The Two Most Dangerous Words in Technology Marketing

"Just wait."

So powerful.  So easy to say.  So appealing when your current products are behind the curve, and the press and analysts are beating you up about it.  You can shut up the critics instantly if you just drop a few hints about the next generation product that's now in the labs.

So dangerous.

The phrase "just wait" ought to be locked behind glass in the marketing department, like a fire extinguisher, with a sign that says, "Break glass only in emergency."  And then you hide the hammer someplace where no one can find it.

Saying "just wait" is dangerous because it invites customers to stop buying your current products.  You're basically advertising against yourself.  If your company is under financial or competitive stress, the risk is even greater because people are already questioning your viability.

This danger is especially potent in the tech industry (as opposed to carpeting or detergent) because tech customers worship newness, and they use the Internet aggressively to spread information.  One vague hint at a conference in Japan can turn into a worldwide product announcement overnight.

 This danger has been well understood in the tech industry dating at least back to 1983, when portable computing pioneer Adam Osborne supposedly helped destroy his PC company by pre-announcing a new generation of computers before they were ready to ship (link). Palm reinforced the lesson in 2000 by pre-announcing the m500 handheld line and stalling current sales (link).

But maybe memories have faded, because we've been hearing "just wait" a lot lately:

--Nokia announced that it's switching its software to Windows Phone, and promised new devices based on the OS by this fall.  Nokia executives have hammered that message over and over, even making detailed promises about features including ease of use, battery life, imaging, voice commands, cloud services, and price (link).  Some execs have even told audiences that they have a prototype in their pockets, but coyly refused to show it (link).  What's the thinking here?  Does refusing to show the product somehow nullify the fact that you just told everyone not to buy what you sell today?

--In February 2011, HP pre-announced a series of new smartphones that were supposed to come out over the next year.  The most attractive-sounding one, the Pre3, was supposed to ship last.  Not only did this obsolete HP's current products, but it also overshadowed the other new products HP launched in the interim.  HP's interim smartphone sales turned out to be so bad that it killed the business before the Pre3 could even launch in the US.

--Speaking of HP, the company just announced that it will be selling its PC business because it's not doing well.  As Jean-Louis Gassee pointed out, that's like inviting customers to switch to another vendor who actually wants to be in the business (link).  That forced HP executive Todd Bradley to boost confidence by going on tour pre-announcing himself as future CEO of the theoretical spun-out company, even though HP's Board won't even meet to decide on a spinout until December (link).

--RIM announced that it's moving BlackBerry to a new operating system, which will apparently not run on its existing smartphones.  It has spent much of the last year telling people how great all the new features of the OS will be.  The company also pre-announced that it will enable Android applications to run on its future phones.  Meanwhile, market share of its current products has been dropping steadily.  The latest rumors say RIM's new phones will not be out until Q1 of 2012 (link), meaning the company has probably sabotaged its own Christmas sales for 2011.

--Microsoft announced that it's replacing Windows in about a year.  That's not necessarily a problem, since it says the new version of Windows will run on existing hardware.  But Microsoft also said it's introducing a new development platform based on HTML 5.  This set off a huge amount of teeth-gnashing among today's app developers worried that their skills are about to become obsolete (check out the excellent overview by Mary-Jo Foley here).

Why are companies doing this over and over?  Sometimes you have no choice.  For example, Nokia couldn't lay off the Symbian team without saying something about its OS plans.  However, it didn't have to be so noisy about the plans, so I think that wasn't its only motivation.

Sometimes the cause is a mismatch between the needs of a hardware business and the needs of a software business.  If you're making a software platform, you pre-announce it as early as possible to build confidence and get developers ready at launch.  But if you're selling hardware, you want to keep new stuff a secret until the day you ship.  When you mix hardware and software, you are pulled in both directions.  I think that disconnect probably affected Nokia, which is now run by a CEO who worked in software for most of his career. 

Companies also sometimes pre-announce products because it placates investors.  Wall Street analysts always ask what you're developing in the future, and executives sometimes can't resist the urge to tell them and prop up the stock price.  Ironically, this may help the stock for a quarter, but often has the long-term effect of hurting a company's value when the pre-announcement slows sales.  But each CEO always seems to believe he or she will be the one who gets away with it.  I believe investor pressure was one of the drivers when Palm pre-announced the m500, and I believe it also explains some of the pre-announcements by HP and RIM.

Sometimes internal company politics also plays a role.  An executive may pre-announce a product in the hope that the announcement will put more pressure on the development team to deliver "on time."  Or a business leader will pre-announce something to pre-empt internal competition from another group.  I've seen both of those happen at places where I worked.  Needless to say, any company that allows internal politics to drive external communication has much bigger problems than its announcements policy.

