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Archive for August, 2011

What Would Steve Do? Ruminations on the Jobs Formula

Posted by Bob Warfield on August 26, 2011

The follow on wave to the initial reaction to Steve Jobs departure has begun, and it’s interesting.  It’s all about understanding the “Steve Jobs Formula”.  I confess I do enjoy reading these articles as do I enjoy reading about the “Warren Buffet Formula.”  There are entire books about the latter.  The one thing that is strangely missing is cracking open the Forbes list of the 400 Richest Americans and finding a passage for some new billionaire that says, “Well, I just followed the Warren Buffet Formula and it was easy.”  Perhaps that’s Nature’s way of telling us that these brilliant leaders can’t be deconstructed and reduced to some “formula”.  Nevertheless, we’re driven to understand what they did and why.  In this article, I want to critique or amplify on some of what the pundits are saying about the Jobs “Formula”.

The Folly of Assuming Commoditization is the Only Game in Town

Those who worship at the altar of commoditization see it as inevitable for any market.  Someone will introduce an innovation and the commoditization race begins.  Whoever manages to make the innovation “good enough but much cheaper”, wins.  They will own the Lion’s Share of the market and the profits.  There is little question that commoditization happens, perhaps inevitably, to some markets just as described.  But to assume it is inevitable for every market, and that building better mousetraps is misguided, is a mistake.  Clearly Apple has shown the way in a number of markets for a case where the best product really can win.  Importantly, it may not win in terms of numbers or market share, but it can win in terms of share of profits.  Many have taken to commenting that Apple doesn’t really care about market share, it cares about products.

Apple didn’t invent this notion that commoditization need not be inevitable, by the way.  Mark Segal has a good write-up on this where he views commoditization as the conventional wisdom and Apple as the innovator, but it isn’t.  I’ve been hearing about it since Business School.  Michael Porter says there are three stable competitive strategies:  build the best, be the low cost provider, or be the niche player.  The Commoditists assume that being the low cost provider is the only position that counts.  Long before Porter, Henry Ford was a commoditizer.  He was sending his people to junkyards everywhere to examine which parts of junked Ford automobiles were still usable.  Anything usable was obviously overbuilt and could be cheapened to give Ford a cost advantage.  Apparently Mercedes Benz didn’t get the memo on how to operate that way, and today they seem much stronger than Ford for it.

More recently we have strategies involving Blue Oceans and such the further refute the commoditization destiny.  When I look at the life of a Commoditizer, I can’t think of anything less interesting than spending your every hour not caring about what is good, but rather driving out every extra fraction of a cent of cost.  For most markets (not sure about paper clips and the like, they may be pure commodities, but don’t forget how Starbucks turned the ubiquitous cup of coffee into a product worthy of Apple), there will always be an opportunity for the very best.  It’s a question of whether you can build the best, convince people it is the best, and perhaps most importantly, imbue a sense of style and connect with lives in a way that makes enough people insist on having the best.

If you’re capable of all that, let the Commoditizers do their thing, and you go do your thing.

Confusing “Minimum” With “MinimumViable” Where Steve Jobs and Entrepreneurs are Concerned

Sean Ammirati in RWWeb writes that there are four parts of the Jobs formula that Entrepreneurs must avoid:

1.  Avoid being secretive

2.  Avoid a perfect release 1.0–release early and release often

3.  Avoid starting a community–swarm an existing community

4.  Avoid being closed–create an API Day 1

This analysis is motivated by a lot of the current writing and thinking about how startups should operate, but it belies a misunderstanding of what “Minimum Viable” means and what Jobs uses as his strategy.  It is a mistake to think if we simply release early and often enough, we will succeed.  It’s very popular for entrepreneurs to assume an air of (often false) humility, tug their forelocks, aw shucks about how little the know and how smart the wisdom of crowds, and leave it up to the almighty customer to tell them what to do.  They learned this behavior, no doubt, from Wall Street, but they lack the portfolio effect to help them actually succeed with it, although they do sometimes have the other benefit Wall Street enjoys–the use of Other People’s Money to test out these ideas.

Look, if we take even a fundamentally very good core product and slather on a thick and chaotic layer of customer-mandated and product management defined features, that leads to Crap Product.  We know that.  We’ve seen it too many times.  It’s the reason Microsoft is failing today.  But just because a nice clean sheet product that said “No” to all sorts of things and shipped really quickly can beat such a Death-By-Feature-Overload Behemoth does not make that the only strategy that wins or even the best strategy to win.  Winning in a competitive market is all about giving people something they desperately want (whether because they need it or simply want it) while forcing the competition to completely upend what they’re doing to respond, and ultimately forcing them to be too late and too little in their response.  Satisfying that equation with just enough is the essence of a “Minimum Viable” Product strategy.  Shipping something that isn’t good enough to ignite need and is easily copied and side tracked by the competition is minimal, but not viable.

With that in mind, let’s revisit those 4 tenets of what an Entrepreneur should avoid and make 4 tenets of what an Entrepreneur should do:

1.  Be secretive what you’re building but not who you are.   You have a chance to attract a following without telling them quite yet exactly what you’re building.  It’s enough to strike up a common interest, perhaps around the kinds of problems you hope to solve.

2.  Make sure your release 1.0 can ignite customer delight and is not easily ripped off by your competition.

3.  In terms of swarming communities versus building communities, if your business intends to use a network effect as a barrier to entry, it has to be your network effect.  Before you swarm someone else’s network, make sure you have the ability to lock whomever you attract into your network.  Otherwise you are just building features on someone else’s platform and you’re likely to wind up like those many startups that built Twitter front ends only to have Twitter say, “Thanks for all the ideas, folks.  We’ll take it from here.”

4.  Make sure you are in control.  It isn’t about being Open or Closed, it’s about control.  You must be in control of your ability to delight your customers and keep the competitors struggling to respond.

Vertical versus Horizontal Integration, Open versus Closed, these are all just symptoms of the underlying strategic goal Jobs had to ensure he had the control he needed to get where he was going without having the fruits of his labor stolen.

