Thursday, April 07, 2005

NEWS: Inventions that Don't Benefit the Inventors

The transistor. In 1947, scientists at AT&T's Bell Labs created the world's first silicon transistor. Three of its scientists would later win the Nobel Prize in physics for the invention. Bell Labs obtained a patent for the device, but the invention was licensed to, among others, IBM, Texas Instruments and the forerunner of Sony. The goal was to avoid antitrust problems with the U.S. government. (In a 1956 consent decree, AT&T agreed to license the transistor freely.)
But relatively easy licensing terms cost AT&T millions in royalties.

Owning a bit of the Internet. Back in the early '90s, Robert Cailliau of the European Organization for Nuclear Research, or CERN, contacted venture capitalist Sven Lingjaerde to see whether the lab could get funding for its World Wide Web project.
At the time, Lingjaerde was at Swiss firm
Genevest; now he's a co-founding partner at Vision Capital.

"When the project grew in size, more money was needed, and the top management of CERN then decided to cut the budget, claiming it was not directly linked to fundamental research and it was starting to cost too much," Lingjaerde said in an e-mail. "We were considering putting money behind the project, but only if a strong U.S. VC would join. We knew that our small means (would) not be enough. The business model was also not clear."

Onsale. Jerry Kaplan had burned through $75 million while running GO Computing, a foiled attempt at pen-based computing chronicled in his book "Startup: A Silicon Valley Adventure." But in 1994, he co-founded Onsale, one of the first online-auction companies. Backed by Kleiner Perkins Caufield & Byers, it became an early leader.

"It's like money from heaven," he described Onsale to BusinessWeek.

Jerry KaplanCo-founderOnsale Heaven was short-lived. In 1995, eBay was born. A few years later, Onsale went on to merge with Egghead and got auctioned off in pieces.

"If you don't get the model exactly right, capitalism can be unforgiving," Kaplan said in an interview. eBay created a forum for people to

Relational database software. IBM's engineers can take credit for inventing the hard disk drive, the RISC (reduced instruction set computing) chip and speech recognition software, among other technology. The company has been granted in excess of 22,000 patents in the last decade, more than its top 10 competitors combined. But the company doesn't take all of its inventions to market successfully. Take the relational database, for instance.

A young IBM engineer named Edgar Codd defined the concept and structure of the relational database back in the '60s and '70s. Codd's revolutionary idea was to organize data into tables of rows and columns, and to relate that data to other tables. His work produced the blueprint for how to build a relational database, as well as the foundation for what would become SQL, or Structured Query Language, a standard way to access data.

At the time, however, the technology didn't mesh with IBM's corporate strategy. The company was heavily invested in an older database model. The result: IBM didn't market a product based on Codd's ideas until 1978--one year after a young entrepreneur named Larry Ellison founded Oracle. Ellison's company went on to become the leader in relational database software, a $13.5 billion market that Oracle leads to this day.

DOS Microsoft got into operating systems by chance, but this story starts with IBM.
For its first PC, IBM initially considered using the C/PM system from Digital Research. Because Digital Research wouldn't sign a nondisclosure agreeent, IBM asked Microsoft, then developing applications for IBM, for MS-DOS.

MS-DOS, however, was actually based on QDOS, an operating system created by Tim Paterson of Seattle Computer Products. Microsoft bought QDOS from SCP (which didn't know about the IBM deal) for $50,000.

The sale became the basis of an empire. Subsequently, Paterson worked temporarily at Microsoft.

Yahoo passes on Google. Most technology mergers don't work, but there are cases in which an established company could have avoided big headaches later. Google was a project at Stanford University's engineering labs in 1998, when the founders showed it off to Yahoo co-founder David Filo. According to Google, Filo said he wanted to talk with them when the technology was fully developed and scalable. Sources said Yahoo even had a chance to buy Google.
Since then, Google, of course, has become Yahoo's biggest competitor. But in retrospect, it seems somewhat reasonable that Yahoo wouldn't have been jumping to buy the company. Search was a flooded field at the time. Stanford had little luck finding early investors.

Yahoo, however, isn't alone. It offered itself--in vain--to Netscape back in the mid-1990s.

The microdrive and hard-drive-based MP3 players IBM started shipping an invention called the microdrive--a mini hard drive with a 1-inch diameter platter, in 1999 and waited for business customers to snap it up. And waited...and waited.

Sales never materialized, and IBM, which invented the hard drive back in the '50s, continued to lose money on drives. (HP also came up with a small drive in the '90s but snuffed it.)
Apple Computer's iPod

Fast forward to 2002: IBM
dished its drive business to Hitachi. In 2003 and 2004, the mini iPod and other music players made mini drives a hot commodity.
"IBM didn't see the consumer," said Bill Healy, senior vice president of product strategy and marketing at Hitachi Global Storage Technologies and a former IBMer. "Hitachi is the GE of Japan. They make rice cookers, refrigerators, nuclear-power plants."
Mistake? Hitachi has had more luck selling drives, but the business is still notoriously competitive and profits are often elusive. And, unlike IBM, Hitachi faces a
slew of competitors in this market.

On a somewhat related note, Compaq Computer, Dell and others marketed MP3 players with hard drives before Apple did. However, they were
home systems with standard PC hard drives. In January 2001, it seemed like a promising market. In October 2001, Apple came out with the first iPod based on a novel 1.8-inch drive that had interested few manufacturers. Portability won out.

Xerox PARC Move along, folks, nothing to see here. Xerox has been flayed mercilessly for allowing concepts such as the desktop PC, Ethernet networking and the laser printer--all invented at its famed Palo Alto Research Center, or PARC--to get exploited by others.
The photocopier giant is now trying to stay afloat in a world going paperless. Still, PARC did help launch the careers of a number of people: James Clark, Alan Kay, Robert Metcalf and Lawrence Tesler, among others



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