Disruptive Tendencies

Big Ideas: There If You Look

In today’s New York Times, Neil Gabler bemoans, “Ideas just aren’t what they used to be.”

He goes on:

“Once upon a time, they could ignite fires of debate, stimulate other thoughts, incite revolutions and fundamentally change the way we look at and think about the world.”

One can’t argue that a “Big Idea” would have these characteristics. One can debate whether they are as rare as Mr. Gabler laments.

Humans transcending biology. Immortality. The Singularity.

If this isn’t the mother of “Big Ideas”, I don’t know what is.

No one could dispute that Ray Kurzweil’s books have ignited fires of debate, incited revolution, and have fundamentally changed the way we look at and think about the world.

Much of what Kurzweil discusses in his books, in his TED Talks and in “The Transcendent Man”, is humankind’s propensity to extrapolate linearly, and that exponential growth rates are beyond our ability to grasp, which he refers to as “The Law of Accelerating Returns”. He spends a lot of cycles plotting growth rates to log curves to prove his point that advances in technology have been growing at exponential rates. He goes on to suggest that there is no reason to expect this to change, the implication being, of course, that change is happening at an accelerated rate that few grasp.

Ray deserves credit for putting stakes in the ground and for the transparency with which he supports and defends his predictions. By estimating the computing power of a human brain and projecting Moore’s Law, he tells us that in 2020, a $1000 computer will have the equivalent processing power of the human brain. This is different than a computer becoming indistinguishable from a human. That won’t happen until 2029, when a computer with Strong AI becomes the first to pass the Turing Test.

But for Kurzweil, it’s not just Moore’s Law and exponential growth of compute power (although it is perhaps that best known example). His Big Idea comes from connecting the dots across multiple disciplines, which he has coined “GNR”, a convenient acronym for Genetics, Nanotechnology and Robotics/AI.

Mr. Gabler, there are Big Ideas out there. You’ve just got to look for them.

That’s my .02!

Martin Suter

About.Me/martin_suter

 

Fight or Flight? Why Big Companies Do Deals

I love the web and am constantly amazed at what one can find or learn from others skilled in the art.

I recently came across a very interesting piece in Marc Andreesen's blog: "The Moby Dick Theory of Big Companies", in which he suggests that "There are times in the life of a startup when you have to deal with big companies." He then builds a very interesting metaphorical case for SmallCo as Captain Ahab and BigCo as Moby Dick. It's an entertaining and enlightening piece, but I will endeavour to go a few steps further and try to delve into the psychology driving the players in this game.

Marc makes some interesting points about a BigCo's behavior being inexplicable when viewed from the outside. He suggests that there are some many moving parts and agendas, that the dynamic of decision making is highly unpredictable. While I tend to agree at a macro level, it's my experience that people (and a company is an aggregation of people) will react most predictably to fear. I think it was Intro to Psych class where we are all introduced to the concept of "Fight or Flight" and that it applies equally to business psychology.

SmallCo's are used to talking about the opportunities created by their disruptive technology: new markets, huge revenue, vast market share, value creation. This is a natural side effect from their creating business plans and pitching investors on how compelling the opportunity is.

Once they've convinced themselves and their investors that the opportunity is huge, they will often go out and try to convince one or several BigCo's of the same thing. Getting funding or landing a whale require different stories, but usually SmallCo re-uses their investor pitch in trying to get BigCo's attention. You may get nodding heads in meetings and even hear that they agree with your assessment of the opportunity, but all too often BigCo inertia takes over and nothing happens.

I first experienced this in a big way shortly after being recruited from a start-up into the Disruptive Technology group at Nortel in Q3/2000. MeshNetworks had just emerged from stealth mode with a classic, highly disruptive story that had the potential to impact many incumbent technologies and R&D programs in the wireless space. Nortel was heavily invested in 3G, having made a major UMTS bet, and I was advised to identify a new market opportunity created by this emerging technology rather than positioning it as a disruptor to 3G. So, I began the exercise of focusing on a net new commercial opportunity that this technology could enable for Nortel. It was a billion dollar opportunity in 3-5 years, yadda, yadda. I got the nods in meetings and the "Atta boy" from my boss at review time, but there was no sense of urgency to act.

