Thursday, 31 May 2012

How Your Shoe Can Secretly Help You Text

Technology and etiquette don’t move in lockstep. Just because it’s possible to whip out your smartphone and connect from anywhere doesn’t mean you should. Text during a meeting and you risk offending your boss, e-mail during family dinner and you risk displeasing your spouse, peruse your MP3 collection during church and you risk disappointing your pastor (and any supernatural arbiter whose ear he may have).

A new device being developed by engineers in Germany, however, promises to liberate smartphone addicts from the strictures of social opprobrium, making it easier to work their devices sneakily under the noses of those who might judge them for it. The gadget is called ShoeSense. It’s a motion sensor that, indeed, mounts on a shoe. Facing upward, it allows a user to control his phone through hand gestures performed at midriff level, even when the phone is still stored away in his pocket. Pinch index finger and thumb together and move your hand slightly forward to answer the phone or hang up, touch one hand to the other forearm to send a prewritten text, hold out a number of fingers to communicate whom on your speed-dial list to send it to. A person using ShoeSense looks a bit like a theremin player.

If the ShoeSense user is sitting at a desk, however, or a conference table, he looks as if he’s not doing anything at all and instead paying you his undivided attention—even as, sub rosa, he’s semaphoring his phone to send out a text about happy hour. “It is quite discreet,” says Gilles Bailly, a computer scientist at Technische Universitat Berlin and Deutsche Telekom (DTE) who is one of ShoeSense’s creators. “Say you are in a meeting, you want to indicate that you are going to be late. You’ve already defined the gesture for this, and you perform the gesture under the table. The system on your shoe can recognize it, and nobody at the meeting knows that you performed the gesture.”

ShoeSense is still a long way from showing up in your next pair of Nikes. Bailly’s lab is still tinkering with it. Still, bosses might prepare for its eventual arrival—perhaps by installing glass conference tables or by asking that, during meetings, people keep their hands where everyone can see them.


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TechShop: Paradise for Tinkerers

On March 5, 2010, Patrick Buckley was overcome with the desire to build something. Apple (AAPL) had just announced the iPad, and he had an idea: a retro case for the tablet that had the look and feel of a hard-bound book. “In my mind, I needed to have a product and a website ready to go for that launch day,” he says. Buckley, 31, is a serial entrepreneur. He has built add-ons for Web browsers and co-wrote The Hungry Scientist Handbook, which is something like a cookbook for geeks. He’s done a Facebook (FB) app focused on high school sports, an early photo-sharing service, and “a mobile analytics platform.” Making an iPad case wasn’t like building a Web app, though. He needed tools. So he did what a lot of Silicon Valley geeks do: He went to a TechShop.

The TechShop chain is a paradise for people who like to make things. The average facility runs about 17,000 square feet and has all manner of apparatus, from Industrial Age staples such as sewing machines, metal lathes, and mills to $200,000 computer-controlled contraptions that can cut precise patterns out of slabs of metal. For about $100 a month, you can become a TechShop member and use all this equipment. For a few bucks more, you can attend classes that vary from Welding 101 to drawing 3D models on a computer.

Square Reader: Jin Lee/Bloomberg; Jet Pack: Joseph Schell; Engine: Brian SorgAt the original TechShop in Menlo Park, Calif., Buckley learned how to slice up large sheets of bamboo into smaller pieces and how to fasten them together and smooth them down to make a retro case for the iPad. The result was the DODOcase. Buckley sold about $4 million worth of the cases in his first year and has expanded since. He now employs 25 people and has a factory in San Francisco. “President Obama has a DODOcase,” Buckley says. “You can see it in the Oval Office. I’ve actually never seen a photo of him using an iPad without it.”
The Menlo Park TechShop opened in 2006, part of a boomlet in so-called hacker spaces. Lacking garage workshops, city dwellers created places where they can write software code or build robots, while socializing and sharing their expertise. They’re part of what’s known as the maker movement: DIY enthusiasts who argue that they’re fulfilling a fundamental human need to make things with our hands.

TechShop stands as the retail embodiment of this movement. It’s a maker franchise. Jim Newton, a veteran of the Valley’s computer hardware scene and a former science adviser to the MythBusters television series, founded TechShop after getting hooked on building BattleBots, the warrior robots that fight each other. He ended up taking a machine class at a local college to get access to better tools. Newton proved so good at building the robots and working with the machines that he was asked to teach a class. “Then people kept e-mailing me to see if they could use the machine shop for their own projects, and it showed me that people would pay for access to a shop,” he says.

Newton announced his plans in 2006 at the Maker Faire, an annual gathering in the Bay Area that celebrates handmade creations, and people began handing him membership dues on the spot. More people offered to invest $25,000 each to get the TechShop going, and soon Newton had the $350,000 needed to open in Menlo Park. More TechShops were started in a similar fashion. The company has since found that it can get each site to profitability more quickly with corporate sponsorships. It expects to break even at all the stores this year. There are now about 3,300 TechShop members.

Three TechShops are in the Bay Area and another is in Raleigh, N.C. Earlier this year, a TechShop opened in Detroit via a partnership with Ford Motor (F) meant to provide makers at the company and in the city with a creative outlet. “The crisis we went through in Detroit has driven the rise of a more entrepreneurial spirit,” says Paul Mascarenas, the chief technical officer at Ford. “This is part of an opportunity to bring out some of the innovation.” Other companies—none of which have been named yet—are in negotiations to back TechShops in Austin, Phoenix, and New York (Brooklyn) this year, with Los Angeles, Chicago, Boston, Seattle, and San Diego on the agenda for next year.

In Washington, a very big partner has stepped up. In an interview, the Defense Department revealed it will spend $3.5 million to fund two TechShops near Washington, D.C., and Pittsburgh. Regular members will work in the facility by day, and then employees of Darpa, or the Defense Advanced Research Projects Agency, will arrive at midnight to conduct after-hours work. Their mission: to design factories that can be reconfigured on the fly. The project is called iFab. For a month, a given factory might use dozens of machines to make parts for helicopters. Then you reboot the software controlling the machines, and out come the parts for the drive train system in a tank. The Darpa workers at TechShop will try to figure out which tools and methods can be used to rewire factories in this fashion. “They are not there to interact with the general public or look at the ideas people have,” says Nathan Wiedenman, the program manager of Darpa’s tactical technology office. “They are there to work on iFab.”

Despite the secrecy, Darpa has worked over the past 10 years to harness the creative resources of the public. It has used contests and prize money to spur innovation in such areas as robotic cars and artificial intelligence algorithms. And it’s looking to flood high schools with 3D printers, design software, and computer-controlled machines. Darpa has invested in TechShop as part of a broad mission to see if regular citizens can outinvent military contractors on some of its weirder projects. (The Department of Veterans Affairs, meanwhile, will be giving 1-year TechShop memberships to 2,000 veterans.) “We are pretty in tune with the maker movement,” says Wiedenman. “We want to reach out to a much broader section of society, a much broader collection of brains.”
Walk into the three-story TechShop located south of Market Street in San Francisco, and you’re greeted by a dream consultant—yes, that’s an official title—like Danny Garcia. He studied architecture for five years, then got stir-crazy and completed metal and woodworking apprenticeships. Members can give their dream consultants an idea of what they’d like to make and receive advice on how best to achieve the goal and what classes to take. Garcia, like many TechShop employees, often works from 9 a.m. until the location closes at midnight. He goes home with his pants covered in sawdust and loves it. “I volunteered here until they hired me,” he says.

TechShop members are a mix of hobbyists, artists, retired engineers, and budding entrepreneurs. The first prototype of the Square, a device that turns smartphones and tablets into credit-card readers, came out of TechShop, as did Lightning Motorcycles, maker of the world’s fastest electric motorcycle, and Embrace, which built a cheap infant warmer now distributed worldwide by GE Healthcare.

Each TechShop is divided up into sections. There are large, cordoned-off areas for bulky and dangerous equipment such as sheet metal rollers and chop saws and handheld plasma cutters. There are special areas for tasks that make a lot of noise and a lot of mess like the sand-blasting cabinet and spray-painting studio. Most of the people, though, end up in shared common spaces that are filled with workbenches. There’s free coffee and popcorn.

On a Wednesday afternoon in March, about 50 people are in full maker mode at the TechShop in San Francisco. Anton Willis is building an origami kayak, which works like it sounds. Before a hiking trip, you fold the kayak up and stuff it in your backpack and then unfurl it at the waterside. While made out of corrugated plastic, the kayak has proved sturdy enough to support Willis on dozens of trips. “It’s perfect for the Bay,” he says.

The people consuming the most space in the shared area are Adam Ellsworth and Bryan Duxbury, who have a full-on manufacturing operation. They created a lamp that looks like one of the question mark cubes from Super Mario Bros. You know, the ones that spit out gold coins when hit by a character. Similarly, you punch the 6x6x6-inch lamp to turn it on and off, and every now and then it makes a noise just like the cube in the video game. “I think the sound is what keeps people coming back,” says Ellsworth. “It really touches on their nostalgia.”

They’ve sold hundreds of the lamps for about $75 each and take up three large tables to perform the assembly. Plastic squares stamped with yellow question marks and white backgrounds sit in stacks with bins full of electronics nearby. “We have one full-time worker now and two people that work 30 hours a week,” says Ellsworth. “USPS comes here every day and takes a cart of them away.” He estimates that the amount of equipment they use to make the lamps—laser cutters, screen printers, and the like—would cost more than $150,000, meaning they would never have even tried had TechShop not been around.

Each TechShop location has a different look and vibe. The Menlo Park site remains gritty and has an experimental air. The new site near Detroit shows what practice and some corporate backing can do. It’s a gleaming 38,000-sq.-ft. facility in a modified Ford building in Allen Park, Mich., just a few miles from the company’s main offices. Executives from TechShop and Ford performed the grand opening in early May by slicing through a thick metal “ribbon” with a plasma torch.

