Author Archives: Mark Bünger

Surviving and Thriving as the Internet of Everyone Evolves to an Ubiquitous Reality

The Quantified Self (QS) movement began with fringe consumers obsessed with self-measurement, but today’s Internet of Things (IoT) – with sensors on and inside bodies, connected cars, and smart homes, offices, and cities – is expanding it to include everyone. Consumers will not have a shortage of devices or data to choose from anytime in the near future. Looking out further, to 2025, three specific factors will drive the technical evolution of the QS/IoT as a computing platform, each with implications for consumer relationships: improvement of individual devices; integration, from aspects of inner self to a holistic view of inner, outer, and extended self; and intervention in consumer actions.

  • Improvement: Before too long, gimmicky and overpriced devices will disappear from the market, while runaway hits will make headlines (and millions of dollars). From 2005 until now, sensors have driven QS – specifically, sensors attached to or focused on humans. An early example is fitness wearables, but they’re already a commodity; today’s Samsung, Google, and Apple smartwatches are a natural evolution. Bragi headphones now do health tracking; Samsung’s Artik platform, Intel’s Curie and GE’s GreenBean offer startups an easy way to create consumer IoT devices. Image sensors – cameras – enable gesture interfaces and new channels like lifelogging, where users of Twitter’s Periscope and Facebook’s Facescope live-stream their lives.
  • Integration: Fitness trackers and action cameras capture data on or next to consumers’ bodies. IoT technologies quantify consumers’ “inner selves,” and marketers can learn as much from them as they have by examining purchase histories, web surfing habits, and other digital footprints. Other IoT datapoints include vital signs from exercise, sports, and adventure wearables; food, from precision agriculture to smart utensils like HAPIfork, to microbiomes and Toto’s smart toilet; and medical bioelectronics, personal genomics, and mood- and mind-monitoring like Neurosky. The IoT tracks consumers’ outer lives of family via smart baby bottles and wearables for pets, and extended selves via connected thermostats, diagnostic dongles in cars, and image-recognition systems in stores and city streets.

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How Emerging Technologies, Processes, Collaboration, Metrics, and Best Practices are Changing ITW – A 1:1 with Maryann McNally

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Maryann McNally is Vice President of Innovation at Illinois Tool Works (ITW), which is a $15 billion manufacturer of industrial products and equipment for a wide variety of industries, from automotive to food, construction, and test instrumentation.

Maryann’s role puts her squarely in the middle of technical, human, and economic issues that extend both deep inside and far beyond the 50,000-employee ITW organization. We had the good fortune to get some of Maryann’s time for a conversation about those issues at the Lux Executive Summit in Boston in 2015.

To start, we discussed Maryann’s role as VP of Innovation – a fresh title change from VP of Research & Development. She explained that as the company recently reorganized its more than 800 small businesses into 89 larger divisions, each group got a bigger, shared R&D team – with a wider variety of skills (such as chemists) available to all.

That means that most of the direct technical needs of each division are filled by an existing staff member, and she can focus on strategic innovation issues like processes, collaboration, metrics, best practices in innovation itself, and of course emerging technologies like additive manufacturing, and the industrial Internet of Things (IoT).

A large part of innovation today is being open, and looking beyond the company for people and ideas. We talked about the Maker Movement and open source designs, and how issues like liability in regulated industries might play out if a critical component were to fail. At the same time, she said ITW is closely following initiatives like America Makes. We discussed the impact beyond ITW of emerging technologies (such as “digital production”) and business models (like “distributed manufacturing”). Will they fuel the revitalization of the manufacturing sector and return of well-paying jobs, or a “dark factory” scenario where the lights are out, because only robots work there? How do we bring women, millennials, and other diverse groups into science and engineering, building and manufacturing? What does this dynamic period in manufacturing’s history require of us as humans and as leaders?

Listen to our interview to find out, and hear Maryann’s exciting vision of how manufacturing innovation will impact the products, industries, and economies of our future.

Innovation Lessons Learned from Consumer Electronics: A Dialogue with CEA®’s Gary Shapiro

Gary Shapiro is President and CEO of the Consumer Electronics Association (CEA)®, which represents some of the most innovative companies on the planet, and hosts one of the largest industry meetings in the world — International CES®, with more than 170,000 attendees.

In that role, Gary gets a really unique perspective on the future of many important product categories, technologies, and even business models. Gary came to the Lux Executive Summit to share his views about the competitive market and even some social issues driven by technology such as net neutrality, patenting, and privacy.

In our conversation, we talked about how these are critical issues even for companies that don’t make consumer electronics. For example, chemical companies supply materials for screens, batteries, and cases, while other industries such as transportation and logistics are indirectly impacted by disruptive startups and consumer behaviors empowered by these technologies. We also talked about national innovation strategies, and which countries are emerging as new technology innovation powerhouses. Watch the video to hear the details of Gary’s take on the future of these technologies, and how they will affect us as companies, consumers, and citizens.

