Back to IP-something new in the IPO market

by Andrew Watson on 4 May 2014

Back to IP and applying positive energy.

This week will see something quite new for us. A first ever fitness for purpose opinion of the IP of a company listing on the London Stock Exchange.

After Listing, we can hopefully say more. But, in terms of breaking new ground this has been a whole lot of fun and a sizeable intellectual challenge for a great team of six on our side.

With a fair wind we will be writing another in the near future for another market.

Nothing like breaking new ground.


Carl Icahn takes a substantial stake in Apple and claims that the company is massively undervalued.

Larry Ellison appears to predict the death of Apple without Job’s guiding hand.

Who’s right? or are neither?

Icahn is an interesting chap. Above all he seems to spot value that others don’t. Even by taking his position, the stock jumps and the sheep that seem to follow his lead (is that really an investment strategy-we follow Icahn?) also take positions.

His recent history has shown Icahn to be adept at spotting hidden IP value. He is attributed as being the catalyst for Motorola’s splitting its mobile unit and this being patent attractive enough to persuade Google to acquire the cover that Motorola Mobility provided.

What little has been said about his reasons for investing in Apple so far seems to indicate the his main motivation may be Apple’s cash reserves ($147bn and rising) and the commitment made to return $100bn of this to investors by 2015. At the rate at which Apple is generating cash that may only be one third of its cash ay that point.

We have a different view of Apple. We’ve taken an IP fundamentals approach to looking at Apple and also believe that it is only just getting started and has a long way still to go.

Then Larry pops up. According to a report in Slashdot this morning, Larry predicts using sign language, the death of Apple, unable to disruptively innovate without Job’s guiding hand.

Oracle CEO Larry Ellison thinks that Apple will collapse without Steve Jobs at the helm. In a televised interview with CBS News, scheduled to air August 13, Ellison called the deceased Jobs ‘brilliant’ and compared him to iconic creators such as Thomas Edison and Pablo Picasso. When asked about Apple’s future now that Jobs is dead, Ellison didn’t hold back: ‘We already know, we saw — we conducted the experiment, it’s been done.’ Raising his hand above his head, presumably to indicate the rise of Apple’s fortunes during Jobs’ initial reign, Ellison said: ‘We saw Apple with Steve Jobs.’ Then he lowered his hand: “We saw Apple without Steve Jobs.” In other words, the period following Jobs’ ouster, when the company’s revenues declined and it launched whole portfolios of consumer products that failed. ‘We saw Apple with Steve Jobs,’ Ellison continued, raising his hand above his head again — this time, to suggest that incandescent period following Jobs’ return to the company, when it released the iPod, iPhone, iPad, and a variety of bestselling PCs. ‘And now, we’re going to see Apple without Steve Jobs,’ he finished, and his hand fell.”

Ellison is something of an enigma to me. Was I the only one that was surprised that Jobs and Ellison were such close allies, even friends, and that they shared long walks together?  By reputation, Ellison seems to have the fear element cracked. One rumour is that the phrase “elevator pitch” was even invented to describe the 30 seconds between the elevator in Building 5 at Redwood Shores (Oracle’s HQ) leaving G and arriving at 5 during which any unfortunate Oracle employee would have to answer Ellison’s question of “So, what do you do for Oracle?”

Which of Carl or Larry is right? Maybe they both are (Icahn’s time perspective is what, two years, Ellison could be talking about a timeframe of 5+ years), maybe neither is?

We see great things being still possible for Apple. Unpicking their IP strategy, we think they’re very well poised to move to the next level. You know, I really should write a book about this.


Eric Schmidt answered my question!

by Andrew Watson on 9 August 2013

In all the melee of the last 3 months I forgot to post about this quite (in the American sense of the word) significant bit of IP news and insight.  In May 2013, the London Business School invited Google Executive Chair Eric Schmidt to address an audience around the subject of a new book co-written with Google’s wonderfully titled Director of Ideas, Jared Cohen, on The New Digital Age.

