Business Model Trends – The Good, The Bad, and The Ugly

March 22, 2011

Two days before an earthquake measuring 9.0 on the Richter scale struck Japan, resulting in a devastating tsunami and near meltdown at the Fukushima nuclear power plant, we wrote on this blog about “the growing interest in nuclear power” as an alternative to coal fired power plants.

Oops!

While nuclear power-generating facilities have been greatly improved since the Fukushima reactors were built — and the prospects for nuclear energy in the future are still bright — the timing is bad. The prospects for nuclear energy in the short term have dimmed as the costs associated with using that technology are being recalculated.

That wasn’t the only thing wrong with my blog post. A reader called my attention to the case against venture capitalist Nathan Myhrvold’s company, Intellectual Ventures. Myhrvold is the former chief technology officer of Microsoft whose new company invests in technology rather than investing in companies. Intellectual Ventures buys the rights to patents it likes, then markets those patents to other firms. Or does it?

According to Mike Masnick, the prolific and outspoken editor of TechDirt, Myhrvold’s venture is not based on marketing patents but on “shaking down” companies by suing anyone using its patents without permission. Masnick accuses Intellectual Ventures of disguising its true business model by using shell companies to file the lawsuits:

[Intellectual Ventures] had decided to protect its brand name by getting other companies or creating those companies itself, giving the patent to those other companies that no one had ever heard of, and having them sue.

Ouch!

While we did praise Myhrvold’s business plan on this blog, his method for picking technologies to invest in was our focus, not his manner of collecting on those investments. However, without beating up on ourselves too much, we should point out that another company with a strikingly similar business plan has been the recipient of tremendous admiration in the media these past few weeks.

I’m speaking of ARM, the technology company behind the low-heat computer chips used in Apple’s iPhone and iPad, along with many other smartphones and tablets. The company is not bashful about its creative structure:

ARM has an innovative business model. Instead of bearing the costs associated with manufacturing, we license our technology to a network of partners, mainly leading semiconductor manufacturers and OEMs. These partners utilise our designs to create smart, low energy chips suitable for modern electronic devices.

This structure — licensing technology rather than manufacturing it — has led to a gross margin for ARM of 94%. With revenue of $631 million in 2010, ARM had a profit of $593 million. You have to envy that ratio, no matter what business you’re in.

ARM’s business model is similar to Intellectual Venture’s stated mission, yet while Myhrvold is the recipient of scorn from TechDirt and others, ARM is getting nothing but love these days. Renown technology strategist, Michael J. Fern, gushes over ARM’s business model, saying it confers “three significant advantages over Intel.”

The Wall Street Journal joined the praise parade, with University of Chicago-trained economist and new “Heard on the Street” columnist, Rolfe Winkler, noting “ARM… doesn’t have to deal with manufacturing costs or the risks of holding inventory. It’s a deeply profitable business.”

The best take on ARM’s business model, from a Minitrends perspective, comes from the recent article by Om Malik at the influential blog, GigaOM. In a post critical of Twitter’s business model, the highly-respected tech journalist compares and contrasts the business models of half-a-dozen tech companies, including Xerox, Apple, Google, and ARM. Relying heavily on the work of business guru Alex Osterwalder, Malik concludes that “the business model innovation is what turns great products into fearsome companies.”

Sometimes, the most beautiful business models can turn ugly down the road. I was teaching a workshop once when a perplexed attendee kept interrupting with questions. “How do you generate sales,” he asked. “I don’t have sales,” I answered, “I only have expenses. All I have to do is cover my expenses.”

I was describing the workings of a technology startup that made videos of businesses without charging those businesses. Costs were recouped by finding sponsors to cover the expenses. The fellow in the back of the room couldn’t understand the business model and, as it turns out, neither could investors or sponsors. An early online video play, the company died in 2008 for lack of revenue.

The clever idea of yesterday can seem brilliant or stupid a few years — or even a few days — later. That’s why, for your own Minitrends Adventure, we recommend spending as much time thinking about the business model as you do about the services or goods being sold.

STEVE O’KEEFE
News Editor, Minitrends Blog

Source: “Nathan Myhrvold on Uncovering and Investing in Technology Trends,” Mintrends Blog, March 9, 2011
Source: “Nathan Myhrvold’s Intellectual Ventures Using Over 1,000 Shell Companies To Hide Patent Shakedown,” TechDirt, Feb. 17, 2010
Source: “ARM Disrupting Intel with its Business Model?,” FernStrategy, March 10, 2011
Source: “Getting an ARM Up on Intel,” The Wall Street Journal, March 17, 2011
Source: “What Is Twitter’s Problem? No, It’s Not the Product,” GigaOM, March 8, 2011
Photo courtesy of Steve Jurvetson, used under its Creative Commons license.