The Innovation Gene-ie is Out of the Bottle; Let’s Wish for Better Genetic Tools and Rules

Biological and genetic technologies like DNA sequencing and synthesis are advancing rapidly, outpacing even Moore’s Law of semiconductor performance (as Rob Carlson has pointed out). Genetic technologies are now at a point where long-standing assumptions about a wide range of legal, ethical, and societal issues are being debated or even overturned:

  • Collective (bioethics) versus individual (grass-roots funding) rights. Several U.S. states voted on mandatory labeling of GMO foods as a consumer protection, but sloppy science and sloppier lawmaking led to their defeat (client registration required) at the ballot box – and a victory for ag biotech. At the same time, civil society advocates ETC Group tried to stop the Kickstarter crowdfunding campaign of Glowing Plant, a house plant genetically modified with a bioluminescent non-toxic protein.[1] ETC did convince crowd-funding site Kickstarter (client registration required) to prohibit future campaigns for genetic technologies, but – possibly eyeing GlowingPlant’s massively successful $484,000 campaign – Kickstarter competitor Indiegogo rolled out the welcome mat (ironically, ETC’s “kickstopper” campaign there raised just 10% of its goal). In both cases, popular sentiment sustained pro-genetic technology, even though the developers ranged in scale from global giant to garage startup – the latter putting ETC in the odd position of being the bully. Even if you wanted to stop it, could you? As startups and garage biotech groups like DIYBio and BioCurious disseminate access, know-how, and funding, they are sharing data electronically on how to make their own glowing pets and plants and snacks, circumventing antiquated restrictions and IP schemes.

Is it time for a Genetic Frontier Foundation?

To someone from the information technology (IT) world, these and other genetic technology (GT) issues will sound very familiar: open source, patent trolls, privacy, security, innovation – and the list goes on. The similarity is not coincidental: electronic and genetic data have both transitioned from a past when they were closely tied to a physical substrate, to a future where they are simply data – easily copied, changed, simulated, and transmitted. In IT, the non-profit Electronic Frontier Foundation (EFF) has played an indispensable role in representing citizens, entrepreneurs, and other smaller and newer players – but larger ones, as well, e.g. on Net Neutrality – in both updating and preserving technology-associated rights from regulatory overreach and unfair, uncompetitive practices.

The EFF addresses issues ranging across ownership of intellectual property, free speech and information transparency, ethics, and innovation – witness IP (Open Source, Fair Use, patent trolls) access (Rebroadcasting, Digital Rights Management, Broadcast Flag), privacy (Do Not Track, NSA spying), and many other topics. As such, the EFF offers a model for how the users and developers of genetic technologies might collaborate to address the issues they jointly face. Its website says:

When our freedoms in the networked world come under attack, the Electronic Frontier Foundation (EFF) is the first line of defense… New ideas challenge the status quo. That’s why people who make cool tools get so much heat from the old guard – and their lawyers.

Do genetic technologies need a similar body? Many GT organizations and laws do exist to address these and similar issues – like Genetic Alliance in personal genetic privacy, BioBricks Foundation in open-source gene IP, BioFAB in bioethics, and BIO in regulatory matters. Sometimes these groups are on the same side, but they can also be unaware of each other or even in opposition (when their economic interests diverge). And they are frankly not as aggressive or effective as the EFF has been. The legal, economic, and ethical aspects of genetic technology are deeply interwoven, and they share many of the same stakeholders, which is why it makes sense now to consider them together. Moreover, these issues are just beginning in genetic tech (whereas the EFF has stayed pretty busy with new IT issues throughout the nearly 25 years since its founding).

Just as the EFF was founded to reinforce or reform law, regulation, and policy around digital technologies, we now need a “Genetic Frontier Foundation” to ensure the same beneficial co-evolution of genetic technologies and the rules that govern their use in treating disease, increasing food supply – and yes, glowing house plants. Despite today’s outmoded regulatory, IP, and ethical environments, genetic technologies – and the number of people who know how to use or make them – have grown so far and so fast, it’s nearly magical. They will only accelerate, not slow or retreat back into the bottle. With coordinated advocacy, developers and users will continue to reap the benefits we all wish for.

 


[1] The same protein is used to make GloFish pets, which are approved by the U.S. Food & Drug Administration (which has jurisdiction over biotech animals), and found to be safe by the United States Department of Agriculture and United States Fish and Wildlife Service. They are banned in only one state, California. Notably, FDA considers GFP to be an “animal drug,” and GFP is in the middle of a notoriously complex patent pool (started by GE Healthcare), opening up further legal and regulatory questions around its ownership and use.

Google and Facebook’s Drone Strategies, from Buzz to Breakthroughs: The Sky’s the Limit

The technology world is abuzz with the recent announcement that Google is buying Titan Aerospace, a maker of high-altitude unmanned aerial vehicles (UAVs) that Facebook had only recently been considering (it bought Ascenta for $20 million instead). Ostensibly, both companies are looking at UAVs (also referred to as “drones”) as an opportunity to deliver Internet access to the roughly five billion people who lack reliable land-based access today. But that goal still leaves many people wondering about the business rationale – how will billing work, who will pay to advertise to the unconnected masses, and what are those technology giants really up to anyway?