Pre-announcements also create other problems.  They educate the competition about what you're doing, and give them time to prepare a response.  This is especially dangerous if you're trying to come from behind, which is usually the situation when a company pre-announces.  So a competitor is already out-maneuvering you, and now you're giving them more notice of your plans?

But I think the worst effect of a pre-announcement is that it invalidates any signals you get from the market.  You can't actually tell if your underlying business is healthy or not.  Did HP's smartphone sales slow down because people hated its products, or because HP had invited customers to wait for the new ones?  Have BlackBerry sales been suffering because customers don't want them, or because RIM invited people not to buy?  Was the enormous drop in Nokia smartphone sales due to flaws in the products, or due to Nokia's relentless promotion of new phones that aren't yet shipping?

There's no way to tell for sure.  And so, if you're running one of those companies, you don't know whether or not you should panic -- or more to the point, what exactly you should panic about.  You have now trapped yourself in limbo, and there is no way out until your new products ship.

So, as you can guess, I am generally against pre-announcements.  But they can be very powerful, and there are a couple of special cases in which they're appropriate.

When it's safe to pre-announce

If you're entering a new business.  If you don't have any current sales to cannibalize, it's relatively safe  to pre-announce.  You're still alerting the competition, which I dislike, but at least you won't tank your current business.  Apple pre-announced the first iPhone and iPad before they shipped, but you'll notice that they've been very secretive about the follow-ons.

A variant on this is when a competitor is ahead of you in a new category and you want to slow down their momentum.  You pre-announce your own version of their product, in the hope that customers will wait to get it from you rather than buying from the competition.  This can be especially effective in enterprise markets, where IT managers tend to develop long-term buying relationships with a few vendors.  IBM used this technique relentlessly during the mainframe era, and Microsoft picked up the habit from them.

Pre-announcements are less effective against competitors in consumer markets, where people are sometimes driven by the urge to buy now.  They also don't do much in cases where it's easy to switch vendors.  For example, Google pre-announcing a web service isn't likely to stop people from using competitors to it in the interim.  A pre-announcement can intimidate venture capitalists, though, and I wonder if Google doesn't sometimes announce a direction in order to hinder a potential competitor's ability to raise money.

If there is a seamless, zero-hassle upgrade path.  If customers will be able to move easily to your new products, without obsoleting what they use today, and without big expense, a pre-announcement can be safe.  For example Apple generally pre-announces new versions of Mac OS, and it's not a major problem because currently-available Mac hardware can run the new OS.  Where RIM went wrong with its OS announcement is that its current hardware apparently can't run the new OS.  So RIM has announced the pending obsolescence of everything it sells today.

If you are messing with the mind of a competitor.  Theoretically, if you're dealing with a competitor who's very imitative, you can make them waste time and money by leaking news of future products that you don't actually plan to build.  The competitor will feel obligated to spin up a business unit to copy your phantom product, leaving less money to respond to what you're actually doing. 

When I was at Apple, we used to joke that we could waste $20 million a pop at Microsoft by seeding and then strenuously denying rumors that we were working on weird but plausible products.  Handheld game machines, anyone?  Television remote controls?  Apple today is so influential that it could manipulate entire industries by doing that, not just individual companies.

But when you do this you gradually erode your credibility with your customers. If the rumor is plausible enough to dupe a competitor, it will also dupe some customers, who will then be disappointed when you don't deliver.  Eventually you won't be able to get customers excited when you announce real products.  Look at the skepticism people often express today when Google announces a new initiative.

The most famous case in which misdirection supposedly worked was not in business but in international politics.  Some historians say that the collapse of the Soviet Union was hastened by the huge investments it made trying to keep up with Reagan Administration defense initiatives, some of which had no hope of actually working, but which still seemed plausible enough that the Soviets felt obligated to cover them. 

I'm not so sure that really caused the collapse of the Soviet Union; big economic changes are usually driven by big economic forces, not by tactics.  But more to the point, you're not Ronald Reagan, this isn't the Cold War, and if you try to pull off a fake this complicated you'll probably just confuse your customers and employees.

So unless you're entering a new market, or have a seamless low-cost upgrade path to the new product, your best bet is to grit your teeth, shut up, and next time plan better so you'll be ahead of the market instead of playing catch-up.

Thanks, Steve

I've never even met you, but I wouldn't have my career if not for you.  So I thought this would be a good time to say thanks.

It was the Macintosh computer you championed that first drew me into developing software.  That business didn't make me rich, but it eventually got me hired by Apple.  Unfortunately, you left a year before I got to Apple, but the company's goals were still the things you preached -- do something insanely great, change the world.

