Alchemy…

Alchemy…The modern philosopher’s stone – the catalyst by which alchemists could turn base metal into gold – is intellectual property. David Manners looks at how today’s IP is transmuted into stock market wealth
IP – Intellectual Property – is often said to be the name of the high-tech game. IP makes you rich – as Croesus, in the case of California’s richest man Gordon Mooore of Intel ($8bn) and the world’s richest man, Bill Gates of Microsoft ($45bn).
Software – as pure intellect – is the quintessential type of IP and seemingly the most lucrative. Microsoft, the world’s top software company, is only the second company in history to be worth more than $200bn on the stock market.
Hardware is almost as lucrative when the IP game is played well. The most valuable piece of hardware, Intel’s x86 microprocessor architecture, has propelled the company to being the world’s fourth most valuable company at $150bn.
But why did the world’s first spreadsheet Visicalc make no real money for its inventor, Dan Bricklin, when the DOS operating system set Gates on the road to being the world’s richest man?
Or why did all Zilog’s would-be CPUs not return a penny of profit for Zilog, but the x86 CPU made Intel the world’s fourth most valuable company?
Bricklin, of course, neglected to patent his invention with an idealistic, 1960s’ disdain for the role of capitalist rip-off pig.
Gates was similarly casual about his golden egg – offering to sell DOS to IBM back in the 80s and seemingly uncaring for many years that DOS was one of the most ripped off pieces of intellectual property ever devised.
For years no one thought tuppence about copying DOS off the office computer for their home computer – and in countries like Russia and China that’s still the norm.
Was that a clever policy by Microsoft or an accident of history that was to establish DOS as the world standard operating system? Certainly the fact that DOS was to all intents and purposes ‘free’ made it ubiquitous. By the time Microsoft’s royalty collection machinery had cranked into action its O/S had achieved a dominance beyond rivalry.
Being ubiquitous, however, isn’t necessarily the answer. Zilog’s micros were the most widely licensed micros in the world but never made a penny in profit for Zilog in its first decade and a half because its licensees competed so ferociously that the micros sold for pennies.
And Intel only really started making substantial and consistent profits on the x86 architecture when it withdrew its licensing policy on the 286 – which included Siemens, NEC and AMD – to go sole source on the 386.
Ironically, it had been an Intel renegade – Gordon Campbell of Chips and Technologies – who popularised the x86 architecture by inventing the concept of the PC chip-set. That seeded the all-important IBM-clone PC industry which established a Wintel computer hegemony which was to surpass even that of IBM.
Wintel’s might seem an accidental empire, unplanned and unpredictable. But when companies have closely controlled their IP – such as Apple with its Mac O/S – the world is reluctant to make it a standard.
Similarly, when Inmos wanted to establish its Transputer as a new world computer CPU standard, it failed to give the world any incentive to adopt it as a standard by making it available cheaply, or even for free, via licensing.
So the road to building substantial companies from IP is a difficult one to navigate. Rambus, a company which sells nothing except IP, has caused resentment by seeking to make the entire world DRAM industry pay its license fees – which has made many of them seek ways around using the Rambus product. That’s one downside of being too exclusive about one’s IP.
It can be just as much of a problem licensing too widely. For instance another pure IP company – ARM – has licensed its IP to so many people that its licensees pick up the bulk of the revenues from sale of the ARM product – so denying to ARM the critical mass of revenues needed to fund sole development of a a major microprocessor architecture.
However, without proprietary IP, no company has control over its destiny – as the world’s DRAM manufacturers with their commoditised product and over-supplied market are finding while they hammer eachother into the ground.
So, somehow or other, a route has to be picked between the isolation of the Apples and Rambuses of this world who license meagrely or on onerous terms, and the ubiquity of the Zilogs and ARMs who license widely but then let others reap the bulk of the revenues from their products.
An excellent example of companies using the benefits of IP to build substantial businesses while retaining sufficient control of their IP, are the programmable logic pioneers – Xilinx, Altera, Actel and Cypress – which have fought off the big companies (Intel, TI, Motorola, Toshiba) while building a new, $2bn market, by a judicious use of IP law.
“We have 200 patents and 200 patents pending,” says Xilinx ceo Wim Roelandts whose business, with $600m revenues from 1,400 employees, is worth a cool $3bn on the stock exchange.
Patents, copyrights, trade marks, trade secrets and logos – the whole panoply of IP – are great business tools, but it is a more difficult thing to create IP than exploit it to its greatest effect.
If you put enough talented engineers together and point them in the right directions – they’ll create lots of IP. The rate at which multinational high-tech companies proliferate their design centres around the world demonstrates that.
But exploiting the IP which creative people develop is very difficult. Sometimes IP is successfully exploited by good planning; more often the fortunes that are built on IP seem to be built more by accident than design.


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