Saturday, December 10, 2011

The Banana Grab - Market Share Can Change

I frequently see articles about Silicon Valley companies suing each other or purchasing patents seeking market share in mobile computing. It is difficult to keep track of all of it. I guess that's understandable given patent infringement lawsuits relating to mobile phones have increased 25% yearly since 2006. Source

In The Gorilla Game, Geoffrey Moore stated successful high-tech investors must identify and invest in the companies that would catapult to "gorilla" status, dominating their market. He discusses many factors that lead to gorilla status, but not so much about patents. That book seems a little dated for that reason.

Today, tech companies believe patents play a major role in getting or protecting market share.  Thus, we have Apple and others' patent infringement suits around the globe, and Apple and Microsoft's $4.5B purchase of the Nortel patents and Google's $12.5B purchase of Motorola Mobility, etc.

However, what matters is not owning 17,000 patents, but whether the patents protect basic technology. It may help to look back at the Netscape-Microsoft browser war. Netscape patented many of its innovations, but the patents never became a factor in retaining browser market share. How come? It was an impossible task. Although Netscape added many innovations to the Web and enterprise software beside its browser and server software, such as intranets, extranets, Javascript, SSL, cookies, and other HTML extension, Tim Berners-Lee, the inventor of the basic Web technology, including the text formatting system HTML, the communication standard HTTP, the URL addressing scheme, and a browser, decided the rate of adoption would be faster without patents. This helped speed the adoption of the Web, but not Netscape's long term fortune against Microsoft. 

What can be learned from the browser wars that might apply to the mobile computing today?

1. Owning an unpatented market share of something valuable is vulnerable. Netscape gained dominant market share, but the basic technology was in the public domain. 

2. Big money will attract gorillas. If you're close to a gorilla, the basic technology must be protected with patents. If it cannot, expect to lose market share (some or all) to the gorilla, i.e., the bananas will be grabbed. 

3.  As long as the basic technology is unpatented, market share can shift rapidly. Netscape's gorilla-like market share disappeared rapidly, that is, basically faster than Netscape could adjust. 

4.  If no one has patented the basic technology or control of the basic patents is distributed among companies, it is difficult to envision the market share shifting based on patents. Eventually the companies must license each other's patents and the market divides up.

5. Identitying and patenting basic technology is crucial. If you cannot, you should identify a niche that will not attract a foraging gorilla. 

Copyright © 2011 Robert Moll. All rights reserved.