To understand why content providers are spending billions on drones, you have to think about their long-term strategy. Recently, there was a huge defeat for Google and other content providers in a ruling about what’s called “Net Neutrality.” It basically says that landline and mobile carriers like AT&T and Verizon can start charging more for people to access certain sites, even though they swear the action will not be anticompetitive. So, for example, you might have to pay the carrier extra to see YouTube (which Google owns) or Instagram (which Facebook owns) or Netflix or Amazon Prime movies. In fact, just in February Netflix struck a deal to pay Comcast, which supposedly is already showing faster access times, but has not stopped the partners from bickering over unfair competition and exertion of power. Also, AT&T has a $500 million plan to crush Netflix and Hulu, so the competitive backstabbing has already begun.

Where do drones disrupt this strategy? Most obviously, having their own networks would allow Facebook and Google to bypass the domination of wireless and wireline carriers (like AT&T and Verizon in the U.S.) whose business practices – e.g. knocking down Net Neutrality – are geared towards throttling content providers like Facebook, Google, and their partners and subsidiaries like YouTube. Need more bandwidth? New neighborhood being built? Blackout? Natural catastrophe? Launch more drones – and expand service in hours, not years. Drones serving network connectivity allow Google, Facebook, and Amazon to bypass the toll lanes – and, incidentally, make instantly obsolete the landline infrastructure that their enemies Comcast, AT&T, and Verizon have spent decades and tens to hundreds of billions of dollars building out. Connectivity in emerging markets is a feint – look for delivering content in the developed world to be the first battle, and call these Machiavellian strategies the “Game of Drones.”

Could this really happen? Both drone technology and wireless connectivity technology are relatively mature and work well. Both are still improving every year of course, and it is possible to deliver some connectivity via drones today. However, more innovation is needed for them to be commercially viable, and future incremental development will be about integrating and improving parts, so more people can have more bandwidth with greater reliability and lower cost. For example, the engineers might integrate the broadband transceiver antenna with the drone’s wings (as Stratasys and Optomec have tried — client registration required) which could eliminate the cost and weight of a separate antenna, while allowing the antenna to also be very large and more effective. Drones’ needs could drive development of battery chemistries that outperform lithium-ion (client registration required), like lithium-sulfur (client registration required) from companies like Oxis Energy (client registration required). High-performance composites and lightweight, lower-power electronics technologies like conductive polymers (client registration required) will also be key.

What’s next? One of the most obvious additional uses would be to attach cameras, and use them for monitoring things like traffic, agriculture, and parks, even finding empty parking spaces – things that an AT&T repair van can never do. Maybe the drones become telemedicine’s robotic first responders (client registration required), sending imagery of accidents as they happen, and swooping down to help doctors reach injured victims within seconds, not minutes. While these examples may seem far-fetched, it’s really very hard to say exactly what they will be used for, only because our own imaginations are very limited.

Within the autonomous airspace space, there’s much more flying around than just glider-style UAVs. For example, Google’s “Project Loon” has similar stated goals of delivering internet access. The new investment in Titan does not necessarily mean Google is leaving lighter-than-air technologies; it’s just that Google has already invested in that technology and is now looking at other aircraft platforms for doing similar things in different environments. Investments in small satellites from companies like SkyBox and PlanetLabs are also taking off. And of course, there are Amazon’s delivery drones – rotary-wing UAVs more like helicopters: speed and navigation in small spaces are important, and they need to carry the weight of packages, so they need to be small and powerful.

Each of these technologies has spin-off effects – both threats and opportunities – for companies in adjacent spaces, such as materials or onboard power. Only batteries or liquid fuels are dense enough energy sources for rotary-wing aircraft, while Google’s Titan and Loon aircraft are more like glider planes or blimps: big, light, and slow, just staying in roughly the same place for hours, days, or even years. Solar energy needs a large area for collecting solar energy, so big glider and blimp drones can use solar. Technology providers in these areas stand to gain if more companies deploy their own UAV fleets.

So, UAVs are an important strategic technology for both companies, even if the money-making part of the business is far off. Yes, someday you might have a Google drone as your ISP, but that’s not the primary business case behind these investments today. Google and Facebook need to make investments in these airborne platforms for the same reasons that countries did 100 years ago – to defend their territory, metaphorically speaking. For example, Nokia should have done a better job launching smartphones before Apple and Google, and Kodak should have launched digital cameras before all the consumer electronics companies did. If Google and Facebook (and Amazon, and others…) don’t have drone technology in five to 10 years, they may be as bankrupt as Nokia and Kodak (ironically, Nokia launched mobile phone cameras, which accelerated Kodak’s bankruptcy). Instead, it may be today’s mobile phone and cable television providers who go the way of the landline.

Looking beyond the land of information technology, these examples are powerful illustrations of the fact that we seldom actually know what any new technology is really going to be used for. Even today, we dismiss mobile phone cameras, Facebook, and Twitter as frivolous social tools, but where would Tunisia and Egypt be today without them? Local Motors (client registration required) is just making one-off dune buggies – until GE sees that their microfactories are the future of manufacturing appliances, too. Crowdfunding is just a bunch of kids selling geegaws – until products like the Pebble smartphone beat the Samsung Gear (client registration required), start challenging the now-retreating Nike Fuelband, and even attack the smart home market. Google and Facebook might be saying today that they intend to bring connectivity to new places, even if in reality nobody at all can really say what they’ll do in 2018. While they probably have secret plans, those plans are almost certainly wrong – but better than no plan at all. Companies that plan to survive beyond a few quarterly earnings calls have to make sure they are well positioned to catch whatever falls from new technology’s blue skies.