The presentation was interesting though a few steps short of compelling. Schmidt and Cohen, it seems, have travelled the Globe assessing:

  • How the current digital age has unexpectedly transformed the lives of tribesmen in Chad or inspired innovation in downtown Baghdad.
  • How the next digital age will transform yet more lives, in places where smartphones and tablets are yet to touch lives, with visits to North Korea in the highlights.

The book seems to have been an exercise in painting a Google picture of the emerging and yet to emerge digital world, as well as giving research tips to Google management on how to prepare itself for the wave of new digital activity. Including, pre-Snowden, how Google can be totally trusted with your privacy and data.

Whilst the book Q&A was less than inspiring (imagine a couple of closeted gap year students let out with a 5 star budget to stare in awe at how those outside their bubble use a mobile phone), the wider Q&A was more interesting. The audience was invited to pre-submit questions to allow the interviewer to select which would be put to the speakers in a Parkinson-style open session.

I’d read this review of Mr Schmidt’s performances and remarkable capacity for one so mighty of not-knowing things he should whilst in the UK that week, so wasn’t expecting full answers, but looking at what he chose to answer, how truthfully he answered (IMHO) and what keeps Eric, Larry and Sergey awake at night, the answers and gaps are quite revealing.

Question Eric’s Answer Penfold Truth Rating (subjective of course)1-5(5 total truth)
Which company are you most afraid of and why?

A company or a person cannot operate based on fear. Fear freezes your ability to react.In Google we do not look at the competition but focus obsessively on building our own products



I think this is largely true. I think what should, but probably doesn’t enough, keep the Google’s awake at night, is whether they’re creating products for geeks or products that people will functionally use.


What keeps you awake at night? Two guys in a garage who see things that we don’t.


I think this is genuine. I don’t think that the Googles think much about what Apple, MSFT, Samsung, Facebook or others are aiming to achieve.

In a way, that’s a positive. Stay in the moment and focus on great products. But I wonder whether they see enough of where others are heading, and the capacity out there from the established players to rapidly begin to eat Google’s rather splendid ad-revenue based lunch.

How far into the future does Google look? We don’t really have a plan as such. In fact it could be described that Google has a non-plan. We do look at and focus on areas of interest to us, and our business. But we do not do date planning.


Likewise, I think this is a solid representation of the Google culture. Focus on products and stuff of real interest, constantly innovate but overall believe that your lunch is and always will be your lunch.

It is a sort of anti-MBA non-philosophy that has taken Google to be worth just under $300bn and rising. So it is maybe hard to argue against—though IMHO not impossible.

What is the next big thing?

Schmidt- Healthcare

Cohen-mobile. Without a mobile strategy you’re nobody.


Let’s suggest that as the business end of Google’s management, he would or should have omitted a couple of focus areas.

Penfold’s question 

Are you concerned that Google could lose control of Android to such an extent that it will not end up fulfilling its original purpose?

No, not at all. In fact we are delighted with Android and we want to make it available to everyone. As it is an open source platform, we use a combination of enforcement and encouragement to ensure that it is used as envisaged. In most cases, around one third of the code is non-standard. But overall we are very happy with it.


I can’t of course prove it, but would you not be a little concerned if your main route into mobile world, and therefore your main route to the current and any next to come digital age is based on an OS that others can adapt to replace/displace/remove/amend etc its ability to serve ads from which Google’s net revenues will benefit?

Google’s generation 1 concern with Android was that MSFT and others could kill it before it reached maturity using patents.

But the current generation concern should now be moving to how Google crosses a crucial and complex transition as its competition see the Moto X come in, Android perfected, and multi-added functioned, and Samsung and others take Android apart and use it how they want, whilst deciding on whether to stay Android or go Sailfish or another open source OS.

This transition is, for Google, as they say in tech world, is not trivial.