Frustrated by this, and deciding to win big or die trying, I spoofed a news story using the San Jose Mercury News banner and inserting quotes from John Chambers and industry analysts. The banner read: "Cisco Leapfrogs 3G and Goes Right to 4G; Acquires MeshNetworks for $400m". I then printed off my mock-up and put it on the fax machine, sending it around internally. Within 5 minutes, my phone began to ring - "Holy shit! What the hell just happened? How could we have let this happen?!?"

Basically I then told them that we have a do-over, that this didn't really happen (yet). But I then asked whether this was a version of the future that we were prepared to accept. If so, not acting was a reasonable course of (in)action. If we couldn't contemplate this version of the future, then we needed to act urgently.

What did I takeaway from this?

BigCo's are largely risk averse. Status quo rules the day and that having a team of singles hitters internally is easier to manage than going to the free agent market and bringing in the guy who will either hit it out of the ballpark or go down swinging. Unless that home run hitter is also talking to another team in your division, which could lose you more games. The threat of him landing with a competitor usually changes the way in which you look at his availability as well as what you're willing to pay to get him on your team. It's the competitor pre-emption premium.

Winning vs. not losing. Opportunities or threats. Two different ways of framing the discussion.

After 20 years of dancing with 800lb gorillas, or hunting the great white whale, my experience is that BigCo action is catalysed more often from perceived threats than from potential opportunities. My hunch is that this is an 80:20 relationship, although I have no quantitative data to support this.

What happens inside companies when presented with a perceived threat? The Fight or Flight instinct kicks in. Corporate DNA is pre-disposed to fighting (they don't call it "competition" for nothing), while fleeing is anathema to most BigCo's. Status quo is not an option when under threat of attack.

You've decided, for whatever reason, that you're going to go hunt the big white whale. You've got a disruptive technology, well it's called disruptive for a reason. Change the lens through which you have them view you. Build your story around the threat to their status quo and you are more likely to get them to act with a sense of urgency.

But be careful what you wish for. You might just end up harpooning the whale and you then have to answer the "Now what do I do?!?"

That's my .02!

Martin Suter

 

AT&T Wi-Fi: How long to a billion?

In October 2007, AT&T acquired Wayport for $275m, and its national footprint of 20,000 Hot Spots in such high-profile locations as Starbucks and McDonalds. For many of us in the industry, this was a seminal event, as it was the first time that a major licensed spectrum holder embraced Wi-Fi (and unlicensed spectrum) as a major piece of its service offering.

Since then, AT&T has continued to be the poster child for its use of Wi-Fi for 3G data offload in areas of cellular congestion. Generally speaking, these locations can be described as areas where people eat, shop and congregate, and includes not only traditional Hot Spot locations, but also high capacity venues, college campuses, special events, and high-foot traffic urban centres.

Today’s announcement of 106.9m connections shows impressive, historic year-over-year growth, but it’s interesting to project forward.

• With over 90m subscribers, this number translates into 1.2 connections/subscriber/quarter.
• With around 30m smartphone users, this number translates into ~1.1 connection/smartphone user/month.

And keep in mind that, with free Wi-Fi at venues like Starbucks, some of these connections are from non-AT&T subscribers, so the number of connections/subscriber is going to be lower.

The following chart shows the number of AT&T Wi-Fi connections, as reported over the past 11 quarters. It’s interesting to note that AT&T has been able to materially impact the slope of the curve. When AT&T and Apple enabled seamless, transparent auto log-on for the iPhone in July 2008, the slope clearly changed. In July 2010, AT&T opened up its Starbucks locations to free Wi-Fi, the slope changed once again.

