Of note, just before the end of the year the U.S. Patent and Trademark Office temporarily invalidated Apple’s vaunted “pinch-to-zoom” patent, one of several found to be infringed by Samsung in August – generating a $1.05 billion damages award for Apple. On the same day, Kodak sold its imaging patent portfolio for $525 million to a consortium of 12 buyers (including none other than Apple and Samsung, along with HTC, Faceboook, Amazon, Fujifilm, RIM, Huawei, Adobe and Shutterfly).

In the coming year it’s a safe bet that global patent litigation and multi-billion dollar transactions will continue unabated, but here are a few other key trends we can expect to influence and shape the global IP marketplace.

The rush to the patent office begins

March 16, 2013, will mark the first day that the U.S. switches from a “First to Invent” to a “First (inventor) to File” system, under the America Invents Act (better known as U.S. patent reform). Whereas U.S. patent laws previously attributed priority rights to the first documented inventor, it is now largely the case that the first party to file a patent application will get the patent. Thus we can expect a rush to the patent office by companies large and small – adding to the already huge backlog at the USPTO of some 600,000 patent applications. Small businesses with limited legal budgets likely will be negatively impacted by the change, as it puts them at a pronounced disadvantage to their larger, better funded competitors.

Trolls will invade the cloud

With the number of patent lawsuits increasing every year – more than 3,000 were filed in the U.S. last year – there’s no reason to expect the pace to slow. Much of this litigation is fueled by so-called non-practicing entities, more popularly known as “patent trolls,” that base their entire business model on the use of patent enforcement, typically against multiple defendants.

Patent litigation in general, and troll litigation in particular, thrives in markets where the patent landscape is ambiguous, where there are complex products with multiple features, and where markets experience periods of explosive economic growth. The mobile market has seen its share of litigation frenzy over the last several years, and while the cloud computing market is clearly fertile ground, it will be at least five years before we see the type of  full-blown war mobile is now enduring. That said, the first signs of troll litigation are already emerging, such as CloudingIP, an NPE that filed patent lawsuits against RackSpace and several other defendants last year.

Copyright will take center stage

While patents have been all the rage in the IP marketplace over the last decade, content-related IP such as trademarks and copyrights are moving front and center with the proliferation of digital media and online content. Organizations such as Creative Commons have taken the lead in creating an infrastructure for the sharing of creative content online, giving the creator broad control over terms for sharing it.

The still-brewing debate over the ownership of Instagram photos, though, highlights another alternative to the creator-ownership approach – one that gives control over content to the platform that hosts it. The question moving forward is whether the copyright ownership of digital content will remain with creators or will be transferred to the platforms that host them

IP strategy is moving to the early phase

The Yahoo patent lawsuit against Facebook, filed on the eve of the Facebook IPO, highlights the need for startups to have a strategy around building a strong IP portfolio. While Facebook is no typical startup, it solved the problem in a non-typical way, by spending hundreds of millions of dollars buying patents from Microsoft to quickly increase its arsenal and defend against future litigation.

Obviously, few startups can afford a quick and expensive rebound like that, and therefore one lesson learned in today’s highly litigious marketplace is that any IP strategy needs to start from day one, even for cash-starved startups. Patent litigation against successful startups is picking up, and it is against this backdrop that IP strategy in the early phase is expected to become an absolute necessity for startups that wish to “cross the chasm” successfully.

Competition will go global

A recently published report by the World IP Organization (WIPO) revealed that in 2011, the number of patent applications filed in China exceeded those filed in the U.S. for the first time. That should come as no surprise to anyone following the pace of patent filing in China, an activity that has been prioritized by the Chinese government with the ambitious goal of reaching 2 million patent applications a year by 2015. Another noteworthy trend:  Of the list of the top-50 companies that received U.S. patents in 2011, the vast majority are foreign.

Both trends suggest the continued and increased involvement of foreign companies in U.S. patent litigation (as the mobile patent wars demonstrated), as well as the increased enforcement of IP rights overseas, and, in particular, in Asia.

Efrat Kasznik is president of Foresight Valuation Group, a Silicon-Valley based IP consulting firm, and is also a lecturer on IP strategy at the Stanford Graduate School of Business. You can find her on LinkedIn.