Is it over -exaggerating the point to describe the uptake of Moto X as representing Google’s first true chasm to cross?

Thank you Eric and Jared for a fascinating insight into the ways of working of one of the largest and most successful players in Internet 2.0. Its flexi-working, dynamic philosophy, short lines of authority and adaptability has taken Google to be one of the current Big 4 on the road towards Convergence 1.0.

The open question at the end of Convergence 1.0, which we estimate to be mature by 2017, will be whether Google is a one trillion dollar member of the Big 4 by then, or a surprised, under-prepared also-ran caught short by lacking a plan beyond staying in the moment.

For me, Google is a stock to avoid.  I kept coming back to one word when listening and after reflecting– “complacent”.


Is the expression “Sledgehammer to crack a Nut” used across the World? Or some variant of it? In Blighty (or the UK) it’s used to describe a solution to a problem that is somewhat excessive and out of context with the seriousness of the issue.  Like Nobel Prize winning but clearly Sledgehammer advocate Gary Becker. He may have won a Nobel Prize for economic theory but he wins the D for Dunce hat for his idea of sorting out trolls and software patent disputes by banning software patents and shortening patent life to 10 years.

Apologies, Mr. Becker. You are clearly a very able academic but you’re out of your depth on this issue.


1.     Are NPE’s/trolls (and the whole NPE model and its many variants, from pyramid schemes to go to market scams of trolls and anti-troll funds, etc) a real problem? Sort of, but not really.  And not anywhere other than in the US where the exorbitant fees of lawyers who have no motivation to settle early cause a cost-benefit conclusion that settling costs less than fighting.

2.     Is the NPE/troll model damaging to the US as a brand and to its economy? Yes certainly.

3.     Is the answer to ban software patents? No.

4.     Are other answers available and more effective? Yes. Try the good old common law model of loser pays winners legal fees.  Ban contingent fee arrangements on these cases? Bring in scale legal fees like in Germany. How many more good ideas do you try before going with Mr. Becker’s frankly silly one?

5.     Is this a problem elsewhere? Not yet. The UPC in Europe is predicted to head us in the same direction but law firms in Europe are not generally entrepreneurs as in the US. No need for action there.  So why advocate something that would make the US uncompetitive on the world stage?

6.     Is a 10-year life on patents going to achieve anything? Being fair to him, there is an argument for different patent lives across industries. But, to me, that means that pharma should get a longer than 20 year life. Not that any market should shorten.

7.     Should software patents be banned? Absolutely not, you’ve been reading too much Slashdot I think. How many new and breakthrough innovations are now being enabled by software? The answer is a multitude, a plethora, and across all industries. Why should the fact that a breakthrough technical innovation is enabled by software be denied protection other than by copyright?

8.     What is the answer to all this mess?  Something a lot more sophisticated than a Sledgehammer and wielded by someone much more informed than Mr. Becker, who, as we also say in Blighty, should “stick to his knitting”.



Phew. 72 rumbunctious (love that word from Django) hours with the expanding IP community in Boston over. It went in a heartbeat but was a lot of fun.

Boston (why do I keep on saying Bwosston in the style of Matt Damon from The Departed) is a special city.  Visiting Harvard on Sunday had to be a highlight. Donal and I even created a new white paper, the results of the new O’Connell-Watson collaboration. Unlike Dr Sheldon Cooper, it was an outcome of equals. We then dreamed about how two guys from the University of Limerick and with a 2:2 from Newcastle in Law could one day be asked to teach at the Harvard Business School, then concluded that the only way it could happen was if we broke in.

To the conference.  Observations.

