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Android: a brilliant case for

collaborative management of
innovation & intellectual property (IP)
Exercise
market power Sell License Collaborate Donate

Aim: dominate Aim: Collaborate

Professor of intellectual property law W. Fisher proposes


a framework of 5 different IP management strategies:
1 exercise market power,
2 sell,
3 license,
4 collaborate,
5 donate.

Innovators often choose by default “exercising market


power.” Learn about the 5 vital strategies and that
collaborative strategies can be extremely powerful.
Exercise
market power Sell License Collaborate Donate

Apple Lisa (1983) Power of IP


Apple App Store (from 2008)
“exercising market power” management “collaborate”
strategy
Number of Applications: 7 Number of Applications: 2,200,000

“Microsoft invited third-party


developers to create as many Only with iOS 2.01 (iPhone 3G) did
applications as possible for the Apple allow collaboration.
Microsoft operating system.” Here is what happens next:
… thereby increasing its value and
crushing competition (incl Apple, Number of apps in iOS App Store
and leading to Steve Jobs ousting)
Apple didn’t open their Apple Lisa to
others, remaining with 7 apps for
most of its time

2008 2016
1. IP management strategy: exercise market power

IP protection through:
• patents,
• trademarks,
• copyrights and
• trade secrets.

• IP protection works better/longer in certain


industries (see right)
• IP protection can give you a temporary
monopoly but will motivate competition
• Many patents get imitated or worked around
within a few years
• IP holder needs to grow the market alone
(=high cost) in order to gain above-average
profits until competition develops after which
profit margins mean-revert (=reduce)

Net patent premium (Arora 2006,


published by National Bureau of
Economic Research, NBER)
2. IP management strategy: sell

Important insights on the ability/probability to profit from


your IP has been provided by professor D Teece.

Example
Nortel 6000 patent IP
auction:
• 4 days, 20 rounds
• If you are unlikely to successfully commercialise your IP,
you might be better off selling (or licensing) it • Sales price: $4.5b
• “Sale makes sense if the difference between (a) the • Buyers: group of 6, incl
value of the IP in your hands and (b) its value in B's Apple, Microsoft, RIM
hands exceeds (c) transaction costs” Prof W. Fisher
• Buyers start seeking
• Consider risk-weighted value of keeping the IP and the licensing royalties from
benefit minus risk-weighted strategic costs of selling users of the IP
3. IP management strategy: license (for royalties)

Revenues from licensing


Opportunities …

Licensing is increasingly used as


source of additional revenue

And risks …

Licensing is … complicated
… and full of litigation cases Number of patent lawsuits
commenced
Recent jump due to regularly changes, but general
trend increasing in line with growing number of
patents
The case for collaborative approaches: the market’s potential

Using patents to exercise market


power is often based on the “I think there is a world market for
assumption that the size of the maybe five computers.” Thomas
market is limited. Watson*, president of IBM, 1943.

Collaborative approaches assume


“There is no reason anyone would
- and contribute to - growing the
want a computer in their home.” Ken
market
Olsen*, founder of Digital Equipment
Corporation (DEC), 1977.
Android takes over most of the
mobile OS market, now at >90%

Market potential is hard to predict.


Collaborative approaches can
accelerate the growth trajectory
ANDROID is a brilliant example
* Ken Olsen has claimed to be quoted out of context, Thomas Watson has made
significant contributions in the early computer days. Both gents have our respect.
Google uses collaborative IP management strategies for Android

2003: Android, Inc. founded

2005: Google acquires Android

2007: Apple iPhone 1G released

2007: Open Handset Alliance inaugurated


Collaborate Google collaborates with complementary partners
(34 founding members from across the industry) to
Donate develop open standards based on Android (large
parts of code base are open source, i.e. donated)

License 2008: First handset using Android released: HTC


Dream (using Android on a free of charge license)