Photo courtesy of Shutterstock.com

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Profit margins of Wal-Mart, Amazon, Best Buy, Target, Home Depot and Apple over the past decade.

Mobile ubiquity, in turn, has led to “showrooming,” where consumers use their nearby retailer as a personal testing ground to try before they buy — and as often as not, make a purchase on Amazon instead of at the retail store. And broadband is transforming entire categories of products (music, video, books) that were once exclusively analog to digital, and boundary-less.

Obviously, the game has permanently changed for brick-and-mortar retailers (see Best Buy CEO Brian Dunn’s recent letter), and companies must evolve to survive.

I’d argue that offline retail stores have three primary paths to avoid extinction (note: my first career was in retail real estate asset management).

1. The first, and least appealing, is to compete on price. The hard truth is that in the age of the connected consumer, the real cost of a product is transparent. In the most commoditized of segments, this means that retailers have to live within Walmart (3.4 percent) or Amazon (less than 3 percent) profit margins, or they will die.

This is an incredibly challenging strategy to execute over the long-haul. Even at low-margin price points, consumers expect educated pre-sales service, functional post-sales support and seamless logistics from store to home.

2. The second path is to embrace a store-within-a-store model, where retailers focus on a few key product lines. With this approach, retailers and manufacturers work hand-in-hand to ensure that their products are meaningfully differentiated from the competition and that sales personnel are trained to articulate these differences.

Target is beginning to experiment with this via two different avenues. One is to work with Apple to create mini-Apple stores within Target locations, with a goal of tapping into everyday consumers who might not otherwise be looking for electronics. And under the name The Shops at Target, the company has partnered with specialty boutiques to co-create affordable, limited-edition collections.

3. The last path is to focus the totality of the business on creating products and experiences that are proprietary and unique. This, of course, is the Apple story. Apple focuses every fiber of its being on transformative solutions that blend design, development and distribution.

There are numerous innovation strategies that retailers can pursue on this path. For example, creative marketplaces like Kickstarter and Etsy could evolve into R & D farms for retailers. The upstarts get symbiotic funding, incubation, distribution and joint marketing, and the retailer gets exclusivity and a low-cost way to seed R & D.

Retailers can also build brand loyalty by retooling their manufacturing processes so that consumers can participate in product creation. Nike is doing some amazing things with their Nike ID system, which helps people design their own custom shoes and updates customers as their shoes are being made.

By perennially thinking beyond conventional wisdom about product categories and logistical boundaries, Nike has grown its stake of consumer mindshare, and it’s done so profitably through differentiation.

Applying this same ethos, retailers can optimize their entire supply-chain to achieve real-time agility within the markets they serve. With this approach, companies produce smaller lot sizes, tailor their inventory to suit local geographies and change inventory as rapidly as tastes change.

This strategy has served fashion retailer Zara extremely well. Zara’s “fast fashion” model has been a game-changer for the company, enabling new designs to move from the catwalk to its stores in two weeks (the industry average is four to six months). This helps Zara stay in sync with the latest fashion trends, and the new designs create a sense of exclusivity. The net effect is that 85 percent of their clothes sell at full-retail price, and the company now sees dramatically higher return visits by customers.

The critical point here is that each of these approaches goes way beyond platitudes about “delivering better customer service.” Instead, each path focuses on innovation, integration and extension to deliver a retail experience that is more than the sum of its parts.

Mark Sigal is an eight-time entrepreneur, whose ventures have sold to Apple, IBM and Intel. He is chief product officer at Unicorn Labs, an eBooks and eLearning platform provider.

Carousel image courtesy of Flickr user teofilo.

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CNBC reported Friday that Sprint and MetroPCS were “hours away” from announcing an $8 billion merger agreement, but the deal was thwarted by Sprint’s board of directors. CEO Dan Hesse was said to have endorsed the deal, which would have seen MetroPCS owning about 30 percent of the combined company, but it would have been a challenge.

For one thing, MetroPCS and Sprint don’t operate in the same spectrum bands, according to The Verge. That means blending the two customer bases would have been quite difficult. On top of that, Sprint is already carrying substantial debt and won’t make money on its extremely expensive iPhone deal for several years, leaving the company with few options to generate cash.