I spent ten years at the company you co-founded, and it was both a great education and a fun ride.  Unfortunately, in a case of spectacularly poor judgment, I quit in early 1997, after the NeXT acquisition but before you took back control of the company.  I didn't believe you'd take over, and I lost faith in the previous management.  My only contact with you was a single meeting that you and I both attended.  I was there as an observer, so I sat in the back and said nothing.  My only impression of you was, "wow, he really doesn't wear socks."

Perhaps it's just as well that I quit.

Although I was no longer with Apple, you still played a huge role in my career.  For a time in the late 1990s, it looked like Silicon Valley was becoming a backwater in technology.  Software was dominated by Microsoft after its demolition of Netscape, AOL on the east coast was the online leader, and Dell in Texas plus the Asian companies were the leaders in PC hardware.  The Valley's leadership role was saved, I believe, by Yahoo and Google in the web world, and by Apple's resurrection in computer systems.

Other people are doing a great job of recapping all of Apple's product successes since your return, so I won't bother repeating them here.  But I want to talk about two other accomplishments that stand out to me.  The first is how you've reset the way the tech industry looks at consumer products.  Even a few years ago, most people still said that Microsoft's business model -- in which the hardware was designed separately from the software -- was the only viable way to make computing devices.  Today, everyone talks about codeveloping hardware and software, and it's because of you.

The other accomplishment that stands out to me is your creation of an organization at Apple that could turn out hit after hit, reliably and with great quality.  Most people don't appreciate how hard that is, mostly because Apple makes it look so easy.

It's because of the organization you built that I'm confident Apple will continue to do well, even as you reduce your role.  I hope your health will improve, and it would be great to see you back as CEO some day.  But that's speculation for another time. 

Right now, I just wanted to say thanks, Steve.  It was insanely great, and you did indeed change the world. 

I'm Speaking at Mobile 2.0

FYI, I'll be speaking on a panel at the Mobile 2.0 conference September 1, 2011 in San Francisco (link).  The panel is about native apps vs. web, and should be a lot of fun, especially since Marc Davis is also on the panel.  He's a great thinker and speaker.

The Mobile 2.0 folks have offered a discount to Mobile Opportunity readers.  If you register using the code "TwentyFive" you'll get a 25% discount.

The Part of Palm that Smartphone Companies Should be Bidding For

Anytime a CEO gets ousted in disgrace, his or her pet projects are vulnerable to a quick trip to the gallows if they falter.  Mark Hurd was the CEO who bought Palm, so it was at risk from the moment Hurd left.  HP's mobile device performance had not been good this year -- the Veer smartphone launched and vanished on the same day, and the TouchPad turned out to be a sales disaster.  If Leo Apotheker had chosen to invest further in the business, it would have turned into his responsibility.  It's far easier to just walk away.

You can make an argument that HP should have given the business more time, and it's a shame that we'll never get to see the Pre 3.  But Palm's sales have been troubled for years, and I think its fundamental mistake was that it tried to be too much like Apple.  From the start, Pre was aimed at the same users and the same usages as the iPhone (even down to a failed effort to tie the phone directly to iTunes).  HP proved that most people don't want to buy an incremental improvement to the iPhone that can't run iOS apps.

Then just for kicks, HP went and proved the same point again with the TouchPad.

The lesson to other mobile companies, I think, is that unless you're a low-cost Asian vendor, you need to differentiate from Apple, not draft behind it.

I'd love to see Web OS live on, but the hardware debacle makes that less likely.  As I mentioned the other day, licensees choose an OS because they think it'll generate a lot of unit sales for them.  Since Web OS couldn't do that for HP, who else would want to license it?

If you believe that every smartphone company needs to own its own OS, we ought to see a mad bidding war between LG, HTC, Sony Ericsson, Dell, and maybe Samsung to buy Web OS.  (The loser could get RIM as a consolation prize.)  Maybe a buyout will still happen, but I think HP has probably been quietly shopping Web OS for a while, and if there were interest it would have tried to close a deal before today's announcement.

(By the way, HTC, if you do buy Web OS, you should insist that HP give you the Palm brand name as well.  It's still far better known than the HTC brand in the US.  The same logic applies for LG.)

But I'm not persuaded that buying an OS is the right way to go for any smartphone company.  Turning yourself into a second-class imitation of Apple isn't a winning strategy, especially if your company doesn't know how to manage an operating system.  (Case in point, look what it did to HP.)  You can create great mobile systems without controlling the OS; all you need is a great system development team and the freedom to put a software layer on top of whatever OS you use.