Ford’s executives heard about TechShop and hit on it as a way to pull more innovations out of the company. Ford’s employees were always thinking about new gizmos and needed a place where they could mock up prototypes quickly and test out their concepts. Instead of waiting to reserve equipment through Ford’s official channels, the employees can hop in their cars and drive three minutes over to TechShop. Ford employees that submit invention ideas that management deems patentable now receive free TechShop memberships.

Bill Coughlin, the chief executive officer at Ford Global Technologies, which handles intellectual property matters for the carmaker, expects Ford executives to greenlight more ideas when they can hold actual prototypes in their hands, rather than just see the early form of an idea on paper. He’s taken classes on 3D design software and laser printing; about 1,000 Ford workers have been given access to TechShop to date. The facility has a large showroom that will soon be filled with dozens of exhibit stations so that other TechShop members can demonstrate their technologies to car industry executives. “My hope is that this lets us connect to the maker community out there,” Coughlin says.

Mark Hatch, the CEO of TechShop, has tried to fund each site with local investors. It’s a time-consuming approach that has slowed the growth of the company. Through Ford, though, Hatch has hit on a new model. Ford guarantees a certain number of members and, through its sponsorship, ensures that TechShop will at least break even for a few years. “Anyone with a heart could feel what went on here through the last downturn,” Hatch says. “To come here and provide this kind of resource is awesome.”

The size of the Detroit facility has Hatch dreaming up extensions to the TechShop business. “We’ll add services desks, so that we’re not all DIY,” he says. “Someone can send us a file, and we will 3D print the object for you or laser cut it, and you can pick it up.” In this scenario, TechShop turns into the equivalent of the Kinko’s of the maker movement.

For Luciano Golia, the current setup at the Detroit facility is just fine. He’s a luthier from Italy who has made basses for professional musicians for 25 years. During a trip to Michigan for a conference, Golia fell in love with an American woman and recently moved to Allen Park so their daughter could be born in the U.S. He gave up his studio in Turin and $20,000 of equipment and had no idea what he’d do until his wife heard about TechShop. “When I found out about this place, it was just a beautiful gift,” says Golia. He now spends about eight hours a day at TechShop.
For some, TechShop represents a raised fist in the age of Made In China—and an opportunity to opt out of mass-market consumption and unleash their own creativity. They are tinkering at TechShop, testing out ideas at a rapid pace, and getting help from the other makers around them. “Specific movements come and go, but the basic phenomenon is big and growing,” says Eric von Hippel, a professor of technological innovation at the MIT Sloan School of Management. “People are not finding what they want on the market and are choosing to create what they want.”

Tamim Hamid has felt the benefits of TechShop on a visceral level. For years he watched as male pattern baldness set in and started eating away at his wavy black hair. A Silicon Valley biomedical engineer, Hamid dreamed up a helmet outfitted with dozens of lasers that would fire on the scalp and stimulate hair follicles. He developed the science behind the machine and then went to TechShop to find industrial designers who could develop the helmet and others to create the packaging for the device. “The folks who hang out here are good,” he says. “They’re always getting a lot of work.”

Later this month, Hamid will begin selling the Theradome. It started out as a crude 3D-printed plastic model and was then milled out of foam with a carrying case produced on industrial sewing machines. Now it’s a superslick blue-and-white helmet that has an industrial design reminiscent of an Apple laptop. The Food and Drug Administration has approved the device, which people are expected to wear three times a week for 20 minutes. “We’ve tested it on hundreds of people to show that it’s safe,” Hamid says, running his hand through a now-thick mat of salt-and-pepper hair. “It works on anyone.”

Buckley, meanwhile, plans to expand way beyond the DODOcase to fashion all types of accessories for gadgets. In each case, he wants to marry Old World manufacturing techniques with high-tech devices. TechShop served Buckley well once again when he took his girlfriend for a welding class to see if she had the mettle to be a maker. “It was a test, and she passed,” says Buckley. “She’s my wife now.”


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Rocket Man: Should Elon Musk Doubters Think Again?

Elon Musk leads a life worthy of Dos Equis’s “Most Interesting Man in the World” ad campaign. His tweets are about rockets he just launched. Action heroes model themselves on him. His warm-up was founding PayPal. Stanford held his interest for two days. His other job is reinventing the car. Making $2 billion is what he calls an afterthought.

Musk is clearly a man of gargantuan ambitions and abilities. And his ventures make great stories. But do they also make good investments?

Two years ago, Ironfire Capital founder Eric Jackson didn’t think so, at least regarding Tesla. In August 2010 he announced on TheStreet.com that he was shorting Musk’s electric car company, which he dubbed “the next Webvan.” Jackson cited both Musk’s perceived narcissism and the breadth of his ambitions as problems for the company. “If he wants to fiddle around with a space company,” he wrote, “then he should go do that.” Since Musk’s rocket fiddling just put the first commercial cargo on route to the International Space Station, and Tesla says it will be delivering its first Model S sedans ahead of schedule, we called Jackson to ask if he’d changed his thinking.

“What he’s done at Tesla and SpaceX, I have to say, it’s phenomenal,” says Jackson. “I have to tip my hat to him because both ventures are very exciting.” Jackson says he got out of his short bet on Tesla—at a small loss—a few months after writing the Street piece. He held Tesla shares for a while after that but hasn’t had an interest in the company for about eight months. What changed his mind? “I guess I realized that [Musk] being an egomaniac doesn’t necessarily mean [Tesla] won’t be a great stock return in the next 6, 12, or 18 months,” he says. Jackson saw that investors were not swayed by quarterly losses at the company and decided Tesla was a “story stock,” meaning operational problems took a back seat to future potential.

Yet Jackson has no plans to buy a piece of privately held SpaceX if it comes on the market. “[Musk's] healthy self-regard could prove to be an Achilles’ heel, but that’s probably going to be still a couple years from now rather than immediately.” But aren’t some egomaniacs as good as they think they are? How many rockets does Musk have to launch, or how many cars does he have to deliver, before Jackson is a believer? “He’s been dead right so far, and these kinds of fears have been dead wrong,” he says. “I can’t really say when I would … want to get behind him.” Wall Street can be a tough crowd.


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Ferrari's F70, an Eco-Friendly Supercar

Many makers of expensive performance cars have long valued one characteristic most: raw power. But now Ferrari, the preferred drug for many deep-pocketed drivers with a need for speed, is turning to fuel-saving hybrid technology to create its most powerful and expensive model. Using technology developed for Formula One racing, the Italian automaker’s first hybrid, dubbed the F70, will combine two electric motors with a 12-cylinder gasoline engine to produce more horsepower than any previous Ferrari while cutting fuel consumption by 40 percent.

The F70 won’t come at a Prius price: The vehicle will probably surpass the €660,000 ($850,000) cost of the automaker’s storied limited-edition Enzo, which the company considers it a successor to, says a person familiar with Ferrari’s plans who was not authorized to talk about them. “Dedicated Ferrari drivers look first at power and technology,” says Fabio Barone, president of the Passione Rossa owners’ club, who has two Ferraris. “The new Enzo will satisfy their appetite.”

Mercedes photograph by Daniel Acker/Bloomberg

The model is part of a wave of green supercars as high-end automakers step up efforts to make their models environmentally palatable while maintaining or boosting performance. As more models become available and emission rules tighten, sales of hybrid supercars may surge from fewer than 100 this year to more than 2,100 in 2015, according to IHS Automotive (IHS).

Porsche, which sells hybrid versions of its Cayenne sport-utility vehicle and Panamera four-door coupe, plans to start deliveries next year of the €768,000 918 Spyder. The top-of-the-line Porsche sports car will combine a 500-horsepower engine with two 218-hp electric motors to hit a top speed of more than 320 kilometers (199 miles) per hour. BMW (BMW) will roll out its own i8 plug-in hybrid in 2014. The BMW supercar, similar to one used in the film Mission: Impossible—Ghost Protocol, will be able to drive up to 35 kilometers (21.7 miles) on electric power and accelerate to 100 kilometers per hour in less than 5 seconds. “If you want to sell a vehicle in the U.S. and Europe, you must show you want to make the difference in terms of lower emissions, even if you sell a €100,000 car,” says Ian Fletcher, an analyst at IHS Automotive. “Even a supercar becomes more usable for city driving if it carries a hybrid engine.”

Toyota Motor’s (TM) Lexus, which has led the green technology shift among luxury-car makers, offers five hybrid models, ranging from the $29,120 CT to the $112,750 LS. Daimler’s (DAI) Mercedes-Benz sells the $91,850 S-Class hybrid and introduced a diesel-electric version of the E-Class in Germany this year. Even Volkswagen’s (VOW) ultraluxe Bentley line is considering a plug-in hybrid version of its planned $201,000 to $252,000 SUV.

The Ferrari hybrid will go on sale next year, with the U.S. likely to be its biggest market, according to the person with knowledge of the car’s rollout. Ferrari will produce a limited number of the model, with the final price yet to be decided, the person says.

The original Enzo, which sports wing doors, a carbon-fiber body, and a 660-hp engine, was limited to a run of 400 vehicles between 2002 and 2004. Because of its rarity, it now sells for about $1 million, according to website Infomotori.com. The Enzo successor will be powered by HY-KERS hybrid technology developed for the brand’s Formula One team. In the system, the electric motors deliver about an extra 100 hp to the wheels by operating through one of the gearbox’s two clutches. The setup transfers power instantaneously between the 12-cylinder engine and the electric motor, Ferrari says.