1. a 90-10 split. 90% of the audience was the cosy, interconnected patent assertion group. 10% were real people trying to solve real world problems. Sorry patent assertion group, be you trolls, troll evolutionaries, people trying to pretend you’re not trolls or counter-trolls, I still maintain that only a lawyer could have invented such a meaningless endeavour. I like many of you personally, but just don’t see how you do anything for the IP-business debate or how any of it is in any way clever, even though it may be lucrative.Though you’re going to have to do some reinvention as Obama is on your case. He thinks, as do we, that this whole endeavour negatively affects Brand USA.

2. A better than 90-10 split in terms of content, still around 75% around of themes for the meaningless Neanderthal endeavour of patent assertion referred to above, but some good thought leadership nonetheless. Ralph Eckhardt, you are my hero. Even though 90% of the audience were lost in understanding the words “sustainable competitive advantage” or “top line/bottom line”, it resonated.

3. Flavour of this and many months to come, Eran Zur, now of Fortress with, it is said,  “several billion Fortress dollars” behind him, a new pair of shades that make him look like one of the Sopranos, and 550 CVs in his pocket from the conference. He was, as I told him, the second most popular guy at the conference, after Donal and I combined.

4. A fledgling conspiracy theory co-hatched. I started on Sunday on the lawn by asking Donal to stand on a chair and to ask the audience of 600 to divide into three groups. Trolls, counter-trolls and people advising either on one side in group 1, lawyers in group 2 and good guys who can talk about ip and business, after all the name of the conference (call me churlish), in group 3. Chicken, he refused.

By Tuesday though, I was asking why are all the trolls and counter-trolls such good buddies? That all the counter-trolls want now to work for Fortress is one simple explanation. But what if we try another split-stand on the left if any of your income comes from IV? And on the right if none of it does. You 12 on the right, feeling lonely? You 273 in the middle, if you don’t know, ask your next immediate man at the top of your pyramid. It’s all very very cosy! Maybe too-so.

5. Great old IP friends, though by being honest and open I may lose a few along the way. Ari Manoach, Ben Goodger, the lovely John Olsen, Tom Ewing, Irv and Matt Rappaport, Nigel Swycher (we do like him, probably the smartest guy in the room as long as he says Jedi side), Jon Calvert, Jackie McGuire, Yann Dietrich and Peter Holden (looking happy again). And a few new ones. Wendi Backler from BCG, Peter Cowan, ex Schneider, Lee Caffin, and two real IP visionaries, Anubhav Kapoor from Tata, and Ayaz Hameed from Pegasystems.

Really really liked Dr Maria Loumioti, professor of IP valuation at USC-I  think she has a great future. But I really really really liked the Mia Williams like raw force of nature, Ilka Alcantara from Edwards Wildman. Sometimes you get a chemical moment, like a Cloud Atlas moment, that we’ve met somewhere before.  She’s one to really watch.

6. A genuine thought leadership group. I’d say only around 15-20 and I think we may need to start our own conference. Content wise, apart from nodding every time Ralph Eckhardt talked, the content was a touch 2008 for me. In fact I’d say much of it was 2005. Too little of it was 2017, which is only 4 years away, none of it was 2020.

7. But, overall a very very worthwhile event to attend. Something for everyone, and in Joff’s shoes I’d be also keeping 90% of my audience happy. Us 10% have to accept that we are the noisy minority. Very well done Joff, you did a super job and should be very proud of what you have created.

I’m tempted to go to Singapore in November. There was a strong Asian presence of mainly law firms from China, Indonesia, India, Australia and Malaysia, plus a good smattering of high growth companies from those countries too.

And finally, as ever, a Penfold ooops moment. All the men I’m sure were aware of the quite beautiful and elegant Prudence from Indonesia. She turned nearly all male heads on Sunday evening on the lawn. So over lunch on Tuesday, the father of 5 very happily married me, finds myself on her table at lunch and makes some clumsy comment about her beauty (how Maria ever said yes to me is a mystery to everyone who knows us, including me). I’ve already been introduced to the others on the table, Gloria from Kangxin, and Andrew Diamond from the same firm as Prudence. So Andrew, as a US qualified non IP lawyer, I say, how come you’re working in Indonesia, that must have been a leap? Well he says, Prudence and I met in the US last year, and, this year, we got married…………

Get out of that one Penfold.