Re-coining MINT: Why Wall Street’s Stupid Acronyms Fail and Most Investments Need Technology

Millions of people are just digging out from the massive storm that hit over the weekend. No, not that climate-change-proving Arctic polar vortex snowstorm hitting the U.S., but by the hypestorm in the financial and business press spurred by a BBC series about investment opportunities in the “next economic giants,” the MINT countries. MINT stands for Mexico, Indonesia, Nigeria and Turkey, and like its predecessor BRIC (Brazil, Russia, India, China) it is meant to explain a complex investment thesis – that these countries are the ones to invest in nownownow (e.g. “Forget the BRICs, now it’s all about the MINT”) – with a single, catchy term (it helps if it sounds money-related). It’s ironic that bankers hoping to be paid billions for their advice try to boil that advice down to four-letter words, and the hype around MINT ignores innumerable challenges. What follows is a summary of the “next big economy” investment strategy that BRIC and MINT represent: where it comes from, what it does well and poorly, and how it can be fixed.

First of all, MINT is not a “new” thesis: the term was actually first coined back in 2010 by Japanese manufacturer Panasonic as “MINTS + B” (Mexico, Indonesia, Nigeria, Turkey, Saudi Arabia and the Balkans), and Fidelity UK shortened this to MINTS in 2011. It’s gained currency again now because of a recent re-coining by Jim O’Neill, who famously coined the BRIC acronym in 2001 while at Goldman Sachs. Ironically, it was precisely because Jim realized he had been completely wrong about the BRICs (“Russia is likely to grow by just 2.5% a year over the next 20 years [which] made me wonder about the ‘R’ all over again” and “China … will have beaten my expectations for growth since the start of this decade, the only BRIC country to have done so”) that he felt the need to make up a new term.

A more fundamental question about MINT is whether and how it is useful or different from any of the many other “next big” groupings out there from the likes of Goldman, HSBC, and Citi, such as N11 (“Next 11”), E7 (“Emerging Seven”), CIVETs, 3G (“Global Growth Generators”), Tiger Cubs, or MIST/MIKT (which differ only in the letter they use to denote South Korea). To make some cents of the investor acronymania, we plotted eight of the most-hyped clusters in a Venn Diagram. The incomprehensibility of the resulting figure reflects banker minds so befuddled, they are practically begging to be strongly regulated again.

Re-coining MINT LuxPop figure

Undaunted, we dropped the clusters into a matrix to see whether some quantitative, actionable patterns might pop out. Here’s what we found:

  • All in all, 22 countries are on someone’s favorites list. N11 and 3G are the most expansive clusters, both with 11 members. BRIC, MINT, MIST/MIKT, and the Tiger Cubs are the most exclusive, with just four.
  • Indonesia is a consensus pick. Indonesia appears in seven of the eight clusters; Turkey is in five, and Mexico in four.
  • Egypt, Nigeria, Vietnam, and the Philippines rival India and China in popularity. Each of these countries appears in three of the clusters.
  • There are more outliers than overlaps. Twelve countries (Bangladesh, South Korea, Colombia, Iran, Iraq, Mongolia, Pakistan, South Africa, Sri Lanka, Malaysia, and Thailand) appear in one or two new groupings. Incumbents Brazil and Russia also fall into two.

Many of these countries are similar in simple respects — as Jim points out in the BBC story, “what (MINT countries) really share beyond having a lot of people, is that at least for the next 20 years… they are all going to see a rise in the number of people eligible to work relative to those not working”. This idea of country-level investment opportunity is based on eighteenth-century economics of growth in labor, population, and the demand for commodity natural resources. It flies in the face of the biggest driver of economic growth: the globalization of innovation via entrepreneurship and invention. Of course, the most fundamental question of all is, how (and why) specifically do you invest in something as diverse as a country, much less four, or seven, or eleven of them? Sure, there are mutual funds and government securities, but these just abdicate responsibility to a banker or bureaucrat, who invests your money into particular companies and projects.

Strategic investors (as opposed to financial speculators) focus on technologies and businesses that they understand how to use to achieve faster growth. For example, the real opportunity in China is not because of its position as the world’s most populous nation, but as both a buyer and an inventor of technologies across a variety of fields. To provide such actionable advice, we polled the Lux Research practice leaders to see which other countries offer opportunity in a specific area of technology or business innovation – informed by our view of the companies, markets, and policies that make them promising. For example:

