Great Moments in Tacit Knowledge, High-Energy Physics Division

From Alan Krisch’s 2010 account of research involving the (still-unresolved) anomalous behavior of tranversely polarized colliding protons:
After all this hardware was installed, an even larger problem was tuning the AGS. In 1988, when we accelerated polarized protons to 22 GeV, we needed 7 weeks of exclusive use of the AGS; this was difficult and expensive. Once a week, Nicholas Samios, Brookhaven’s Director, would visit the AGS Control Room to politely ask how long the tuning would
continue and to note that it was costing $1 Million a week. Moreover, it was soon clear that, except for Larry Ratner (then at Brookhaven) and me, no one could tune through these 45 resonances; thus, for some weeks, Larry and I worked 12-hourshifts 7-days each week. After 5 weeks Larry collapsed. While I was younger than Larry, I thought it unwise to try to work 24-hour shifts every day. Thus, I asked our Postdoc, Thomas Roser, who until then had worked mostly on polarized targets and scattering experiments, if he wanted to learn accelerator physics in a hands-on way for 12 hours every day. Apparently, he learned well, and now leads Brookhaven’s Collider-Accelerator Division.
Score a data point for the individualist view of organizational capability.

Creativity=recombination, Jedi edition

Where do great ideas come from? A popular notion among creativity experts is that recombination of preexisting ideas in a new context is the form that most if not all creativity takes. One more datum: Courtesy of my lovely wife, it seems that George Lucas may have been voguing, so to speak, when he came up with one of his most iconic images. 


Kill Patents, Save Innovation?

The patent system is “a real chaos”. Its faults were laid bare yesterday in an extensive New York Times article, which quickly reached the “most emailed list” (The Patent, Used as a Sword; and see Melissa Schilling’s review). But the same article also hedged by reminding us “patents are vitally important to protecting intellectual property”. But is intellectual property really essential for innovation? For an answer, look just a little past commercial software and you will see vast open collaboration without patents or copyright. Wikipedia, an open initiative, answers many of our questions. Open source software such as Linux and Android power most commercial websites and mobile devices, respectively. In myriad forums, mailing lists and online communities, users contribute reviews, provide solutions, and share tips with others. Science has been progressing by enlisting thousands of volunteers to classify celestial objects and decipher planetary images. Innovation without patents is real. Researchers estimate that open collaboration and user innovation bring more innovation than than the patented kind. Our legal and commercial system can do more to encourage it.


“Patents as Swords”? — More like Patents as Bombs

A great New York Times article this morning (link below) details ways in which the patent system gets used as both an offensive and defensive weapon, with billions of dollars of collateral damage to start-ups, consumers (see the “patent tax”), and innovation in general. The victim in the opening Vignette (Vlingo, a voice-recognition software start-up) might have been saved by a simple change in the rules: make the losers of patent lawsuits pay the legal costs of the winner. It turns out that it’s rather easy to kill small firms (or force them to sell to you) by launching a patent lawsuit against them that bleeds them dry with legal fees. You don’t have to win — you just have to force them to fight until they no longer have any money.  Vlingo ultimately won the patent lawsuit that had been filed by a much larger rival, but had to loot its own meager coffers to pay the legal fees of doing so. Vlingo slumped home with its patent lawsuit victory and shut its doors for good. If losers of such battles paid the legal fees of winners, such fights might both be less common, and less likely to be fatal.

The article also points out that software patents have proven particularly dangerous because they are prone to protecting vague claims like “a software algorithm for calculating online prices,” thereby granting the patent holder vast tracks of technological real estate. An interesting talk by Tilo Peters at the Strategic Management Society conference yesterday points to another useful tool for rationalizing some of this misuse of the patent system: Strategic disclosure. If, for example, you decided to publish a manifesto about all of the things you might do with software in the reasonable future (remember patents have a “usefulness” condition so you’re not allowed to claim something deemed non-feasible), you might be able to essentially proclaim that technological territory as unpatentable. It wouldn’t prevent competitors from developing in those areas, but it could keep them from patenting in those areas. In essence, it transforms a space in which property rights may be allocated into one in which property rights may not. I’ve left out some details but you get the idea.