So how big can it get?

Clearly, one can imagine an AT&T quarterly report touting 1 billion connections (PREDICTION: Q3/2011), a 9X increase from today.

IMO, the biggest obstacle is subscriber mindshare and user intervention. People walk into a Starbucks today, and they know there’s Wi-Fi, so they’ll turn it on. But unless they know there’s Wi-Fi in the football stadium, rocking out at the concert, or walking around Times Square, users are far less likely to have their Wi-Fi radios turned on.

Maybe iOS v5 will be able to sense (or know via GPS) that there is an AT&T SSID nearby, and automatically turn on Wi-Fi, removing user intervention from the Wi-Fi equation totally. Now that would be cool, and welcomed by service providers the world over.

Wi-Fi for service providers? Onwards, and upwards!

One billion connections? Here we come!

 

That’s my .02!

Martin Suter

 

Microsoft: SteveB or Not SteveB

That is the question.

As I saw Apple reporting record numbers yesterday, I was reminded that nearly thirteen years ago, Microsoft invested $150m in Apple to help keep it afloat because it needed to maintain the semblance that it had “competitors”? Be careful what you wish for!

In July 1997, prior to the Microsoft investment, AAPL was trading at $4.375 (split-adjusted). Overnight, it was up to $258.00, a 58X gain in twelve and a half years. Had Microsoft held onto its shares, they would be worth $8.8b in the open market today, or 26% of the cash on its Balance Sheet as at Q3/2010.

When Microsoft made its investment, its shares were trading at $17.50, and today? They closed up overnight to $31.50, up almost 1.8X over the same period as Apple’s 58X gain. Apple’s market cap today is $234b to Microsoft’s $275b. How times have changed!

It’s interesting to look at other things that were going on around the same time as Microsoft was investing in Apple.

1997 was also the year that Microsoft entered the mobile device market, with the release of Windows CE. This gave them a ten-year head start on the iPhone and a twelve-year head-start on Android! It predated RIM’s IPO. And today? Windows Mobile market share is Palm-esque, and Microsoft is betting on Windows Phone Series 7 to rejuvenate its mobile business. But if branding and momentum are any indication, it seems like a real longshot.

I’ve sat through many Microsoft Executive Briefings, dating back to 1997. Over this period, I have heard it said that Microsoft spends “$1m/hour on research”. I have seen presentations from Microsoft Research staff describing and demonstrating technologies like ClearType (also announced in 1997), a sub-pixel rendering technology designed to improve readability of rendered type on screen.  The obvious application (and one described in the early presentations) was eReaders. In 2007, ten years later, Amazon released the Kindle, ostensibly revolutionizing the delivery of content and forever changing the economics of publishing. Where’s Microsoft at this inflection point? Nowhere to be found.

What other market disruptions has Microsoft missed? (In no particular order)

Search is an obvious one. While Microsoft (and others), was focused on search technology, Google was figuring out that “Search” was all about advertising and catalysed a massive disruption in the media space, billions of dollars in revenue for Google, and hundreds of billions of dollars in shareholder value.

Maps and location services is another one. While Microsoft was focused on producing and selling CDs of MapPoint (a model it still clings to today which it “offers” at $245 on-line), Google was out producing high-resolution street-level images and has catalysed another disruption in location-based services. Today, mobile location is front and center on the Droid platform (and on Droid devices), on iPhones, and incorporated into applications across both ecosystems.

Set-Top Boxes and “owning the living room” Also in 1997, Microsoft acquired WebTV for $503m, predating the launch of Tivo. But while Microsoft apparently struggled with the thought of an appliance that wasn’t Windows-based PC (and encumbered by its emphasis on 3^rd-party OEMs to build on its platform), WebTV evolved to MSN TV (anyone remember this?!?) and has completely disappeared today.