IDC Sees Perfect Storm in Portable Computing

December 8, 2010

On December 2, International Data Corporation (IDC), the giant IT research firm out of Framingham,  Massachusetts, released its annual predictions for IT in the coming year. The firm is forecasting a perfect storm for IT: a combination of cloud computing, mobile computing, and social networking that threatens to consign desktop PCs to the storage closet.

The author of the survey is IDC’s chief analyst, Frank Gens, who leads IDC’s 1,000 analysts in 110 countries in tracking IT trends. Summarizing this year’s report, Gens sees a nearly complete transformation in the dominant computing platform:

What really distinguishes the year ahead is that these disruptive technologies are finally being integrated with each other — cloud with mobile, mobile with social networking, social networking with ‘big data’ and real-time analytics. As a result, these once-emerging technologies can no longer be invested in, or managed, as sandbox efforts around the edges of the market. Instead, they are rapidly becoming the market itself and must be addressed accordingly.

As the IDC report ripples through the Internet, different players are examining what it means for the future of computing. At ComputerWorld, Sharon Gaudin comments on the surge in social networking, suggesting that business startups will stop building expensive and complicated websites and opt for free Facebook pages instead.

Anuradha Shukla at TechWorld is enthusiastic about IDC’s upbeat predictions for IT expenditures. The report forecasts a 5.7% increase in outlays over 2010, to $1.6 trillion worldwide. IDC sees half of that spending coming from emerging market countries shrugging off the recession.

At PC World, Patrick Thibodeau focuses on IDC’s prediction that shipments of apps-enabled mobile devices — smartphones and tablets — will surpass shipments of PCs in the next 18 months. Thibodeau points out, however, that shipments of PCs are not declining; rather, they are growing, but not nearly as quickly as mobile devices.

Another prediction that is sure to catch the eye of venture capital firms: Gens says that nearly a third of the major players in social networking will be bought up in the coming year by the likes of Oracle, Microsoft, HP, and IBM, who need to get in the game.

While many others futurists we have covered on the Minitrends blog have made similar predictions about the growth in cloud computing, mobile computing, and social networking, none of them have joined them together with such a powerful vision of a whole new way of working that Frank Gens brings to IDC’s report.

What do you think is coming in 2011? Do you think it will be just more of the same, or the beginning of a totally new platform, as the IDC report speculates? We welcome your comments.

STEVE O’KEEFE
News Editor, Minitrends Blog

Source: “IDC Predicts Cloud Services, Mobile Computing, and Social Networking to Mature and Coalesce in 2011, Creating a New Mainstream for the IT Industry,” IDC Press Release, 12/02/10
Source: “Business will get more social in 2011, IDC says,” ComputerWorld, 12/06/10
Source: “Cloud services, mobile computing and social networking to mature in IT industry,” TechWorld, 12/07/10
Source: “In historic shift, smartphones, tablets to overtake PCs,” PC World, 12/07/10
Photo by davedehetre (David DeHetre), used under its Creative Commons license.

FTC Advocates Do-Not-Track; Advertisers Upset

December 3, 2010

On December 1, the U.S. Federal Trade Commission presented a preliminary report (PDF) outlining a “framework for privacy” that endorses a “Do-Not-Track” option for Web browsers similar to the agency’s popular “Do-Not-Call” service for telephones.

Unlike the Do-Not-Call program, which creates one central place where individuals can easily add their phone numbers to the list, with reprisals for companies that violate their preferences, the Do-Not-Track mechanism (“DNT”) will be built into the Web-browsing software and other applications used to access the Internet from computers, tablets, and smartphones. Each piece of software or app would have to include a DNT feature. Currently, there are no proposed guidelines for consistently implementing that feature, nor any real authority to enforce it.

Forbes‘ new privacy blogger, Kashmir Hill, says, “At the end of the day, this report isn’t going to change anything.” Kevin Fogarty, the highly opinionated blogger for ITworld‘s “CoreIT” blog, is blunt in his assessment, calling the FTC report:

[...] a set of recommendations with roughly the same clarity, credibility and impact of a strongly worded letter from the U.N. to this year’s evil dictator asking him to please not kill and eat so many villagers.

At The Huffington Post, consumer rights activist Jamie Court threatens a privacy initiative in California: “If Congress doesn’t act, we will go to the ballot.”

While Internet giants, including Google and Microsoft, have learned to tame their public pronouncements and pay lip service to the FTC’s recommendations, they let the trade groups they fund do the barking for them. Mike Zaneis, senior vice president and general counsel of the Interactive Advertising Bureau (IAB), is quoted by The New York Times media reporters Edward Wyatt and Tanzina Vega as saying that the DNT mechanism will cause “significant economic harm” if it has “a high participation rate similar to that of do not call.”

