innovation

Google & Open Movement Smash Verizon's Walled Garden

Verizon Joins The Open Network Movement

According to The Wall Street Journal (11-28-07 WSJ), "Verizon to open cell network to others' phone."  Suddenly Verizon has decided open networks are not so bad.

FIRST THINGS FIRST

Let's be clear.  Verizon did not say that it is embracing the open source movement nor liberating itself from closed proprietary networks.  According to The Wall Street Journal article , Verizon is simply moving away from subsidizing the cost of the phone.  Now consumers can buy their handset anywhere, so as long at it works with Verizon's network.   Moreover, the suggestion is that handset makers Nokia and Motorola are free to engage consumers more freely.  This is an abrupt change in position for Verizon.  Is this announcement in response to pricing pressure?  This announcement sounds more like a supplier channel strategy shift.

BACKGROUND

Wireless incumbents like Verizon and AT&T tightly couple cellphone devices, features, and applications to closed proprietary networks.  This makes it costly for customers to switch between the different providers.  So why is Verizon making this announcement now?

THE SIMPLE ANSWER

So why now?  Competition.  The simple answer is companies like Google are willing and capable of doing whatever it takes to extend their business model across any network. If you're Verizon, you can keep watering the walled garden strategy and hope for the best.  Alternatively, you can try to convince Google that you are serious about changing your business model to some kind of a revenue sharing model. Duh! I am surprised they did not adopt a first mover advantage. Perhaps this is no more than a concession or gesture.  I am not the only skeptic:

"The announcement is a marked departure from Verizon Wireless' previous stance on open-network policies that Google and the Federal Communications Commission are promoting for a new spectrum auction in January. For months, Verizon has been protesting, arguing, and in any and all ways kicking and screaming about the downsides of open-network business models and all the problems it will bring to the industry. Read more >

THE STRATEGIC ANSWER

So, why is Verizon wireless opening up its network to other phones?  The real answer is competition from open innovation.  Specifically, competition from innovative Internet players like Google and Apple who understand the basic principles for creating and capturing value through transparency (a/k/a openness).  What are some of these value creation principles in the networked world?  Fundamentally, Internet players understand that when you empower consumers with more open choices and accessibility, you create value. 

When you announce a new and open platform for mobile devices, as Google did, you start decoupling the device from the network provider.  In doing so, you give customers the ability to choose and carryover any device they want independent of the service.  You also create an environment and framework for new and innovative web-based applications.  Keeping the network provider, network, devices, and applications transparent is a good thing.  Flexibility is another form of value creation.

DEATH OF WALLED GARDENS

Walled gardens are not sustainable in a networked world. In fact, walled gardens provide a rich environment for Internet companies to capture value. Internet companies thrive on harnessing the emotional friction and economic inefficiencies walled garden models create.  The popularity of Wi-Fi and cellphones is the best evidence that mobility creates value. However, open mobile devices will create even more value. Apple and Google have a clear handle on this strategy.

Indeed, Google and Apple are reducing the barrier to entry by opening up the mobile device.  I call this Skype-ifying of cellular networks.  Google, Skype, and Apple have laid the groundwork.  Skype recently signed a deal with wireless carrier 3. In 2008, we should see more transparent cellular networks, both at the device and application level.  This is going to extend the footprint for Web 2.0 applications and SaaS based services.  The wireless industry is finally heading towards the same level of transparency we currently experience with PCs.

WHAT CONSUMERS WANT

Consumers ultimately want to see a unified broadband wireless network that is agnostic and transparent at the device level and application layer.  Consumers want to access their e-mail, social networking sites, communities, and favorite applications over any wireless device.   Acting as a gatekeeper to your community and places is not a value added service.

Let there be no doubt, Verizon's recent announcement to open up their network to other phones is a tactical defensive move.  Heed the warning walled gardens, it's time to democratize your network and move forward with open innovation and business models.