SaaS is one to which Microsoft paid lip service throughout the late ‘90’s with its .NET push. But while it was evangelizing .NET (and SOAP, XML, web services), it was acquiring companies like Navision and Axapta (in 2002 for $1.4b) to expand its CRM and ERP offerings. But was it web-based like Saleforce.com which was founded in 1999 and which didn’t go public until mid-2004? Once again, Microsoft didn’t want to jeopardise Windows Server licenses, so it failed to embrace a market disruption despite having ample warning that it was coming.

Media Players created a seismic event and a brand new market that Microsoft completely missed. While it was focused on defending the tight integration of Windows Media Player in anti-trust lawsuits (in a vain attempt to preserve its “Windows” franchise), Apple came out with iTunes on Windows. More importantly, however, was that Apple also created the iPod, the Trojan Horse that enabled the iPhone.

Developers and App Stores: Microsoft has known since the early battles for OS supremacy (against MAC and OS2), that the selection of a platform is driven by application support. Even with a 30-year history of supporting software developers with incredibly rich tools to build 3^rd-party apps, Microsoft never provided a route to market for developers as Apple has done with the App Store. Apple also figured out how to monetise content and through the creation of a distribution system (iTunes Store), got people comfortable with micro-payments. What’s the difference between .99 for a song or an app? Ultimately, not a thing.

Obviously, there are other examples too. Microsoft completely underestimated the impact of open-source software, missing Linux, Apache, MySQL, etc. It evangelised tablets, but from a Windows bias. It would seem that Apple (and soon others) will trump Microsoft here as well.

It is fair to say, that Microsoft is losing on all fronts.

While it was focused on fighting the DOJ battle, it may ultimately have lost the war. Some, including “the late Nobel economist Milton Friedman believed that the antitrust case against Microsoft set a dangerous precedent that foreshadowed increasing government regulation of what was formerly an industry that was relatively free of government intrusion and that future technological progress in the industry will be impeded as a result.”

I have to agree. The government’s action against Microsoft was ill-advised, in that it is irrelevant that Microsoft may have had a monopoly on the desktop OS. The market isn’t stagnant. Some, like Apple with iTunes and Google with a toolbar, found ways to work within the constraints of a “Windows monopoly”, and still thrive. Others, like Salesforce.com just changed the rules.

Microsoft once had mojo but, for the past decade, has behaved like a neutered puppy. Where it was once aggressive and nimble, today it is passive and slow.

When Bill Gates relinquished the CEO reins to Steve Ballmer in January 2000, Microsoft’s stock was at around $56. With Steve B at the helm, the company has delivered a -44% return, despite being a cash flow machine and having a Balance Sheet that is (was) second to none.

 

If a patient’s ECG flatlined like Microsoft’s stock price, someone would call for the crash cart, get out the defibrillator and try to shock the patient back to normal rhythm. Where’s the crash cart in Redmond?

With a record of having missed so many opportunities to create new markets, where does the buck stop?

SteveB or not SteveB? That is the question.

That’s my .02!

Martin Suter

Skype - Joltid Licensing Dispute: Epic M&A Screw-up?

eBay must be ruing the day that it signed the M&A deal to buy Skype for $2.6b, in addition to an additional $530m as part of the earn-out provisions. Its original vision of incorporating Skype functionality into its auctions never happened. Despite that, Skype has proven itself to be quite interesting as a standalone entity, with some value potentially to be recouped via a spin-out IPO. However based on an eBay 10-Q form filed with the SEC on 7/30/2009, this is now at risk over a dispute over a license.

It seems that some of the core functionality within Skype is based on peer-to-peer software licensed from Joltid, a company also controlled by the founders of Skype, Niklas Zennstrom and Janus Friis. So if I get this right, Joltid entered into a non-arm’s length license with Skype (pre-acquisition), a company that Zennstrom and Friis also controlled. When eBay acquired Skype, it would have known that while it was “buying” Skype, it wasn’t buying Skype source code, it was licensing it from Joltid. Given the amount of money involved in the deal, and the fact that the principals were the same, insisting on a perpetual, fully paid up license, in some Field of Use (voice, IM and video applications) with rights to derivatives would seem to have been very do-able.