Are we in Munich again in 2014? Wonder if I can inspire a splinter group to form a breakaway thought leaders conference in the local beer house. Til then.



Barack Obama – IP Strategist

by admin on 9 June 2013

Regular readers of the Tangible IP blog will know that we do not look on NPEs, or “patent trolls,” favorably. They have the ability to significantly impede a company’s business, as they have nothing to lose and everything to gain from asserting patents. It seems that we are not alone in this view – “Stopping this drain [by NPEs] on the American economy will require swift legislative action, and we are encouraged by the attention the issue is receiving in recent weeks,” White House spokesman Jay Carney said in a statement.
At this point, it is important to note that we have no problems with the lone inventor – the original founders of ideas or concepts or markets, who, on his or her own (or with funding) seeks to assert intellectual property rights against large organizations using that inventor’s technology. It is non-practicing entities, or trolls, using IP to punish the market that we take issue with.
We were pleased to read that the White House shares our belief that NPEs are a drain on businesses and a drag on the technology sector, and welcomed the news that President Barack Obama has taken aim at NPEs as part of a shakeup of the US’s patent system.
Obama has long been part of our “anti-troll” brigade. The America Invents Act (signed in 2012) made a first attempt to stamp out patent trolls, obliging them to file individual suits against companies rather than multiple defendants.
Obama has proposed a number of changes to the US patent system and associated organisations. These include:
• requiring full disclosure of the real owners who stand to benefit from patent assertions when demand letters and suits are filed;
• allowing lower courts to award costs of litigation to the winner in a case, to dissuade nuisance filings;
• expanding the US Patents & Trademarks Office coverage of “computer-enabled patents” and allow more challenges to already-issued patents;
• protecting end users from litigation if they use a product accused of infringing a patent;
• raising the standard used by the International Trade Commission (ITC) in deciding whether to allow sales bans, and enable it to hire “qualified” judges in the relevant law; and
• putting “demand letters” in which patent owners seek money into a publicly searchable database.
• requiring companies that sue for infringement to have updated ownership information on file with the U.S. Patent and Trademark Office. Obama has urged the patent office, part of the Department of Commerce, to write a similar regulation.
These actions were aimed at improving incentives for high-tech innovation, a major driver of economic growth, the White House said

We are of the view that an alternate reward system needs to be created, and would seek to define a model going forward – an efficient system under which prior art and predecessor technology would be rewarded for the contribution they made to a business’ success.These steps, both actual and proposed, in conjunction with the 2013 “Saving High Tech Inventors from Egregious Disputes” (SHIELD) Act – which, amongst other things, proposes that the loser pays the winners fees in IP litigation – makes it clear that the U.S is taking innovation seriously. It is about time other western economies followed suit.

ipVA – Barck Obama: IP Strategist (by Ruth Hennessy)-8th June 2013


Smile, it’s Springtime

by Andrew Watson on 12 April 2013

Been a while-time to come out of Winter hibernation

I can get out of many good habits during the British winter, and this has been a particularly rotten one, so I’ve got out of the blogging habit. With temperatures hitting a heady 11° C in London today it seemed like a good time to get back in the habit.

But at least my own hibernation is only seasonal. Take IP by comparison and when I connect on LinkedIn to the smiling Irv Rappaport ( and he tells me that he’s been evangelizing IP for 50 years and it feels like I could hibernate for another 20 years and I may just wake up and find that nothing IP has changed and IP might still be frozen out of mainstream thinking. 