Kameran Ahari

http://gotastrategy.typepad.com


RELATED LINKS

Why Verizon Wireless Opened Its Network

Verizon To Open Network To More Phones

Google, Bidding For Phone Ads, Lures Partners

Will There Be a Gaggle of Google Android Phones

Dark Side of Facebook & Mark Zuckerberg

Ongoing Lawsuits Plague Facebook

Harvard's 02138 magazine just published an in depth article about would be alum and founder of Facebook, Mark Zuckerberg. I always suspected there was a dark cloud hanging over Facebook and whether the idea for the social networking site was hijacked from somebody else at the University.  Was someone else at Harvard conceiving the idea?  Did Mark run off with a project commissioned by three fellow classmates?  Who is making these claims? What other lawsuits are pending?  Is this why neither Google nor Microsoft could buy the company outright two years ago?

The media have mostly glossed over ConnectU Inc. v. Facebook Inc., now unfolding in a Boston courthouse. Most articles depict the case as either a cash grab or a blip on Facebook’s march to global domination. But interviews with people familiar with the lawsuit, and a close examination of court records, suggest that, at the least, the case raises troubling questions about the ethics of this new billionaire.

The plaintiffs are three Harvard grads: Cameron and Tyler Winklevoss, twin rowers currently training for the Beijing Olympics, and Divya Narendra, who since graduation has worked in finance in New York and  Boston. In 2002, the three friends dreamed up an online social network called Harvard Connection (subsequently renamed ConnectU), later asking Zuckerberg to finish programming it. Instead of fulfilling his end of the bargain, the plaintiffs say, Zuckerberg stole their ideas and source code to build his own competing social network. “We got royally screwed,” Narendra says in a deposition. More >

Aaron Greenspan, shown here in 2001: "I don't know if [Zuckerberg] copied things intentionally or it's just the most amazing coincidence of all time, but I know he's dishonest."

So, who is telling the truth?  Cameron, Tyler, and Divya or the guy with "I'm CEO…bitch" on his business card.

Kameran Ahari

Are We Heading Towards Web Bust 2.0?

Harvest Time For Web 2.0 Companies.

Is the Web 2.0 bubble a bust? Burst, bust, or pop…your Web 2.0 runway just got shorter.  From the blogosphere:


The Web 2.0 World Is Skunk Drunk On Its Own Kool-Aid

Web 2.0 Bubble – Now Entering Stage Two.

In Case You Missed It, Web 2.0 Is Bad Now.

Kleiner Perkins Caufield & Byers, Silicon Valley's leading VC firm, has stopped investing in Web 2.0 startups.

Well Maybe It Is a Bubble.

How bubbles are integral to innovation. Wallstrip Chat - Daniel Gross

What Is Web 2.0?

You be the judge.  Unlike the overheated IPO market of the dot.com era, the consequences are going to be very limited to the Web 2.0 participants.  As always, I welcome your comments.

Kameran Ahari

http://gotastrategy.typepad.com

Universities Divided Over Intellectual Ventures

University of California Generates Millions From Patent Infringement & Royalty

Add two more intellectual property (IP) exchanges to my October 30th post Advantages of Open Innovation .  Just this week, I have seen two more articles supporting upward trend in IP aggregators.  Intellectual Ventures LLC and number of prestigious research institutions like University of California are increasingly vying to buy and license you patents.  Some universities are making hundreds of million from royalty and fee income.  Could this be the new investment vehicle for private investors and hedge funds?

The University of California is a major patent player. It receives by far more patents from the U.S. PTO than any school in the country. Its generated about $500 million in patent royalties and fee income in the past five years. It also aggressively uses the courts. As a plaintiff alleging patent infringement, the school has settled a claim against Genentech for $200 million, secured a payment of $185 million from Monsanto, and won a $30 million settlement from Microsoft.  Full story - Critics Take Aim at California's Patent Shield.

Intellectual Ventures investment firm is seeking $2 billion to expand its vast portfolio of patents.   According to The Wall Street Journal, the firm plans to spend a $1 billion to acquire patents and another $1 billion to develop patents globally.  The firm claims it generates hundreds of million in revenue from licensing  Patent Firm Lays Global Plans . 

Intellectual Venture's business model has stirred debate. Officials from some U.S. universities -- including Stanford University and Massachusetts Institute of Technology -- say they aren't working with the firm because they worry it could use its patents for litigation or other purposes that don't promote innovation.