Instead, it appears that Zennstrom and Friis pocketed a boatload of eBay cash, and retained control of Skype’s destiny via a licensing agreement. Now with the M&A (and liquidity) at risk, eBay is now over a barrel. Negotiate and pay for that fully paid up license, re-write everything, or write it all off as the worst deal of the century. OK, maybe that’s overstating it, the Time Warner-AOL deal sucked pretty badly too.

I’ve been involved with transactions that have nearly fallen apart at the eleventh hour because of legacy tech transfer licenses. “What do you mean we’ll have to pay 4% royalties ad infinitum? We’re buying the company!” When it gets to this stage and a deal’s at risk, the original licensor has all of the leverage, and will often be “bought off”, at the expense of the shareholders, to make the issue go away so the deal can get done.

Having negotiated multiple technology transfer and M&A deals, I have learned that it is imperative to construct the tech transfer deal with M&A in mind. Exclusivity in a well-defined Field, rights to Derivative Works, Non-Assertion of IP rights, a built-in cap or royalty buy-out to convert to a license in perpetuity, are all essential. Of course, in a non-arm’s length licensing agreement, like that between Joltid and Skype, the license terms would have been very different, but in this case it is incumbent on the acquirer to recognise this and force the issue while they have the leverage.

In hindsight, many would agree, this acquisition missed the mark strategically, resulting in a $1.43b writedown. But it’s hard to fault big, bold plays with the potential to break new ground. I have a deep admiration for those involved in transactions like that. But a key takeaway is the tactical execution by eBay’s M&A team appears to have missed the inherent conflicts of interest and let slide the licensing agreement with Joltid. Now, with no leverage, it’s biting them hard. Caveat emptor!

That’s my .02!

Martin Suter

(martin.suter at iplicensing.net)

Mobile Internet Genie is Out of the Bottle

(Originally posted at http://www.von.com/blogs/guest/2009/04/mobile-internet-genie-is-out-of-bottle.aspx)

And it’s not going back...

What a week it’s been!

After blogging last month about the market disruption being caused by the combination of Wi-Fi and unlicensed spectrum, the industry reeled as it grappled with the implications of the release of Skype on the iPhone and iPod.

The buzz at CTIA was polarized around two ends of the spectrum — the incumbent wireless carriers, especially Verizon and its LTE plans, and the disruptors, led by Skype.

One of the characteristics of the climb to the “Peak of Inflated Expectations,” as articulated by Gartner, is that the only enterprises making money are conference organizers and magazine publishers. The ascent of LTE and the noise floor created by the buzz at CTIA certainly bears this out!

But LTE is just another technology. It has the potential to expand the adoption of the mobile Internet, but unlike Wi-Fi, spectrum owners that have a history of tightly controlled walled gardens will roll it out. The question is whether companies will continue to propagate a closed, walled garden approach or recognize this as the mobile Internet. There are interesting analogs in the fixed Internet that bear considering. AOL tried, for far too long, to contain its subscribers within the AOL controlled portion of the Web, and look at what’s happened to them. Does anybody remember CompuServe? Could the same thing happen to Verizon or Deutsche Telekom? Only time will tell.

The Internet has proven itself to be fertile ground for disruption. Look at how it has changed the music industry, newspapers, advertising, retailing, travel, residential voice and long distance service, and even the OS and office suite. ... Companies that “got it” on the fixed side have thrived, while those that resisted it have withered and died. Why should we expect the mobile Internet to be any different?