  • When it comes to shale energy, the three most important countries to watch are Australia, Argentina, and China, due to the technologies they are developing and deploying. Figure 7 in our recent Exploration and Production report “Uncovering Further Opportunities in the Frac Market” (client registration required) looks at timelines and market attractiveness for these and other countries.
  • From the agricultural innovation perspective, the MERCOSUR countries (Argentina, Brazil, Paraguay, Uruguay, and Venezuela) are going to be big for “greener” ag technologies like biochar and no-till. Europe will be vital to the success of biopesticides as an industry, as our most recent report (client registration required) describes. For precision agriculture, the U.S., Japan, and Australia will be hotspots, as laid out in our Q3 report “Every Input Is an Opportunity: How Precision Agriculture Is Redefining the Business of Cultivation” (client registration required). Looking ahead, we see that China will be big for aquaculture (client registration required), both in terms of production and demand.
  • For energy electronics, our report “Winning the Jump Ball: Sorting Winners from Losers in LEDs and Power Electronics” (client registration required), shows that the U.S. and China received the majority of the $1 billion invested in the LED industry between 2006 and 2012. For power electronics, the majority of investments were in the U.S., with smaller investments in Canada and Sweden. Specifically, Transphorm (client registration required) and SemiSouth raised $160 million of more than $188 million invested in power electronics between 2006 and 2012. As if to emphasize the point that investment does not equal success, SemiSouth shut down operations (client registration required) when it overspent on equipment before it had the sales to justify it.
  • In water we’re still seeing a whole lot of activity in China, but it’s not yet expanding much into southeast Asia. Brazil, Chile, Mexico are also big, and for more refined technologies like desalination, Saudi Arabia and the UAE are key, while Eastern Europe has been big in infrastructure development. But the engines of this global, not just national growth, are everywhere: as we found in “Top Academics and Institutions in Water Research 2013,” (client registration required) Singapore leads, while key universities funded by supportive governments in the Netherlands, Australia, China, and the western U.S. perform transformative research to address regional and international issues. Looking to where these technologies will be deployed, our study “Finding Growth and Differentiation in Small-Scale Water Treatment Markets” (client registration required) showed that major developing-world water markets represent a potential $14 billion market growing at 2.2%, but the fastest markets like Bangladesh grow at nearly 19%.
  • Of course, countries are often defined by their cities, and cities’ cultural, economic, and technical innovations are precisely the reason that resource-poor nations like Singapore and South Korea can be so much more successful than their peers and neighbors. Cities are where many market opportunities to sell new technology (from water and transportation to food and energy) are concentrated, but Shanghai and Bangalore show innovative cities’ influence on even large nations’ growth prospects. There’s no equivalent to “BRIC” clusters for city-level investment, but given that urban growth is continuing even where population overall is stagnant, there ought to be at least one. In choosing its members, such a cluster would look for smart policies (as shown in our report “Policy’s Dramatic Impact on Green Buildings: The Global Hotspots” — client registration required) and technologies (see “Technologies for Future Cities: Integrating Efficiency, Sustainability, and Environmental Concerns” — client registration required) that will distinguish tomorrow’s smart cities from more problematic megacities.

Dozens of technologies, thousands of patents, and the chaos of boomtowns are certainly complex and certainly not catchy, but they show where innovators are making the investments in capability and ideas that will continue to be the engines of economic growth. Bankers’ simple country-collection acronyms like MINT are stupid as investment strategies – even if they provide a clever trick for remembering them. A more profitable use for “MINT” is to remind us all that Most Investments Need Technology.

As VCs Retreat Four New, Nimble Innovation Funding Structures Step In

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Venture capital is seemingly synonymous with innovation. Venture-backed software companies like Google, Facebook, and Twitter have launched products that billions of consumers use on a daily basis, and their funders have reaped huge dividends.  VC has also catalyzed successful biotech and cleantech companies like Genentech and Solazyme. Thousands of important, successful companies would not exist if it had not been for venture investors providing funding and business acumen to entrepreneurs and inventors.

And that’s why it’s so worrisome that traditional Venture Capitalists are in increasingly obvious retreat. Over the past five years:

  • VCs are doing less: dollars and deal count are down. According to the National Venture Capital Association (NVCA), venture funds peaked in 2011 with $29.7 billion going into 3986 deals. In 2012 they fell to $27 billion, in 3796 deals; and while 2013 is not wrapped, it looks to be a down year again. And VCs are raising less money to invest; through September this year they had brought in $11.6 billion, a plunge from $16.2 billion in the first nine months of 2012. In fact, for 11 of the past 13 years, VCs invested more money than they raised. All these declining numbers point to a long-term shrinkage of VC – meaning less money and mentorship for innovation.
  • VCs are struggling to create value, especially outside software and drugs. Medical biotech and software have long been the dominant categories of VC investment (taking about 15% and 60% respectively). But with global warming fears and oil prices soaring from 2005-2008, many investors briefly branched out into “cleantech.” For example, VC Khosla just put another $50 million into its biofuels maker KiOR (client registration required), which has been on a downward spiral of missed production milestones, producing just 80,000 gallons to date this year (it claimed it would produce more than 3 million gallons by the end of 2013). VCs’ other forays (client registration required) into areas like nanomaterials have fared similarly. Sadly, the only return on many of those investments was to make VCs realize that they don’t understand the science, engineering, and economic constraints on the technology, and even if they did, commercializing it takes too long for VCs to wait.

Fortunately, several alternatives to traditional venture capital are arising to take up the slack. Where will they complement VC, and where will they replace it?