"We want to work with companies that are really going to develop the technology, and I'm not sure if they will or not," said Katharine Ku, who heads Stanford's Office of Technology Licensing. "They keep saying they're not a litigation play necessarily, but we'll just see."

Mr. Myhrvold noted that his firm has deals to buy or license patents with more than 80 universities, including the University of California system and Boston University, "so any reluctance to work with us is a distinctly minority view." He said that his firm simply wants to get "fair compensation" for new inventions, and help inventors do the same, and that its goal has always been to create a more liquid market for intellectual property.  Full story -  Patent Firm Lays Global Plans: Intellectual Ventures Is Seeking $2 Billion As Strategy Shifts.

Depending on your perspective, innovation just got easier or more complicated.  Dot your i's and cross your t's carefully.

 

RELATED LINKS:

Who is the world's biggest patent troll?

http://www.news.com/8301-10784_3-9816163-7.html?part=rss&tag=feed&subj=NewsBlog

Intellectual Ventures LLC

http://www.intellectualventures.com/

Patent Firm Lays Global Plans

http://online.wsj.com/article/SB119482858758489569.html

Critics Take Aim at California's Patent Shield

http://blogs.wsj.com/law/2007/11/13/critics-take-aim-at-californias-patent-shield/

Top Patenting U.S. Universities

http://www.uspto.gov/web/offices/com/speeches/06-24.htm

University of California Technology Transfer

http://www.ucop.edu/ott/

University of California Technology Transfer Annual Report 2006

http://www.ucop.edu/ott/genresources/documents/OTTRptFY06.pdf

Kameran Ahari

Zipcar, The Netflix of Car Rental

An increasing number of innovative business models and brands are no more than streamlined supply chains and value chains.

In recent posts, I have talked about open innovation in the context of technology and intellectual property centric industries. However, innovation does not have to be complicated or involve complex technologies. Some of the newest business models involve quite ordinary things and ideas. Companies like Zipcar and Netflix leverage e-commerce framework and principles to create value through reengineering established supply chains.

LEVERAGE THE E-COMMERCE FRAMEWORK

You don't have to be an Internet commerce company to think like one.  E-commerce companies seem to have a leg up over traditional brick-and-mortar companies when it comes to inventing new business models. Many of these new business models and brands involve nothing more than rearranged supply chains and value chains. Early on, Internet based organizations figured how to make a profit from arbitrage by eliminating things like buildings, office space, retail outlets, manufacturing operations, shipping operations, warehouses, distribution channels, and even ownership of IT infrastructure. The ability to eliminate distribution and channels out of the old supply chain became know as disintermediation. I use the term more broadly.

Today, with the comparative advantages of globalization, literally everything can be outsourced, licensed, or contracted out to other b2b partners without jeopardizing the brand. Thanks to China's comparative advantage in manufacturing and b2b exchanges like Alibaba.com , companies big and small are becoming increasing virtual. Alibaba.com Ltd. is set to go IPO today and plans on raising US$1.5 billion. So the next time you buy a $5,000 luxury steam-shower for your new home or bathroom renovation project, chances are you are buying from a home-based business and not the original equipment manufacture (OEM).

ZIPCAR

You might be familiar with the leading urban car rental companies Zipcar or Flexcar who recently merged . Both companies are great examples of value chain innovation. 

Having lived in Boston, I can relate to Zipcar's value proposition. During that time, I got very familiar with the hassles of dealing with street parking, vandalism, being booted, and the high cost of auto insurance. At the time, Boston was one of the car theft capitals of the country. Back then, I was paying more for my car insurance than I am now. I vividly remember the morning my brand new candy apple red Volkswagen GTI was stolen. Two decades later, I doubt things have changed much. I even heard, people trying to convey private parking spaces for upwards of $200K. I think anyone who has experienced the high cost and hassles of owning a car in a big metropolitan city can relate to this innovative subscription based car rental service.

