If You’re Developing Any 3D Printing Tech, Don’t Buy A Stratasys Printer

I’ve written before about the risks of building on various Internet platform APIs (e.g. Facebook, Google, etc.) — many SDK agreements let the platform copy anything they want, while you have no recourse.

I just learned about a similar example in the hardware world. From Stratasys’s licensing agreement:

Customer hereby grants to Stratasys a fully paid-up, royalty-free, worldwide, non-exclusive, irrevocable, transferable right and license in, under, and to any patents and copyrights enforceable in any country, issued to, obtained by, developed by or acquired by Customer that are directed to 3D printing equipment, the use or functionality of 3D printing equipment, and/or compositions used or created during the functioning of 3D printing equipment (including any combination of resins, such as combinations relating to multi-resin mixing, color dithering or geometrical resin-mixture structure of the resin) that is developed using the Products and that incorporates, is derived from and/or improves upon the Intellectual Property and/or trade secrets of Stratasys. Such license shall also extend to Stratasys’ customers, licensors and other authorized users of Stratasys products in connection with their use of Stratasys products.

In simpler terms, if (a) you own a product subject to this license, and (b) invent something related to 3D printing, Stratasys and all of their customers have a right to use your invention without paying you.

(Technically, it says that your invention must incorporate, or be derived from, or improve upon their IP.  Given the breadth of their patents, they will argue anything in 3D printing meets this test.  They also include “trade secrets”, which are, well, secret.)

I’ve seen some audacious licensing agreements, but this one takes the cake!

Tech Cases at the Supreme Court

I thought two recent Supreme Court cases were especially interesting.

In Riley v California, the court ruled police need a warrant to search your cell phone. The court recognized that your phone contains so much information, it deserves Fourth Amendment protection.  Justice Alito made an interesting point though:  if you’re arrested carrying your phone bill and your cell phone, the police can use the call log information on bill.  But if you have just your phone, they need a warrant to get the call log.  But, he conceded he does “not see a workable alternative”.

ABC v Aereo, Inc. is less straightforward.  Aereo is the company that rents out tiny antennas in Manhattan, so users can stream broadcast TV on-line. The court found Aereo infringed the Copyright Act, which says that copyright holders have exclusive rights:

(1) to perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered; or

(2) to transmit or otherwise communicate a performance or display of the work to a place specified by clause (1) or to the public, by means of any device or process, …..

(Emphasis added).  This “transmit clause” (2) was added in 1976 in response to cable TV, when Congress noted:

… the Committee believes that cable systems are commercial enterprises whose basic retransmission operations are based on the carriage of copyrighted program material and that copyright royalties should be paid by cable operators to the creators of such programs.

By using individual antennas, Aereo tried to thread the needle on the semantics of “public” and “perform” and most of the court’s opinion addresses that hair splitting.

This is a pattern we’ll see more and more:  companies using new technology to go right up to the edge of the law (nobody imagined private antennas in 1976) and courts splitting legal hairs to (try and) sort it all out.

Stratasys’s “Heated Build Enclosure” Patent

I gave a talk on patents at Bolt last month.  I covered the patent process and strategy for startups, but one of my key points was: don’t get too excited about a patent until you read the claims. The claims describe, very specifically, what the patent covers.

So it was interesting to hear several references to Stratasys’s 3D printer “heated build enclosure” patent recently.  (Background:  in certain 3D technologies, there’s less warping if printer chamber is toasty warm).  The 3D community refers to the “broad applicability” of this patent and is waiting for it to expire.

Intrigued, I studied the claims.  Here’s claim 1:

A three-dimensional modeling apparatus comprising a heated build chamber in which three-dimensional objects are built, a base located in the build chamber, a dispensing head for dispensing modeling material onto the base, the dispensing head having a modeling material dispensing outlet inside of the build chamber, and an x-y-z gantry coupled to the dispensing head and to the base for generating relative movement in three-dimensions between the dispensing head and the base, characterized in that:
the x-y-z gantry is located external to the build chamber and is separated from the chamber by a deformable thermal insulator.
(Emphasis added).  Note the gantry is external to the build chamber and all other claims specify this.  In fact, the specification highlights the disadvantages of putting the gantry inside:
Placing the extrusion head and the x-y-z gantry in this heated environment has many disadvantages. The x-y-z gantry is comprised of motion control components, such as motors, bearings, guide rods, belts and cables. Placing these motion control components inside the heated chamber minimizes the life of these components.
The implication is simple:  a chamber with the gantry inside or partially inside would not be “external” and would not infringe this patent.
Read the claims!

The Disrupted Fight Back With Lobbyists

Is it just me, or does it seem like an increasing number of successful technology startups are running into growing legal and regulatory issues?  Specifically, the incumbents getting disrupted aren’t always fighting back in the market; they’re fighting back with lobbyists.