That brings some important gains for members of the 1 Percent with an eco-bent. A 40 percent savings in fuel economy would give elite car drivers some green bragging rights and about an additional 9 miles to the gallon vs. a conventional car of comparable weight. But the green benefits of the propulsion changes aren’t what has supercar fans excited. Instead, it’s the prospect that adding those supplementary electric motors will actually allow the cars to go even faster without requiring a larger main engine. “Boosted by the electric motors, the new supercar may have more than 900 hp,” says Barone, the Ferrari club president. “It’s going to be a sensational car, and it also lowers emissions.”

The bottom line: Ferrari’s first hybrid vehicle, likely to cost more than $850,000, shows that even elite supercars are under pressure to get greener.


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David Holz's Leap Motion Wants to Kill the Mouse

Growing up in southern Florida, David Holz was a tinkerer. “I had a large pile of all sorts of electronics,” he says. “I was trying to figure out how things worked.” In high school, he built a system that uses several microphones to pinpoint where a noise originates; the U.S. military now uses similar tools to locate snipers. Holz’s project took him to the Intel International Science and Engineering Fair, but he didn’t win a prize. “I lost to somebody who cured a disease,” he says.

Holz, now 23, has moved on from sound-mapping. His new startup, Leap Motion, is dedicated to changing the way people interact with computers. Holz and his co-founder, Michael Buckwald, have built a device about the size of a cigarette lighter that contains three tiny cameras inside. It attaches to a computer and turns any PC or Mac into a gesture-recognition device. The idea is similar to the one behind Microsoft’s (MSFT) Kinect, an Xbox add-on that lets people play games just by moving their hands and body. At $70, the Leap Motion is about half the price of a Kinect. It’s also far more accurate, says Holz. The software that analyzes the images from the three cameras can track all 10 of a user’s fingers and detect movements of less than one-hundredth of a millimeter. “It’s so precise that it tracks down to the tendon,” says Andy Miller, a former Apple (AAPL) executive and now a partner at Highland Capital Partners, which has contributed to Leap Motion’s $14.5 million in funding.

Computer users have been primed for gestural interfaces thanks to Apple’s touch-based devices. Holtz envisions legions of office workers and gamers swiping, flicking, and pinching the air in front of them to interact with their machines. Such gesturing will replace the mouse, which is “a needless layer of technological complexity,” says Holz. Gesture-based computing will be particularly helpful for professionals who work with three-dimensional images, such as scientists examining molecules or energy experts studying oil-exploration maps.

Leap Motion plans to begin selling its devices within a year. They’ve also created software for third-party developers to add gesture recognition to their applications, and the duo expect roboticists, medical imagers, and gamers to take advantage of it. Holz has also been talking with consumer electronics companies about building Leap Motion technology directly into future laptops and tablets. “The end goal is to fundamentally change how people interact with their computers,” Holz says.

Even in the precocious world of startup founders, Holz stands out. He read Stephen Hawking’s A Brief History of Time in eighth grade and then devised a simple way to test the theory of general relativity. By the time he was in college, studying math at the University of North Carolina at Chapel Hill, he was doing contract work with NASA. Bill Warner, founder of video-editing software company Avid Technology (AVID), invested in Leap after being impressed by Holz’s wide-ranging intellect. Talking to him “feels like meeting Einstein when he was young,” says Warner.

Tested the theory of relativity with a ham radio and a clock

Worked part-time for NASA before dropping out of a Ph.D. program

To replace the mouse—"a needless layer"—with gestures


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Remaking J.C. Penney Without Coupons

Here’s a riddle: How do bargain hunters know they’re getting a bargain if there’s no hunt? The answer is, they don’t. That’s just one of the lessons Ron Johnson has learned in his six months as chief executive officer of J.?C. Penney. Johnson developed Target’s (TGT) “cheap chic” persona before moving to Apple (AAPL), where he created the world’s most profitable stores. Now he’s trying something really hard. He wants to wean Penney’s middle-market customers from a steady diet of coupons and almost constant discounting. So far, they’re not buying. “The transition has been tougher than we anticipated,” Johnson said during a May 15 presentation to investors.

Johnson’s strategy was deceptively simple: quickly replace Penney’s relatively high list prices—which it aggressively discounted—with lower everyday “fair and square prices.” The early results of that grand experiment have been dismal. The department store chain, with 1,100 U.S. stores, had overall revenue of $3.2 billion in the first quarter, and lost $163 million during that time. Sales at stores open more than a year fell an average 19 percent. The number of people coming into Penney stores dropped by 10 percent, and the number of those who bought something fell, too, by 5 percent.

“What is the source of this?” asked Mike Kramer, Penney’s new chief operating officer, during the May presentation. “Coupons, that drug,” he said. “We did not realize how deep some of the customers were into this. …?We have got to wean them off this and educate our consumers.” Added Johnson: “We have got to get people to understand our pricing strategy.”

Before Johnson’s arrival, a pair of sandals at Penney might have been priced at $39.99 and, after all the coupons and discounts, sold for $29.99. Now the shoes are available for an everyday price of $30 from the start. Johnson’s setup allows special month-long values for some items; in May, for example, the sandals could go for $22. And if some are still in stock, they would later be marked down to the so-called best price of $15 on the first or third Friday of the month (when most shoppers get their paychecks). “I went into a store a couple of weeks ago, and I couldn’t figure out what was what,” says Jay Margolis, a former executive at Limited Brands (LTD).

There’s no question Johnson knows how to craft a retail makeover. He’s the guy who came up with the designer collaborations at Target that burnished the discounter’s reputation and afforded it more control over its goods—and their prices—than rivals. Then Johnson created Apple’s ultracool stores. From there he was recruited to Penney by Bill Ackman, whose hedge fund, Pershing Square Capital Management, owns 18 percent of the 110-year-old retailer.

In January, Johnson unveiled his four-year plan to transform Penney into America’s favorite store. In a presentation to investors and suppliers, he described a department store built around a so-called town square, with up to 100 boutiques carrying items made by well-known brands specifically for Penney. The first store-within-a-store he announced will sell home goods by Martha Stewart. “Ron Johnson is attempting one of the boldest transformations of any retailer or any company ever,” says Whitney Tilson, founder of hedge fund T2 Partners and an investor in Penney.

But Johnson says first he had to fix the pricing. “We wouldn’t have had access to many of our new brands and design partners without implementing a new pricing model,” he says by e-mail. Less than 1 percent of all Penney merchandise was sold at full price prior to his arrival. The company offered 590 different promotions a year, yet the average customer made only four visits during that time. “That means the customer ignored us 99 percent of the time,” Johnson said in January. “Steve [Jobs] would have called this insanity. J.?C. Penney spent $1 billion [on promotions], and the customer ignored us. It’s like in junior high school, if you keep calling a girl and she doesn’t call back, you seem desperate.”

Although Johnson says future ads will do more to explain the new pricing scheme, that may not help as much as he hopes. “These are not women who feel taken advantage of by coupons and deals,” says Mark Ellwood, whose book, Bargain Fever, comes out next year. “To them, there’s the thrill of the hunt—it’s hunting and gathering with a credit card. No consumers have been complaining about discounts.”

Many shoppers may need to see the markdowns to believe they’re getting a good deal, says Barbara Kahn, a professor of marketing at the Wharton School. That’s especially true when it comes to the basic items—from underwear to dinner plates—that Penney mostly sells. Johnson said at the January presentation that shoppers distrusted the store because it offered so many discounts it was impossible to know the real price. Yet he may have gotten it backward. “Underneath the bargain craziness is a lack of trust in business,” says Kit Yarrow, a consumer psychologist and professor at Golden Gate University. “But now J.?C. Penney has made it look like its customers were buying cheap stuff. People are looking at it the opposite way J.?C. Penney had hoped.”

Penney isn’t the first retailer to try to ditch coupons in favor of everyday low prices. After Macy’s (M) acquired rival May Co. in 2005, executives thought they could reduce the huge number of discounts it offered. But sales fell, the stock dropped, and executives soon abandoned the idea. At an April conference for investors, Karen Hoguet, Macy’s chief financial officer, said, “People love these coupons. They love thinking they got us.”

There is, of course, one way to avoid big discounts: sell Apple products. That is, sell products consumers can’t buy anywhere else at a lower price. Johnson’s vision of an amalgam of 100 boutiques with specially designed items from the likes of Jonathan Adler, Vivienne Tam, and Tourneau may eventually give him some of the pricing power he had at Apple and Target. But here’s another riddle: Which comes first, the price or the products? Johnson “jumped the gun on his pricing strategy,” says Rafi Mohammed, a pricing consultant and author of The 1% Windfall. “He should add the boutiques and the town square, and then he’ll have the mojo to change the pricing.”

The bottom line: Penney has dramatically cut back on discounting. A 10 percent drop in customer traffic in the first quarter shows the strategy isn’t taking hold.


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Innovation Management - What Difference Does It Bring To Your Business

The Distinction Between Creativity and Innovation

Friday, 18 May 2012

Freeing Ford's Logo From Debtors' Prison

Six years ago, Ford Motor (F) was running out of time and money. To save the company, Henry Ford’s great-grandson had to do something the founder never could have imagined—sign away the family name. In order to secure a $23 billion loan, a syndicate of banks led by Citibank (C), Goldman Sachs (GS), and JPMorgan Chase (JPM) demanded as collateral the rights to the blue oval logo that surrounds the Ford name on the nose of millions of cars. “When we had to hock the blue oval, that was a very tough thing,” recalls Bill Ford, the company’s executive chairman. “I will never forget signing those papers. My heart stopped for a moment. It will start beating again when we get it back.”

The loan, pitched to investors by then-new Chief Executive Officer Alan Mulally in late 2006, proved to be a lifesaver. It enabled Ford to withstand more than $30 billion in losses from 2006 through 2008 and avoid the bailouts and bankruptcies that befell General Motors (GM) and Chrysler Group. And the timing, nine months before Lehman Brothers fell, was perfect. By the time GM sought cash in 2007, banks weren’t lending.