  • Corporate VC invests $5 billion: Corporate VCs like Intel Capital, BASF Ventures, and Monsanto Growth Ventures are large corporations’ way of staying abreast of, and investing in, promising new technologies they find. Last year they invested about $3-5 billion – less than a fourth of conventional VC, but CVCs put it towards areas like industrial and agricultural technology that traditional VCs don’t know how to commercialize.
  • Conscious Capital (aka “impact investment”) grows to $9 billion: As legendary investor Warren Buffett recently argued in a New York Times op/ed article, charity has the potential to better achieve its goals if it adopts more business-minded principles. JP Morgan recently estimated that impact investment will grow by 12.5% this year to $9 billion. And many super-successful entrepreneurs like Jeff Bezos (Amazon), Elon Musk and Peter Thiel (PayPal), and Richard Branson set aside money for pursuing technically audacious goals (client registration required). VCs can’t make such long-term, high-risk bets with their partners’ money, but firms like Bezos Expeditions, Breakout Labs, and the Skoll Foundation can. They are investing in companies like Modern Meadow (client registration required) (which grows meat from cells, lowering the need for both natural resources and animal suffering) and D-Wave (client registration required), the world’s only quantum computer manufacturer.
  • Competitions bring in $2 billion, but have outsized impact: Like business-minded conscience capital, innovation competitions are based on the premise that competing for investment makes the recipients stronger. While high-profile programs like the X Prize and NASA Centennial Challenges are the best-known, the Institute for Competition Sciences, which documents data and best practices in the area, estimates that 30,000 competitions take place worldwide annually. While they are a smaller slice of the overall dollar pie and seldom can fund an innovation entirely, they amplify the value of all other investments into the organization.
  • Crowdfunding bringing $5 billion: Sites like Kickstarter and Indiegogo help small entrepreneurs and inventors to get seed money from thousands of individuals, usually in exchange for the product or merchandise like stickers and t-shirts. Then there are “pure science” crowdfunding sites like Microryza, FundaGeek, and Petridish.org which seek to support experiments and research that may or may not have a tangible return to the donor. Crowdfunding brought innovators some $1.5 billion in 2011, $3 billion in 2012, and will hit $5 billion this year. As with other sources, Crowdfunding’s biggest benefit is not the money – the fundraising campaign brings publicity, customer input, and community-building all at once.

Venture capital is slowly shrinking, while the four new forms of funding – Corporate VC, Competitions, Conscious Capital, and Crowdfunding – are set to pass $20 billion in aggregate, and are growing, fast. In fact, it seems inevitable that they will surpass VC in the coming year or soon thereafter. It’s important to keep in mind that these new forms of funding can both complement traditional venture investment, as well as compete with it by offering better terms inventors and entrepreneurs. Whether they are competing or collaborating, innovation can only benefit from these novel approaches.

Samsung, Apple, Nokia, HP, and Now Blackberry: A Month of Meh for Innovation and Investors

Technology company buyouts are usually triumphant moments of validation, but this week’s announcement that Blackberry is considering a $4.7 billion offer actually shows how far the company has fallen. It’s hard to recall the time when then-candidate Barack Obama’s avid Blackberry use was a sign of his hipness, and this week’s news heralds not the company’s bright future, but its imminent demise.

But it’s not just Blackberry. Like the maker of the ur-smartphone, several other big bearers of the innovation flag have announced “good” news this September that actually feels bad, and the world’s innovation enthusiasts and investors are feeling droopy. What’s weighing us down?

  • Samsung’s sluggish smart watch. As we noted previously, Samsung’s highly-anticipated “Gear” smart watch came out expensive ($300) and weak (315 mAh battery), with at best 25 hours of battery life, less than a full day with normal use – maybe it keeps bankers’ hours. Geek blogs Mashable and Engadget found it “not as fast as we’d expected” and “noticeably sluggish”, and Forbes said the device “offers little upside” for the company stock. Others opined that the locked, expensive device was unworthy of a leading global devicemaker, when crowdfunded upstarts were already making open, cheaper devices like the Pebble and Omate TrueSmart.
  • Apple’s boring iPhones. Rather than offering more value for less money, Apple simply degraded its flagship product, poorly. A cheap plastic case is meant to lower costs and appeal to emerging market consumers, but Wall Street thinks it’s still too expensive and hammered the stock 4%. The improvements Apple did offer – new colors and fingerprint-based security – were decorative touches that didn’t significantly improve function or user experience and even caused privacy fretting. Influential technology site CNET groaned that “we live in boring times,” and The Guardian asked if Apple has “given up on innovation”.
  • Nokia’s final, fatal fail. After a protracted bout of declining market share (from 35% in 2003 to 14% today), revenue, and profit, the 150-year old company sold its mobile phone business to Microsoft (another company struggling to self-reinvent). Ironically, Nokia did invent the first smartphone (Nokia Communicator) but lost the market battle by stubbornly sticking to its lame Symbian OS as a defense against Microsoft’s equally lame Windows Mobile, distracting both companies from the threat of Apple’s iOS and Google-backed Android (which now have about 20% and 70% smartphone market share, respectively).
  • Hewlett-Packard’s drop from the Dow. The original garage startup, 75-year-old legend HP sat at the pinnacle of hardware innovation as recently as 2010. But after four CEOs and losing some $68 billion in value since then, its stock has fallen so far that it was just dropped from the Dow Jones Industrial Average. The company was so busy selling PCs and printers that it failed to notice that no one was buying them – HP’s growing market share literally blinded it to the fact that competitors exiting, not consumers entering, was driving its success. Arguably, HP’s decline actually began when it sold off its innovation engine, Agilent. Without a culture and pipeline of R&D, a company that had survived massive shifts, like that from desktop calculators to desktop computers – both of which HP invented – has nothing to replace a declining line for the first time ever. Meanwhile, Agilent is doing so well it will soon be able to buy its old parent.