That means the real crown jewel in the Web OS business unit is the system development people -- the product managers and engineers -- that HP just threw in the garbage.  In my opinion, that's the part of Palm that smartphone companies should be fighting for.

Google and Motorola: What the #@!*%?

It's two days later and I'm still confused.  When I saw the headline yesterday, my jaw literally dropped.  "Google bought who?  That's got to be a misprint.  They must have bought a mobile operator, like Sprint or something.  But Motorola?  Really?" 

Usually when a big tech merger happens you can see the logic behind it.  Even if you don't agree with the logic, you understand why they made the deal.  But in this case the more I think about it the more confused I get. 

Did Google buy Motorola for the patents?  If so, why isn't it spinning out the hardware business?  Or did Google buy Motorola because it wants to be in the hardware business?  If so, does it understand what a world of other problems that will create for Android and the rest of Google?  Seriously, if Google tries to integrate Motorola into its business we could end up citing this as the deal that permanently broke Google.

Why roll the dice like that?  Maybe I'm missing something, maybe Google has a screw loose, maybe both of the above.  Or maybe I'm wrong to look for airtight logic.  Companies sometimes make decisions on impulse, especially when they are under stress, and it's a sure thing that Google is under stress these days on IP issues.

So I have a lot more questions than answers.  My questions are about Google's intent, its next steps, and how other companies will react...

Why did Google do it, really?  The conventional answer is that Google wanted Motorola Mobility for its patents.  That's what Google itself implied, and Marguerite Reardon over at CNET agreed (link).  That might well be the explanation.  Om Malik had a really intriguing take: Google bought Motorola as a defensive move to prevent Microsoft from getting the Motorola patents (link).  And Richard Windsor of Nomura, who I respect deeply, said in an e-mail that this is all about the patents.  He predicts that Google's new patent portfolio will create a balance of power enabling Google to quickly force a settlement to the patent lawsuits against its licensees.

But if you wanted only the patents, I think you'd buy Motorola, keep the patents and then spin out the hardware company to avoid antagonizing your licensees.  Google says it intends to keep Motorola and run it.

Besides, as Andrew Sorkin pointed out in the New York Times, Google could have bought a different but also important mobile patent portfolio from InterDigital for about $10 billion less than Motorola (link).  Maybe there's some magic patent at Motorola that Google feels is worth $10 billion more, or maybe there are some terms in Motorola's patent cross-license agreements that Google desperately needs.  But again, if that's the case, why not keep the patents and resell the hardware business?

Unless Google is lying about keeping Motorola intact, I think Google intends to be in the mobile hardware business.  Which raises the next question...

Does Google know how to run a hardware business?  No, of course not.  The processes, disciplines, and skills are utterly different.  The same business practices that made Google good in software will be a liability in hardware.  Google's engineers-first, research driven product management philosophy is effective in the development of web software, because you can run experiments and revise your web app every day in response to user feedback.  But in hardware, you have to make feature decisions 18 months before you ship, and you have to live with those decisions for another 18 months while your product sells through.  You can't afford to wait for science.  Instead, you need dictatorial product managers who operate on artistry and intuition.  All of those concepts (dictatorship, artistry, intuition) are anathema to Google's culture.  Either Google's worldview will dominate and ruin Motorola, or worse yet the Motorola worldview will infect Google.  Google with Motorola inside it is like a python that swallowed a minivan.

To put it another way, I think Google has about as much chance of successfully managing a device business as Nokia had of running an OS business.

But the real question is, does Google realize that it doesn't know how to make hardware?  I doubt it.  Speaking as someone who worked at PalmSource for its whole independent history, an OS company always believes that it could do a better job of making hardware than its licensees.  It's incredibly frustrating to have a vision for what people should do with your software, and then see them screw it up over and over.  The temptation is to build some hardware yourself, just to show those idiots how to do it right.

I think maybe Google just gave in to that temptation.

But if Google really wants to sell hardware, that raises questions for the other Android licensees...

How will Google really manage Motorola?  Google says it's going to treat Motorola as an independent company without any special access to the Android team.  But what's the point in that?  Motorola hasn't exactly been dominating the mobile device world lately, so I find it very, very hard to believe that Google would buy it and leave it intact.  Wouldn't you want to have Motorola create special products that take advantage of the latest Android features?  Kind of like a flagship operation?  Then when you announce a new initiative at Google IO, you can have some nice new Motorola hardware ready to ship with it on day one.  Of course, the other Android licensees will be allowed to participate too.  They're welcome to run flat out to keep up with every Google software initiative, disregarding expense and business risk, just like Google's Motorola subsidiary will.