2010: collaboration with renown companies on


Google Nexus: LG, HTC, Samsung, Motorola, Asus

2016: Google Pixel smartphones announced


4. IP management strategy: collaborate

Acer
Alcatel
Collaborate:
Asus
Google was the leading force behind the
CGI
Open Handset Alliance (OHA), a
Dell
collaboration of initially 34 (now 84) telco and
Foxconn
tech companies that all support Android and
Fujitsu
commit to using it under its licensing terms
Garmin
and not to work on a competing mobile OS.
Haier
HTC
Huawei
Kyocera
Lenovo
Most LG
major Motorola
handset NEC
manufac Oppo
turers Pantech
are part Samsung
of the Sharp
OHA Sony Ericson
Toshiba
ZTE
Corporation
5. IP management strategy: donate

License (free-of-charge):
Members of the Open Handset
Alliance take free-of-charge
license of the Google Mobile
Services. These are the
premium features of Android …
shows that licensing doesn’t
GMS have to be a battleground…
Google Mobile Service

Donate:
Android Open Source Project
AOSP (AOSP) is a basic mobile phone
Android Open Source Project operating system. It is open
source. Anyone can download,
adapt, use it. It has a basic
version of the GMS functions.
Most popular in China
Freemium vs Premium - not everybody gets a lick

• A lot of the Google apps and functionality exist only in rudimentary form in the
open-source code (AOSP).
• Over time Google moved the most popular Google apps into to-be-licensed
version of Android, the GMS.
• Critics and competitors state that Google “forces” the licensee to pre-install
the all GMS apps if they want to use any one of the apps (e.g. YouTube or
Google Play Store) or any of the enhanced functions, e.g. advanced location
services or in-game payments. Google says, these services belong together.
• The European Union takes this serious and have launched an inquiry into
Google over the alleged practices and their impact on competition. Check also
what Google has to say about this: https://www.android.com/everyone/facts/
MS • note: things are a bit different within China but that is a different story altogether.

bile Service
AOSP GMS

Search added: voice search, text-


Rudimentary
(on phone) to-speech

connected to Google Play


Music Rudimentary
Music, +enhancements

Calendar, keyboard, Several generations of


OSP camera, messaging
Rudimentary
enhancements
Source Project
Location features, in- Very basic

Advanced features
game payments Non existent
Donating your IP creates the risk of others “stealing” it from you …
Making Google apps & functionality proprietary, is an important
measure of risk control for Google

So far, only Amazon


has accepted this “ton
of extra work” and
created the Amazon
Appstore in place of
Google Play
Google’s benefits from Android are significant*:
— Many of the pre-installed Google apps connect to Google services
— They add users to the Google ecosystem
— Opportunity to display Google ads (as google is default search engine)
— Collect search data
— Collect user data (incl location data)
— More targeted ads (e.g. location and context specific)
— Direct them to Google social apps (Google+, Hangouts, YouTube)
— Revenue from Google Play Store
— Revenues from Google Music
— On-the-go availability of Google ecosystem
— User data from Google Maps and location-specific ad revenues
* for completeness sake, note there are some views stating that immediate revenues from Android are low,
totally ignoring the disastrous counterfactual (imagine the impact on Google’s customer value proposition
without the above!).

GMS apps are used for


collecting valuable user data,
getting search traffic, displaying
targeted ads, create (soft) lock-
into Google ecosystem and
generating ancillary revenue
In the war of mobile OSs, Android was the most collaborative one …and
this strategy choice was a key to their success. This is most remarkable -
and even more so - given they were late movers

Google saw a possible Microsoft dominance


on the mobile OS market as a major risk to
losing a lot of search traffic. Microsoft OS
has 42% market share in the US in 2007

Symbian was used by Nokia (who were


disrupted by smart phones) and many
who switched to the free, better Android
What does the future bring?
• Some experts believe the number of developers/apps is the best proxy for the
network effects on platforms, e.g. game consoles but also mobile OS, thus the
future success of the platform.
• Based on this, come to your own conclusions on the future of the different OSs.
• It is interesting that the measure of collaboration (=number of apps, which are
99% 3rd party developed) is also the best proxy for the success of the platform.

Windows (app) Store contains


Window Phone Store, Xbox
Video/Music

Amazon has developed their


own mobile OS (based on
Android AOSP) and have their
own Appstore
Learn how to make the most out of your innovation ideas.

We have 10 downloads (ebooks, presentations, infographics


and worksheet) for you for a rapid knowledge burst:

www.InnovationTactics.com/strategic-IP-management

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