The availability of Skype on iPhones and iPods has, once again, brought the opposing forces into sharp contrast. Now faced with the potential loss of voice minutes, the wireless carriers are reacting in the only way they know how, by locking it out. AT&T is at least to be commended for allowing Skype traffic on its Wi-Fi network, while Deutsche Telekom companies are saying they will even restrict its use across the company’s Wi-Fi hot spots.

The battle is moving to the FCC in the U.S. where lobby groups are saying that blocking applications such as Skype is in violation of net neutrality regulations. While this argument may take years to resolve in this forum, I would bet that the consumer will decide which approach they favor, long before the courts do, and thus which companies they will continue to support as subscribers.

The Internet is kryptonite to a walled garden. Those incumbent carriers that don’t understand this and continue to try and force a controlled, mobile walled garden experience on their subscribers will ultimately lose.

That’s my .02!

Martin Suter is vice president of business development at BelAir Networks, a provider of broadband mesh solutions for Wi-Fi, WiMAX, 4.9 GHz Public Safety and 5.9 GHz ITS networks. Previously, Martin was the CEO at Cohda Wireless, where he raised the company’s profile and negotiated a licensing deal with a Fortune 100 vendor in its core franchise. Prior to Cohda, he was vice president of business development at MeshNetworks Inc., a classic tech transfer/disruptive technology success story that achieved a major liquidity event for its investors in Q4/2004 with its acquisition by Motorola. Martin also was responsible for building several high profile alliances with and for leading technology companies, including Fujitsu, Microsoft, Netscape, Sun Microsystems, and Teradata. Additionally, Martin has successfully negotiated technology transfer, distribution and/or licensing deals with companies like 3Com, BioChem Pharma, Dow Chemical, Exodus, Fujitsu, IBM, Microsoft, Motorola, Netscape and Sun.

Unlicensed Spectrum + Wi-Fi = Opportunity or Threat

(Originally posted at http://www.von.com/blogs/guest/2009/03/unlicensed-spectrum-wi-fi-opportunity-or-threat.aspx )

Having been on the bleeding edge of wireless for the past nine years, it is gratifying to finally see a major market disruption move from the theory to reality.

I have noticed that the industry is largely clustered around two ends of the spectrum (no pun intended). There are the “cellular” guys, who maintain that licensed spectrum, cell towers, and complex cell planning are all required to deliver robust, wireless service to their subscribers. And there are the “enterprise” guys, who have embraced unlicensed spectrum, low-cost APs, and ad-hoc deployments to deliver wireless service to their clients.

But finally, the line is blurring.

It is now impossible to deny that one can deliver superior customer performance at a fraction of the cost using Wi-Fi. There are very interesting upload, download and latency figures based on millions of worldwide SpeedTests. Their conclusion: “Overall, we found that Worldwide 3G average download speeds to be 956 Kbit/s versus upload speeds of 153 Kbit/s and a 484 ms latency. This compares to average free Wi-Fi network speeds of 2,502 Kbit/s download, 774 Kbit/s upload, and 205 ms latency clearly demonstrating the superiority of Wi-Fi network performance. See our summary chart for additional details...”

Leaders in the cable industry are now moving rapidly into delivering a quad play for their subscribers. Cablevision, a leading MSO, is rolling out a reported 18,000 outdoor access points across its footprint in New York, New Jersey and Connecticut. Why? Verizon, the nation’s largest wireless carrier is moving into Cablevision territory with its own home Internet and content delivery called FiOS. So, unencumbered by the need to purchase expensive spectrum, or the burden that handset subsidies place on carriers, Cablevision has changed the rules of the game. And how are they doing head-to-head? According to a report from market research firm Dell'Oro Group, “Optimum Wi-Fi contributed to “more than 70 percent sequential growth” in Cablevision's net subscriber additions in the fourth quarter of 2008, “a rate higher than any other cable operator in North America.”

And others, like Comcast, have begun rolling out their own trials.

Embracing disruption, just as they did with VoIP only a few short years ago.