Which makes you wonder...

How will the Android licensees react?  I think we can safely disregard the positive quotes from the other Android licensees.  What would you do if your company depended utterly on Android, and Google called you up twelve hours before the announcement and asked for a quote?  Would you risk Google's anger by refusing to give a nice quote?  Of course not.

But would you honestly be happy?  Of course not.  In the last year, you gained share at the expense of Motorola.  Now instead of being a weak and failing vendor you can snack on, Motorola has infinite financial resources and cannot physically go broke.  Sure, I am happy to compete with that.

The other issue is the one everyone else has already pointed out -- even though Google says there will be a firewall between Motorola and Android, you suspect it'll be semi-permeable, meaning you'll always be at a bit of a disadvantage.

So what do you do?  A lot of people are predicting that Android could be in danger of losing licensees.  For example, Horace Dediu at Asymco drew a parallel to the Symbian consortium, whose members were uncomfortable because Nokia held the largest share of the ownership (link).  But when Symbian was launched, those companies were happy to sign up, despite the asymmetric ownership, because they thought Symbian was going to dominate the mobile OS market, and they were scared of Microsoft.  They dropped out only after it was proven conclusively that only Nokia was capable of making a Symbian phone that sold well in Europe. 

I can tell you from personal experience at Palm that licensees don't care about governance issues when they think your OS will help them sell a lot of units.  It's only after growth slows down that they get twitchy.  As long as Android continues to grow explosively, the licensees will be right there with it because they're terrified not to be.

Google probably knows the licensees can't go anywhere.  In fact, it has a history of treating them very roughly in private (check out the nasty tone in the private memos between Google and Samsung exposed by the Skyhook lawsuit here).  So in some ways the Motorola deal is just more of the same.

But there is still a risk to Google.  Android licensees will probably be more willing to talk to Microsoft now, and they might do a few more Windows Phone products, if only to get leverage against Google.  So Google has just thrown a lifeline to Windows Phone, which otherwise might have been headed for extinction if the first round of Nokia products failed.

This might also be an opportunity for other mobile platforms.  If there were any...

Is there a third path?  The Android licensees are probably pretty wary of both Google and Microsoft at this point, and may be wishing forlornly that there was a third alternative for mobile operating systems.

Unfortunately, I don't think there is.  The handset vendors' embrace of "royalty-free" Android strangled the other Linux mobile platforms.  TrollTech was bought by Nokia and then killed, while Access's evolution of Palm OS died for lack of customers.

There's speculation that HP might broadly license Web OS (link).  But HP has its own hardware conflict of interest (a much stronger one than either Google or Microsoft).  Far more importantly, keep in mind that mobile phone companies license an OS because they believe it's going to sell millions of units for them.  If HP, with all of its resources and channel presence and strong brand, can't sell significant numbers of Web OS phones, why would HTC or Samsung believe they could do it?

[Edit: In the original version of this post, I failed to mention MeeGo.  A couple of people have told me that was unfair, and I think they are right.  Based on past experience, I have a lot of skepticism about OS consortia, especially ones involving Intel.  But if MeeGo's ever going to get serious consideration from hardware companies, now is the time, and I should have acknowledged that.]

Hint to Android licensees: If you build up HTML 5 as a platform, you won't have to depend on anyone else's platform.  But in the meantime, your realistic choices are Android and Microsoft.

Speaking of Microsoft...

What will Microsoft do now?  Steve Ballmer faces a very interesting decision.  Windows Phone just got a boost because it's now seen as a more vendor-neutral platform than Android.  The door is probably open for Microsoft to build deeper relationships with Android licensees.  If Microsoft sill believes in its licensing model, it will focus on walking through that door.

But as others have pointed out, Microsoft's position is now a bit lonely in some ways.  The other major smartphone platforms (iOS and Android) now have captive hardware arms.  Even RIM has both hardware and OS, although it's been a while since RIM was held up as a model for others to emulate.  Will Microsoft feel exposed without its own hardware business?  And if it does feel exposed, will it buy Nokia?

I'd be very surprised if it did.  Buying Nokia would decisively end the Windows Mobile licensing business.  You'd be betting Microsoft's mobile future even more completely on the ability of Nokia to execute in hardware.  Besides, why buy the cow when you're already milking it?

I'd also like to think that Microsoft learned from the Zune debacle that it's not great at creating mobile hardware.

And then there's the fruit company...

