A Cloudy Future

Cloud Yesterday

In late 2008, I prepared an analysis on Cloud Computing. Richard Stallman thought it was a dumb idea. Larry Ellison quipped that it was just a new phrase for Grid Computing. Marten Mickos was telling me that Cloud Computing is looking compelling. And, it was about to reach the top of the Hype Cycle according to Gartner.

Two years, many conferences, conversations, and self-branded Cloud-ification by all sorts of products and companies later...

Cloud Today

A good proxy on if a technology has staying power is the extent of enterprise adoption since that is where the real money is. Looking at some of these Cloud announcements by global telco players serving enterprise users, Cloud is here to stay.

• Alcatel-Lucent: launched solution for Applications as a Service (AaaS)
• Cisco: announced Unified Fabric, Unified Computing, and Unified Network Services for Cloud
• Fujitsu: announced Private Cloud Services
• Juniper: added focus on security for Cloud
• NEC: launched Cloud Tablet
• NTT America: launched Private Cloud service
• Orange: announced Cloud push
• SK Telecom: launched Cloud data center
• Verizon + SAP: announced SAP CRM via Verizon Cloud

Google, Nortel, and What is a Software Patent Worth

Nortel's Patents

Google has just announced that it is bidding for Notel's patent portfolio. It was reported that Google's $900 million bid for Notel's 4,000 patents is the stalking-horse bid. Equally interesting is that ZTE, Apple, and Huawei are said to be bidding for the same portfolio.

Given the mix of patents (fiber optic, long-haul switch, etc.) I can only assume that other telco players are not bidding because they already have similar patent or, at least, enough to force cross licensing. Of the four known bidders, they are all new entrants into this space. I cannot help but wonder if there would be a consortium whose plan is to break up the portfolio amongst its members if the consortium was successful.

Tellingly, in Google's announcement, it lamented the problems with software patents and confirmed its intention to play and are buying chips for a seat to the table.

Speaking of Software Patents

Traditional legal assumption has been that software cannot be patented because it is not a physical machine nor can a specific transformation be seen. But, over the years, software patents have been applied and granted. The most famous one is probably the case involving Single-Click Check Out patent by Amazon.

Given the traditional assumption and the advent of software patents litigation, all eyes were on the US Supreme Court to give guidance on if software is indeed patentable.

Bilski 2010

The US Supreme Court took up the Bilski case and decided that the physical and/or transformation tests are not the sole criteria for issuing a patent. These tests merely offer "useful and important clues". This sort of makes sense since it is not any less difficult to come up with software innovation than hardware. But, how this is applied in practice in the US will still take years of litigation in the court to establish the case law.

What is a Software Patent Worth

One thing is for sure, however. This means the software big boys have a new tool in managing their eco-systems. And, not to suggest Nortel's portfolio is not worth the money otherwise, I suspect this partly explained Google's willingness to fork out nearly one billion dollar for the portfolio.

Patents as Part of the Innovation Eco-system

Apple vs Nokia, Round One

With the recent news that Apple has won the initial ruling by ITC on the Nokia's patent infringement complaint, I am reminded of how innovation strategists often do not spend enough time on how legal maneuvers can hinder or enhance the innovation process.

A Hindrance

Looking form an incumbent's perspective, it is understandable that every tool at its disposal should be used to create an orderly market. (Without violating any anti-trust regulation, of course.)

Usually it involves a set of patents that are core to a particular application. On one hand, these patents can be used to prevent new entrants into the space and limit the number of players. Moreover, it allows incumbent firms to work with each other to maintain an orderly market in terms of technology evolution. In other words, because patent litigation can be very costly in time and billable hours, not to mentioned management attention, there is incentive to play nice and cross license each other's patents.

Basically, evil big companies trying to monopolize its industry through an army of lawyers.

An Enhancer

Although not emotionally satisfying as a question, but is cross-licensing such a terrible thing? It is hard to say. Around 2004, Applied Materials (AMAT) and Novellus (NVLS) announced a settlement to that effect. With this "cease fire", the respective technology teams at AMAT and NVLS could focus on creating better solutions for the semiconductor capital equipment industry instead of scrubbing their design for potential infringement.

Format Wars

For everyday consumers, this is often not a bad thing. The periodic format wars, such as the recent Blu-Ray vs HD DVD fight, are partly driven by the patent management consideration. However, once the winner has been declared, the relevant patents are cross licensed so that Toshiba, who championed HD DVD format, would also be able to produce Blu-Ray players under the RAND (reasonable and non-discriminatory) principles.

For technical participants in the format war, there are additional interesting dynamics. Initially, the contributors are focused on advocacy and performance to get its format accepted. Then, there is the incentive to contribute as many applicable patents as possible in order to receive the highest royalty payment under the RAND structure.

Looking Beyond Patents

I cannot tell you how the Apple vs Nokia case will resolve itself. What is clear, however, is that Apple's iPhone business model is much more than selling smartphones. As I have argued in Making a good platform, the success of Apple iPhone does not even rest on its Apple/Jobs touch in design.

Let's say that Nokia does indeed win its case and can demand royalty payment from Apple, a very big if. As long Apple continues to effectively engage its eco-system through its multi-sided platform business model, Apple a options in terms of minimizing the impact.

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* Special thanks to Mr. Martin Grönberg who shared his insight for this piece.