Consider these current examples:

Aereo.  This company receives free over-the-air signals (using mini antennas, one per subscriber) and streams them on-line.  The networks aren’t happy because they’re not getting paid the way cable companies have to pay.  This case is pending at the Supreme Court, and the press is comparing it to the 1984 Betamax ruling that made it legal to record TV shows at home.

Uber. There are so many lawsuits from taxi companies and associations, I don’t even know where to start.

Airbnb.  Cities want the hospitality tax (Airbnb is moving to collect taxes in New York, San Francisco, and Portland) and the hospitality industry doesn’t want the competition.

Tesla.  Can you name any other industry where a manufacturer can’t sell their own product?  Laws designed to protect auto dealerships from anti-competitive moves by their current manufacturers are now being used by dealers to prevent new manufacturers.

Google Fiber.  The ISP lobby has gotten limits on municipal broadband in 20 states, and a fairly extreme (restrictive) bill was proposed in Kansas (but doesn’t seem to be going anywhere).  ISPs don’t think it’s fair to compete with municipalities who take matters into their own hands to get competitive broadband service.

Every Bitcoin startup.  This one is so early, most folks don’t even know where to start lobbying.  That didn’t stop my home state senator, Joe Manchin to call for a complete ban. It was embarrassing (he’s since backed off, a little).

What’s most interesting:  in every single case (except Bitcoin, too early), the consumers are very happy (often extremely so).  They’re enjoying the fruits of innovation and competition — exactly the way things are supposed to work.

By virtually any test of our fundamental policies regarding free markets, anti-competitive practices, and restraint of trade, these innovators should not have so much regulatory headwind!

Y U No Kickstart?

The presale, best typified by Kickstarter, has become a powerful tool for hardware companies to sample market demand and fund initial manufacturing. It’s not the endless beta-test that software developers have, but it moves in that direction.

Presales are not perfect:  a successful sale is not necessarily evidence of product-market fit.   Witness Ouya, which had one of the most successful campaigns ever, shipped product as promised, but then failed to create a library of compelling games. In this case, users bought into a vision that turned out to be much harder to realize than expected (namely, enabling a vibrant, non-proprietary, micro-console game development ecosystem).
In other cases, a presale may find the hard-core early adopters, but may not represent the broader market.  Kickstarter is littered with small, but successful products that never transitioned to mainstream.
However, a presell failure can be quite telling: if you can’t find (say) a few hundred or thousand buyers out of those bleeding edge adopters, how will you succeed in the main market?
Which leads to a very reasonable investor question:  if your hardware startup has no presale plan, why not?  There may be some good reasons, but that’s become the exception, not the rule.  After all, a presale yields valuable insights, early in the product cycle, for a relatively low amount of work (and work you’re mostly going to have to do anyway).  The process forces a lot of good MVP hygiene:  entrepreneurs have to describe the value clearly, converge the features & design, and understand pricing & margins.
It’s certainly possible that Kickstarter is the strategy fad of the decade, much like India offshore development was 10+ years ago.  But I don’t think so:  the hardware presale is here to stay!

Prototypes As Sales Tools

I’m continually surprised by hardware startups that meet with potential investors, advisors, or partners and don’t bring hardware to show!

If you’re making something physical and it’s transportable, bring it to your meetings.

If you don’t have something to show, consider spending some time on a prototype that you can demonstrate.  A “works-like” or “looks-like” prototype (or both) will go a long way to conveying your vision.

The Attention Gatekeepers

I’m seeing interesting cases where Facebook, Google or other gorillas tweak content presentation, and then some other company’s business is directly impacted.  The gorillas have increasing control (and power) over user attention.

For example, Demand Media took a huge hit after Google’s search engine updates lowered rankings for low-quality content.  (DMD is down 80%).

Zynga enjoyed spectacular early success with some of the first social games on Facebook.  But as game updates clogged feeds, Facebook made presentation changes to improve feed quality, and Zynga suffered.  (ZNGA is down 60%).  Facebook continues to tweak how feed content is selected and presented.

More recently, Google added a “Promotions” tab to Gmail, moving most marketing emails out of the main inbox view.  That directly affected Groupon, who’s trying to rely less on the daily coupon.  (GRPN down 20% so far).

And now, Gmail added a prominent “unsubscribe link” to the top of promotional emails, which will impact email marketing performance even more.  (Unsubscribe is one of many “quick action” buttons that Gmail has been rolling out.)

It’s a never-ending battle between those who want user attention, and those who manage it.

Why Aren’t ISPs Surfing Moore’s Law?

Back in the mid-90s, I bought a new family PC for $3300. It had a few MB of RAM and a 386 processor.  In today’s dollars, it cost nearly $5000 — try spending that much on a PC today!

Recently, I built a machine with 32GB of RAM, a fast 4-core Intel processor, and 12TB of disk (raw size).  It is several thousands of times larger and faster in nearly every dimension than that old family PC, at less than half the cost.