Now Ford is on the verge of reclaiming control of its insignia. The company has paid off $21 billion of the $23 billion loan and on April 24 recovered its investment-grade credit rating from Fitch. According to the covenants of the loan, once a second major rating agency lifts Ford to investment grade, the automaker gets back all the major assets it put up as collateral. “It’s going to be great,” Bill Ford says of reclaiming the logo. “It’s a very personal thing to me and members of our family.”

Now that Ford has regained traction, earning $29 billion over the past three years, recovering the logo has become an obsession among its employees. “Getting the blue oval back has been a huge rallying cry,” says Neil Schloss, Ford’s treasurer, “and one that we all feel emotionally connected to.”

Leslie Butterfield, global chief strategy officer for consultant Interbrand, says that’s understandable since the whole process struck many Ford veterans as a particularly cruel humiliation. “How bad must things be if you’re prepared to pawn your wedding ring?” Butterfield asks. “And therefore, how proud will they be to get it back?”

The carmaker’s emblem first appeared in 1927 on the nose of Henry Ford’s new Model A. The cursive script inside it dates to at least 1906, when it appeared on the radiator of the Model N and later on the more famous Model T, according to automotive historian John Wolkonowicz. It was trademarked in 1909, the company says.

The script logo is not, as often thought, based on the founder’s signature. Rather, it was created by Childe Harold Wills, a draftsman for Henry Ford. “The font was similar enough to Henry’s own signature that it looked as if he was signing every car,” says Bob Casey, senior curator of transportation at the Henry Ford museum in Dearborn, Mich. “But that was more happy coincidence than by design.”

After World War II the blue oval disappeared, replaced by the Ford name in more modern-style block letters above car grilles. It wasn’t until the automaker’s 75th anniversary in 1978 that the founder’s grandson, Henry Ford II, revived the oval marque. “Henry Ford II said, ‘What the hell is this? We have no logo!’” Wolkonowicz says. “So they dredged this thing out of the trash barrel and it became hallowed.”

Not quite. The brand marker again fell from grace in 1999, when CEO Jacques Nasser had it removed from the company’s headquarters and replaced with an extended script logo spelling out Ford Motor Co. To Nasser, the blue oval represented a common-man moniker out of step with the growing stable of luxury brands he was amassing, including Volvo, Land Rover, Jaguar, and Aston Martin. “Ford was a brand that was more down-market than he wanted to go,” Casey says.

When Bill Ford fired Nasser and took over as CEO in late 2001, one of his first acts was to put the blue oval back atop Ford’s glass headquarters. To this day, when Bill Ford signs his autograph, he uses the script F on his last name. “For me, it’s a very emotional symbol,” he says. “It’s not just another corporate logo.”

The bottom line: Ford may soon regain the rights to its trademark, which was part of the collateral for $23 billion in loans. The emotional value is priceless.


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Business Innovation Strategy - Don't Stop After One Good Innovation

'Adaptive Radio': The Next Big Thing in Wireless?

James Collier is loping in a broad circle on the Midsummer Common in Cambridge, England, holding aloft a two-foot fiberglass antenna. Cables snake from the antenna to a flat green box about the size of a vinyl record sleeve, which he’s carrying in a backpack. About 10 yards away, another antenna and another green box are connected to a laptop, receiving Collier’s signal and tracing his oval-shaped path on a map. “Of course,” he says, “this will all be much smaller.”

Collier runs Neul, the Cambridge startup that makes the green boxes, which house a new technology called “adaptive radio.” Today, anything that transmits long-range signals over the airwaves—radios, cell phones, television networks—broadcasts on a single, fixed frequency. Think of the 106.7 that appears on your radio dial. Both broadcaster and listener have to be tuned to the same wave. Each cell phone, similarly, has its own allotted frequency to communicate with nearby towers. Carriers must spend billions to license chunks of spectrum to make sure their subscribers can connect wherever they go.

A radio from Neul—or one of several startups working on similar technology—upends this whole system. An adaptive radio doesn’t always use the same fixed frequency but checks to see which frequencies around it aren’t in use, then borrows empty air for a short-term connection. As devices move around, the connection can shift, too. Collier’s loop around Cambridge is a demonstration—part of a trial led by Microsoft (MSFT) and other tech giants—that the idea works technologically. If it works commercially, too, it could change the dynamics of the wireless business.

An adaptive network could help companies in the U.S. such as AT&T (T) or Verizon Wireless run their networks far more efficiently by squeezing more smartphones and other devices onto a given range of wireless spectrum. Collier says he’s in touch with some big-name companies that want to do exactly that. And since adaptive radios find unused airspace without interfering with other signals, they could make it feasible to build new, high-speed networks without spending billions to license frequencies. “This could absolutely pose a challenge” to existing mobile networks, says Rick Rotondo, the vice president of marketing at XG Technology, a Florida-based competitor to Neul. “Someone with the pockets of a Google (GOOG), a Microsoft, an Apple (AAPL), they could make a run of this and create their own network.”

The success of adaptive radios depends on some regulatory changes, however. The technology makes particularly good use of unlicensed spectrum, set aside by regulators for anyone to use. The problem is, there’s precious little of it, and most of what’s available works best over short ranges. In February, Congress authorized unlicensed use of the so-called white spaces that are left between television broadcast signals to prevent interference. And at a conference in Orlando, Julius Knapp, chief of the FCC’s Office of Engineering and Technology, hinted that the commission would open up more unlicensed spectrum in the future.

The Microsoft-led trial in Cambridge, which finished in April and also counted Nokia (NOK), Alcatel-Lucent (ALU), and the BBC as participants, showed that a citywide network of adaptive radios could work without affecting existing transmissions. The trial was in part an effort to persuade Ofcom, Britain’s telecom regulator, to start freeing up white spaces in the U.K.

The technology that makes adaptive radio systems work comes mostly from startups. Spectrum Bridge manages a database of radio frequencies; adaptive radios check it to know which ones to avoid. Neul, 6harmonics, and Adaptrum all make various pieces of the radios or antennae.

The startups say that by eliminating the high cost of acquiring a spectrum license, adaptive radio networks will unlock all kinds of wireless innovation. In Cambridge, Neul developed an application that notified the city council when trash cans needed emptying. Similar sensors run by New Hanover County in North Carolina monitor water quality on the Intracoastal Waterway. Such applications are possible with existing networks, but would require paying a hefty monthly fee to a telecom company such as AT&T. Collier says you could even use adaptive radios to monitor conditions in dangerous areas. “Toss hundreds of sensors out the back of a helicopter, then plant a single antenna,” he says.

The bottom line: A recent trial in England proves the feasibility of adaptive radios, which could spur wireless innovation by reducing costs.


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Yosi Glick's Smarter Movie Recommendations

Movie recommendations suck. Or so says Yosi Glick, the founder and chief executive officer of Israeli startup Jinni. Watch a film like The Usual Suspects online, he says, and a lot of sites will recommend Se7en, another crime thriller starring Kevin Spacey. That kind of simplistic matching isn’t nearly specific enough, says Glick. The former is a twisting-and-turning heist story that audiences find clever. The latter is a disturbing, gore-filled tale about a psychopathic killer. Fans of the The Usual Suspects are far more likely to enjoy the Ben Affleck crime caper The Town than David Fincher’s dark detective story.

Glick knows this because Jinni has spent the last several years doing for film what Pandora did for music. The startup has created what it calls the Entertainment Genome, an online catalog of movies and TV shows described by thousands of parameters that determine whether viewers love or hate something. That includes obvious things such as cast and director, but also more nuanced data like the mood, look, and source material.

Glick left his job at Orca Interactive selling video-on-demand software six years ago to build up the team that became Jinni. A small group of film experts do some of the classifications manually, noting that the setting of the recent blockbuster The Avengers is “world-spanning,” for instance. Jinni’s experts have also developed software that analyzes online information, such as movie reviews and the data on entertainment sites, to tag flicks.

Users can test out the technology at Jinni’s website, but the startup makes its money by licensing software to big companies. Best Buy’s movie-rental website and Belgian cable provider Belgacom both use the Entertainment Genome to power recommendations. Microsoft (MSFT) struck a deal in September to use Jinni’s software in its Xbox 360 service, which offers movie rentals. Licensees pay Jinni a per-user fee. The privately held company won’t say if it’s profitable.

Jinni has also developed voice-recognition software that can interpret natural human speech. “You can speak to the TV to say, ‘I am looking for a funny romantic movie but not Woody Allen’s,’?” says Glick. LG Electronics, the world’s second-largest manufacturer of televisions, contributed to a $5 million investment round in Jinni in 2010 but won’t say if it plans to use the technology in future sets. “TV makers want to shore up their interface options before the arrival of Apple (AAPL) TV,” which is rumored to have voice-recognition capabilities and debut by 2013, says Gary Arlen, president of the media research firm Arlen Communications.

Glick says Jinni learns a user’s preferences over time. (Glick, for instance, is into “uplifting stories where the human spirit wins out.”) Eventually, the Entertainment Genome can be expanded to offer recommendations on books, games, apps, and more. “The goal is to build an entertainment personality for the user that spans all entertainment domains,” says Glick.

Earned a degree in information systems at Techion

Jinni's software detects the nuances of a film

Adding voice-recognition to its recommendations engine


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Training on Innovation and Innovative Thinking

Better Gas Mileage, Thanks to the Pentagon

U.S. automakers have until 2025 to raise the fuel economy on their cars and trucks to 54.5 miles per gallon—double the current standard—or face government fines. The industry has spent years pouring billions of dollars into research and development to comply with the mandate. Now it may get a boost from an unexpected source: the Pentagon.

