio and video messaging and communications platforms such as Facebook Messenger and WhatsApp. These tools are already being monetized through advertising and enabling companies to provide services and connect with customers directly through the messaging platforms. Automated "Bots" and virtual assistants are being developed that will be able to provide customer service and other personalized service and information to users.

Imagine the potential of VR to extend all of these technologies to the next level!

3) Professional, Business & Work Applications

In addition to entertainment and gaming, VR technology can also have a place in professional settings. VR can be used in employee training, simulation, video conferencing, telepresence, education, health care and many other applications. Augmented Reality (AR) solutions, which combine reality with additional information on a single display, can become an indispensable work tool enabling workers to complete tasks with an enhanced view of the world and with instructions visible directly in their line of sight. As companies develop software and hardware products to address all of these markets, there will be huge potential for growth in many industries for the most innovative products.

4) Hardware Platforms - Processing and Graphics

One of the reasons for the failure of VR implementations in the past was that hardware platforms were simply not powerful enough to support it. To provide a good user experience would require very specialized and expensive hardware, and even then, the graphics would be poor and unrealistic.

Over the past decade, smartphones have helped to drive mobile hardware technology and provided a huge market opportunity that encouraged hundreds of companies to invest and develop faster and better hardware for mobile devices. This includes more powerful processing, graphics, communications and display technology, all at increasingly attractive pricing, which have now enabled affordable VR systems to be built that can provide a very good user experience.

However, there is still room for a lot of improvement to make VR experiences more immersive and more realistic. This points to the need for continuing to improve these technologies, and as the market grows, more investment will lead to rapid advancements in this space.


5) Full Mobility, Wireless Technology & Batteries

VR systems available today either rely on a smartphone to provide the display and processing power, such as Google Cardboard and Samsung's Gear VR, or they need to be connected to an external computer to provide processing, such as the Oculus Rift and HTC Vive. VR graphics rendering is very complex and computationally intensive. With current technology, it is difficult to integrate the required processing power into the headset. Therefore, these systems require a wired connection to a laptop or PC, which limits the full potential of the systems. Once a product is developed that has integrated display, processing and sufficient battery to last a few hours, it will unlock the full potential of VR systems to become fully mobile and available for use in many applications.

The challenge will be to be able to provide high capacity lightweight batteries that can be integrated into the headset to power these integrated mobile VR systems long enough to provide a good experience. This is probably the best approach in the long term as mobile hardware platforms and battery technology continue to improve.

Another way to to enable a fully mobile and untethered VR system would be to enable wireless data transfer between the VR system and the external computer. HTC has publicly talked about this option but indicated that they have not found a wireless technology that can be reliable enough and provide the high data rate required to make it work. If a suitable wireless technology is developed, it would enable a much better user experience where users won't have to worry about wires, and would allow better "room-scale" VR experiences. At the same time, it would allow VR headsets with less processing power and smaller battery capacity, lowering cost and weight which would make them very competitive in the market.

6) Hardware Accessories

Beyond software and apps, VR systems lend themselves to being augmented with accessories. Some VR products already come with some accessories that enhance the VR experience, such as sensors to enable "room scale" VR, allowing users to physically move while experiencing the VR environment. Other accessories include hand controllers, wearable gloves, omnidirectional treadmills, and the only limit is the imagination of developers! An ecosystem of accessory developers and suppliers is already developing around VR systems, similar to the ecosystem of app and game developers.

What are your thoughts on VR technology?

Have you tried any of the VR systems I have mentioned, or others? What has your experience been like? Do you feel VR is really ground breaking technology, or is it just hype? And what is the wildest application of VR that you can envision? Please share your thoughts in the comments section below.

Four Technology Revolutions that are Disrupting the Auto Industry

photo credit: Tesla Autobots via photopin (license)

There is no doubt that the automotive industry is in for a major transformation over the coming decade. New technology will change the way cars are built and used. Savvy entrepreneurs are taking advantage of these technologies to enter this very lucrative market using new business models. The traditional auto manufacturers are actively working to counter these threats by investing in new technology themselves, and trying to be part of the revolution to avoid being left behind.

In my view, there are four distinct but somewhat related technological revolutions that are disrupting the traditional auto industry.

1) Propulsion Technology

Advances in electric car technology have made electric cars an increasingly practical alternative to the internal combustion engine. Electric cars are quieter, cleaner, and potentially easier to maintain. However, they face two major obstacles that limit their adoption. One is that electric cars currently have relatively short range compared to traditional cars. As battery technology continues to improve, car manufacturers are able to increase the range of their electric models with each model year. So it will likely be soon that electric cars will have a similar range to traditional cars.