What will Apple do?  Apple's history since Steve returned is that it doesn't react to competitors; it forces competitors to react to it.  Apple is brilliant at setting the terms of the competition so other companies are forced to compete on Apple's turf.  Everyone else is focused on building licensed commodity hardware, so Apple creates integrated systems.  Everyone else has optimized their supply chains to sell through third party retailers, so Apple creates its own stores.  Everyone else stopped making touchscreen smartphones, so what does Apple make?

You get the picture.  So I don't expect Apple to make any changes in response to the Motorola deal, but I would be shocked if Apple didn't have plans for changing the terms of the competition again now that Google is trying to build more integrated hardware and software.  There are all sorts of game-changing moves Apple could make -- do a much larger push in web services, create an iPhone Nano (fewer features and lower price), even create its own search engine or social network (potentially valuable just to make Google crazy).

What's next?

To sum it all up, it's impossible to predict what will happen.  Hopefully the new balance of power in patents will make the big lawsuits go away, although I doubt we'd see a resolution before the deal closes, and that could take many months.  If Google bought Motorola for the patents, it'll either sell the company or let it gracefully rot, and we'll go back to business as usual. 

On the other hand, if Google tries to integrate Motorola into its business, that's a noble mission, and I hope they'll succeed because the mobile industry needs more competition to Apple in systems design.  I dearly hope Google will take the challenge seriously and recognize that it'll need to make fundamental changes to its culture.  But those changes would be daunting even for a company experienced in mergers, and Google's never done a deal this big before.  I think the most likely outcome of the Google-Motorola merger is some flavor of train wreck.

I hope I'm wrong.

The Case for Software Patents

It's become popular lately to call for the elimination of software patents.  Tim Lee at Forbes sounded the call last month (link), and this week Mark Cuban joined the chorus (link):

"Because of software and process patents any company could be sued for almost anything. It is impossible to know what the next patent to be issued will be and whether or not your company will be at complete risk. It is impossible to go through the entire catalog of patents issued over the last 10, 15, 20 years and determine which will be used to initiate a suit against your company."

I have a ton of respect for many of the people arguing against software patents, but I disagree strongly with their arguments.  I think software patents play an important role in encouraging innovation, especially by small companies.  The loss of them would make it harder for small companies to survive, and would discourage fundamental innovation in software.

The online debate about software patents is very contentious, and much of it focuses on philosophical issues like the nature of software and whether that's inherently patentable.  The debate also often gets mixed with the contention that all software should be free.  I'm not going to get into either topic; the arguments are arcane, sometimes quasi-religious in their fervor, and besides they've already been debated to death online. 

What I want to focus on is the broader issue of the economic role of patents and how that applies to software.  The patent system is designed to encourage innovation by giving a creator a temporary monopoly on the use of an invention.  Does that mechanism work in software?  What are the problems?  And what's the best way to fix them?

When you take that perspective, I think it's clear that there are some genuine problems with software patents.  (Actually, there are problems with patents in general, and software is just the most prominent example.)  But I think there are better ways than a ban to solve those problems.  To me, banning software patents to solve patent problems would be like banning automobiles to stop car theft.  The cure is far worse than the disease.

The value of software patents

Let me start with a personal example.  As I've mentioned before, I'm working on a startup.  When we brief people on what we're doing, one of the first questions we get is, "how will you prevent [Google / Apple / Microsoft / insert hot web company here] from copying you?"

A big part of the answer is, "we've filed for a patent."

A patent isn't magic protection, of course.  It might not be granted, and even if it's granted, patents are difficult to enforce against a really big company.  But it reassures investors, and more importantly if a Facebook or Google wanted to copy our work, the patent makes it safer and quicker for them to buy our company rather than just ripping us off.  So it helps to protect the value of our company.

Without the patent, I think it could be open season on us the moment we announce our product.

Advocates of eliminating software patents say there are other ways to protect software companies.  The first is that software can be copyrighted.  That's technically true, but the only thing copyright protects you from is word for word theft of your source code; it does not protect inventions.  For most software innovations, copyright is no protection at all. 

The second argument is that small companies should move quickly, so the big companies can't catch up with them.  The idea is that if you move fast enough, you won't need patents.  I think there's a consumer web app bias in that advice -- it works best for small apps that can be adopted quickly, or that have a strong social effect (so the user base is part of your competitive protection).  It doesn't work well for software tools that have a slower adoption curve.  The more complex and powerful the software, the slower the adoption cycle.  This is especially true for enterprise tools.  Without patents, those companies are exquisitely vulnerable to being ripped off soon after they launch, when they're just starting to gain word of mouth. 

So for companies creating new categories of software, and especially for enterprise software tools, I think patents remain the best (and really only) protection from theft.

But what about the damage being caused by abuse of the patent system?  If we keep software patents, are we then endorsing those abuses? 