Government researchers at a new $60 million laboratory are road-testing dozens of alternative fuel technologies for fighting vehicles, from converting body heat into electricity to perfecting fuel cells that transform hydrogen into power—and they plan to share them with U.S. carmakers. “The military operates in very extreme environments,” says Al Schumacher, assistant associate director of ground vehicle power and mobility at the military’s Tank Automotive Research and Development and Engineering Center. “If we can make these vehicles function” under those conditions, “we should be able to implement them in commercial applications that are cheaper and very reliable.”

The military’s researchers are aiming to improve parts that drain energy, such as radiators, air filters, and mufflers. In one experiment, workers are trying to recapture engine power that’s wasted as exhaust heat and convert it into electricity that could recharge batteries or run internal computers. After they develop a working prototype they’ll install it on a tank and test it at temperatures ranging from 160F to -60F, going “from Yuma to Antarctica in a day,” says Michael Reid, the lab’s director of vehicle testing. Experimenting on 60,000-pound war machines can yield clues about how 5,000-pound pickups would fare with the same part, he says.

The lab opened last month in Warren, Mich., just north of Detroit—on a site dubbed “The Arsenal of Democracy,” where the U.S. Army contracted with Chrysler during World War II to build tanks. After the war ended, carmakers began adapting some of the technology developed for combat vehicles. “Just about any material used in a passenger car was probably improved with military research,” says John Wolkonowicz, an independent auto analyst.

General Motors (GM) perfected its automatic transmissions for Cadillacs after installing them in M-5 light tanks built to fight the Germans. The first Jeep, built to navigate European battlefields, rolled off the Willys-Overland Motors assembly line in 1941; its pioneering four-wheel-drive system soon found its way to American driveways. And a shortage of natural rubber in World War II spawned a government project to improve the synthetic version used in virtually every car and truck today.

The Pentagon says more efficient tanks would lead to fewer fuel convoys and repairs during combat, saving money and lives while offering up technologies the auto industry can adapt for civilians. Mary Beth Stanek, GM’s director of federal environmental and energy regulatory affairs, says the company is considering working on hydrogen fuel-cell tests with the lab. “It’s a state-of-the-art facility,” says Stanek, “And with [its] proximity, we should be able to leverage these assets for the whole auto industry.”

The bottom line: In a new lab near Detroit, the military is working on fuel-efficiency technologies for tanks that it will share with U.S. carmakers.


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Sunday, 13 May 2012

The Chocolate Machine That Can Improve Your Willpower

What if someone told you they had invented a machine that sits on your desk and strengthens your self-control? What if they further told you that that machine worked by feeding you chocolates? You would assume that person was a small child, perhaps, or a late-night TV pitchman.

At a tech conference a week ago, however, a team of German psychologists and designers introduced to the world just such a device: the Chocolate Machine, “a transformational product to improve self-control strength.” The Chocolate Machine is very simple: a tube reminiscent of a tall sleek Pez dispenser that, every 40 to 60 minutes, releases a chocolate ball onto a person’s desk. The recipient could then eat it or put it back into the machine. When the subjects started the study, they were told that putting the chocolate back into the machine would help build their willpower. The machine had a counter that kept track of how many times the user put chocolates back in the tube. That’s it.

The concept behind the machine is something called ego depletion, a model for how self-control and decision-making works, most associated with the American psychologist Roy Baumeister. In the ego-depletion model, willpower is like a muscle: It can tire over time. In one famous study, Baumeister had people eat radishes while leaving a plate of chocolate-chip cookies untouched in front of them. Then he gave them an unsolvable puzzle to do. The people who had denied themselves the chocolate chip cookies, he found, gave up on the puzzle faster than those who had been able to indulge their sweet tooth. Forcing themselves to eat the radishes had depleted their willpower.

The good news is that willpower, also like a muscle, can be strengthened with exercise. That’s what the Chocolate Machine is supposed to do: each chocolate put back in the machine is like a set of sit-ups for your self-control.

According to Marc Hassenzahl, a psychologist who helped design the Chocolate Machine, the device was an attempt to design something whimsical but effective—something that would work not by stick and carrot but by a sort of gentle suasion. “It’s not rewarding good behavior and punishing bad behavior,” he says. “It’s like a friend who’s commenting on your behavior and saying: ‘You’re doing it again; wouldn’t it be better if you did it this way instead?’”

There are as yet no plans to mass-produce the Chocolate Machine, but Hassenzahl already envisions a whole category of devices meant to prod people toward virtue in similar ways—he’s also built a reading light that has to be periodically touched to stay on, reminding users that the light isn’t free. He calls this category of non-coercive behavior-modification design “an aesthetic of friction, rather than an aesthetic of convenience.”

So does the Chocolate Machine work? The experimental group that Hassenzahl and his collaborators tried the machine on was small: just 24 people, with 10 using the machine and the rest in a control group. Of those 10, however, seven found that the machine improved their self-control, and they proved more persistent at doing difficult mental challenges than the control group.

“It’s not Nobel Prize material,” Hassenzahl says, “but it’s encouraging.”


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Mark Shuttleworth, Open-Source Software's Sugar Daddy

(Expanded version of magazine story.)

Ten years ago, just ahead of a trip into space, Mark Shuttleworth took out an insurance policy on his reproductive future. “I put a couple swimmers on ice,” he says. “There was going to be a gamma ray source about a foot from my balls under my seat on the Soyuz. So I made a deposit in a secret location before I flew.”

Shuttleworth’s 10-day journey into space in 2002 on a Russian rocket, including a stay on the International Space Station, cost him $20 million. Only 28 at the time, the trip into orbit was a celebration for the South African, who had made about $600 million selling his Internet security company, Thawte, to Verisign (VRSN). Afterward he expanded his personal fortune with wise investments in Africa and generally lived, as he puts it, like a “gazillionaire bachelor astronaut” should.

He didn’t go full Tony Stark, but Shuttleworth did fly his jet to exciting locations, knock down a few drinks, and enjoy the company of women. Of late, though, he has settled down. “I’m a nerd again,” he says, while hunting for an O’Doul’s at a Giants game. (He’s gone the non-alcoholic route because he’s been feeling a bit of brain rot setting in and fears that booze will exacerbate the situation.)

In truth, Shuttleworth has been a nerd all along. He’s in the Bay Area this week to take part in a developer summit hosted by his current company, Canonical. Founded in 2004, Canonical makes Ubuntu, an operating system based on open-source Linux software. Shuttleworth’s lofty goal for Ubuntu is “to profoundly change the economics of software” and displace Microsoft’s (MSFT) Windows and Apple’s (AAPL) OS X with a free product. Fundamental software, such as operating systems, should be “like oxygen, and then you pay for those services on top of it that you engage with,” he says. Canonical follows this model, giving away its wares and making money by charging for technical support, custom engineering work, online storage, and file syncing.

Ubuntu has, in fairly short time, become the favored operating system of geekdom. Many software developers have it on their laptops, and tech companies run it on their data center servers. Google (GOOG) is the highest-profile customer, and thousands of its employees use a modified version called Goobuntu. A lot of the software’s success can be traced to Shuttleworth, who is exactly what the open-source world needs—a quixotic, wealthy guy willing to fund brutal, long-term wars against giants like Microsoft and Apple who also happens to have enough charm to interact well with non-geeks and enough technical cred to woo geeks.

Canonical strives to make Ubuntu easier to use and as pretty to look at as something that might come out of an Apple lab. The reality, though, is that Ubuntu has failed to achieve liftoff among the masses. (Next year about 18 million PCs, or 5 percent of the total market, should ship with Ubuntu preloaded, according to Shuttleworth.) And, about three years ago, Shuttleworth started putting more pressure on his staff to impress the average consumer. It was no longer good enough to assemble open-source work done by others and simply fix clunky menus. The staff at Canonical were asked to come up with innovations others had not thought of and drive Linux into new areas.

The most obvious thing to arrive from this push is the Unity interface that lets Ubuntu run as well on smartphones, TVs, and in cars as it does on PCs. “In hindsight, it may have been a fatal mistake not to go after this sooner,” admits Shuttleworth. Canonical has also devised a way to run Ubuntu on top of Android-based smartphones; plug the phone into a monitor, and up pops a fully fledged desktop operating system. Shuttleworth sees this as a big win for companies trying to manage a proliferating number of devices, since it allows a worker’s whole computing life—mobile and stationary—to be on a single machine. About 40 mobile operators have been looking at supporting the technology, he says.

The brightest spot for Canonical, though, may be in the cloud. About 70 percent of the servers running on public cloud computing systems such as Amazon.com’s (AMZN) EC2 rely on Ubuntu, according to third-party data obtained by Canonical. (Amazon declines to discuss such matters.) Ubuntu’s dominance in the cloud has placed it at the heart of the trend toward high-powered data analytics, says Shuttleworth, since such tasks require a ton of computers. He adds that many large companies have turned to Ubuntu to build their own internal cloud computing systems to keep costs down. The hope is that all of this activity translates into money for Canonical, which brought in less than $30 million in revenue in 2009, the last time Shuttleworth disclosed figures. “A company might spin up 5,000 servers to analyze a ton of data and never talk to us,” Shuttleworth says. “But eventually, an executive decides to make sure that all the servers are up to date and secure, and we get a call.”

While waiting for those calls, Shuttleworth is redecorating a pair of expensive Manhattan apartments—one for work and one for play. “It’s slow going because I am a bit fussy,” he says. “I want an indoor garden. I am at ease in a garden with things growing around me.” His main residence is on the Isle of Man, a tax haven off the coast of England, where he has plenty of rich-guy accoutrements: ducks, a stream, beehives, a nearby steam train.

Shuttleworth denies that he’s on the island just for the tax breaks. “I could have lived in Monaco,” he says. “But it’s beautiful here with the soft, rolling hills. The people are very independent. It is not a little England. It has the longest-standing democratically elected government in the world, and the people take that very seriously.”