What do these failures have in common? Certainly not a lack of resources; each of the companies has been the top of its field immediately prior to its fall (Apple’s iPhone launch was a commercial recordbreaker, and Samsung’s profit is up too, even as mobile revenue shrinks). Not a lack of technology – each has been early to market with the next-generation technology. It’s a lack of foresight, desire, curiosity, courage, passion, mojo… Leading firms turn to failures when they focus too much on staying atop the current wave and stop worrying about winning the next one – making products that make a big difference makes all the difference. And. Everybody. Knows. This.

Ironically, pleasing the near-term focus of greedy, twitchy institutional investors is often the excuse claimed by CEOs who put quarterly profit ahead of planning for decade-long growth. But as the examples above show, investors scorn small, short-term thinking, too. To get their innovation groove back, these tech stalwarts need to put their sights back out to the horizon with insanely great, mind-blowing products like:

September should have been a banner month, not a bummer month (and there were a few glimmers of recklessly bold vision, like Google aiming to solve Death and rapper Kanye announcing his foray into architecture). If these giants were startups, they could have breakthrough strategies in place by September’s end. Given their girth, they can show customers and investors that they are serious about innovation by getting going now. “Seizing the Innovation Initiative” is the theme of the next Lux Executive Summit, so we look to see bold thinkers from Apple, Samsung, Nokia, and HP – or any company looking to avoid their mistakes – there if they haven’t shaped up by next spring.

From IP to Open Source: Tailoring Open Innovation Strategies to the Continuum of Synthetic Biology

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Patents encourage innovation, except when they don’t. In biotechnology, bioethicists have long challenged the practice of patenting genes – and the U.S. Supreme Court recently ended it, stating that isolating natural genes is not enough alteration to warrant patent protection. To find where patenting activity is rising, peaking, and waning, we analyzed more than 10,000 patents in 14 key areas of synthetic biology. We compared this most conventional form of IP with other, open-source indicators of experimentation and innovation, such as scientific papers , iGEM teams, and BioBricks projects. Notably, these newer forms treat DNA as an information carrier like computer software. If the analogy holds, synbio technologies could lose patent protection – with the pace of innovation accelerating dramatically nevertheless. To maximize opportunity, corporations in the materials, energy, medical, and agricultural industries need to incorporate open-source bio into their open innovation plans. They should:

  • Pursue upstream innovations with conventional suppliers, licensors, and M&A targets. Life Technologies is one of the leading corporations that has an explicit, and central, product line geared towards synbio. It used traditional approaches like licensing and acquisition – and a budget of about $100 million across numerous deals – to amass a dominant position in the upstream space – in addition to the $375 million it spent to acquire DNA sequencing startup Ion Torrent. Life’s recent $14 billion acquisition by Thermo-Fischer is a sign of even further consolidation in the field.
  • Midstream, use a mix of corporate and academic partners and the open-source community. Given the maturity of spaces like bio-based fuels and chemicals to replace petrochemicals, corporate strategists should look to established players that have already demonstrated technology readiness and even scale-up. At the same time, the next wave of higher-order biomimetic materials like spider silk and nacre will come from younger startups some of whom are still housed in university labs like the QB3 Garage, or biohacker spaces like BioCurious.
  • Downstream, strategic foresight and pre-competitive consortia should be leveraged preview the future. More complex applications of synthetic biology are likely to happen farther in the future than the five to ten years out that most technology scouts typically look. Nevertheless, for industries likely to be directly impacted, now is not too early to begin monitoring development via internal strategic foresight projects, and pre-competitive consortia. For example, SynBerc has an industry partners program, SynBioBeta is a cross-industry community that brings together science and startups, and Singularity University has a synbio accelerator.

While the debate about whether patents help or hinder innovation is far from settled, and the open-source biology movement should not be seen as an alternative to conventional R&D or an enemy of IP. It must become part of a synthetic biology strategy integrating long-term vision and immediate tactics.

Source: Lux Research report “BioPunks and BioPatents: The Open-source Battle Comes to Synbio IP” — client registration required.

Tubular! Tech Billionaire Musk Proposes Hyperloop, a Radical New Transport System for California

Earlier this week, technology billionaire Elon Musk revealed his ideas for “hyperloop,” a speculative new mode of high-speed transportation. The system would propel car-sized compartments through low-pressure tubes (like pneumatic tubes once used to move mail through office buildings) at 1,000 km/h. Musk says that connecting San Francisco and Los Angeles (through a proposed $20-fare, 35-minute ride) with the system would cost about $7 billion, or a tenth of the projected cost of California’s beleaguered high-speed rail system meant to connect those cities – and could be built in less than a decade.