Incidentally, if you really want to understand the part about, “forcing the competition to completely upend what they’re doing to respond, and ultimately forcing them to be too late and too little in their response”, that’s the true essence of competitive strategy.  The best way of thinking about it on those terms comes from fighter pilot John Boyd’s writings about his “OODA” (Observer Orient Decide Act) strategies.  They’re every bit as applicable to modern business strategy as jet fighter dogfighting if only because there’s even more room for nuance and deception.

On Caring About the Customer

There are a lot of ways to care about the customer.  The salesperson cares that the customer signs the contract.  The product manager cares that the customer’s feature is implemented.  The Marketer cares that the customer says nice things about the company and its products, and that they read the marketing materials and hopefully one day become sales leads.  The CFO wants the customer to pay on time, to avoid egregious terms and conditions in the contracts, and to stay happy enough they don’t ask for a refund.  The CEO cares that the customer is satisfied.

These are professional, but not very deep relationships one could have with their customers.  They don’t begin to tap into anything resembling “Delighting” or “Enchanting” the customer.

Jobs, by contrast, has never really seemed to fall into any of these camps.  His relationship with customers has always seemed to me to be most similar to the relationship of a parent to their children.  They want what’s best for the children.  They delight in seeing their children happy.  They’ll do what it takes to help their children.  And they’re prepared to make some tough decisions if it leaves their children in a better place.

But parents don’t spend much time asking the children how they can be better parents.  Families don’t have 360 degree reviews mandated by HR.  They don’t conduct focus groups to see what the kids think about the latest parental policies and ideas.  They know what’s right, and they love parenting more than life itself.

This should not be so surprising.  It’s the behavior of anyone seeking to truly delight their customers and to delight themselves in their art, for to truly delight the customer, you must give them something they don’t have and probably didn’t even realize could exist.

They can’t tell you how to delight them in a survey.  They can only tell you how to stop pissing them off.  There’s a profound difference in the two.

Film makers understand all this.  Steve Spielberg didn’t run around asking people whether they thought a movie about children harboring a so-ugly-he’s-cute alien would be a success.  Hemingway spent a lot of time out and about drinking in humanity in all sorts of colorful places, but he didn’t ask people to help him write his books.

“Writing, at its best, is a lonely life.”

Posted in apple, strategy | Leave a Comment »

The CEO’s Biggest Product Launch is His Company’s Culture

Posted by Bob Warfield on August 25, 2011

By now you will have heard the news:  Steve Jobs has resigned as CEO of Apple, Tim Cook will take over, and Jobs will carry on as Chairman of the Board.

Inevitably, the discussion about what this means for Apple going forward is underway.  It’s clear that Jobs has been the creative leader of Apple, the man that made the iPhone and iPad, not to mention the Mac.  He’s the man that started the Tsunami of a sea change we see underway today.  The “notebook effect” that has PC makers from HP on down wondering what it means, whether they should even be in the business, and what the way is to move forward if they do, is due to Jobs.  He is the man who made Apple the enormously valuable juggernaut it is through product, business models, strategies, brand, style, and moxie.  There can be no question a guy like that will be missed, even if he is still available to consult.  You can’t lead through consultation.  A consultant can’t be the dynamo that tirelessly injects the energy into the organization that it thrives on.

In answer to the question, “What does this mean for Apple’s future?”, there can be only one reply:

Apple is not about to test its succession plan, Tim Cook, or any other single executive.

Apple is about to test whether its Culture has the right stuff to carry on without Steve Jobs’ hand on the tiller.

That’s a tall order.  I don’t know if Jobs has successfully created a culture that can do it, or not.  But I do know that for any CEO, their biggest and most important “product” is not anything recognizable like the Mac, iPhone, or iPad.  Rather, it is the Culture they have put into place.  In the end, no one person can do it all, and the greater the success, the less likely it is all because of one man, however visionary and brilliant he may be.  I have a sneaking suspicion that someone as extraordinary as Steve Jobs hasn’t missed that point.  He can’t have helped but surround himself with people who understand.  Apple can’t have started so many successful revolutions without a revolutionary culture.

I’d like to leave you with a selection of quotes from the Wall Street Journal that I think make the point that Steve Jobs has created a Culture that can endure.

*********

“We think the Mac will sell zillions, but we didn’t build the Mac for anybody else. We built it for ourselves. We were the group of people who were going to judge whether it was great or not. We weren’t going to go out and do market research. We just wanted to build the best thing we could build.

When you’re a carpenter making a beautiful chest of drawers, you’re not going to use a piece of plywood on the back, even though it faces the wall and nobody will ever see it. You’ll know it’s there, so you’re going to use a beautiful piece of wood on the back. For you to sleep well at night, the aesthetic, the quality, has to be carried all the way through.” [Playboy, Feb. 1, 1985]

***

“I don’t think I’ve ever worked so hard on something, but working on Macintosh was the neatest experience of my life. Almost everyone who worked on it will say that. None of us wanted to release it at the end. It was as though we knew that once it was out of our hands, it wouldn’t be ours anymore. When we finally presented it at the shareholders’ meeting, everyone in the auditorium gave it a five-minute ovation. What was incredible to me was that I could see the Mac team in the first few rows. It was as though none of us could believe we’d actually finished it. Everyone started crying.” [Playboy, Feb. 1, 1985]

***

Q: There’s a lot of symbolism to your return. Is that going to be enough to reinvigorate the company with a sense of magic?

“You’re missing it. This is not a one-man show. What’s reinvigorating this company is two things: One, there’s a lot of really talented people in this company who listened to the world tell them they were losers for a couple of years, and some of them were on the verge of starting to believe it themselves. But they’re not losers. What they didn’t have was a good set of coaches, a good plan. A good senior management team. But they have that now.” [BusinessWeek, May 25, 1998]

***

“Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It’s not about money. It’s about the people you have, how you’re led, and how much you get it.” [Fortune, Nov. 9, 1998]

***

“The system is that there is no system. That doesn’t mean we don’t have process. Apple is a very disciplined company, and we have great processes. But that’s not what it’s about. Process makes you more efficient.

“But innovation comes from people meeting up in the hallways or calling each other at 10:30 at night with a new idea, or because they realized something that shoots holes in how we’ve been thinking about a problem. It’s ad hoc meetings of six people called by someone who thinks he has figured out the coolest new thing ever and who wants to know what other people think of his idea.