In the United States, AT&T is a great example of a traditional wireless carrier that “gets it.” Faced with the challenges brought on by the success of the iPhone and the stresses the mobile Internet were placing on its 3G network, AT&T went out and added wireless data capacity nationally by spending $275 million to acquire Wayport. This gave AT&T an instant data network capacity upgrade at 20,000 locations where people congregate across the country. And are they done? Not if you listen to Greg Williams: “You can think of Wi-Fi as a giant offload point for wireless data traffic. Look at the growth in smartphones and data traffic, and it’s pretty clear that Wi-Fi can be a real plus to AT&T.”

An interesting contrast is Verizon, where the old school cellular perspective has meant clinging to the status quo. Recently, this manifested itself in their signing an exclusive deal with RIM for the Blackberry Storm that shipped without Wi-Fi. The blogosphere lit up over this, as people revolted over not being able to leverage Wi-Fi, even at home or the office.

In the face of competition, leading cable companies see Wi-Fi as an opportunity to deliver a true Quad Play for their subscribers. (In fact, my colleague, Dave Park, will be discussing that topic at a few upcoming events including The Cable Show, NAB and a webcast).

AT&T sees Wi-Fi as an opportunity to add low-cost data capacity at better than 3G data rates.

Verizon sees Wi-Fi as a threat and doesn’t even allow it on a cool, new Blackberry.

Which are the disruptors and which will be the disrupted?

That’s my .02!

Martin Suter

Martin Suter is vice president of business development at BelAir Networks, a provider of broadband mesh solutions for Wi-Fi, WiMAX, 4.9 GHz Public Safety and 5.9 GHz ITS networks. Previously, Martin was the CEO at Cohda Wireless, where he raised the company’s profile and negotiated a licensing deal with a Fortune 100 vendor in its core franchise. Prior to Cohda, he was vice president of business development at MeshNetworks Inc., a classic tech transfer/disruptive technology success story that achieved a major liquidity event for its investors in Q4/2004 with its acquisition by Motorola. Martin also was responsible for building several high profile alliances with and for leading technology companies, including Fujitsu, Microsoft, Netscape, Sun Microsystems, and Teradata. Additionally, Martin has successfully negotiated technology transfer, distribution and/or licensing deals with companies like 3Com, BioChem Pharma, Dow Chemical, Exodus, Fujitsu, IBM, Microsoft, Motorola, Netscape and Sun.

 

High Octane Intellectualism

Coming off an election where “elite” was an insult, “Joe the Plumber” was a hero, Obama was “too articulate” and Sarah Palin was sold as being capable of assuming the Presidency, I was despondent about how dumbed down America appeared to have become. Part of that comes from living in Florida, a southern swing state, where there’s tremendous gravitational pull for the worst of partisan politics, but it seemed to be more pervasive this cycle than in previous elections.

Then, last week, I travelled to Boston to take a 2-day course on “Technology Negotiation” put on by Harvard, MIT and Tufts. Spending 3 days in Cambridge was like a shot of adrenalin right to the brain, and I realized that there is intelligent life out there!

But not just intelligent, people with big brains thinking big thoughts. There are people who are smarter than Spock everywhere you look.

The program itself was excellent, with a top-notch faculty and about 70 attendees from all over the world. Lawrence E. Susskind, Dr. Hal Movius, and Joel Cutcher-Gershenfeld spent the full two days working with us, answering questions and inspiring the group. During lunch on Day 2, several of us began discussing the nature of technology. I brought up a concept that I love by Nicholas Negroponte, who describes the transformation that is occurring as the move from the production of atoms to the production of bits. From “stuff”, to information, content and software. The implications are profound.

As I mentioned Negroponte’s quote, Joel C-G chuckles and says that his brother runs the “MIT Center for Bits and Atoms’ Fab Lab” lab at MIT and starts to describe some of the things they’re working on. Some of the research that is going on reminded me of Ray Kurzweil’s concept of “the singularity”, so I said, “It sounds like the singularity is near”, which is also the title of Kurzweil’s book. Joel chuckled again, and said that he lived two doors down from Ray in Boston.