Consolidation in some form seems inevitable in the wireless industry, as only AT&T and Verizon are posting consistent profits. But this deal was apparently too rich for Sprint’s directors, and their rejection might cause investors to wonder about Hesse’s future at the company. Details are sketchy at this point, but stay tuned for our Mobile World Congress coverage as more details emerge once everyone gets on Barcelona time.

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Previously, Lemon was more of a Dropbox for receipts. Users took pictures of their receipts or took email receipts and forwarded them to their Lemon.com email address. Lemon extracts data from the receipts about the merchant and product making it easy for people to track their spending. But now, with Lemon 3.0, users can have their purchases organized by category, so they can better see where their money is going to. They can also get a summary of labeled items and a daily spend linear graph. There’s also new ability to sort and filter transactions and a family plan, so up to 10 members of one family can pool their receipts to see how the whole household is spending collectively. A Lemon app is available for iOS, Android, BlackBerry, Windows Phone and Symbian.

The basic service is free to scan an unlimited number of receipts, get a summary of spending and export receipts and data. A premium data plan, which provides additional features to track spending, taxes and gain more complete records, is $9 a month, or $50 a year. The family plan starts at $3 per month or $20 for a year. And a $4 a month business plan for companies is also on the way.

Wences Casares, the founder and CEO of Lemon said the latest update gives users more tools to track their overall spending. He said over time, Lemon will also add budgeting features, taking Lemon even further into Mint territory. But he said Lemon is not aiming for the same base of users.

“We see Mint as a service for people who are serious about about personal finances. We want to appeal to customers who are more casual about finances because most people don’t have the time or discipline to dig into receipts,” Casares said.

What I like about Lemon is that it’s good for tracking cash transactions. While services such as Mint can automatically connect to checking and credit accounts, users have to manually enter their cash payments. With Lemon, they can make sure all those little payments here and there are accounted for. That is, if they remember to take a picture of a receipt. But with the way Lemon is set up, it’s designed to make it easy to do that.

Users may balk at the pricing of the premium plans. And some users have complained of bugs and a more cluttered UI with the latest update. But many are finding it’s a good way to keep on top of their spending. I think this is helpful to avoid the clutter of receipts in my wallet, though it takes some discipline to keep snapping pictures of receipts. But when you do, there’s that nice feeling of throwing away some excess paper and knowing you’ve got the data in the cloud.

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Bloomberg reported Thursday that Jha will be replaced by Dennis Woodside, currently the president of Google Americas and a Google veteran. Woodside, who had already been named to lead the integration process for the $12.5 billion merger alongside Jha, will apparently get top billing if and when Chinese regulators approve the deal.

Blending Motorola, a storied Midwestern phone manufacturer, with Google, about as California as a massive Internet company can get, is going to be tricky. Google has pledged to operate Motorola as a standalone unit in order to calm the fears of Android partners that Google will treat Motorola differently than the rest of the Android world. Naming a longtime Googler to head the new operation, however, will raise a few eyebrows.

As for Jha, he was unable to completely fix the mobile devices mess left behind by former Motorola CEO Ed Zander while working amidst the chaos of Motorola’s separation into two separate companies. Motorola Mobility is at least in the game when it comes to the smartphone market thanks to Jha’s aggressive embrace of Android, but it is losing ground to rivals like Samsung and HTC and especially struggled over the second half of 2011.

He did, however, return a ton of value to Motorola Mobility’s shareholders by orchestrating the Google deal. After losing a pivotal auction for mobile patents formerly held by bankrupt Nortel, Google was desperate to find any patents it could get and wound up paying a huge premium for the business.

Google declined to comment on Woodside’s future role, reiterating that the deal has yet to close while the Chinese government decides whether or not to intervene. U.S. and European regulators have already approved the deal.

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Hewlett-Packard continues to be rocked (disproportionately, according to one analyst) by a flood-induced hard drive shortage; its go-to printing business is sputtering; and the company as a whole continues to spend too much on too many products. On the plus side, HP’s high-stakes bets on 3Par “cloud” storage and enterprise software player Autonomy are starting to be felt, just not enough to overcome all the bad stuff.

