Friday, 25 July 2014

Consumer electronics and IP: it's about management, stupid

It remains the great unknown: to what extent does IP contribute to the success or failure of a
company (or even an entire industry)? In truth, the possible answer to the question will depend upon the circumstances—pharma will certainly yield a different analysis to that of a media company. Even recognizing the diversity of the context, however, this blogger has had the long-felt sense that we are still far away from generalizable analytical structures that will allow us to reach reasonable conclusions across multiple settings. Against this background, I read with great interest an article that recently appeared (July 12th) in The Economist. Entitled “Eclipsed by Apple”, here, the article sought to explain the fall of the Japanese consumer electronics industry. Wherever one turns, decline in this industry is noticeable, whether it be Sony, Hitachi, Panasonic, Sharp, or lesser-known Japanese companies, with the likes of Apple and Samsung taking their place. This fall from commercial grace is particularly puzzling if one considers the various IP assets that these companies appear to possess.

Let’s begin with the power of the strong brand. I remember having lunch with a senior official of a major international IP organization who said categorically, “at the end of the day, it is not about patents or copyright. The only really valuable IP asset is brands and the goodwill that is embodied in one’s marks.” So what about the role of branding in the consumer electronics business? The Economist observes: “A strong brand is no longer enough to justify a sharply higher price” (pointing to Samsung’s recent decline in operating profits). The article attributes this in part to the fact that the consumer electronic business “is an impossible business for nearly everyone.” But that proves too much. In a cut-throat market, one might reason that a strong brand can help one stand out, even if the brand does not have the power to command as premium a price as might be desired. But that does not seem to be the case. As strong a brand as Sony once was (think of the Sony Walkman or Triniton TV), the brand seems to have been (and is) only as formidable as its latest product. A strong brand can perhaps continue to command a premium price for a while, but ultimately it is coming up with new products that matter. (Apple and Samsung, are you listening?)

If a powerful brand does not provide a sure-fire, long-term anchor for success, what about the products themselves? On this, the article had this to say:
“If their chief executives were visionary leaders willing to take risks, Japanese electronics firms could do much to regain their lost lustre, says Roderick Lappin, who heads the Japanese operations of China’s fast-rising Lenovo. Their unrivalled engineering, though often in excess of customers’ needs, is still an advantage, he says. They sit on a trove of intellectual property in the form of patents. Much of this could prove invaluable in the field of “wearable” technology or the much-hyped “‘internet of things’ …“.
It would appear that these companies have great engineering know-how and a lot of patents, particularly in a couple of emerging fields. That sounds like a great double-dose of valuable IP. But the engineering know-how seems to be detached from customer wants. As for the patents, they appear to own a lot of patents for wearables and the internet of things. But we are not really told why this “trove of patents” will make a difference for these companies in these emerging industries. Moreover, to the best of my understanding, some of these companies possessed patent troves for past and present technologies, without these patent portfolios necessarily being translated into oversized commercial success. Why will the current patent trove be any different? Or will the value of these troves be measured only if the companies do not enjoy significant success in the field of wearables and the internet of things? If so, this will be redolent of, e.g., Nortel and Kodak, both of which sold their patent portfolios because they had no other choice.

At the end of the day, perhaps the most encouraging thing said in the article about the industry was in connection with Sony, where its smartphones and tablets are enjoying some success due to “one simple, customer-centered innovation—making them waterproof.” But this does not seem to be the stuff of high-level engineering or massive patenting, but simply a shrewd management decision to give the client what it wants (or needs). If so, neither the woes nor the possible solutions to the crisis of Japanese consumer electronics rest primarily with IP. While IP and what it embodies are not unimportant, ultimately what matters is enlightened management, including, but in no way limited to, the effective creation and utilization of IP. But our understanding of how IP fits into the broader picture of successful management still has a long way to go.

1 comment:

  1. As a backdrop one must remember patents are filed for many reasons, some of them more psychological than commercial. A patent is something that you can hold in your hand. It is something that you possess, so you must have done something worthwhile to achieve it. Others seeing your patent think the same thing. A high tech company without patents must be doing something wrong, or something risky.

    Also Hitachi is cited as the classic example of suffering at the hands of US companies for not being able to counter-sue when being sued. It learned the lesson that one's patents are deterrents for those wishing to sue you, i.e. the defensive function of patents.

    So coming back to patents and their contribution to commercial success, it is about brands, image, reputation, having the device that somehow stands out. But patents are the building bricks in the background supporting this structure in all sorts of different ways.