The IAB is recommending voluntary measures where sites place prominent “opt-out” buttons that disable tracking, rather than a central registry or browser build-ins. The organization touts its AboutAds.info site, where you can opt out of being tracked by a very small group of sites that participate.

John and Carrie Vanston devote a major section of their new book, MINITRENDS, to business opportunities arising from increasing interest in privacy. They predict that the U.S. will strengthen its privacy laws, opening up profitable new business lines for entrepreneurs:

The federal government of the United States has adopted only limited formal legislation to protect privacy compared to Canada and most European countries.

Among the businesses that will profit from strengthening privacy laws are software developers, training firms, and the new field of online reputation management companies.

Certainly, someone needs to come up with a solution better than the IAB’s “opt-out” site. When this reporter visited the site to test the opt-out features, I was advised I would have to enable cookies in order to install the software (see screen capture, above). While enabling cookies would protect me from being tracked by few dozen sites participating in the IAB’s program, it would open me to tracking by the millions of sites that not only don’t participate, but sometimes use methods that are much more intrusive than those of IAB’s supporters — methods which remain, unfortunately, virtually unregulated.

STEVE O’KEEFE
News Editor, Minitrends Blog

Source: “Protecting Consumer Privacy in an Era of Rapid Change” (PDF), Federal Trade Commission, 12/10
Source: “Brief Takeaways — and a Pretty Diagram — from the FTC’s Online Privacy Recommendations,” Forbes, 12/01/10
Source: “FTC becomes aware there is an Internet,” ITworld CoreIT Blog, 11/17/10
Source: “Will We Get a ‘Do Not Track Me’ List for Our Personal Information Online?” The Huffington Post, 12/01/10
Source: “F.T.C. Backs Plan to Honor Privacy of Online Users,” The New York Times, 12/01/10
Source: MINITRENDS How Innovators & Entrepreneurs Discover & Profit From Business & Technology Trends, p. 97.
Image from AboutAds.info, the Interactive Advertising Bureau’s “opt-out” site, screen capture recorded 12/02/10. Used under Fair Use: Commentary.

Lundquist: Service Is Top Tech Trend for 2011

December 1, 2010

December marks the peak season for looking back on trends from the previous year and forward to trends in the coming year. We’d like to start the month at the Minitrends Blog by sharing the forecasts of famous prognosticators in technology trends to see where they are pointing.

First up is Eric Lundquist. Lundquist is a fixture at Ziff Davis Enterprise, where he has ridden the waves of publishing trends as he reports on technology trends. The Harvard-educated scientist began his career as a journalist (you remember what those are, don’t you?), honing his craft as a daily newspaperman. A newspaper is collection of alphabet in ink on paper that was written yesterday, about today, and is worthless tomorrow.

Lundquist joined Ziff Davis back when eWeek was named PC Week, and quickly rose to editor-in chief of that publication. Following his own advice that video is growing as a method of information delivery, Lundquist moved into video production as creator of CIO Insight, a program on The Pulse Network, which combines streaming video with social networking.

In 2009, Lundquist revealed a love-hate relationship in his technology forecast for 2010. Along with the usual suspects (cloud computing, the migration to mobile, etc.), Lundquist expected CIOs to suffer from whiplash as the economy cut their budgets at a time when IT should be growing its budget. He has similar mixed feelings over social networks, seeing them as a growing trend and a growing source of embarrassment for thoughtless executives.

In his new forecast for 2011, the operative word is “service.” Lundquist predicts that most CIOs will have to evaluate and purchase software as a service in 2011. He also sees the rise of “apps” allowing employees to test and choose services rather than the CIO. He sees social networking, tablets, and mobile platforms all working hard to service business and B2B users who need to communicate on closed networks. He concludes his forecast by lauding the Apple Store for its $99/year training service that has created real-world (not virtual) communities of users.

Mixed-in with Lundquist’s predictions for 2011 are some of the usual suspects: the continuing migration to mobile, cloud computing, virtualization, and tablets. Included is his steadfast belief that “video will take a front seat for businesses to provide new product details, showcase executives, and create how-to explanations for their products and services.” Could this be the last time we see Eric Lundquist’s predictions in print? Enjoy the alphabet while you can.

STEVE O’KEEFE
News Editor, Minitrends Blog

Source: “Lundquist’s Top Tech Trends for 2011,” CIO Insight, 11/19/10
Source: “Ten Top Tech Stories of 2009,” CIO Insight, 12/15/09
Source: “CIO Insight,” The Pulse Network
Photo courtesy of fdecomite, used under its Creative Commons license.