Even with longer range, charging technology represents the second major obstacle for electric cars. Currently, charging an electric vehicle's battery takes anywhere from 30 minutes to 8 hours or more, depending on the charging technology used. On the other hand, a gas car can be filled up with gas in a couple of minutes. What makes this worse is the lack of an established electric charging infrastructure, which makes finding a charging station much more difficult than finding a gas station. Even as charging infrastructure is built out within cities, traveling outside of a city with an electric car is difficult, due to both the lack of infrastructure and the long charging time that would be required. However, it is likely that innovative battery charging technology will eventually solve this problem.

Nonetheless, there is no doubt that electric car adoption will continue to increase, and with it the amount of investment and competition, which will eventually remove barriers and make electric cars the mainstream. Gas vehicles are likely to continue for certain applications, such as for trucks, construction equipment, military vehicles and high performance race cars. But it is likely that within a couple of decades, the mainstream family car will be electric rather than gas.

2) Connected Cars

Certain luxury car models have had internet connectivity features for a number of years. However, connecting cars to the internet is likely to become a standard feature in many vehicle models over the coming years. Internet connectivity can either be provided through the driver's smartphone, which is plugged into the vehicle, or through its own dedicated hardware to provide connectivity through cellular networks.

Regardless of how connectivity is provided, having an internet connection enables a wealth of new applications and features that will change the car driving and passenger experience. Streaming entertainment directly to vehicles will become a large market, and innovative businesses that come up with suitable apps fitting for drivers and passengers will be able to capture this new market. Whether it is streaming audio programs, video or gaming, connected cars will likely eliminate the radio or greatly reduce its use in cars.

In addition to entertainment, information such as driving directions, maps, weather, news, road conditions, detours, safety announcements will enable drivers and passengers to continuously be updated, connected and informed.

Productivity tools can also be provided that would enable passengers and potentially drivers to perform some work related tasks such as email, reading or editing documents, logging into conference calls.

The opportunity here is not only for providing internet service, but rather all the apps and content that will be provided to users and monetized directly or through advertising. A number of technology companies are building solutions and working with traditional car companies to install technology into cars that would enable all of these features.

The effect of this on car companies will be that buyers in the future will likely put a lot of weight on these technology features in their buying decision making process, compared to some of the traditional features such as the horsepower of the engine, or other cosmetic finishings of cars. Traditional car companies will have to provide competitive solutions or partner with technology companies and be willing to share the market with them.

3) Car / Ride Sharing

Car or ride sharing is not a new concept. A number of companies have operated car sharing programs for years. However, Uber revolutionized this industry by providing rides as a service to consumers, based on the use of technology to manage the entire process. A number of companies are working on competing with Uber by providing similar services, and traditional car companies are also investing in this area by building their own services or acquiring companies that are working on car sharing programs.

The potential here is not only with technology, but also with innovative business models that use the technology to provide new services that consumers need and want. In addition to providing rides to consumers, the same type of technology can be used to enable car sharing programs where subscribers can use cars located at certain locations. Delivery services is another potential area where this type of technology can be adopted.

The impact on the traditional car industry will be that many consumers are likely to change the way they see cars. Urban consumers, especially those living in dense cities with good public transportation and limited parking, will be much less likely to want to own a car, but will rather depend on ride and car sharing programs. While urbanites have avoided owning cars for many years, this is likely to become an easier and more common lifestyle that will expand to a larger proportion of consumers.

From the point of view of a consumer, it will make less and less sense to take responsibility for owning a car, keep it maintained, perform oil changes, pay for insurance, and then worry about its value when they need to sell it. Instead, consumers will want to get transportation as a service, whether it's use of a shared car for a few hours or a day, or just getting a ride to a destination.

Interestingly, there are some parallels here to cloud computing, where businesses and even consumers can buy computing power and software applications as a service and pay per use, rather than having to invest in buying and maintaining their own hardware and software.

4) Self-Driving Cars

Self-driving cars is where the most significant revolution will happen. It is also the most complex and the most distant, although it appears to be getting closer and closer to reality. It builds on the previous technological trends discussed above, and will also have an impact on them, particularly on ride sharing, where ride sharing companies will no longer need drivers to be able to provide their service.

Self-driving cars will not only disrupt the transportation services market by eliminating the need for drivers, whether they are taxi or ride sharing service drivers, and eventually truck and bus drivers. They will also greatly impact the traditional car companies, because the main selling feature of the vehicles will focus on the technology, and a greater share of profits will go to technology companies, unless the traditional car companies can build credible systems of their own. But even if they do, they will transform themselves into technology companies in the process, with just as many hardware and software engineers as mechanical engineers, if not more.

Beyond that, self-driving cars will free the driver and enable commuting time to be available for consumption of entertainment, or for productivity, as discussed previously. This will open the doors for many new and innovative applications and services that can be tailored to car occupants. 