Yet the bountiful surroundings have not persuaded Shuttleworth to crack open his stash of precious bodily fluids and start a family. “I’m not going to have kids,” says Shuttleworth, who has had a vasectomy. “I think things like the biological clock are nonsense. We make choices about what’s interesting in life. You have to pursue them out of courage and say, ‘this is interesting,’ and live with it. Most people let the dogma of life make decisions for them—things like kids and how they will devote their work hours. Most people just let those things happen to them. I take a different view.”

Shuttleworth insists that big missions—like his agenda to bring free software to the world—require total focus and unwavering commitment. “It feels a bit like climbing a mountain that no one has ever climbed and that has killed a bunch of people,” Shuttleworth says. “You are going to go through times where it feels like this thing has killed you, too. But, for better or worse, I see the mountain and need to climb it.”

The bottom line: Ubuntu will be on 5 percent of PCs this year but hasn’t caught on with consumers. In some data centers, though, it dominates.


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On Diaspora's Social Network, You Own Your Data

Sitting along Yankee Stadium’s third base line during New York University’s rainy graduation two years ago, Max Salzberg couldn’t focus. The phone in his pocket wouldn’t stop buzzing. With each notification, the NYU senior wiped water off the screen to read an e-mail saying yet another person had given money to Diaspora, the not-yet-even-a-startup he and three college buddies had hatched the month before. Buzz. Another donation. Another buzz. Over the course of the ceremony, Salzberg and his co-founders raised more than $10,000. Over the course of the day, $40,000 more.

A few weeks earlier, Salzberg and three friends from the computer science club—Daniel Grippi, Raphael Sofaer, and Ilya Zhitomirskiy—had posted a rambling three-minute video on the crowdfunding site Kickstarter. They wanted to raise $10,000 to create a new kind of social network, one that lets people, not companies, own their personal data. They were young. They thought it would take the summer.

Team Diaspora: Sarah Mei, 36 (key Diaspora mentor and contributor), Daniel Grippi, 23 (founder), Max Salzberg, 24 (founder), Rosanna Yau, 29 (created the Diaspora logo and now is a full-time designer), Kayla Holderbein, 20 (intern), Dennis Collinson, 24 (left Pivotal Labs to help Diaspora rebuild), Sean Tilley, 21 (open-source community manager)Aimee Brodeur for Bloomberg BusinessweekTeam Diaspora: Sarah Mei, 36 (key Diaspora mentor and contributor), Daniel Grippi, 23 (founder), Max Salzberg, 24 (founder), Rosanna Yau, 29 (created the Diaspora logo and now is a full-time designer), Kayla Holderbein, 20 (intern), Dennis Collinson, 24 (left Pivotal Labs to help Diaspora rebuild), Sean Tilley, 21 (open-source community manager)

The four had sent the link to friends and got their first donation from their faculty adviser. Several well-known open Internet advocates tweeted about the campaign, and in 12 days, the Diaspora guys had their 10 grand. And the money kept coming. A New York Times reporter called them for a midnight interview; an early morning photo shoot followed. Then, on the day before the May commencement, the four undergrads found themselves atop the Times home page. “It just blew up like crazy,” Grippi says.

Their timing was perfect. Facebook had just changed its privacy policy, telling members it would track personal data to third-party websites. There was an outcry from users alarmed that it could track them beyond their personal pages. Facebook had changed its privacy policy half a dozen times, each alteration a reminder of the grand bargain users have made with the world’s most popular social network. It lets them keep tabs on long-lost classmates, share vacation photos, and feel connected, all at no cost. In exchange, their profiles aren’t really theirs—every bit is owned by the company and used for its profit. To connect on Facebook, users have no choice but to consent to its policies, and on the eve of Facebook’s nearly $100 billion initial public offering, the commercial value of that choice is all the more clear: In 2011 the company earned $5.11 per user, primarily by serving up targeted ads. Nine hundred million people have implicitly decided that the trade-off is worth it.

Diaspora aimed to convince consumers otherwise. The founders envisioned a site that would function like a social network but would give users ownership of their data, taking exploitation out of the equation. You could store what you post on any server you want and then share it, delete it, or use it however you choose.

The idea had undeniable appeal, but the four college students had assigned themselves a ferocious task. They would eventually overcome the technical challenges to build a functional site. Today, Diaspora is an active social network with a small, dedicated following, not yet open to the public. But now the founders must persuade people—beyond privacy purists—to use their product. After all, a social network doesn’t work if no one joins.

On that May afternoon, the Diaspora founders couldn’t imagine their idea would lead to a turbulent two years that would include a move to Silicon Valley, fame, scrutiny, and tragedy. Before the founders had started coding, 6,479 people gave Diaspora $200,641, what Grippi calls “f–k Facebook money.” The attention set improbably high expectations that a few 19- to 22-year-olds, using open-source software, might take on the world’s most popular social network.
In the spring before that rainy graduation, Eben Moglen, the founder of the Software Freedom Law Center in New York, visited NYU to issue a call to arms. “He said all of us nerds, we use the big guys like Facebook and Google (GOOG),” Grippi recalls. “We don’t have a way to connect to each other without sacrificing our privacy.” Moglen challenged them to code a solution.

The four young techies were an earnest group. If Diaspora were formed in 1960s Liverpool, Salzberg would be Paul McCartney. Then 22, Salzberg was an eager spokesman, chatty and full of ideas. Grippi, then 21, would be the group’s John Lennon, the artistic cool guy who loved design. Sofaer, a 19-year-old sophomore, would be Ringo Starr, the kid brother who was easygoing but cautious. That leaves George Harrison as Zhitomirskiy, a junior with an idealistic, if at times impractical, spirit. “Being a part of creating stuff for the universe is awesome,” Zhitomirskiy told New York magazine in 2010.

For Zhitomirskiy, Diaspora was a chance to 'slay a dragon'Leora IsraelFor Zhitomirskiy, Diaspora was a chance to 'slay a dragon'

Inspired by Moglen’s visit, the four holed up in their club’s tiny office and built a prototype of Diaspora, posted the Kickstarter proposal, and watched the money pour in. What was once a summer project suddenly had a broader mandate. They’d now promised thousands of people—many of whom weren’t techies like themselves—that they’d build something that would challenge Facebook. “Diaspora is trying to destroy the idea that one network can be totally dominant,” Sofaer says.

He and Zhitomirskiy decided to take time off from school and join Grippi and Salzberg in San Francisco. For Zhitomirskiy, it was a chance to “slay a dragon” and pursue an ideal that he thought was fundamentally on the right side of history. “He really believed in his project,” his mother, Inna Zhitomirskaya, wrote in an e-mail. “It was his baby.”

The group scored free office space—and mentors—from Pivotal Labs, a San Francisco software developer where Sofaer’s brother worked and whose clients include Twitter and Groupon (GRPN). There they pounded out the first batch of code and learned the challenges of building what’s known as a federated network. Most websites, including Facebook, have centralized systems, where all user data sit on the company’s servers. Diaspora would be more like e-mail. You have the option to host your own server, or, if you’re like most people and don’t have the time or expertise for that, you could sign up for someone else’s. Servers could vie for users by offering, say, special themes for French speakers, plug-ins for sports fans, or greater privacy controls. “If we built this in a centralized structure, our code base would be like this,” Grippi says, putting his palms an inch apart from each other. “But because we’re federated, it’s like this,” he continues, expanding his hands as far apart as they can go.

In September 2010, after three months of programming, the team released its first collection of code, a “pre-alpha” preview. The guts were unique, but the site looked a lot like Facebook. You could post updates and photos and comment on other people’s status messages. Unlike Facebook, you could group contacts by “Aspects,” which let you choose who could see what. The founders saw the release as a starting point for developers to help work out the kinks and create features, but bloggers and tech sites called it buggy and riddled with security holes. “The bottom line is currently there is nothing that you cannot do to someone’s Diaspora account, absolutely nothing,” software developer Patrick McKenzie told the Register, a British IT site.

The team plowed ahead, adding security and fixing bugs, and by Thanksgiving opened up in “private alpha,” an early version released to a limited group. They started their own server, joindiaspora.com, and over the following months added features such as hashtags and a browser extension called cubbi.es that made it easy to share photos online. They got a bank account and filed paperwork to be incorporated.

In about a year, they had successfully built a social network that functioned more or less like Facebook but let people own their data. Without any real marketing, more than 600,000 people used the site, but it was a narrow slice of the population, attracting lots of distrustful techies and Europeans. “There was a period that we didn’t 100 percent know what we were doing other than making it incrementally better,” Salzberg says. They had found a way to let users physically own their data. What they didn’t have was another reason to get people to join.
Big players, however, were watching them closely. In June 2011, Google released Google Plus, its big, this-time-is-for-real push into social networking. Tech bloggers quickly noted how much the new site looked like Diaspora—Google was “drinking Diaspora’s milkshake,” said the blog ReadWriteWeb—and, in particular, how Google’s “Circles” resembled Diaspora’s “Aspects.” That Google “took their open ideas” made Zhitomirskiy very proud, his mother says. “They clearly cribbed a bunch of stuff from us,” Salzberg says. Google says its designs predate Diaspora.

The same day, Google also released Takeout, another personal data project that had been in the works for years. Takeout is the brainchild of Google engineer Brian Fitzpatrick. In 2006 he hired a half-dozen programmers to work on a pet project. In a twist, the team made it easy for people to take their data and leave Google. “We want people to think about it just in the same way as they think about their personal property,” Fitzpatrick says.