HP was once the model of a well run if conservative IT behemoth. For the past three years, it has been anything but. That is why all eyes are on HP now. Industry watchers want to know if Meg Whitman, now eight months on the job, can right the ship. Whitman is HP’s third CEO in as many years.

Here are my top takeaways from Wednesday night’s first-quarter earnings call.

1. Shocker: Apotheker may have been right!

Leo Apotheker, Whitman’s much-maligned predecessor at HP, looks pretty smart in retrospect, as Mark Hachman points out over at PC Mag. HP’s venerable PC group spit the bit last quarter (which ended Jan. 31), with overall revenue off 15 percent year-over-year. Revenue from consumer PCs fell 25 percent. The company sold 18 percent fewer units than the comparable period last year. Ouch.

Apotheker looked into selling that PC unit, news of which sparked a firestorm among HP partners and enterprise customers who liked buying servers and desktops from one company. Whitman backed off that plan when she took over.

The argument for keeping the PC group was that the $40-billion-per-year business gave HP supply chain advantages when it came to sourcing components not only for PCs but also for servers and storage. That may have been the case, but it didn’t appear to help the past two quarters when HP was hit — hard — by the lack of hard drives caused by flooding in Thailand. Sanford Bernstein analyst Toni Sacconaghi pointed out that HP seemed to be affected disproportionately by this disaster when compared to its rivals.

Things on the software side looked rosier. Overall software sales were up 30 percent year over year. Getting HP more into the software game was a big piece of Apotheker’s strategy.

Going forward, Whitman said that for HP to succeed, it must “own” three areas: cloud, security and information management. Those three areas align pretty closely to Apotheker’s road map.

2. The printer cash cow is drying up

HP’s Imaging and Printing Group (IPG) has long been its go-to business — Whitman called IPG the “lifeblood” of HP. But things are not going well there. Total revenue fell 7 percent compared to the year-ago quarter. Revenue from commercial printing hardware was off 5 percent, and consumer printer hardware sales were off 15 percent (and IPG sold 15 percent fewer units) from the same period last year.

“There’s no question that in IPG we face challenges,” Whitman said. “We have to look hard at it. Consumers at home are doing less photo printing. I think the analog-to-digital move will still advantage us but we have to compensate for that loss of ink.”

3. HP conundrum: doubling down on R&D while cutting costs

Recently, Whitman vowed to “double down” on R&D spending to get the company back to competitive form. That’s not chump change. Last year, HP spent $3.2 billion on R&D (about 2.5 percent of annual revenue). If “double down” means doubling, that will be a big number at a time when HP very much needs to slice rather than add costs.

On the call, Whitman was vague about how the company could fund this, saying repeatedly that HP has to “save to invest, save to grow.”

“Our current cost base is not sustainable. For years we’ve run the business in silos and there’s much we can do to streamline operations even more by standardizing our processes to scale the business without increasing cost,” she said.

Whitman hinted that the company will wield an axe. “We have an enormous number of SKUs. That adds complexity at launch, complexity in service and support and selling. There’s a number of things we can do there to improve dramatically.”

That really is one thing HP could do easily. There is no reason for any company to field the number of PC and laptop models HP offers. Apple offers a very limited number of Mac models, and no one seems to hold that against it. But SKU control is just the start.

As Sacconaghi pointed out on the call, the HP numbers paint a bleak picture across the board. “This data appears to point to a widespread lack of competitiveness,” he said.

Addressing that sort of problem will take more than cutting SKUs.

Feature photo courtesy of Flickr user whiteafrican

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In 2008 the company I work for, Precise (a developer of application performance management systems), was spun out of its parent company Symantec and into a private company. Suddenly, we had 1,000 customers to support, and a limited IT department. Symantec offered to sell us licenses for SAP and other enterprise software packages that we had been using. But in our new structure, we needed applications that were scaled down and easier to support. We ditched the world of licensed software and annual commitments to large capital expenses on equipment — the traditional way of doing IT — in favor of cloud, SaaS and virtualization.