I don't think so.  In the articles I've seen, there are two primary arguments for eliminating software patents: Trolls and patent warfare.  They need to be discussed separately.

Discouraging patent trolls.  The troll problem is something we all know about: patent licensing companies buy large collections of patents and then extort fees from companies that had no idea they were violating the patents.  That's the core of the problem Mark Cuban was talking about above, and it is outrageous.  These surprise lawsuits can have a devastating effect on smaller companies that can't afford to hire a lawyer to defend themselves.  Even if you're in the right, it can be so expensive to defend yourself that you just have to give up and pay the license fee.  That definitely has a chilling effect on innovation, it is contrary to the intent of the patent system, and therefore it needs to be restrained.

But I think the answer in that case is not to eliminate software patents; it's to restrict the right of "non-practicing entities" (patent trolls) to sue for patent infringement.  That would still have a financial effect on small companies -- in the case of my startup, it would make it harder for us to sell our patent if we wanted to.  But patent law exists to protect the process of innovation, not to protect inventors for their own sake.  If you can't put your patent to good use, you aren't contributing to the public good and you shouldn't get the same level of protection as a company that has built a business around a patent.

Patent warfare is a very different issue.  Several large tech companies are using patent lawsuits to slow down competitors and pull revenue out of them.  Eliminating software patents would not stop these wars; they're also based on hardware patents, antitrust law, and any other field of law that the companies can apply.  It's like one of those cartoon fights in a kitchen where a character opens up a drawer and throws everything inside it. 

Yeah, like that.

The underlying problem here isn't about patents; it's about the use (and abuse) of the legal system as a competitive tool.  I've had more involvement in tech industry legal wars than I want to think about: I gave depositions in the Apple-Microsoft IP wars, and I testified in Washington in the Microsoft antitrust lawsuit. The overall experience left me plenty cynical about the legal system, but it also persuaded me that big tech companies are perfectly capable of taking care of themselves in court.  They do not need our help.  You should think of lawsuits as just another way that tech companies express love for one-another.

I'm somewhat sympathetic to the Android vendors being sued by Apple, but a lot of it is their own fault.  HTC in particular has no one to blame but itself for its situation, in my opinion.  HTC was one of the first companies in mobile computing, creating PDAs for Compaq and early smartphones for Orange and O2.  I've got to believe that if HTC had been thinking clearly about patents, there are a lot of fundamental mobile inventions it could have patented.  Then it would have had a big enough patent portfolio to force a cross-licensing deal with Apple.

The same thing goes for Google.  When it decided to enter the mobile OS business, it should have expected that it would end up at war with Apple and Microsoft (heck, anyone could have predicted that).  Google should have bought up a big mobile patent portfolio (like maybe Palm's) back when they were inexpensive.

Are we obligated to change the patent laws just because Google and HTC were careless?  No.  Is it in the public interest for us to intervene anyway?  I doubt it.  Here's how the mobile patent wars will play out:  The big boys will do a whole bunch more legal maneuvering, they'll scream bloody murder, and in the end one of them will write a check to the other.  Then they'll all go back to work.

My advice: If it bothers you, stop reading the news stories about it.  Or sit back and enjoy it as theatre.  It's hardly an important enough issue to justify stripping the patent protection from every small software company in the US.

A world without software patents

If you want to understand the importance of software patents, go back and talk to the first people who patented software.  That's what I did.  Two years ago, I corresponded with Martin Goetz, holder of the first software patent (link). 

Goetz was a manager at Applied Data Research, one of the first independent app companies in the 1960s.  ADR made applications for mainframes, and IBM copied and gave away a version of ADR's Autoflow application (the first commercially marketed third party software app).  ADR might have been wiped out, but it had patented Autoflow, and it was able to successfully sue IBM.  That lawsuit, plus a related one by the US government, laid the foundations of the independent software industry by forcing IBM to stop giving away free apps for its mainframes.

The lawsuits involved a lot of legal issues, including antitrust, so you can't say that software patents alone led to the birth of the software industry.  But I think it's clear that patents helped codify the value of software independent from hardware.  If that value hadn't been recognized, the antitrust suit would have been meaningless because there would have been no damages.

So antitrust and patent law have worked together to help protect software innovation.  Antitrust helped to restrain big companies from giving away free competitors to an app (although that protection has eroded lately), while patents restrained big companies from copying apps directly.  It's like a ladder.  If you pull out either leg, I worry that it won't stand.

In his online memoirs (link), Goetz makes the case that application innovation was slow and unresponsive to users in the decade before software patents, and accelerated dramatically in the decade after.  I agree.  That is exactly the sort of innovation that patent law was meant to encourage, and so I view software patents as a success.