Now it occurs to me that a fair amount of strategic disclosure in the smart phone space took place in the form of Star Trek episodes. I’m going to go look for references to prior art…

-Melissa Schilling

http://www.nytimes.com/2012/10/08/technology/patent-wars-among-tech-giants-can-stifle-competition.html?smid=pl-share


Alex Tabarrok’s Patent Policy napkin

Alex Tabarrok's Patent Policy napkin

Alex Tabarrok’s pictorial commentary on patent policy, drawn on a napkin, posits that the current patent system is somewhat too strong and thereby decreases innovation (the link to his original post is below). I have to say, however, that I don’t think patent strength is the problem. The problem is that the growth in patent applications over the last two decades has vastly exceeded the growth in resources available to the patent office, resulting in 1) long delays between patent application and granting (which can render patents completely pointless in fast moving industries), and 2) inadequate ability to examine the patent applications for novelty, usefulness and non-obviousness. This lowers the value of good patents (because they aren’t granted quick enough or may be fallaciously challenged) and increases the likelihood of bad patents being granted. As a result, for many individuals and firms, the expected net gains from manipulating the patent system for the purposes of extortion (hostage taking, patent trolling) now exceeds the expected net gains from using the patent system to actually innovate.

It’s difficult to assess how patent strength affects innovation without first making sure that patents are being granted and used the way the system had originally intended.

Alex Tabarrok’s original post can be found here:  http://marginalrevolution.com/marginalrevolution/2012/09/patent-theory-on-the-back-of-a-napkin.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+marginalrevolution%2Ffeed+%28Marginal+Revolution%29


Uber innovation: say goodbye to bricks and mortar taxi service

My colleague Josh Gans recently turned me on to UBER, a smartphone-based taxi service. I used it for the first time yesterday to get to the Toronto Airport. I’ll be surprised if this technology doesn’t eventually kill the taxi business as we know it. 

From the user’s perspective, you simply download an app and sign up for the service online. When you want a cab, you open the app. It shows you all the Uber vehicles around you on a google map. It tells you how many minutes it will take for one to get to you (in my case 8). You hit a button and, if you are so inclined, you can watch your car approaching on the map. A few minutes later, viola!, you receive a message telling you your cab has arrived. Our car was a spotless black limo-style sedan. The transaction is handled through your account with them via your credit card. No money changes hands with the driver (tip is included) and a detailed receipt is immediately emailed to you (great for expense reports). The cost in our case was identical to the standard fare + tip.

As far as I’m concerned, the experience dominated that of the status quo by a significant margin. It got me to thinking about the business model. As an investor, I would always be wary of any business 3 computer science grads from MIT could replicate in a basement. I can’t imagine there is anything in the Uber technology that creates a meaningful entry barrier. Moreover, unlike a Facebook type business, there don’t seem to be any network externalities working to the advantage of the first-mover. 

On the other hand, there are non-technology features of the business that are central to its success and, perhaps, not so easy to replicate. The most obvious is setting up a base of independent drivers. I was chatting with our driver and learned that substantial resources are devoted to vetting drivers and, once they are on board, regularly checking up on them to make sure the standard of service (car cleanliness and so on) remain high. That requires some infrastructure and know-how. 

Then, there are the reputation effects. Strong reputation is going to be a substantial benefit on the supply side – i.e., recruiting and maintaining good drivers. Plus, for the first time, a supplier of taxi services can build up not just a national but international retail brand. That’s a big deal. Apparently, Uber does not have to contend with local medallion laws — the cars are not marked and cannot be hailed from the street. This will help them a lot in expanding their business.

Still, the service only works for people with smartphones — a big limit to growth, at least for now. Also, it is hard to imagine that one or two competitors won’t take a run at them, especially if (as I suspect) this business really takes off. When that happens, who is going to appropriate the value? What is scarce in this situation? There appears to be no shortage of taxi drivers, though being able to find and maintain top-quality ones should confer some advantage. Also, my intuition is that the market will support two or three such businesses, not tens or hundreds. So, oligopoly prices under constrained capacity, at least for the high-end, high-quality version of the service, are likely to obtain.