“And it comes from saying no to 1,000 things to make sure we don’t get on the wrong track or try to do too much. We’re always thinking about new markets we could enter, but it’s only by saying no that you can concentrate on the things that are really important. [BusinessWeek, Oct. 12, 2004]

***

“The most compelling reason for most people to buy a computer for the home will be to link it to a nationwide communications network. We’re just in the beginning stages of what will be a truly remarkable breakthrough for most people––as remarkable as the telephone.” [Playboy, Feb. 1, 1985]

***

“I’m an optimist in the sense that I believe humans are noble and honorable, and some of them are really smart. I have a very optimistic view of individuals. As individuals, people are inherently good. I have a somewhat more pessimistic view of people in groups. And I remain extremely concerned when I see what’s happening in our country, which is in many ways the luckiest place in the world. We don’t seem to be excited about making our country a better place for our kids.” [Wired, February 1996]

***

“Remembering that I’ll be dead soon is the most important tool I’ve ever encountered to help me make the big choices in life. Because almost everything — all external expectations, all pride, all fear of embarrassment or failure – these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.” [Stanford commencement speech, June 2005]

***

“I’ll always stay connected with Apple. I hope that throughout my life I’ll sort of have the thread of my life and the thread of Apple weave in and out of each other, like a tapestry. There may be a few years when I’m not there, but I’ll always come back. [Playboy, Feb. 1, 1985]

Posted in apple | 2 Comments »

Apple Blocking Unique Device Identification May Make iOS Less Secure, Not More Secure

Posted by Bob Warfield on August 22, 2011

Apple’s decision to deprecate access to the Unique Device ID is problematic for a lot of applications besides Advertising and other Privacy-Challenged cases.  It will actually make the devices less secure, not more secure as many imagine.  “Deprecation” can mean anything from elimination of the capability entirely to making enough changes in the API that it will require a lot of work to deal with the changes and all points in between.  I’m hoping that rather than doing away with the deprecated capability, they will instead embellish it so it can only be used for good.

What is a UDID and why is it a problem for anyone?

The UDID is a threat to privacy because an application can uniquely tell which device it is running on by checking the UDID.  It’s kind of like having the device say, “This is Bob’s iPad, not Mary or Jane’s iPad.”  As such, it can use that information to index the behavior on that device over time and transmit information about how it is being used back to some central service.  In other words, it can keep that service apprised that not only did you look into wedding-related arrangements on one particular day, but you’ve been steadily looking at them more and more over the last week.  Hey, maybe you’re involved in a wedding!  The advertisers would love to target that.

But there are other cases where UDID can be pretty handy.  Consider security.  Seems like revealing too much information is the antithesis of security, but in fact, being able to reliably identify who is using your credit card is pretty valuable.  So much so that it is the essence of credit card security.  Being able to limit that credit card use to devices that have been verified might just save you a lot of pain in the identity theft department.  Perhaps your corporate IT or SaaS software provider would like to be able to identify and track which devices are accessing sensitive corporate data.  They would like to do that so they can limit access to devices that have again been carefully verified (the credit card case), but also so they can audit whenever changes to data are made and know which device made the changes.

This all hinges on the idea that it is harder to physically steal the device than it is to steal your password–a bet I would certainly be willing to make and I suspect you would too.  If you can’t reliably and securely identify the device, you’re left with nothing but the password.  But having both the correct password and knowing it was entered from a valid device is a much more secure proposition.

Apple shouldn’t eliminate this capability, rather they should look at ways of regulating its use so that it is used for good and not evil.  If they don’t provide an alternative and simply eliminate UDID’s, they’re just making identity theft easier.  Which thing would you choose if you’ve only got 2 choices:

1.  Easier Identity Theft

2.  Easier tracking of your online behavior

Here’s the other reality, which works sort of like the argument about gun control.  You know, the one where they say the criminals will always have guns?  In this case, for purposes of doing the kind invasive tracking advertisers need, they don’t have to be perfectly right.  Being nearly right or right most of the time works pretty well for them.  In the worst case they’re just going to show you a couple of ads that aren’t of interest.  But when you’re fighting credit card fraud and identity theft, it’s more important to avoid being “almost right”.  Almost right in those cases means they’re going to choose the flavor of “almost right” that’s conservative to their interests.  They’re going to assume, in other words, that fraud is happening more often than it is, which penalizes you with a credit card being turned down too often.

How’s that happen?

Well, there are lots of ways to go around the UDID to try to get some sort of “signature” going to identify the device.  These boil down to trying to collect some sort of “fingerprint” for the device, or by leaving cookies of one kind or another hanging around.  The cookies get more and more surreptitious as we fight the arms race against those who want to delete tracking cookies.  The fingerprints are more interesting because they’re passive.  Nothing new has to be added to your machine.  Instead, they rely on the idea that you will inevitably personalize your machine and this personalization will add information that can be cataloged to provide the fingerprint.  You can’t avoid it, no matter what you do.  Your machine will have a series of things that are unique about it.  For starters, you will have a unique set of applications and versions of those applications installed.  You may have a unique set of fonts installed.  Your wallpaper may be different.  The photos in your photo folders are different.  If the fingerprint software is clever, it runs a lot of different checks and keeps it very secret what it is looking at.

Suffice it to say the marketing guys will find a way to track you.

Apple can’t stop that, but it can certainly make it hard, and it can continue to allow the UDID API to work, with the requirement that anyone using it has to go through a process to get their app authorized to access it.  That process should involve explaining to Apple exactly why you need to use it and making sure that use is for good and not evil.  And of course, the identity pirates can certainly find ways of spoofing the UDID, but that’s also an area Apple can work on, and it is again one more piece of information they must have (e.g. the actual UDID) before they can do anything.  Just providing an API that makes the UDID look different to every application would be one way to make the fraudster’s job that much harder.