Self-driving cars will eventually also impact the entire transportation system, including how roads are built and how intersections are managed. They will also eliminate parking difficulties, allowing passengers to be dropped off at their exact desired destination while the car travels to a designated parking location and await the passengers to call it back for pick-up. This will have a huge impact and will further re-enforce the notion with consumers that cars are a transportation service, not an object to be owned.

It is likely that at that point, transportation services companies, like taxi and ride sharing companies, will flourish and maintain large fleets of cars ready to service their subscribers, who can obtain transportation services anywhere and at anytime by requesting a ride through a smart device. 

Conclusion

The auto industry will continue to undergo rapid change and disruption, and the winners will be those companies that invest in new innovative technology and business models that take advantage of new technology and changing consumer views on cars.

Nonetheless, it is important to note that some people will continue to enjoy having a traditional gas car, without any technology, that they can drive themselves. However, as a proportion of the overall consumer base, they will be decreasing in number over time. None of these changes will happen overnight. But rather, over a couple of decades, these trends are likely to pick up steam as consumers adopt these technologies and start to demand these features.

So what do you think? Do you believe the future will be dominated by electric, self-driving vehicles? Or do you think it is all hype and that gas cars will survive for another century?

Please share your thoughts with me in the comments section below!

Open Innovation - A New Paradigm for Collaborative Innovation

Posted on December 5, 2015 - There’s been lots of talk recently about “open innovation.” Dr. Henry Chesbrough, at UC Berkeley’s Haas School of Business, coined the term and has written three books on the subject. It’s now become a popular buzzword, but what does open innovation really mean?

To understand open innovation, we need to understand innovation itself. Innovation is about commercializing products or services based on inventions. It is about taking research and inventions from the lab and developing them into products to be sold in the marketplace. Many inventions, even those that are patented, never make it beyond the lab. That’s why innovation, not just invention, is vital for companies to achieve competitive advantage. Companies do this by introducing new or improved products, or producing existing products more efficiently.

“Closed innovation” describes the way innovation often happened over the past century. Under this paradigm, the most successful companies were those that made large investments in internal research and development (R&D). This gave them a constant stream of innovative ideas that could be developed into new products. They also invested heavily in IP protection to prevent competitors from infringing on this internal R&D. Money was key to this model. The companies that came out on top were those that had the most research funding, the best technical resources, and the most state-of-the-art facilities. It was difficult for smaller companies to compete with established players.

Toward the end of the twentieth century, however, this paradigm began to fail. Highly skilled employees were becoming more mobile, moving from one company to another and taking their experience with them. The availability of venture capital funding for startups encouraged more employees to leave large research organizations and start their own companies. These employees were taking their knowledge and skills gained after many years of experience working in research labs of large companies, leaving these companies with no return on their investment. The closed innovation paradigm was no longer working, but a new standard for innovation was starting to develop. It was called “open innovation.”

Open innovation embraces the idea that not all technology must be internally developed. External ideas can be brought into a company and used to build innovative products. This can be done through licensing technologies or by acquiring entire companies developing technologies of interest. Similarly, internally developed technology that is not used can be monetized through licensing or by creating startup companies that can commercialize these technologies more effectively.

A shift toward open innovation is underway. It has been easier to adopt in some industries than others, and many companies are understandably reluctant to change existing business models. However, companies that fail to incorporate at least some aspects of open innovation will likely have difficulty competing against those that take the plunge. As companies begin to expand their search for innovation beyond internal R&D, universities can become important sources of new technology. Companies can use universities’ expertise and resources as extensions of their own research teams. They can sponsor research into specific areas of interest, and negotiate ownership or exclusive licensing rights to any resulting technology. They can also guard their inventions with IP protection such as patents.

Open Innovation can be a powerful source of competitive advantage, even for large companies, if employed effectively. Since only a small proportion of even the most innovative research is ever successfully commercialized, companies working under the old paradigm of developing all innovation internally end up with lots of technology and ideas that never get commercialized. Only technology that fits the business goals and direction of the company ever gets developed into a commercial product. Companies that embrace open innovation can avoid this wasted investment, and can focus on investing in innovation, internal or external, that fits their business needs.

Of course, this is easier said than done. To effectively utilize an open innovation paradigm requires, among other things, an appropriate organizational structure, a well trained innovation staff that knows the process and potential pitfalls, processes and procedures for integrating externally developed technology, and a savvy IP team to negotiate licensing agreements to secure needed technologies quickly and effectively. Perhaps these can be topics for future blog posts.

In the meantime, I would be very interested to know your experience and thoughts on open innovation. Is it really a new phenomenon, or is it just a meaningless buzzword? Can it really be part of a successful business strategy? I look forward to reading your comments in the comments section below.


photo credit: Resources for learning about open innovation via photopin (license)

Do Patents Hinder or Promote Innovation?