It was like being brought back to life. I forgot how much I missed intellectual sustenance, and for 48 hours last week, I was able to refill the tank with the highest octane intellectualism that I’ve had the privilege of meeting in a long time.

That’s my .02!

Martin Suter

(martin.suter at iplicensing.net)

(PS – For anyone interested in learning more about the premise behind “The Singularity is Near”, TED.com has a 20 minute video of Kurzweil speaking about it. Watch it, and then go buy the book!)

A Nine Inch Nail in the Recording Industry ’ s Coffin

I find it fascinating that many market disruptions are not technological, but rather business models enabled by technology. What happens when there are no barriers to entry? What happens in a world with no friction? What happens when customers can interact directly with sellers?

Dell shook up the PC industry by first selling direct to end-users. Google has gone from a Search engine to the dominant force in advertising, and along the way has figured out how to do "free" very well. eBay brought the garage sale to the world. And finally, recording artists are realising that there's money to be made selling direct to your fan base, without compromising your artistic integrity.

Nine Inch Nails just released a collection of 36 songs, called "Ghosts I-IV". MSNBC.com suggests that "2008 may go down in history as the beginning of the end for the recording industry." I beg to differ. It's been like watching death by 1000 cuts in slow motion. 2008 is hopefully the year where the final nail is hammered into the coffin, a nine inch nail.

Where did it all go wrong for the music industry?

Record companies are licensing companies. What is a "record deal", if not a license granting rights to an artist's intellectual property to a record company along with the rights to make or have made physical product, the rights to distribute and sell this IP in return for a royalty rate paid to the creator of the IP. For decades, they held the keys to the kingdom. Barriers to entry were high...Studio time, production and mixing equipment, analog master tapes were expensive, manufacturing, promotion to radio stations, and distribution channels...The studios had a wonderfully integrated system, but it was a closed system. The only way that an artist could get a record on somebody's turntable was to play within the system, by their rules.

Video may have killed the radio star, but digital is what killed record companies.

The shift from analog/vinyl to digital was the first nail in their coffin. Cheap, ubiquitous broadband was another nail. Napster got people used to downloading content and not having a physical instantiation of the music (i.e. a CD) and was another nail. MySpace and other social networking sites facilitated the viral promotion of artists; another nail. YouTube further helped them distribute music videos and concert footage; another nail (This one in MTV). Apple bundled GarageBand with the MAC, enabling anyone to produce decent quality music quickly and cheaply; yet another nail. iTunes and the iPod gave us a means of storing and cataloguing our music, eliminating the need for a home stereo system or physical form factors; another nail. iTunes gave us a means of purchasing music that no longer required a trip to the mall; the eighth nail in the coffin.

And in the past year, major artists like Radiohead and now Nine Inch Nails selling direct to their fans. Hopefully, the ninth and final nail.

In his book, The Long Tail, Chris Anderson articulates how in a world without friction (i.e. the Internet), even those with the most arcane tastes, can find something they want, growing the overall size of the market. He posits that there is more money to be made across the entire breadth of the market, as opposed to a narrow, deep market as the music industry used to be.

The music industry isn't dead, record companies and MTV are.

But have we, as consumers, ended up winning or losing in this deal? I would suggest that we've won big-time.

Trent Reznor, from NIN comments on Ghosts I-IV: "The end result is a wildly varied body of music that we're able to present to the world in ways the confines of a major record label would never have allowed..."

The probability of my selecting a Nine Inch Nails CD and paying $15.95 to see whether I liked it or not would have been pretty small. Or Radiohead for that matter.

But give me a chance to experience and experiment with new tastes in a low-risk way, and I'm all over it. Does it get any better?

That's my .02!

Martin Suter

martin.suter (at) iplicensing.net