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Radical Surgery to Fix Software Patents

Posted by Bob Warfield on August 21, 2011

I’m from the camp that says we’re way past the point of patents fostering innovation, if they ever did.  It didn’t take me long reading Scoble’s post this morning about the value of WebOS’s patents to HP possibly making the unit a profitable venture to be reminded once again that while patents may be a lot of things, they are not a way to foster innovation.  They’ve lately become a currency to value failed innovations, which seems quite the opposite of fostering innovation.  Scoble’s argument went like this:

Last night I was talking with a VP who works at HP on the former Palm team. He told me they have 2,000 patents for webOS, smart phones, and TouchPad.

Now remember, Google paid $12.5 billion for Motorola Mobile, mostly to get their hands on the 17,000 patents that Motorla held. Now, if you just price HP’s patents at the same price, you come out with $1.48 billion. HP paid $1.7 billion for Palm. So that gets you pretty close to even.

But this VP told me that these patents are almost ALL for modern smartphones, while the Motorola patents included a lot of old stuff that isn’t relevant anymore. So, this patent portfolio could get a premium of, say, 2x what the Motorola patents did. That gets you up close to $3 billion.

Something about all that just strikes me as WRONG, at least in the context of spurring innovation.

The Valley is loving the patent discussion right now.  For every meme, it seems there is a matching “here’s-how-patents-relate-to-that” meme.  Just because a thing is popular doesn’t make it right, and thankfully, most commentators on the patent issue seem to agree that it hurting innovation much more than it’s helping it.  It hurts innovation in many ways, but it’s worth going back over at least some of them here.

The Cost of Patents to Innovation are now Tangible and Large

We’re seeing this measured almost daily.  Scoble is working through the math for WebOS even today when he values the WebOS patents at circa $3 billion for 2000, or $1.5 million apiece.  That doesn’t seem too far afield if we look at patents in a way similar to how VC’s have to look at their portfolios.  In other words, many will be worthless, but a few will be quite valuable indeed and will more than make up for all the rest.  We don’t have to spend very long looking at the billions raised by Nathan Myhrvold’s Intellectual Ventures to realize that many astute financial minds really do look at it that way.   In recent years, it’s been a good bet that financial engineering to produce wealth was really inflating a bubble of one kind or another that would destroy a tremendous amount of wealth for the general public.  Why would we be surprised to learn that patents are just another way to play the same Ponzi scheme?

Patents Favor the Patent Holder in a Dangerously Asymmetrical Way

As I’ve written, it costs much less for the patent holder to sue than it does for the defendant to defend.  Any time there is an asymmetry of that form, it creates a virtuous cycle for water to follow the path of least resistance.

It costs an average of $1M just to get to trial.  That’s before you begin the trial–it’s preparation for the defense.  That assumes you’re just trying to prove your work doesn’t infringe a patent.  If, on the other hand, you’re dealing with one of the overly-broad patents a patent troll typically comes after you with, it will cost you $4M to defend and win!  Is it any wonder the trolls can make a business out of suing and then simply waiting for the defendant to do the math and pay them whatever figure makes sense to avoid the pleasure of our legal system.  Typically that figure is a significant portion of the $1M it would cost just to get to trial.  If the troll wants to play more aggressively and they’re confident, it may be a significant percent of the $4M.  And they get to go after multiple companies for that protection money, not just your own.  The more overly broad the patent may be, the wider the net they cast.

Small wonder that these patent trolls are becoming multi-billion dollar enterprises.  And all those billions that make up their ecosystems are billions that create very few jobs, let alone innovations.  They’re billions we can ill afford, particularly given what the economy is today.

The Pace and Timing of Today’s Patent System Prevents them Being of Value to Software Innovators

In the long run, we are all dead.  But startups and similar innovations generally do not have the luxury of waiting for the long run.  They have a year or two to achieve market fit or pivot and try something else.  If they achieve their fit, they have only a couple more years to generate the kind of mega-traction that makes it clear they will be successful.  Innovation markets live in dog years, these days.  Yet, the USPTO takes an average of 6 years to grant a patent.  No innovator in today’s Social/Mobile/Cloud/Software/High Tech ecosystem can afford to base their planning on a 6 year horizon.  The world changes too much in substantially less time.  By the time the patent is sorted out and granted, its purpose can only be to prevent future innovators from usurping the position of power a newly minted and patent wielding monopolist has achieved.  In other words, the purpose of the patent is not to encourage innovation, but to stop innovation in a particular market so the early winners can enjoy the fruits.

Read back over my article on early adoption and how long it takes a technology wave to crest.  The usual argument for patents encouraging innovation is that they grant a monopoly to ensure businesses have enough time to recoup adequate profit from their innovation.  Forget 17 years, Google IPO’d in the 6 years it would’ve taken for their first patents to be granted.  Their patent won’t be 17 years old for many years.  How much value must a company extract from innovation before it goes beyond serving the public good to grant it a monopoly?  Google didn’t need any help from patents.  Most modern tech businesses don’t.  They have a far more powerful advantage called network effects that takes a lot less than 6 years before it can make a difference.  Patents are fine for some other markets, markets that have no possibility of a network effect, or where the burden of research is so high that it will take more than an IPO to recoup costs.  Perhaps pharmaceuticals qualify for that need, but modern software and web businesses certainly do not.  Instead, they are victims of the anti-momentum that happens when a critical mass of patents descend on a particular market and make further innovation impractical.

How do we fix it?

First thing is to realize we have to fix the patent system.  Congress is at least considering some reforms.  They’re too little, but perhaps they’ll start the ball rolling.  When a guy like Seth Godin starts talking about patent trolls, we can take these as signs that public opinion for the idea we need to fix the patent system has reached critical mass.

Second, we have to realize we won’t fix it through fine tuning.  It’s going to take radical surgery to avoid having to junk it altogether.

There is a collection of voices, best typified by Mike Mace’s “The Case for Software Patents”, and Nilay Patel’s, “The Patent System Isn’t Broken–We Are”, that try to argue the patent system is right, it is just, it is simply misunderstood and needs a little bit of fine tuning.