Yet, the arrival of competition will surely send some additional value the consumer’s way in the form of lower prices. And this is not exactly a high-margin business to begin with. Therefore, at some point in the future, expect to see an established Uber lobbying local governments to regulate its segment of the business — waxing poetic on why it is in the public’s interest for cities to issue them some form of competition-inhibiting, medallion-like licenses of their own.


Entrepreneurship: Exploring (or Building) Adjacencies

Because I write and teach about innovation and strategy, friends and students often ask me to evaluate their new business ideas. A relatively large percentage of these business ideas are about a product the individual somehow identifies with, but in an area in which the individual has no work experience. The mythology of entrepreneurship is that it’s all about great ideas. The reality is that great ideas are a dime a dozen; successful entrepreneurship is much more closely linked to the ability to execute. How do people learn to execute? In general, it’s through having deep experience somewhere in the value chain. In other words, most successful entrepreneurship is accomplished through exploring (or building) something adjacent to where you already are or have been. If, for example, you have worked for an interior design firm for several years, and you travel to South Africa and see beautiful and unusual textiles you would like to be able to use in your practice, but no one is importing these textiles, you are in a much better position to create such an import business (and to know what it’s worth, and how to reach the target market) than another tourist who sees the beautiful textiles and wonders why the interior designer she has hired hasn’t shown her anything so unique.

Adjacent positions give you insight into the value chain of your target area (Who are the likely suppliers? What is their cost structure like? Who are the buyers? How are they used to being presented with goods to choose from? How big is the market? How are the logistics typically handled?). Adjacent positions can also help you identify valuable problems to solve (What aspects of the currently available products or business model are inefficient or irritating? What new innovation would exceed customer expectations, and how much more would they pay for it?). Perhaps most importantly, occupying an adjacent position means you are more likely to have valuable network contacts to lubricate your entry – for example, already having a relationship and credibility with distributors will usually have a big impact on the rate at which you can enter a market.

What if you love an idea, and are motivated to execute on it, but aren’t in an adjacent position? Build one. Consider working (or interning) for a firm that is either upstream or downstream in the value chain you will be entering. If you can offer up your effort at a low cost (preferably free) for at least a few hours a day, you can usually edge your way into just about any business. You could also consider working for someone who will ultimately be your competitor, but working for someone who will be your supplier or your customer is more likely to engender goodwill in the value chain, and help you accrue valuable contacts that you will use in your new business.

A case in point: My good friend, Rick Alden, founded a company called Skullcandy in 2003 that makes, primarily, headphones with an edgy, extreme sports aesthetic.  I was initially skeptical of his idea to enter headphones – to me it was a commoditized product category dominated by companies that operate in countries with significantly lower production costs. Rick, however, was deeply embedded in an adjacent industry – snowboarding. He had founded National Snowboarding Incorporated in the 1980s (which promoted the sport of snowboarding and offered lessons and competitions), and had designed and patented the first ever step-in snowboard boot and binding system. His brother Dave was a pro-snowboarder for Burton, and his father Paul Alden had been one of the founders of the North American Snowboard Association which helped to create guidelines for teaching snowboarding and developed the snowboarding World Cup. In short, Rick knew snowboarders – he knew their aesthetic, and he knew their habits. He knew most of the major snowboarding manufacturers, snowboard shops, and snowboard pro-riders. So when Rick launched Skullcandy, he was not only in a great position to evaluate what design features snowboarders would respond to, he was also able to get endorsements from the most famous snowboarders, and get on the shelves of the best snowboard shops. Once he had captured that market, the mass market (Best Buy, college bookstores, etc.) eagerly demanded product. Within two years Skullcandy had surpassed a million in sales, and by 201 1 Skullcandy’s sales had reached $231 million.

Had Rick started by developing a mass market product and approached Best Buy, it is unlikely the story would have turned out the same. It is equally unlikely that someone outside of the extreme sports industry could have replicated what Rick did. It was Rick’s adjacent position that gave him the knowledge, the contacts, and the credibility to enter and succeed in this market.


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