The Google team adopted a provocative persona, calling themselves the Data Liberation Front. Their logo is a red fist that channels Karl Marx more than Google’s bubbly brand, and the team went product-by-product to build tools to export and delete personal data. Over time, the list of “liberated” products grew, eventually including major platforms such as Gmail, Web searching, and Google Plus. As part of last June’s launch of the one-step download, Fitzpatrick gave top Google executives their own red, three-foot bolt cutters stamped with “THE LIBERATOR” on one handle. The other handle read, “Users shouldn’t need these to get at their data.”

Fitzpatrick says that by giving users an out in the short term, the Data Liberation Front forces Google’s engineers to build better products to keep users over the long haul. “It’s really in our best business interest,” he explains. “If you lock people into your product it can be dying on the vine, and you just don’t know it until it’s too late.”

Owning your personal data is just one part of the puzzle. Once you have it, what are you supposed to do with it? Is it destined to be a digital shoebox, stashed away and only brought out for nostalgic review? “Let’s say some new fancy social network comes out, and you want to give it a try. You should be able to do that, right?”

Google Plus was a glimpse of what Diaspora could be, and yet the results weren’t satisfying. Its 100 million users spend an average of just three minutes a month on the site, according to comScore (SCOR). Despite all of Google’s resources and many superior features, Google Plus still hasn’t really lured users away from Facebook, showing just how strong inertia can be or how good Facebook is.

In August 2011, Sofaer opted to return to NYU for his junior year. From time to time, Zhitomirskiy’s parents asked him to consider going back to school but didn’t push. “After all, anyone can go and spend their parents’ money on education, but not many can go and make something cool,” his mother says. The three remaining founders kept working. A few weeks before a November 2011 beta launch that would have opened the site to everyone, they called off the release. Diaspora still didn’t feel like they had cracked the code.
On Saturday, Nov. 12, 2011, at 8:13 p.m., Salzberg got an unusual text message. A friend was saying that Zhitomirskiy’s mother couldn’t reach her son. Salzberg texted another friend for the phone number of Zhitomirskiy’s roommate, and that friend immediately called back. Zhitomirskiy was dead, she said, and it looked like a suicide. Though Salzberg had seen Zhitomirskiy struggle with emotional lows in the past, the news “didn’t register,” Salzberg now recalls, twirling the beard he began growing that day and has yet to shave. People immediately showed up at Salzberg’s Mission neighborhood house, which became a central mourning spot. They downed bottles of Maker’s Mark and cooked a massive pot of macaroni and cheese. “One moment you were crying, and the next moment you were laughing your ass off,” Salzberg says. They called the ritual “ShivaFest” after the Jewish mourning tradition.

News of Zhitomirskiy’s death quickly spread on tech blogs. Major news organizations followed; the New York Times ran an obituary. The founders have not spoken about it publicly until now.

Media reports speculated that his death was a result of the undue pressures on the founders. For people who knew Zhitomirskiy, that wasn’t quite right. “Yes, I agree that being a startup founder is stressful,” says Salzberg. “But it wasn’t the stress of work that killed Ilya. He had his own issues. He was sick.” (The San Francisco Office of the Medical Examiner formally ruled the death a suicide last month.) Zhitomirskiy’s mother won’t comment on reports that her son had a history of mental illness, saying only, “I strongly believe that if Ilya did not start this project and stayed in school, he would be well and alive today.”

After mourning Zhitomirskiy at a San Francisco funeral (simulcast on the Web) and a service in Philadelphia, Salzberg and Grippi put the company on hold. Salzberg spent his days playing video games. Grippi hunkered down with a friend and pounded out code that made Diaspora run three times faster.

At the end of last year, Grippi and Salzberg knew they had two choices—quit or rebuild. Over walks and beers in December, they discussed what was unique to Diaspora. They’d built a change-the-world kind of place where people can feel free to express themselves, but the product could be better, more focused. They could make it more mainstream by paradoxically making it less like Facebook. And working on it could be fun again.
When Grippi and Salzberg returned to work in January, they knew they couldn’t rebuild by themselves. They brought on Dennis Collinson as the full-time “chief magical officer” (head of engineering) and designer Rosanna Yau to help with the site’s look and user experience. They consider the two full “late-stage co-founders.”

They kept talking about where to go, how to be more product-focused, and how Diaspora’s decentralized structure makes it different. Without knowing it, Diaspora was starting to play around with the ideas that had been percolating at other startups. When you own your own data, new possibilities open up: You can learn from it and profit from it. Startups are trying to see if those added benefits can shake users out of their complacency.

One model getting attention is so-called personal data lockers, which let people aggregate their data and selectively share them with businesses they trust. A new startup, Personal, has $7.6 million from funders including Steve Case’s Revolution venture fund and another locker, Singly, recently closed a $7 million round. Swift (Society for Worldwide Interbank Financial Telecommunication), the global cooperative that processes wire transfers between banks, plans to start testing its own locker.

Even the very marketers who benefit from the scale of Facebook see a future in a more owner-centered approach. Fatemeh Khatibloo, an analyst for Forrester Research who advises advertisers, says that the data economy’s “disregard for individuals” is a ticking time bomb, that increasingly large security breeches and that icky feeling of being tracked will slowly shift consumers to demand more control. And that could mean a larger audience for Diaspora.
On a perfect April day in San Francisco, the team continues its quest to marry the old Diaspora with its vision. It has set up in an open row of desks at Pivotal Labs’ loft-like offices. Salzberg hunches over a laptop, fighting with a legacy batch of code. “This is amazing open-source software that’s going to change the world, but we still have to deal with this s–t,” he says and puts his head back down. One desk over, Grippi plots what the new Diaspora will look like. Having learned that physical ownership alone doesn’t draw crowds, they now hope that adding a layer of artistic ownership will do the trick.

On Facebook, users are funneled into the same design.Whether they’re mad or elated, their updates on Facebook all appear identical: all in Lucida font, all the same size, everything in blue and white. Surely online personas could be a better visual depiction of personalities. Diaspora’s hoping that with the right tools, people could be proud of the things they make online and could channel the joy of DIY creativity. As the success of Instagram shows, giving users creative control—such as choosing a filter for a snapshot—can be hugely popular. Diaspora wants to extend that idea to how users post photos, text, and video. “We are giving you both emotional and technical investment in what you are creating,” Salzberg says.

On this day, Grippi and Collinson’s focus is on developing a set of templates that lets users control how their status updates look. If the text is short, users can have the words displayed in a hip, minimalist font splashed above the photo. If there’s a lot of text, it can be styled more like a newspaper, with a headline and serif fonts. The updates feed into a personal home page that’s a four-column grid with images and updates in different-size rectangles. Click on an update, and it gets bigger. Click on the bar above an update, and it expands to cover your whole screen.

In this prototype, users control the feel of every post. Salzberg has designed his home page with lots of text, while Grippi’s is a collage of hip, muted photos. And users can choose whether to share it only on Diaspora, or on Facebook, Twitter, or other networks, too. If you change your mind, you can go back and change the design or delete it entirely: You own the bytes and the expression. “Having something bad happen lets you focus on what’s very important,” says Sarah Mei, a Pivotal Labs developer who’s become a mentor for Diaspora. “They’re building it more like a product, and most open-source projects don’t do that.”

If anything can help Diaspora fulfill its ambitions to make a popular product out of its alluring ideals, it’s the startup accelerator Y-Combinator. In June the team will move to Mountain View for three months to join the program. Y-Combinator helped launch the cloud storage startup Dropbox, the vacation rental site Airbnb, and the presentation-sharing hub Scribd and has a reputation for guiding startups to a clear product and eventually linking founders with investors. The team expects Diaspora to evolve during the summer program and will later open it to the public. People can sign up for updates on the launch date at joindiaspora.com. “To think about [Diaspora] as an anti-Facebook limits what we want to do,” Salzberg says. “We want to be the positive data story.”

As the group heads out for lunch, an intern, Kayla Holderbein, takes a photo on her iPhone of Collinson showing off a deep V-neck he’s cut out of a Diaspora T-shirt. She uploads the photo and the text, “It’s #V-neck Wednesday, y’all,” and picks one of Diaspora’s templates. “Dennis, I made something for you,” she says, showing off the mashup. At hearing that magic word, “made,” Salzberg jumps out of his chair. “Cool! Listen to what you just said! That’s the idea.”


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Book Review: 'Birdseye,' by Mark Kurlansky

Birdseye: The Adventures
of a Curious Man
By Mark Kurlansky
Doubleday; 272 pp; $25.95

Wherever he went, be it Montana, Peru, or remotest Newfoundland, Clarence Birdseye sampled the fare at hand. There were few limits to what he would eat—porcupine, the front half of a skunk, and “a lynx that had marinated for over a month in sherry and was then stewed and served with a sauce made from the marinade.” Although described in Mark Kurlansky’s new biography as a “nineteenth century man,” Birdseye was, in his tastes, surprisingly in sync with today’s ethos of locavorism and nose-to-tail eating. Delectably ironic, then, that his name is associated with the product that most symbolizes the homogeneity of the suburban dinner table: frozen peas.

The master of the food monograph (he’s the author of Cod and Salt, but not Salt Cod—at least, not yet) Kurlansky typically begins with a single natural resource and studies its broad impact on humankind. This book flips that model on its head by studying one extraordinary man and the effect of his innovations on a host of commodities.

Birdseye led a peripatetic early life, including stints at Amherst College, assessing the economic opportunities around coyote fur in New Mexico, and researching ticks in the Montana wilderness. He was seeking a calling, a way to marshal his curiosity in a sustained direction. As Birdseye himself put it, he “wanted to get into some field where I could apply scientific knowledge to an economic opportunity.” To Kurlansky, this mindset is a particularly American stripe of industriousness, and indeed Birdseye seems to have been as much entrepreneur as inventor.