Mace largely wants to quote a 2006 Paul Graham piece to do his arguing for him.  In it, Graham says startups shouldn’t worry about patents because he doesn’t see them being sued.  Oddly, he starts off quoting Mark Cuban, who is one of many investors who says that startups are indeed being sued constantly and that therefore they do have to worry about patents.  The recent suits against apps in appstores, which involve many startups are just one more example.  Ironically, if things can change so much in the short while since 2006 that startups clearly do have to worry patents, that’s an indictment of them all by itself.  It’s a sign things are going to Hell in a hand basket and we’d better do something about it.

Patel says he is not a lawyer and shouldn’t be held accountable as one, but he is only too happy to tease apart the patent laws in great detail to try to make his point.  He wants to argue about how valuable it is to be able to read the patents and see how people did things.  Because we have patents, there’s less incentive for trade secrets, and hence innovation is served.  It’s going to be so great, he argues, when in 17 years we can actually start to use the page rank algorithm.  Lord knows we will have had plenty of time to understand it.  Just a few minor problems with this argument.  I don’t know any engineers who spend their time reading patents to educate themselves on anything other than what they can’t do and then only in cases where they suspect the market to be litigious.  Patents are not a learning resource and anyone who has had the pleasure of having to try to understand one can see they are more often written to obfuscate and create overly broad protection while revealing as little of real value as possible.  Worse, the insights covered in so many of these patents are not scholarly revelations.  We didn’t need to read Amazon’s 1 click patent to get a clue about UX for e-commerce sites, thank you very much.

And speaking of that obfuscation towards the overly broad, Patel applauds and encourages Graham’s notion that if you are against software patents you must be against ALL patents.  That’s balooney born of a lack of understanding, pure and simple.  It ignores the fact that patents specifically seek to avoid patenting mathematics and algorithms by jumping on the bandwagon that since we use math for virtually everything patentable, therefore all patents must be equivalent.  Here is the money quote:

Every invention is “just math” when it comes right down to it — traditional mechanical inventions are really just the physical embodiments of specific algorithms.

In other words, I may invent a splendidly complex and unique mechanism, but because I can use math to simulate it, the mechanism is therefore math and should not be patentable.  But since we did want to patent it, let’s just let all things math be patented.  This is the kind of fuzzy chase-our-tails thinking that our patent office evidently uses when granting patents it never should have granted in the first place.

As disconcerting as that kind of thinking may be, it goes to the heart of why we can’t fix the patent system’s problems through fine tuning.  The heart of the problem is that the patent examiners are not competent to decide these issues of what is math, algorithm, or otherwise patentable invention.  They’re not competent to decide whether there is prior art.  They’ve proven this lack of competence time and again by granting patents that never should have been.  They’ve proven it by not being able to keep up with their backlogs even under these lax standards.  Worse, the courts have proven they’re neither a cost efficient nor particularly insightful way to remediate the bad decisions of the USPTO’s examiners.  These are the same arguments put forward by Marco Arment, who does not believe the patent system is fixable.

I don’t know that I agree the system is wholly unfixable, but Marco at least is a developer who makes a living by understanding what software really is, unlike a lot of those who are arguing for software patents.  When I say I don’t know if I agree the system is unfixable, let me clarify.

To fix the system will require some combination of:

1.  Radically simplifying the patent examiner’s task in some way so they can do a better job and do it faster.

2.  Radically simplifying the process and expense of remediating bad examiner decisions so patents can be cheaply invalidated.

3.  Changing the scope, penalties, or legal process of patents so that they can do less damage to innovation.

4.  Ruling out patents in areas where no good solutions can be found #1, #2, or #3.

#1 and #2 seem wholly amenable to improvement.  In fact, I am quite hopeful about them.

Let Persons Skilled in the Art Decide Prior Art

This is a perfect application for Gov 2.0.  The USPTO should let persons skilled in the art participate.  In particular, let them argue the case for prior art both before and after the patent is granted.  We see many examples, Quora and StackOverflow to name two, where questions can be crowdsourced very efficiently.  They work well.  The patent examiners should be given such tools and they should use them to solicit the aid of the community in determining prior art.  In cases where the community mounts a credible documented argument that there is prior art, the patent application should be rejected or if already granted, the patent should be revoked.  This will cost the USPTO very little extra, and what better way to tell if a person of ordinary skill in the field can identify prior art?  That particular issue, prior art, is the best one to crowdsource, for as many will argue, once you hear the idea, everyone will claim it was obvious.  It’s much harder to be ambiguous about the prior art, and in any event, the USPTO remains the arbiter that will decide whether the evidence of prior art is compelling.

While focusing on prior art does not improve the case of granting a patent on an obvious idea with no prior art, it is still very helpful.  This approach seems democratic, fair, and potentially also economically efficient.

What better qualities could we ask for from a broken system that many are saying should simply be junked wholesale?

We Should Also Change the Scope, Penalties, and Legal Process

In addition to reducing the likelihood bad patents will be granted, we should work hard to eliminate the unfair asymmetry between the burden of the plaintiff and the defendant.  As it stands, this asymmetry means the plaintiff need only file a case and wait patiently with their hand out to be paid.  Making it easier to remediate bad patents will help tremendously, but this fundamental unfairness in the system makes it too easy to use the system punitively.  What’s needed is to make the system less profitable for those not actually engaged in innovating or at least producing something of value from innovations.

Applying a shorter term to software patents would be one easy way of improving the balance.  17 years is a ridiculously long-term given the pace of innovation for software.  Half that is still generous and would go a long ways towards making the system more equitable.  Call it 8 years instead of 17 for “business process” and software patents.  If you can’t make reasonable value from an invention in 8 years plus however long the invention is in the USPTO’s hands, you’re not fostering innovation, you’re standing in its way.

Limiting damages for those not actively innovating or delivering their innovation to the market is another change that would minimize the ability of the patent trolls to tax innovation.  It would give the innovators who created their patents an incentive to hook up with real companies to bring those innovations to market.  There’s plenty of real value to be captured that way, and if there is less value than before, we have to ask ourselves whether every patent should be worth the average of $1.5 million Scoble’s math suggests?

Having gotten all of this down in a post, I took a moment to reflect back on it.  Admittedly, my confidence is very low that the USPTO will take the practical steps needed to get back to adding value for innovators.  Perhaps it is my basic distrust and lack of experience with government adding value.  That’s fine, we can go back to arguing about junking software patents altogether.  Just so long as we agree that something needs to be done now.

