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  • Marta Beckwith

Global Standards Leadership Conference - Part 2

Welcome to the second installment of my review of the Global Standards Leadership Conference which took place on June 13, 2024, at the University of California, Berkeley, Haas School of Business.  You can find my first post about it here: Global Standards Leadership Conference - Part 1 (sepessentials.com).  Today I am focusing on the speech given by David Teece, a professor at the Haas School of business at UC-Berkeley where the event was held.


Despite opining on SEP valuation for many years,[1] from what I know, Mr. Teece has never actually worked in technology or participated in standardization efforts.  That shows in his naivete about the process.  For example, Mr. Teece said that someone at Cisco had said that standards are about compatibility.  The Cisco person had said two prongs are equivalent to three prongs for power outlets – the importance of standardizing around one or the other is mostly to ensure compatibility.  According to Mr. Teece, this is incorrect.[2] According to him, standards are about bringing forward great technology and combining them in new and better ways to create great things.  This is an only partially correct, rose-tinted glasses perspective on standards development.


While I have not participated in standards development myself, over the years I have worked with many people who have.  They uniformly say that standards development is a political process.  During the process, a lot of ideas are generated and discussed.  Then the horse-trading ensues: “People try to convince others to vote for their ideas. Sometimes a person agrees to support someone else’s idea in exchange for the other person’s support of a that person’s idea on a different topic.” (INTERVIEW WITH ANDREW MYLES - PART 1 (sepessentials.com)).  This often means that “each idea is not individually that useful, but they are incredibly powerful when we put them together.  The totality of all of those contributions, the standard, really is greater than the sum of the parts.” (id).  In other words, standards are not necessarily filled with great ideas, but with good enough ones that enough participants supported (possibly because it allowed them in return to get their ideas in). 


Mr. Teece also said that governments should be more supportive of standards developers than of “users” because the developers are innovative whereas the users are not.  Innovators should be able to capture significant returns from their investments.  Indeed, he went so far as to suggest that SEP holders should be able to get as much through licensing as implementers make from selling goods that implement the standard.  Again, Mr. Teece’s lack of experience in the real world of technology and standards development shows in these comments.  Making and selling a successful product is hard – almost always much harder than developing a standard. 


Mr. Teece seems to have forgotten the history of cellular handsets (e.g. what used to be called cell phones) which illustrate this point.  So, let’s take a history tour.  Several of the largest cellular SEP licensors and cellular standard developers – Qualcomm, Ericsson and Nokia – all had handset divisions way back in the 3G days.  These days, none of them do.  And a number of once great handset makers such as Motorola are no longer with us.  What happened? 


Well, consumers are fickle and making a successful handset depends on consumer demand.  Ericsson explains it this way: “In consumer markets, a failed investment can have major consequences. Suddenly you have developed something nobody wants. Nokia made this kind of error with its mobile phones around 1996–1997 and at Ericsson we did a few years later.”[3] 


Yes, cell phones implement cellular standards and that is a necessary part of their functionality.  But if demand was based on the cellular standard and no other innovation was going on, than Qualcomm, Ericsson and Nokia would all have successful handset divisions.  They each own more declared cellular SEPs than either of the current handset leaders (Apple and Samsung) and each of them continues to implement cellular standards in other products.  But they no longer have successful handset divisions because they failed to innovate successfully in handsets outside of the cellular standard. 


Apple and Samsung are the most successful handset makers in the world because of their innovations outside of the world of standards.  I own one of each and love them both for different reasons - none of which have to do with how well they implement the cellular or other standards.  To quote Ericsson again, one of Sony Ericsson’s handsets failed, in part, because “it could not compete with the iPhone in user-friendliness.”[3] User-friendliness is, of course, not a standardized technology (although don't we all wish it was).


Mr. Teece does not seem to recognize that innovation is happening much more significantly these days outside the world of standardization (or at least outside the world of established standards) than inside it.  Many of the major telecommunications and networking standards were first developed decades ago and now are on maintenance or bloatware updates.[4] Most of the true innovation is happening outside of these established standards – among the “users” of such technology.  It is happening in green tech, in electric vehicles, in sensor technology, in IoT.  Mr. Teece is correct that governments have a responsibility to ensure the system correctly values and supports innovation.  He is just mistaken on where that innovation is happening.


Mr. Teece also had some confusing and somewhat contradictory things to say about China and the EU.  He started by saying that it used to be that standards development was a private endeavor.  But these days, the Chinese government is intervening in the process.  The Chinese government has recognized the importance of standards and is trying to steer them.  There are now national interests at stake and thus the U.S. and the E.U. should take a more active role in standards. 


Later on, though, he said that the E.U. is jumping into the standards process and should instead leave things alone. He thinks the market for SEP licensing is imperfect – “clunky” – because the property rights are unclear and that causes a lot of friction.  But he also thinks the voluntary systems works well enough. He said: you cannot expect to create “Nirvana on earth.”  Imperfections are not a reason to regulate, and the EU should not do so in the standards arena. 


He also said that antitrust laws and other regulations are “unnecessarily complicating” SEP licensing.  He seems to have forgotten that standard development involves a group of competitors getting together to coordinate and agree upon a technology they will all use.  If that group of competitors then tried to lock others out of the market, it would create a significant competition problem which the antitrust laws and other regulations are designed to address.  Thus, while these laws might “complicate” things, they are necessary to ensure fair competition, and to achieve the pro-consumer benefits of standard development.


He also said that he had only learned during the earlier panel that “hundreds” of people are showing up to standards meetings.[5] He said that we needed more “competent” people to participate.  I might be wrong, but I took that to mean that he did not think the Chinese participants were competent, and I think I was not the only one who interpreted his remarks that way.  Ms. Gupta, for example, asked a question from the audience after these remarks: she said that China has innovations and contributions too and was Mr. Teece suggesting we “Balkanize” the standard.[6] Mr. Teece backed off a bit after that question and just responded that the EU and U.S. should coordinate more during the standards development process.


At the end of his talk, Mr. Teece made some remarks that seemed to undercut his earlier arguments. He said that implementers are important too.  Then he mused as to why people who just do research cannot make a living from it and why pioneers are often unsuccessful.[7] He acknowledged that just having great technology does not “win you the crown.”  He also conceded that there is no market for technology by itself: you can only capture the value of technology through the sales of products.   


All in all, not one of the more inspiring, logical or comprehensible addresses I have heard recently.

 

[1]          In addition to being a professor, Mr. Teece has a sideline as an expert witness, including on standards related matters.

[2]          I’ll just note that Cisco has been involved in standards development and implementation for the entirety of its almost forty years of existence.  Indeed, many people say that Cisco is a standards-based company because its core products all use the IETF’s IP standard, and its products also implement numerous other telecommunications and networking standards.  See for example, The Importance of Standards, IETF, and Interop to Collaboration at Cisco - Cisco Blogs.  After so many years of participation in standards development and implementation, you might imagine Cisco has significant insight into standardization that one might not want to discount so readily.

[5]          Let me just say that I am perplexed by someone who claims to be an expert on standards, SEPs and standard development, but who has no idea about how the standardization process actually works and what actually goes on in standards development meetings. 

[6]          I understood all of these comments to be referring to the cellular standards.

[7]          I’ll just say again that the reasons for this are not that complicated. Making a useful, functional and successful product is hard, and takes much more than an idea. 

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