As a midsize company with more than 200 employees, it was a tectonic shift. But after a year-long migration of our IT infrastructure and applications to the cloud, we shaved more than $2 million, or 70 percent, from our annual IT budget. Here’s how we did it.

Our first priority was to find a solution to support our customers, so we chose Salesforce and NetSuite for the front and back-office solutions. It took a single data analyst a mere five hours to migrate all of our data from SAP to the new systems. For customer support, we chose Drupal and for marketing we chose Marketo — both of which were seamlessly integrated using WebSphere Cast Iron Cloud Integration.

Next up, we had to deal with the Microsoft Exchange servers that we’d inherited from Symantec. Microsoft Exchange can be a bear to support with a slim staff, so we opted for Google Mail instead. The e-mail migration took about five days, and later we also moved from Microsoft SharePoint to Google Sites for collaboration. The cool thing is, employees don’t have to do everything on Google. They can still access their favorite Microsoft Office applications, such as Excel, or use Outlook front-end if they wish.

We also went through a major server virtualization project in engineering — chopping off about 60 percent of our server expenses — and switched to AT&T fiber for networking and adopted VoIP for telephony.

None of the technologies that I’ve mentioned are new or even groundbreaking. But the fact that we could adopt all of them in a short period of time, integrate them using a single data analyst and realize such financial benefits is astounding. Even five years ago, small and midsize companies couldn’t afford state-of-the-art technologies to run their businesses. That’s all changed — and the playing field for IT sophistication has leveled out.

Not only is using newer, Web technologies more affordable, but they’re also more reliable. That’s been the case at Precise, at least. We haven’t had any issues from moving to a SaaS environment. We didn’t spend a bunch of money on hordes of consultants to get everything in place. It really was that simple. I give credit to our former IT director, Sharon Cohen, for choosing the right strategy and the right partners — that’s key.

Our transition to the cloud means that today we spend less time managing all the plumbing and more time working on our own products. We’re even looking at deploying cloud-based systems for R & D. And let’s not forget, we are saving more than $2 million per year. That’s the kind of money companies of our size, which comprise the bulk of the U.S. economy, can really put to good use. We can use those savings to hire strategic new employees or bring new features and services to our customers. For midsize companies, there’s no doubt:  rip out your on-premise software apps, go SaaS and adopt the cloud across the board.

Zohar Gilad is the executive vice president at Precise, a developer of application performance management systems. Before joining Precise, Zohar held senior executive positions at Mercury Interactive, which was acquired by HP in 2006.  

Image courtesy of Flickr user AndyFitz.

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Facts are lazy and facts are late

Facts all come with points of view

Facts don’t do what I want them to

—From “Crosseyed and Painless” by Talking Heads (written by Brian Eno and David Byrne)

Business growth at established companies tends to decline relentlessly over time in the absence of inspired innovation, an impact I affectionately refer to as “gravity.” If CEOs want to fight this gravity and improve the long-term growth trajectory of their businesses, they need to take proactive, concrete steps to make it happen.

As CEO of OpenTable, I was always trying to develop and test a portfolio of potential new initiatives, targeted at both optimizing the core business and adding new layers of growth (see my last post on this topic, “Adding Layers to the Cake”). I wanted to identify completely new initiatives that would boost business growth — things we weren’t already doing. Things you are already doing are largely yesterday’s news, and their impact on future growth tends to wane over time. Implementing completely new innovations can help your business fight gravity.

At OpenTable, one of the most highly leveraged examples of an innovation to optimize our core business was developing a rigorous methodology to pursue and assess potential site improvements. A while after I became CEO, my predecessor Thomas Layton (who did a spectacular job positioning OpenTable for long-term success) sent me a fascinating video of Ron Kohavi (previously the director of data mining and personalization at Amazon) talking about Amazon’s approach to something Kohavi called data-driven product development. Here’s a link to one of his presentations: http://videolectures.net/kdd07_kohavi_pctce/. (FYI, it only works sporadically.)