Posted in business | 5 Comments »

Big Company Customers: Be wary of Big M&A, Big Executive Change, and Big Bad Quarters

Posted by Bob Warfield on August 18, 2011

It hasn’t even been a year since I suggested things might not go swimmingly for WebOS and now they’re discontinuing it.  Such is the life of products at large organizations when directions are being changed.  Apparently they’re also planning to disgorge the PC business.  Shades of IBM’s moves not so long ago.

For those watching from the outside, and for many watching inside, it all must seem tremendously wasteful when big companies operate this way.  What’s the cause?  How can they prevent these things from happening?

First, Big Companies like to act, well, “Big”.  Some are smart about testing, but for many, they invest a ton in a product and launch it with great fanfare without ever having validated what was going to happen before the money was spent.  Even when they do validate, careers and aspirations ride on these things.  Divisions do not go softly into that good night.  For many, the plan may be to launch it and figure out the problems later.  That’s not a bad idea, BTW.  It’s Agile thinking at its best.  But you should at least try to launch something that is close enough that minor tuning is likely to succeed.  Slow following an Apple Uber Product is not a strategy that has shown a great deal of merit.

Second, Big Companies are all about Big Personalities.  Some executive somewhere made the decision happen.  The skills and qualifications needed to make a Big Organization do your bidding are political.  They don’t necessarily have anything to do with whether the decisions being made are great product decisions.  The market will provide the answers to those questions, and careers may be made or broken, but in the end it’s about the ability of the Executive to get the organization sold on the idea more so than selling it to the market.

Third, any time the CEO changes, particularly with a change like this one, the critical underpinnings and foundations that kept earlier decisions going may either be weakened or eliminated entirely.  For truly huge organizations like HP, even executives in the first level or two below the CEO, or major reorganizations can signal these changes.  Following the change there will be a period of turmoil during which all bets are off.  Whatever bad things that happen will be blamed on the prior regime, making it that much easier to put huge changes through.  And once again, the changes will be more a function of the political prowess and position of those driving the changes than on their market viability.  Shareholders have to hope that whoever is doing the deciding didn’t get there without knowing the market pretty well, but they don’t necessarily have much hard evidence of that.  It’s an act of faith.

The bottom line is we shouldn’t be too surprised about all of this, and certainly not shocked.  Look around.  We’re in a time of Big M&A.  The stars are well aligned.  The Economy puts pressure for change on everyone and Big M&A is the favored tool of large organizations for creating Big Change.  It will be interesting to see what sorts of similar fallout we see from the Motorola-Google merger.  Another corollary is if you are a customer, beware betting on some company’s Big New Idea when times are tough.  There may be a Big Change just around the corner waiting to upset the apple cart.  We’ve seen recently changes were produced by Bad Quarters at Cisco.

Big Company customers have to be wary of Big M&A, Big Executive Change, and Big Bad Quarters.

Posted in business | Leave a Comment »

My 2008 Ideas for LinkedIn Are Still Good: Maybe Google+ Will Do Them.

Posted by Bob Warfield on August 11, 2011

I got to thinking about LinkedIn this morning largely because I was annoyed with them.

I received a request to link from someone this morning.  The name was vaguely familiar–about the level of friend of a friend sort of familiar.  So I went to their profile to try to figure out who it was and whether I wanted to link.  I don’t just link everyone, I only link people I have some legitimate relationship with.

So, clicking over to the profile, I get to see their current job and that’s about it.  If I would like the privilege of actually trying to understand how this person knows me, whether through shared contacts or prior work history, I’m out of luck.  I have to pay LinkedIn money to do that.  That strikes me as completely ridiculous.  It’s one thing if they want to restrict my access during random searching, but this person identified me to LinkedIn and they forwarded the request to me.  I am adding value to their network effect if I accept the invitation.  Basically, I was minding my own business and these two entities, the inviter and LinkedIn want me to agree to something.  What I can’t fathom is how that is a reasonable time to be reaching into my pocket?

As I remarked over on a Google+ conversation about it with Sameer Patel, when you have a Greater Fool Theory Valuation (as LinkedIn does), you have to get some pretty unreasonable profits before the poker players start looking around the table and realizing they’re the marks.  They haven’t acted on much of it, and the suggestions are still good today.  Whenever a company decides the road to profitability is to start charging for what they used to give away, indeed for what made them great, it always makes me wonder about that company.  It often indicates they were either tragically wrong to start with, but if they kept it free as long as LinkedIn has, you have to drop that theory.  That leads to, “We knew this was not sustainable, but we wanted to suck as many of you in as we could.”  Fellas, that’s not nice.  Karma being what it is, that makes companies vulnerable to disruption because they obviously can’t innovate very quickly (quickly enough to think of new things to charge for so they can leave the old things free) and they’re have a cadre of annoyed users who are starting to feel cheated for having supported the company to where it is today.

Speaking of innovation, I got to wondering about a post I did way back in 2008 where I recommended 10 things they should do to step up their game.  It’s a real pity they didn’t act on the list.  Consider the first two items on it:

1. Build, Buy, or Partner with Xobni and Nail Down the Outlook Connection

For those that don’t know, Xobni is the intersection of email, Social, and LinkedIn-like networking.  The dynamics of what I had in mind are exactly how Google+’s integration with GMail has played out.  I think it is a huge part of their meteoric rise.  Why other strong email companies like Microsoft or Yahoo don’t take more advantage of this stuff is beyond me.

2. Start a Coffeehouse with WebEx to Foster More Interaction between LinkedIn’s Members

Doesn’t a rich media coffeehouse sound like Google+’s Hangout feature?  Now I just wish Hangouts were more like WebEx.  It’d be awesome to be able to do demos in a Hangout and switch back and forth between video conferencing and playing back your screen.

After I saw those two standouts, and finished going over the rest of the suggestions, it dawned on me:  Google+ can easily take over for LinkedIn.  Why not?

-  They’re well on their way to having LinkedIn style profiles that are resume like.

-  They’ve demonstrated they do a great job connecting people.

-  It’s a nice professional counterpoint to Facebook’s fun and family role.