Naturally, such a bold idea immediately attracted criticism, such as a USA Today article listing mundane reasons it won’t work like “you’d have to slow down for turns” and “the towers would have to be made safe.” Of course, others fell over themselves praising the plan, reasoning that Musk’s vision is so awesome that even if it doesn’t quite turn out as planned, it would still be great, anyway. While it’s easy to get overly excited or overly skeptical about the concept, a dose of datapoints is useful:

  • If Musk hadn’t proposed it, it wouldn’t be worth attention. Musk is a singularly successful entrepreneur, having quickly turned equally-futuristic ideas into successful businesses several times: electronic money (PayPal moves $150 billion a year), electric vehicles (Tesla is profitable (client registration required) and the cars, though expensive, are critically acclaimed), solar energy (SolarCity gets Lux’s much-coveted “Strong Positive” — client registration required), spaceflight (SpaceX, which developed a national-grade space program in seven years and makes a profit). Musk’s solid record lends credibility to an otherwise fanciful idea (client registration required).
  • The system requires no exotic new materials, properties of matter, or unproven technologies. Musk’s 57-page detailed explanation of the idea explains how the system might work using relatively off-the-shelf technologies. It acknowledges that there are many engineering problems to be solved, and offers the concept as an open-source blueprint – a starting point for something actually workable. As such, the many solid criticisms of the plan actually move it forward.
  • Musk’s announcement should be seen as political commentary wrapped in an engineering design. The white paper opens not with a visionary problem statement, but by stating, “When the California ‘high speed’ rail was approved, I was quite disappointed, as I know many others were too. How could it be that the home of Silicon Valley and (NASA’s Jet Propulsion Laboratory) – doing incredible things like indexing all the world’s knowledge and putting rovers on Mars – would build a bullet train that is both one of the most expensive per mile and one of the slowest in the world?” Like many California taxpayers, Musk is frustrated by the cost overruns, delays, and mediocre performance of the state’s high-speed rail program, and the political problem is arguably the one Musk aims to solve.

Of course, a tech entrepreneur’s political commentary isn’t newsworthy either, and there has been rampant speculation as to whether Musk – or anyone – could successfully build the contraption. Pneumatic transportation is not novel, and similar – if much slower – versions of pneumatically-propelled people pushers have been envisioned, and even deployed, long ago. Paris and New York had air-powered public transit in the 1870s. The vacuum-tube variation Musk is currently proposing has recently been explored in China and in Switzerland. So how does the concept stand up to technical scrutiny?

  • Hyperloop’s cost-per-kilometer would be as revolutionary as its speed. California high-speed rail’s high cost per kilometer is as much a consequence of political and environmental issues as the technology, and those concerns would likely dog Hyperloop, too. Musk proposes an elevated, high-technology solution that would indeed address issues like land use, but such systems are if anything even more expensive: the Shanghai Pudong monorail cost $1.3 billion to build and is 30 km long ($40 million/km), while the Airtrain monorail in NYC cost $1.2 billion for just 12 km of track ($100 million/km). One way to defray the cost might be co-locating the route with other state-spanning infrastructure. Using the same right-of-way for a natural gas pipeline or energy transmission lines with PG&E, fiber-optic cable (which are routinely co-located inside city sewers) or water could be part of the calculus (client registration required).
  • The passenger pod’s cousin, Tesla, could supply on-board power technology. On-board batteries are not a technological hurdle, because the initial acceleration (and subsequent boosts) needs would be met by external, stationary linear electric motors and their energy sources (client registration required). The on-board batteries would then be used primarily for powering a large electric compressor fan at the front of the Hyperloop. The resulting battery would likely be on the order of 200 kWh – about three Tesla Model S’s worth of energy storage capacity, which can be engineered using today’s battery technology. Moreover, these batteries would contribute only a sliver – less than 0.1% – to the overall cost of the Hyperloop, being dwarfed by infrastructure like pylon construction and land permits.
  • Even in sunny California, the solar-powered system would need backup storage. While Musk’s plan assumes the energy requirements of the system could be met by solar energy – perhaps he is hoping that SolarCity will get the installation contract – solar panels would need grid storage to operate at the expected utilization rate. So while solar power will help, the larger energy storage opportunity would be in the stationary batteries required to operate the Hyperloop’s linear electric motors at night or in poor weather.
  • The open-source model is an open invitation to rail system manufacturers like Bombardier, Siemens, and ABB. Siemens test-drove crowdsourcing by opening up its engineering software to the Local Motors crowd, with the now-available Rally Fighter vehicle a testimony to its success. As with other “big innovations,” the spinoffs of R&D on Hyperloop would benefit adjacent technologies, and advance the process of collaborative design. Manufacturers of other high-performance transport vehicles, such as automotive, aircraft, and spacecraft – like Musk’s SpaceX or the NewSpace community (client registration required) – should join the Hyperloop crowd.