The video details how Amazon rigorously deployed A/B testing to optimize website efficiency. Kohavi starts the presentation by showing a number of different executions of the same feature that they had tested over time. He then asks the audience to vote on which they thought had performed better. The folks in the audience — all website geeks — were unable to consistently pick the winning execution. That was mildly surprising. But what was astonishing was the delta between the results driven by different executions of the same feature: what often appeared to be a subtle change could drive huge improvements in performance.

In the video, Kohavi also talks about the impact of the “HiPPO” (Highest Paid Person’s Opinion) in the product development process. Not surprisingly, most HiPPOs believe they know intuitively what will work best (spoken by the former HiPPO at OpenTable). But pretty much none of us have the product instincts of a Steve Jobs, and Kohavi makes a very compelling case for letting the data and not the HiPPO make the decision.

So we resolved to test data-driven product development as one of OpenTable’s potential core business optimization initiatives. We tasked a talented product manager, Julie Hall, to lead the effort, and we procured the necessary tools. For the art side, we found the low-cost and highly efficacious UserTesting.com service, which enabled us to get qualitative user feedback literally overnight to inform what we planned to test. And for the science side, we bought the overpriced but also highly effective Test&Target system from Omniture, which enabled robust quantitative measurement of a number of simultaneous A/B tests.

These two tools worked together marvelously. One time, we stumbled upon a big “improvement opportunity” (aka a nasty usability problem on the site). We used usertesting.com to task a handful of unregistered users with making a reservation. Then we watched in horror as a significant minority of the test users got trapped in our “Sign-In” functionality and couldn’t complete their online reservation. In the real world, they probably would have gotten pissed off and simply picked up the phone (OpenTable’s biggest competitor for consumers) and called the restaurant, a disaster for our user acquisition, brand affinity and OpenTable economics.

Here is the offending page:

The problem we encountered was that non-registered users would set the radio button that said “I am a new OpenTable customer” and then fill in their email address and select a password, which sat under the “I am an OpenTable member” section. This combination caused the page to return an error message.

In response, we developed alternative treatments of our sign-in functionality and tested them via Test & Target. The winning executions presented non-cookied users with a form tailored directly to new users, with clear visibility of a link for existing members to sign in:

After the user hit the “Complete Free Registration” button, we then presented them with a popup that prompted them to register to become an OpenTable member:

These simple changes boosted our reservation success rate by 10 percent over the prior implementation. And a 10 percent improvement in the revenue stream that comprised well over half of the company’s total business due to one simple change was a monster win for the business.

Over time, the data-driven product development methodology at OpenTable matured into a highly disciplined testing regimen. Hundreds of tests have been run in the past few years. Not all were home runs like the change above, but lots of singles and doubles supplemented the occasional home run to have a highly material impact on the business. I can’t recommend a rigorous data-driven product development process enough to managers of website businesses — it’s extremely low-hanging fruit in the pursuit of growth.

Other examples of core business optimization initiatives that helped OpenTable boost growth include:

• Developing a new version of our enterprise software used by restaurants that improved search-to-reservation conversion by having the software better mimic the decision-making process of the person at the host stand
• Redesigning key pages of the site to improve their efficiency, such as a complete overhaul of our search-results pages (tested thoroughly through A/B testing)
• Focusing dedicated resources on optimizing the percentage of OpenTable restaurant owners who had “make an online reservation” links on their own websites, as well as improving the visibility of those links
• Applying concerted product and engineering efforts to boost our ranking in search engine results
• Hiring a lot more sales people to accelerate the acquisition of restaurants using OpenTable (not a product change, but highly effective)

The key takeaway here is that all of the above were new, concrete initiatives that were not yet part of the company’s arsenal. Their successful deployment helped fight off the impact of gravity and led to accelerated growth for the company.

Jeff Jordan is a general partner at Andreessen Horowitz. Previously, he was president and CEO of OpenTable, president of PayPal and senior vice president/general manager of eBay North America. He blogs at http://jeff.a16z.com/.

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It’s kind of amazing to consider how passé the iPod, the gadget that defined a decade of music, has become at Apple: the iPhone is the now the halo maker, according to Apple CEO Tim Cook. In comments before the financial community at the Goldman Sachs Technology and Internet Conference, Cook held forth on a number of mobile-related topics, including the debate over whether the iPad is a PC.

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