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Microsoft's patents shakedown betrays spirit of Gates

Innovative products, not intellectual property, rule

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Open...and Shut Microsoft, once the ruler of the software universe, doesn't even make Google executive chairman Eric Schmidt's Gang of Four influential tech companies. It's not that Microsoft has lost its ambition. But it may be that Microsoft's ambition has changed, and for the worse.

Microsoft once prided itself on minting profits from licensing copies of Windows and Office. Now it seems more content with eking out $5 per unit from HTC and others it bullies over patents. That's right: instead of selling product, it's peddling intellectual property (IP).

But the question is whether this is a strategy born of necessity, as Microsoft has failed to keep up with the consumer market, or a deliberate change in direction.

Unfortunately, it may well be the latter. In Burning the Ships, Marshall Phelps, Microsoft's corporate vice president for IP policy and strategy, talks up how intellectual property has transformed Microsoft. I've covered Phelps' book before, but it didn't fully register until I read about the terms of HTC's patent settlement with Microsoft. Redmond is getting $5 per unit and apparently angling for as much as $12.50 per unit from other licensees.

Not for any value Microsoft provides to HTC. That smartphone maker, after all, is shipping Google Android. Rather, Microsoft is trying to ride the coattails of the successful products of others.

Phelps says as much when he outlines Microsoft's shift in thinking about IP:

The IP creation process in the context of forward invention sessions is very different from that of the traditional invention process, for which the basic question is, "Can I patent this innovation that I'm working on in such a way that it will still be valuable in five years?" In the context of the forward invention process, however, the key question is, "What are we not yet working on that could become important in five or 10 years? Should we do some inventing in this space and develop some intellectual property that could give us a seat at the table of an exciting new opportunity?"

Instead of worrying about selling its own products, Microsoft is increasingly worrying about its technology. Phelps talks about IP in a way that would almost certainly sound foreign to former Microsoft CEO Bill Gates, who liked to actually build products, not just IP. Phelps and the new Microsoft are apparently concerned with creating IP that can be used as a negotiating tool. Gates wanted to build products that people, not just lawyers, would use.

Few companies make serious money from raw technology. Those that do, such as Qualcomm, are effectively big licensing companies. Is this what Microsoft wants to be?

According to Phelps, the answer seems to be yes. But I can't believe that his reasoning resonates with product managers throughout Microsoft. These are people who were raised to build and sell products. I can't imagine that they like watching Microsoft become a company filled with lawyers anymore than the rest of the industry does.

Instead of using its patents to browbeat device manufacturers for shipping Android, Microsoft should learn from Android's successes. Google's Android has succeeded against Apple's iOS by opening up to partners, even as Microsoft takes the opposite tack, leading Acer's CEO to say that Microsoft is "controlling the whole thing, the whole process."

While this behavior may be intended to help Microsoft ensure a quality end-product, delivered quickly to market, it's annoying Microsoft's partners at a time when Microsoft needs to be winning them over.

And where Android is weak, namely its Android Market (app store), Microsoft has a great deal of experience. Microsoft is renowned for making its partners, and not just itself, rich. Bring that experience to bear in mobile, and Apple becomes an afterthought, even as Android becomes roadkill.

In mobile, Microsoft has, ahem, a window of opportunity. Currently Windows Mobile customers appear to be jumping to iOS or Android rather than waiting for Windows Phone 7. If Microsoft can give them something worth waiting for, Microsoft's nine per cent of the mobile market could start to climb, especially in light of a strong partnership with Nokia.

But it starts with thinking about old-school IP (innovative products), not Phelps' new-school IP (intellectual property). ®

Matt Asay is senior vice president of business development at Strobe, a startup that offers an open source framework for building mobile apps. He was formerly chief operating officer of Ubuntu commercial operation Canonical. With more than a decade spent in open source, Asay served as Alfreso's general manager for the Americas and vice president of business development, and he helped put Novell on its open source track. Asay is an emeritus board member of the Open Source Initiative (OSI). His column, Open...and Shut, appears twice a week on The Register.

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