Without software patents, I think it would be far too easy to go back to the bad old days when the big computing companies walked all over small software companies, the software industry consisted of only consultants and custom developers, and software innovation moved at a much slower pace.


More reading:  Software entrepreneur and investor Paul Graham wrote a nuanced and detailed take on the subject here.  Some of his conclusions differ a bit from mine, but the essay is well worth reading.

Quick Takes: Logitech's Misstep, Nokia's New Names and Fonts

Short thoughts on recent tech news...

Logitech strays from the path

I haven't written much about Logitech here, but they've long been one of my favorite tech companies because they have a history of breaking all the rules of Silicon Valley:

--The Valley says you can't make money in commodity hardware, but Logitech makes good profits from the most commoditized bits of the computer industry.

--The Valley says you especially can't make money in low-end consumer hardware, but that's where Logitech thrives.

--The Valley says that if you want to make money in hardware, you need to be based in a low-cost part of the world like China.  But Logitech is Swiss-owned and headquartered in Silicon Valley, two of the highest-cost places to do business in the world.

Logitech succeeded by picking well-established markets like keyboards and webcams where its skills in design, user experience, and added-value features let it charge a bit more than the commodity players.  As the folks at Logitech will tell you, "we're chefs, not farmers."  In other words, we don't create new markets, we come to existing markets and do an especially nice job of rearranging the ingredients.

But Logitech's financial performance hasn't been great for the last two years, and the company's most recent quarter was a loss.  The disappointing earnings report stood out to me because Logitech put much of the blame on its Google TV product, which apparently had apocalyptic negative sales last quarter (more returns from retailers than shipments) (link).  Apparently somebody at Google convinced Logitech to do some farming, and the company is paying dearly for it. 

I'm usually an advocate of companies taking risks and pioneering new markets, and I think that's something Logitech has the skills to do if it's careful.  But in this case, it chose a terrible target: the uncertainties of a new market, but with a user experience constrained by Google's software.  So Logitech took on the risks of farming without the ability to fully apply its own strengths.  Logitech was more or less a passenger on Google's boat.

The lesson, obviously: Be very careful when you step away from your proven strategy.  Oh, and never trust Google to develop a new market for you.

Good luck naming your phones, Nokia (again)

Nokia announced that it has changed the naming system for its phones, going back from letters to numbers (link).  The last time Nokia changed its naming, five years ago, I wrote a piece saying why technology naming schemes eventually break down after about six years.  This morning I thought about updating the post, but actually I think it's still valid as-is, except that naming schemes now apparently last only five years.  Here's a link to the article, so you can judge the rest of it for yourself (link).

Font games

Speaking of Nokia, there are few things more embarrassing for a company than announcing to the world that you have chosen a new font for your corporate communication.  Making font and logo changes is often interpreted as rearranging deck chairs on the Titanic -- "we can't fix our fundamental problems but by God at least we'll fix the font!"  That's unfair, of course; Apple changed its logo in the middle of its rebirth, ditching the six colors, and it turned out just fine.  So I didn't blame Nokia when it announced on March 25 that it was moving to a new font (link).

But I'm surprised that more than four months later, Nokia's old font is still splattered all over its web pages.  You can find the new one in some spots, but a lot of website navigation, headlines, and even new product announcements are in the old font.  Here are some examples (click on the images for a larger view):

Nokia Conversations (official company blog), August 2, 2011.  Note the use of the old font to announce the company's newest product.  That means the use of the old font isn't limited to legacy bits of the website that haven't been converted yet.

Nokia Press website, August 2, 2011.  New and old logos together on the same page.  That's got to annoy the corporate branding folks.

Nokia UK home page, August 2, 2011.  New font used for the headline, but the old font is used elsewhere.

Nokia US home page, August 2, 2011.  Old font almost everywhere.  Well, you kind of expect Nokia's US site to be behind the times.

Nokia Finland home page, August 2, 2011.  The greatest use of the new font -- except when they mention Ovi.  Freudian slip?

I feel childish and petty for picking on Nokia about a little detail like this.  Fonts stand out to me because I used to run a font company, but I know most people don't even notice them.  Nokia has much bigger problems to solve. 

However, four months is more than enough time to switch over to a new font, especially in newly-created headlines.  Since the criticisms about Nokia's smartphones often center on inattention to detail and slow execution, you'd think they would want to execute crisply wherever they can.  In its March announcement, Nokia wrote that the new font is important because "the letters flow into each other somewhat, creating the impression of forward movement." Since the old font lingers, does that create the impression that Nokia's not moving forward?