Moore’s Law has settled in, and we now expect our technology to get dramatically faster, more capable, and cheaper over time. Flip phones are gone, and we’re carrying around personal supercomputers.  My phone’s built-in cameras (plural!) have better performance than my first digital cameras.  Ethernet went from 10mbits, to 100, and now a 5-port gigabit switch costs $18.  Compare the current model iPhone to the original, and a $500 TV to the same-priced model a few years ago.

Given this, why isn’t our Internet bandwidth keeping up?  Verizon just notified me that my monthly rate is going up $10 (with no speed increase).  As I wrote last week, Netflix has reported a speed drop in some cases and is now trying to figure out its relationship with ISPs.  Akamai reports that US speeds have stopped increasing in some cases, and are increasing more slowly in many other cases.  Projecting my PC experience, my Internet connection should now be a gigabit and cost $50/month.  Why isn’t it?

ISPs argue that networks are incredibly expensive to build.  That’s true: ISPs have spent tens of billions building out fiber networks, and governments have offered significant incentives.

But fiber is special:  unlike copper circuits, fiber bandwidth is usually limited by the endpoint technology.  Where DSL is often running as fast as the copper can stand, fiber links have much, much higher potential bandwidth.  The price-performance of endpoint gear (subscriber terminals and core routers) improves at rates closer to Moore’s Law.  For example, Verizon’s own FiOS terminals have moved from 622 mbits to 2.4 gbit link speeds since they first rolled out the service.

For the fiber now in the ground and on the poles, why isn’t bandwidth price-performance improving more quickly?

There’s an Internet Showdown Brewing

Back home in West Virginia, our Verizon phones have no 3G service. There’s no fundamental technical issue; Verizon and US Cellular just won’t enter a 3G roaming agreement.

This scenario captures a core net neutrality concern: are we moving to an Internet where our access is determined more by business agendas and less by technical issues?

Recently, streaming video demand has been forcing this issue. Netflix’s traffic has been growing, and measured throughput has dropped for some major ISPs (e.g. down 14% for Verizon in one month). Verizon is seeking payment to carry Netflix’s traffic, and Craig Silliman (Verizon’s head of public policy and government affairs) has said that Verizon’s policy is to require payment from networks that send more data than they carry in return. “When one party’s getting all the benefit and the other’s carrying all the cost, issues will arise”.

This is going to get more interesting.

Clearly, ISPs are maneuvering to “double dip”: subscribers pay for access to content, and now ISPs want content providers to also pay for access to subscribers. That’s not bad business if you can get it, but it makes you wonder if the ISPs are merely leveraging their powerful position. After all, Netflix is sending data to Verizon’s network because a paying Verizon subscriber asked for it!

The problem is ISPs sell “unlimited data” (effectively), but their networks are nowhere near the capacity needed for all subscribers using full bandwidth. The ISPs bet subscribers use only a small average bandwidth fraction. In the past, this model has worked well: legacy telephone and cable networks have relatively stable demand patterns.

Now, for the first time, these providers are surfing Moore’s Law and Metcalfe’s Law. Advances in computation and network performance (not to mention billions of people on-line) are driving exponential demand for bandwidth, as well as an expectation that services will be better, faster, and cheaper over time.

Worse, ISPs have been famously unimaginative about future applications and bandwidth demand (e.g. comments by Time Warner’s CFO that customers don’t really want gigabit speeds). Your next TV will likely be 4K with IP-delivered video. Don’t forget video conferencing: HD-quality cameras are cheap and 4K cameras are a few hundred dollars. At some point, we’ll be able to look around a remote location with VR goggles.

Even worse, most ISPs are fundamentally conflicted: IP-streaming video competes with their own proprietary video offerings. However, should they be allowed to slow down and tax these new competitors? And if they charge content providers like Netflix, can they discriminate or must they offer identical terms to any content provider?

As I said, it’s going to be interesting.

Boy, Was I Wrong About Dropbox

A few years ago, I was bearish on Dropbox.  I thought they would be an OS feature in time and that turning down a (rumored) $800m from Apple was a bad move. On Quora, I wrote:

I think “slow fade” is another probable outcome.

I’m reminded of FTP Software, which went like gang-busters selling a TCP/IP stack for Windows. Their revenues fell very quickly after Microsoft started shipping TCP/IP as part of the OS.  (The same thing happened with all of the disk-compression companies).

Wow, was I off base!  I think it’s good to evaluate big entrepreneurial and investment misses and I missed several things (at least).

First, a great product goes a long way.  Dropbox has absolutely nailed the product design and user experience in virtually every aspect.

Second, the service is inherently viral.  I routinely create new Dropbox users by sharing files with them.

Third, they covered every platform equally well.  iCloud works well on OS X, and OneDrive is great on Windows, but Dropbox surfed the whitespace between all of the platforms.  They did an excellent job on everything:  the iPad version isn’t just the iPhone version running 2X and they even support Linux.

I can’t wait to see their IPO.