In 1912 Birdseye ended up in Labrador—then, even more than now, a forbidding place to live—where he worked on a strategy for breeding foxes for their pelts. He had modest success in this endeavor, but it was there that he found the inspiration for his true life’s work. He was fastidious in his study of local eating habits; Labrador was a desperately poor place, beset by disease, and while its inhabitants had as much seal meat and cod as they could handle, vegetables in particular were scarce. After his wife joined him in 1916 and the two had a child, Birdseye envisioned making fresh-tasting food available in places it otherwise wouldn’t be—pineapple in Pennsylvania—and in seasons it didn’t grow—sweet corn in February. His instinct was that freezing was the answer.

Birdseye did not invent frozen food. It already existed, but it was abhorred for its poor taste and poorer texture. It was so bad that in New York State it was deemed unsuitable for prisoners. Yet up north in Labrador, Birdseye noticed, “The Inuit traditionally enjoyed high-quality frozen food. They fished in holes in the ice and pulled out a trout, and it instantly froze in the 30-below air. When they cooked it, it tasted like fresh fish. In fact, sometimes the Inuit would put the frozen fish in water and thaw it, and the fish would start swimming … still live.” Now there’s an advertising campaign.

Birdseye figured out that the size of the crystals formed in frozen food were the determining factor in its palatability upon thawing—the smaller the crystals, the better. And the faster the freeze, the smaller the crystals. This was an insight, though again not a new one: The first patent for freezing food was granted in 1862, and even fast-freezing had been known by 1915. Birdseye invented nearly nothing, per se. What he did was understand the freezing process and its uses holistically. As Birds-eye later put it, “I set out to develop a method which would permit the removal of inedible waste from perishable foods at production points, packing them in compact and convenient containers and distributing them to the housewife with the intrinsic freshness intact.”

After tweaking the process and securing funding—and staking his family’s entire bankroll—Birds-eye established a factory in Gloucester, Mass. He would start by freezing fish, abetted by the recently invented filleting machine. He named his new company General Seafood. (The automobile industry had its General Motors (GM), the power industry its General Electric (GE), and Birdseye had similarly scaled aspirations.) As Kurlansky points out, “He was not as interested in founding a company as in launching a whole new industry.”

Once he had perfected the freezing, Birdseye turned to marketing, shrewdly rebranding his food as “frosted.” He also faced the problem of infrastructure. Everything from shipping containers to refrigerated train cars to supplying mom-and-pop stores with suitable freezers had to be contended with, and it was in this area that many of Birdseye’s innovations came. General Seafood’s growing portfolio of patents showed such potential that in 1929 Post purchased the company for $23.5 million. Post eventually changed its name to General Foods, keeping Bird’s Eye as a frozen food brand.

Although he became a multimillionaire, Birds-eye continued to tinker until his death in 1956, securing patents for everything from light bulbs to a harpoon designed for tagging whales, but it was at the dinner table where he made his monumental impact. “Frozen peas,” Kurlansky writes, “became one of the most successful Bird’s Eye frosted foods because they were such a brilliant green.” Which may be part of the appeal. However, to British chef Fergus Henderson, the flavor of the peas is superior because they are frozen so quickly after harvesting. “A wise old chef once told me,” Henderson quipped, “Wait till peas are in season, then use frozen.”


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Daniela Rus's Robotic Sand

History holds lessons, even for those designing futuristic robots. Daniela Rus, a computer scientist at the Massachusetts Institute of Technology, found inspiration in Michelangelo’s statue of David. “David came out of the marble, and we thought we could also make things appear out of a block,” she says.

That germ of an idea inspired Rus, a 2002 recipient of the MacArthur “genius” award, to begin work on a project that will eventually allow someone to reach into a bag of sand and pull out any device or structure imaginable. It’s like Harry Potter meets The Matrix, since the “bag of sand” is actually a collection of tiny robots. The robots can sense their neighbors, receive commands, and attach to each other to form objects.

The idea is that workers—especially those in remote or extreme conditions, such as scientists in Antarctica—could leave behind bulky toolboxes and instead bring along the high-tech sand. When a tool is needed, whether it be an adjustable wrench or a screw, they could toss a small model of the object into a bag containing a clump of sand or transmit electronic blueprints to it. The smart sand grains would communicate with one another and magnetically form into the shape within seconds. Once the tool is no longer needed, the sand could be reused. “This could have a dramatic impact on building and manufacturing of complex devices,” says Robert Wood, founder of the Harvard Microrobotics Laboratory.

The project has a long way to go, but Rus, 48, already has a working prototype. At this point she has about 50 robotic blocks. They’re relatively large—about two-fifths of an inch on a side—but she’s gotten them to form geometric shapes. Since the components are programmable, she can also create small humanoid figures that eventually should be able to move. Her current research focuses on making the robotic blocks much smaller by shrinking the magnet and electronics that each contains.

Rus developed a passion for robots watching the sci-fi TV series Lost in Space while growing up in Romania. “I loved the robot,” she says. “The fact that there was a machine that could interact with you, and that could give you a warning—as a child, you get fascinated.” When her family emigrated to the U.S. in the 1980s, Rus followed in her father’s footsteps and studied computer science. Her Ph.D. thesis at Cornell University focused on how robotic hands manipulate objects. At MIT she decided “to democratize access to robots” and, along with the high-tech sand, is building technology that would let non-roboticists design robots for specialized tasks, such as clearing a blocked drain.

Robots that help with everyday tasks already grace the building where Rus works. Several water a small tomato garden, and another named Shady crawls along a glass wall holding a little umbrella to keep the glare off researchers’ computer screens. Older robots sit unused in Rus’s office, including one that can organize papers into neat piles. “Given the state my desk is in, I should use it,” she says.

The Robinson family’s robot on Lost in Space

Smart sand forms into wrenches, figurines, or other shapes

Making robots cheap and simple enough for non-scientists to use


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Experimentation + Risk (+ Failure) = Improved Environment For Innovation

A Crackdown on Patently Absurd Lawsuits

For more than a decade, companies that buy up patents and use them to sue deep-pocketed corporations for infringement have gone out of their way to plead their cases in the Eastern District of Texas. They’d be crazy not to. Judges and jurors who hear trials at the federal courthouses in Marshall and Tyler are considered the friendliest in the land when it comes to handing down big verdicts in favor of litigious patent holders.

The Texas court, which tilts heavily toward protecting individual property rights, has done little to discourage patent owners who sue scores of companies at once in hopes that most will settle rather than shell out the $1 million or more it would take to fight it out in court. And many do settle: Only a sliver of patent cases make it to trial. The judges don’t seem to mind when plaintiffs whose businesses are based in faraway cities file in Texas for the purpose of increasing their chances of winning.

Plaintiffs have had an easy time in Texas because local lawyers and jurors liken patents to oil and gas rights, or fences around property, says Sam Baxter, a patent lawyer with McKool Smith in Marshall. Baxter represented Versata Software in its $345 million verdict last year against SAP (SAP), the 10th-largest patent award in U.S. history. “People here believe if you own something, you own it, and certain rights come with that,” he says.

Patent holders seeking a sympathetic judge and jury—and a big payday—have brought hundreds of infringement suits a year in East Texas. Twenty-five percent of the U.S. patent infringement cases filed in 2011 landed there; plaintiffs won nearly 75 percent of the time. The Eastern District has handed down many of the largest patent decisions against U.S. corporations, including a widely followed 2009 lawsuit in which I4i, a Canadian software company, won $200 million from Microsoft (MSFT) for infringing computer language used in Word.

Yet Texas may not be able to hang on to its status as the leading U.S. patent haven for much longer. Congress and the courts have begun to crack down on the proliferation of infringement cases brought by businesses that use their patents not to make products, but to extract money from those who do. The polite term of art for these companies is “nonpracticing entities.” Outside the courtroom, they’re called patent trolls.

A series of U.S. Supreme Court rulings has made it easier for defendants to challenge the validity of patents. And the U.S. Court of Appeals for the Federal Circuit, which handles patent appeals, has limited the amount a jury can award in cases when an infringed patent makes up only a small part of a product. The court is also making it easier for defendants to move a case out of Texas if it was brought there for no other reason than to benefit the plaintiff.

President Barack Obama threw an even bigger obstacle in front of lawsuit-happy patent owners when he signed the America Invents Act in September. It includes a provision that prohibits filing a single suit against dozens of unrelated companies. Instead, plaintiffs must file cases individually, making it more expensive to launch scattershot lawsuits in hopes of coercing quick settlements. “It’s more problematic to file a case here than it was three years ago,” says Baxter.

Problematic enough that the number of infringement suits filed in Texas is starting to shrink. Since September, more cases have been filed in Wilmington, Del., than in East Texas, according to an analysis co-authored by James Pistorino, a lawyer with Perkins Coie in Palo Alto, Calif. There were 484 suits in Delaware and 418 in Texas. Why Delaware? Like Texas, its court gets cases to trial quickly and blocks attempts by defendants to change jurisdictions. And since many U.S. companies are incorporated there, plaintiffs don’t have to go through Texas-style legal gymnastics to plausibly claim they should be allowed to sue in the state.

Another sign things may be changing in Texas: Patent holders have lost some big recent cases there. In March, United Continental Holdings (UAL) won a verdict in Tyler that invalidated patents for reserving seats online. The patents were deemed too obvious. A month earlier, a Tyler jury invalidated a patent challenged by companies including Google (GOOG) and Amazon.com (AMZN) over a way to make the Net more interactive. After years of losing in courts that see patents as private property to be protected, defense attorneys are turning that argument in their favor—persuading juries that people who launch overly broad patent suits are claiming ownership of property that isn’t rightfully theirs. “I heard about the statistical reputation that plaintiffs are far more successful” in Texas, says Catherine Lacavera, Google’s director of litigation. “But we’ve had a very good experience there.”

The bottom line: Federal courts are making it harder for patent holders to file infringement suits against companies in hopes of winning cash settlements.


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