-  They can monetize without all these nickel and dime charges LinkedIn wants to levy.  LinkedIn has to do that, BTW, because their engagement levels are too low to live on advertising alone.  I recently saw an article that says ads only work when you have 100x the traffic you need to make the revenue by charging.  Sorry I didn’t save the link.

-  Most of the conversations in my circles there are more business-like than Facebook tends to see.  Could be the nature of my friends, but then I have similar friends on Facebook and the conversations are just about different things.

Here’s hoping G+ will take on some of this and disrupt LinkedIn.

Posted in business, Web 2.0 | 2 Comments »

There Will Be No Files, No PC’s, No SQL, No Datacenters, and No Money Soon

Posted by Bob Warfield on August 10, 2011

This post is on  behalf of the Enterprise CIO Forum and HP.

Fred Wilson says there will be no files in the Cloud.  Somebody, somewhere must be itching to write that the growth in mobile surely indicates there will eventually be no PC’s.  And the big trend to mobile payment, complete with carrots and sticks from companies like Visa must also indicate that money itself will be short lived.  Certainly the current economy has managed to destroy quite a lot of it, though we seem equally as adept at inflating bubbles and debt that manufacture more money seemingly from nowhere.  The NoSQL gang would like to eliminate SQL for most applications, and if that’s too scary, the NewSQL gang would still like you to give up your Old School Databases.  The Cloud Brigade feels you should mothball that datacenter–it’s sadly out of date and no longer needed with Cloud Computing in full swing.

Welcome to the siren song of early adoption.  Any time the new new thing promises that there will be none of the old thing left soon, the truth is, they’re pretty nearly always wrong.  Heck, we still have mainframes and COBOL running around.  Files, PC’s, and Money are in no danger of disappearing any time soon nor is Oracle, MySQL or SQL Server.  As good as the alternatives may seem, they don’t solve all the problems well enough to truly eradicate their older competitors.  It’s very rare that a total paradigm change can solve all the problems of what came before. Certainly very few will do as good a job as say the transistor did to the tube (and look how long that one took).  VC’s like to say they overestimate where technology will be in 3 years and underestimate where it will be in 10 years, but that’s still too optimistic.  What they really mean to say is the technology won’t change enough in 3 years to transform their investment’s value, but it will change more than enough in 10 years to make them a whole lot of money.  That’s different from wiping out the incumbents.  Yet the Western Mind craves black and white certainty.  We’re uncomfortable with grays and we love combative analogies.

That the world is not black and white shouldn’t be a revelation.  You must have suspected it.  Evolution itself isn’t so much about the survival of the fittest as it is about establishing a vast rainbow palette where the are many different ways to be successful to greater or lesser degrees.  We admire the lion, great white shark, and other members at the top of the food chain.  But there are many more antelope, seals, and others that feed the top of that food chain.  It’s a pyramid after all, so who can say that the bottom of the pyramid isn’t the more successful niche?  It certainly is when measured by number of individuals or tons of biomass.  It has to be for the higher levels to survive.

Google was founded in 1998 and their IPO was in 2004, 6 years later.  There’s that less than 10 year figure that’s enough to make the VC’s wealthy.  But wait, Google wasn’t first, or even second generation search–it was third gen at least.  We had Alta Vista launched in 1995, three years before Google was founded.  When Alta Vista launched, it still wasn’t the first generation, search engines weren’t new, and most people were using them.  It takes long time for one of these visions of ubiquity and dominance to play out.  Much more than 10 years, and there is room for multiple generations of fortunes to be made.  First Visicalc, then Lotus 123, finally Excel, and perhaps eventually some spreadsheet software that lives in the Cloud and without files.  The more mature the thing is that is being replaced, and the less the differential advantage of the new new thing, the longer it will take.  The Altair 8800 personal computer was heard from in 1975 while I was in High School.  We got the Apple II in 1977, and the Apple II and CP/M computers duked it out until the IBM PC launched in 1981, 6 years after the Altair.  But we didn’t get a “real” PC capable of transforming the business markets and performing as more than a toy until 1983 when IBM stuck a hard disk on the PC and called it the PC XT.  That’s now 8 years after the Altair and we’re just beginning to introduce real power for business to drive the economics that really fuel the personal computing revolution.

So, the next time you’re trying to make an important decision about whether to abandon the conventional wisdom for the new new thing, ask yourself when the clock started on that new new thing.  When did the clock start on being able to get by without files?  Has it started yet?  What about NoSQL?  That clock has started for sure.  Add 10 years to when the clock starts.  That’s the date when you’re probably hurting yourself by not switching, assuming the new new thing is as good as its cracked up to be.  That doesn’t mean you can’t gain some advantage sooner by being an early adopter, that’s just to say you have time before it becomes an outright negative not to get on the bandwagon.  Certainly that’s been the case for world changers like PC’s and the Internet.  You probably have a lot longer for things of much less import.  In all these cases there’s plenty of time for the upstart to prove it has real benefits.  There is no urgency to buy on hype–that’s an emotional decision.

If you’re a VC like Fred Wilson, or an entrepreneur, you have less time, but perhaps more than you’d think.  Remember, Google wasn’t the first generation and each generation had 3 years or so before the next one showed up.  You have to time the wave properly, but there will be more than one set.  Get up on your board when the next one comes and surf on.  If you’re a CIO, your Innovation Clock needs to keep time differently.  Now you have a better scale to help decide whether you’re too early or too late.

Posted in strategy | 4 Comments »

Come On Silicon Valley, We Can Provide a Better Rx for Jobs!

Posted by Bob Warfield on August 3, 2011

Fortune magazine has an article running that Techmemed about some advice Barrack Obama is getting about jobs from Silicon Valley Heavyweights like Kleiner VC John Doerr and Facebook COO Sheryl Sandberg.  They’re all about Education and Immigration Visa Reform as the path to creating jobs, along with plugs along the way for their own ventures.  Here are some quotes:

“We have to focus on our education system,” said Facebook’s Sheryl Sandberg. “We’re falling behind in every way possible.” Sandberg talked about what can be done to get more women in particular into high-tech jobs, such as giving girls more time with computers from an early age. “Let your daughters play video games,” she told an audience comprised of educators, entrepreneurs and investors.

and:

Sandberg also talked about the role Facebook’s ecosystem of developers has played in job creation. While Facebook employs about 2,600 employees, she noted that there are 2.5 million developers globally creating applications for the social network. She added that Facebook has also given rise to entire new industries, like social media consulting.