Posted on December 4, 2015 - With all the news about patent litigation these days, some have argued that patents are hurting innovation. There have even been suggestions of just eliminating or greatly curtailing patent rights. Such comments are heard particularly loudly when products are pulled from the market due to patent disputes, or when small companies are forced to shut down by larger competitors as a result of patent lawsuits. Patent trolls that take advantage of the patent system to unfairly extract money from small companies also add to these feelings.

Modern patent systems are based on the premise of a contract between inventors and society. In exchange for making their innovative work available to the public and allowing society to benefit from their inventions, inventors receive the right to exclude others from practicing that same activity for a limited period of time, normally 20 years.

Such a system rewards inventors for their work, thereby encouraging research activities, since researchers know that they can protect their ideas and recoup their investment in time and money through patent rights. Strong patent systems have been credited with increasing R&D spending. Without patent protection, companies would not invest in R&D activities and in bringing innovative products to the market, knowing that their competitors can copy the products for a fraction of the cost.

Patents also provide financial incentives for universities and research labs to bring their research to the market. According to the Association for University Technology Managers (AUTM), universities, hospitals, and research institutions generated $2.5 billion in overall income from patents they hold in 2011. Such revenues would not have been possible without patents.

Moreover, inventors must fully disclose their invention in order to obtain a patent, to a sufficient level of detail to enable a person trained in that particular field to carry out the invention and build on it. Patents are published and open to the public normally 18 months after being filed with the patent office. With over 8 million published patents just in the United States, this provides a huge resource for researchers to keep building upon these innovative ideas and developing the next invention.

It has been argued that inventors are discouraged from launching companies and developing new products for fear of patent infringement lawsuits by bigger competitors. While this may be true, the risk of patent infringement is just one of many business risks that a company takes when going into business. Companies that possess genuinely innovative technologies can use patents as an insurance policy to protect their IP and their products from being copied by competitors.

By providing incentives to companies and individuals to invest in research and to develop innovative products, a strong patent system becomes central to promoting economic development. In fact, the jobs created through R&D investments in innovative technology are very high value jobs, and each job created in R&D normally results in several other support and service jobs being created.

While there are some negative aspects that are associated with the patent system, such as patent trolls, endless patent litigations, and small companies coming under pressure due to patent infringement, these are best addressed through specific policies that target and minimize them. It is clear, however, that the advantages provided by a strong patent system far outweigh any of the disadvantages that may come with it. In the words of Abraham Lincoln, the patent system added “the fuel of interest to the fire of genius in the discovery and production of new and useful things.”

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The Role of Universities and Research Centers in Economic Development

Posted on December 4, 2015 - In a recent report entitled “Encouraging a British Invention Revolution,” the CEO of GlaxoSmithKline, Sir Andrew Witty, highlights the importance of universities to economic growth. He notes that “the research strength of the UK’s universities is an enormous national asset,” and that they have great potential to generate new companies and whole new industries.

There is no doubt that universities can drive economic growth, not just in the UK but worldwide. Universities are the source of a constant stream of innovations and ideas. While university innovations are often early-stage and require further development to become market-ready, they are also often game changing. This is due to the fact that university researchers have greater freedom to explore new areas and breakthrough research, without having to worry about showing an immediate return on investment.

In a BBC News article about this report, Dr. Wendy Piatt, Director General of the Russell Group of research universities, cites the billions generated by university discoveries, and emphasizes how important it is to the economy that “groundbreaking discoveries make it all the way from idea to implementation and from prototype to profit.” This highlights the importance of technology transfer in bridging the gap between university research and industry.

However, Witty also notes that without well-focused funding, organization, and collaboration to transform competitive technologies into real business, there is a risk that these opportunities can be lost or delayed, or that British inventions would end up being used to build foreign industries. Witty proposes a new government funding model focused on what he calls “Arrow Projects,” key technology platforms that have strong market potential. The projects would be run by a consortium of partners including universities, industry, and local and central government.

The use of such focused funding programs can help small and mid-size businesses take advantage of opportunities presented by university research. Typically, it is larger companies that have the financial and human resources to be able to take advantage of early-stage university technologies. With additional support in terms of funding and with collaborations among multiple partners to develop technology, the huge potential of university research can be unlocked to SMEs, which could have a significant positive impact on economic growth.

The report also calls upon universities to take responsibility for a “third mission” of facilitating economic growth, in addition to the usual missions of teaching and research. An important part of this third mission should be to “seek out ... potentially innovative SMEs and to support them with technology, expertise, talent and know-how.”

An increasing number of universities are recognizing the important role they can play in economic development, and are investing in bridging the gap between research and innovation by providing funds for proof-of-concept and technology prototyping, as well as supporting entrepreneurs with training and seed funding to take innovative research and turn it into commercial products. These new innovative products enable companies to be more competitive and profitable, and support the creation of high value jobs.

What are your thoughts about the role that universities can play in economic development? Please contribute your thoughts and experiences in the comments section below.

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