GREENER CAR OWNERSHIP

Maybe the answer to achieving better gas mileage or reducing CO2 emissions is not technology or some alternative fuel source, but a fundamentally new and more socially responsible way of looking at car ownership. What if we could reduce the total number of cars on the road with a time-share approach? We already have time-share for vacation homes, planes, sailboats, and other big ticket items that we might enjoy occasionally. Maybe we should not think of owning a car permanently parked in our driveway. We just need access to one. Zipcar claims it can offsets 20 cars for every Zipcar. This sounds like a better alternative than trying to squeeze a couple extra miles to the gallon. Zipcar is actually closer to a car-sharing service than a car rental agency. 

"We are trying to replace car ownership," said Scott Griffith, Zipcar's chief executive. "It's a business model that locates cars in neighborhoods and uses 24-hour technology to locate the car." (soure: Washington Post)

I have not had the chance to try Zipcar yet. I think it makes a lot sense in urban settings where people need a car for a special occasion like making a run to Ikea, Home Depot, or bringing a Christmas tree home. After years of refining their business model, it looks like the concept finally has legs. The merged companies plan to do about a $100 million annually. Eventually they hope to be a $1 billion market. A number of traditional rental firms like Hertz, Thrifty Car Rental, and Enterprise have announced similar hourly rates. According to one report, there are currently 30 competing car-sharing providers in the country. My sense is that urban dwellers are willing to ditch their car completely for a subscription hourly model.

ZIPCAR VALUE CREATION STRATEGY

- Decentralize the classical car rental operation
- Get rid of sprawling airport lots
- Eliminate need for any bricks-and-mortar
- Eliminate airport counters
- Eliminate the need to check in with an agent
- Distribute the cars in and around the city
- Negotiate designated spaces with municipalities, parking lots, and businesses
- Create automated reservation process
- Create an online reservation system
- Create a phone reservation system
- Subscription based pricing
- Rent by the hour

DISINTERMEDIATION OF VIDEO RENTAL

Netflix is one of my favorite examples for business innovation and value creation through supply chain reengineering. Just in case you live in a different part of the world, Netflix is a company that invented the concept of all you can eat flat rate online subscription based movie rental. Video rentals have been around for decades. During the past twenty years if we wanted to rent a movie, you had to drive to the closest video rental store and hope nobody else beat you to the latest movies. Stores were limited to the depth and breadth of choices. Moreover, you had a very limited window to watch your movies or risk paying late fees. Netflix simply applied e-commerce principles to a legacy industry. Netflix took the traditional video rental supply chain, and decided they could streamline it significantly while reinventing the traditional pricing model.

NETFLIX VALUE CREATION STRATEGY

- Replace thousands of stores with half a dozen centrally located warehouses
- Eliminate physical process of driving to and form retail store
- Use the U.S. postal system for distribution
- Leverage the DVD medium and HD standard
- Eliminate check out counters
- Increase access to customers through online model
- Increase availability through centralized inventory
- Create an online system for reservation and queuing
- Create tools for finding movies by genres, themes, actors
- Change the unit pricing to subscription based pricing
- Eliminate late fees
- Offer online viewing (real-time distribution)

Other industries and business ripe for similar disintermediation:

- Lending
- Banking
- Entertainment
- Health insurance
- Airline industry
- U.S. Postal service
- OEM brands
- Book publishing
- Real estate

Put a little Netflix in your business model.  Whether you are in a low tech or high tech industry, look for new ways of creating value by rearranging your value chain or supply chain.  Other links, weblogs, and articles I found pertaining to this post:

Inaki Berenguer http://mitsloanblog.typepad.com/inaki/2007/10/zipcar-merges-w.html

FastCompany Fast 50 , Scott Griffith http://www.fastcompany.com/fast50_07/profile/?test1

Business 2.0, 15 Companies That Will Change The World  http://money.cnn.com/galleries/2007/biz2/0708/gallery.next_disruptors.biz2/4.html

Video interview with Zipcar CEO http://money.cnn.com/video/#/video/business/2007/08/02/b2.disruptors.zipcar.cnn

Forbers.com: Fast Times For Zipcar  http://www.forbes.com/video/?video=fvn/business/ab_zip073106

YouTube Zipcar Test  http://video.google.com/videoplay?docid=-475336650377587481&q=zipcar&total=288&start=0&num=10&so=0&type=search&plindex=2

Kameran Ahari