Here’s the problem: this stuff has nothing to do with creating jobs in the kind of timeframe our failing economy needs them in.  We needed to be doing things a year ago that would line us up for massively reduced unemployment for the coming-sooner-than-you-think Christmas 2011 season.  We’ve missed that window, but we dare not let it go on for another 12 months, particularly not if President Obama expects to have a hope of re-election.

I’ve got nothing against letting our daughters play video games (I couldn’t stop mine if I tried, and she’ll be taking a swing at programming too after having helped her brother learn very successfully) nor against education (some personal news on that front before too long I hope!).  The problem is we can’t wait on the time it takes for education to work.  This economy needs help right now.  We need results in less than 12 months.  I want President Obama to keep Education as a major initiative that his Administration stays behind 200%–we absolutely need to do better in this country.  But job creation needs to be even more urgent, especially now that the original bets placed on stimulus have failed to pan out and the new deal needed to raise the debt ceiling is going to reduce the potential for even more stimulus as a tool to get the jobs engine going.

The truth is, the government has been betting on the wrong horses for job creation.  The Dems want Big Government and the Republicans want Big Business to do it (Big Business is largely who wants the immigration reform being talked about, tell me how that’s going to create jobs Right Now in the Good Ole U S of A?).  They’re both entirely wrong.  Neither Big Government nor Big Business has ever done much good by way of job creation.  Big Government fails because we can’t afford to hire everyone without a job and put them on the dole.  The whole point of the debt ceiling compromise is we’re already spending too much on government.  And Big Business has an ongoing record of fail.  During the 2000’s when they had everything just as they like it–the least regulation and taxes ever–they managed to eliminate 2.9 million jobs in the US and move 2.4 million overseas (according to the pro-business WSJ).  If they eliminated a net of 2.9 million jobs when they were booming, imagine what good they can do for us when things are tight?

I’ve been skeptical about the President’s Silicon Advisor group before.  The problem is that only small businesses create jobs in this country, and while many of these advisors may have started with small businesses, their interests have moved on.  That’s no knock on this group of advisors, they’re all smart people, I know many of them, and we are all products of our experiences.  Heck, I’m glad they have the President’s ear, but when I hear their primary advice being education and immigration reform to create jobs, I know the President needs some additional advice from somewhere.  We simply do not have time to educate ourselves out of this morass.

Let’s go over the data, one more time, on where job creation happens.  It’s been well established for a long time that small companies are the engines of job creation in America.  This is not just supposition, and it’s not just a little bit true, it is well-documented and a huge difference.  See for example this data from Jeff Cornwall:

The columns represent net job creation. The big giant spike that’s doing most of the work is for new companies with less than 50 employees.  A little deeper analysis is available here, and goes back all the way to a study published in 1979 before we were so worried about the impact of China on the job market.  The OECD has a particularly in-depth white paper on how public policy impacts the small firms that are the drivers of growth.  There are many other such write ups.

It isn’t all that hard to understand why we have to rely on small companies to create jobs.  After all, many of the things that result in fewer jobs are unique to larger organizations:

-        Small companies don’t outsource overseas.

-        Small companies don’t have huge piles of captive profits overseas that they can’t repatriate for fear of paying taxes on them.

-        Small companies can’t go through round after round of layoffs where the bottom 5-15% is cut.

-        Small companies don’t spend a fortune automating in order to get by with fewer jobs.

-        Small companies don’t have billions in the bank and billions more for shareholders to squabble over.  They spend every penny to keep going and growing.

-        Etc., etc.

Small companies just don’t have the critical mass to cut jobs.  They’re too busy trying to grow and generate the critical mass.  Based on that data, if we want to fix the jobs problem, we have to do everything we can to enable small businesses to get started and to grow as quickly as possible, and we have to do it NOW.  Every dollar we spend, every day that goes by, without focusing on helping small business, is a day and a dollar we have lost as our economy worsens.

Who are these small businesses?  They are the restaurant owners, small retailers, garages, machine shops, little manufacturers, florists, bakers, candlestick makers, and many others.  They’re the people with that scary gleam in their eyes.  You know, the ones that just never fit in at a Large Organization–the geeks and rebels, not the Armani-clad scratch golfers.  They’re the ones who don’t get much respect, like Rodney Dangerfield, but who actually built this country.  For the most part, the Big Ideas come from them.  Ironically, once they get big, they quit having so many Big Ideas and settle down to fine tuning the numbers.  That’s when the Outsourcing, pay cutting, automation, and job elimination cycle begins.  Unfortunately, once they’re big, they represent the kind of concentration of power and influence that politicians crave.  After all, it’s much easier to do dinner with a few Movers and Shakers than it is to talk to 1000 entrepreneurs about what might help them, yet the latter is what will produce the jobs we so sorely need.

The thing is, we now have the power to talk to those people just as easily as sitting down to dinner with the Movers and Shakers.  We didn’t used to, but the Internet has changed all that.

Here’s what I wish the Silicon Valley Digerati advising the POTUS had said instead of focusing on Education and Immigration Reform:

Mr President, in addition to our small advisory group, you should be putting together a Virtual Job Creation Council filled with small business owners.  Our companies, which include Social Networks like Facebook, can help you do that.  In fact, we believe it’s our patriotic duty to do that, we understand the Internet, and we know how to use it to democratically crowdsource all the ideas and initiatives you need to kick-start these small businesses into the job creation engine this country so sorely needs.  

We’ll get you the ideas, and we’ll rely on you to make them real.

Aren’t you curious to know what such a crowdsourcing initiative might turn up?  Don’t we sorely need some new ideas to move forward, get inspired by, and break the gridlock?  Isn’t this the sort of thing Silicon Valley would be proud to be doing for our Country?

How about it guys?

Posted in business, strategy | 1 Comment »

 
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