But there’s nothing like a smiling Rappaport (or better two) to cheer me up out of that negative thought. Irv tells me that his equally smiley son, Matt, and he are the only father and son combination in the IAM300. That’s something to celebrate don’t you think. Matt thinks so:

Who was it that wrote “nothing dies as hard as a bad idea”.  I think it was Yates in one of his follow-ups to the brilliant Revolutionary Road. There is a gloomy scenario where all of this bright IP thinking turns out to be just smoke and mirrors and never, in our lifetimes, reaches mainstream.  Where only a few trolls and troll advisers and patent fundamentalists ever make a difference (or any serious money). How frustrating would that be?

As I’m a natural optimist, I prefer to think of the IP community as Outliers, as described by Malcolm Gladwell in his book of the same name.  Gladwell describes Joe Flom, a founding partner of Skadden Arps, as an outlier, someone who practices 10,000 hours at his out of vogue litigation/hostile takeover practice area, before that market explodes in the 1980s and he becomes one of the go to lawyers.  

Gladwell’s theory is tested on The Beatles, Bill Gates, Fleetwood Mac and a whole host of others who appeared to come from nowhere when they went viral (or whatever the pre-Internet equivalent to viral was) but had actually been steadily practicing and just hanging in there and not giving up for many years.

As a positivist therefore, there are for certain some signs of the pure IP strategy market maturing outside of the landmark Nortel and AOL stories. Here are a few:

  • A very good pull out in the UK Times in March called Raconteur IP, the online version of which is here.  Thanks to Joanna Goodwin for including a quote from YT in the editorial.  

“IP strategist Andrew Watson believes the way forward is to educate UK businesses to view IP as a strategic priority.  “Innovation is in our DNA, but we need to develop the skills to know what to do with it,” he says, adding that other countries, notably China, have a national IP strategy.

Well said Sir! And I do think he’s right.  One our most fundamental problems is to educate our market. And no, they don’t know or won’t admit that they need it or could even describe what they need.  Dear me! 

  • The new UK Patent Box regime. As far as triggers to take IP seriously are concerned, this one is actually pretty effective. There is a transitional introduction of the relief, but to be able to talk to a CEO, CSO, CFO or someone else towards the top of an organization and show him/her a way of possibly taking 12% straight to the bottom line is quite powerful. Add to that a factor we hadn’t anticipated, that analysts of listed companies would start to ask the companies to explain their progress and projected savings via Patent Box and that’s a real bonus.
  • Our projects and pipeline. A usual no names, as all of our projects are confidential, but we are in the midst of a couple of really super engagements. Really challenging on all levels. And we’ve a strong pipeline of high-octane companies to whom we are talking and taking through a sales cycle.
  • Acquisitions and major collaborations. We’ve got a major tie-up (not yet announced), Ovidian (Joe Siino’s apparently excellent practice) has one and there are some interesting rumours of another shortly to be announced involving another of the good IP strategy houses. A sign?
  • Open-mindedness. I’m sure that Irv has seen the same responses in his 50 years, but it can become tiring to have to go back to basics with some of the most  apparently sophisticated people (one CEO of a client even struggled to understand the difference between a patent and a trademark) but the difference now it seems is that CEO’s/investors/funds/CSO’s etc realize that they haven’t got all of the answers, or even know which are all of the right questions to ask. There is something clearly missing in most company analysis using the traditional metrics and measures. Hence, open-mindedness. Even if one fund manager in London told us that we were explaining, in our words, what he called his “fluffy bunnies” theories. I liked that. A lot. I could write a book (in fact I might just do that). 

When I first started IP beating the streets, 41 years after Irv (a little unfair to compare, I’d have to have started my evangelizing in the womb to catch him up) a good friend gave me this and I’ve kept it close to me ever since. It’s a quote from Maurice Maeterlinck, the Belgian philosopher, and it goes like this:

“At every crossroads on the path that leads to the future, each progressive spirit is opposed by a thousand mediocre minds appointed to guard the past..”.

Signs, look out for signs of progress. Don’t look down or back, keep your eyes on the far horizon.  And, in my view, don’t’ call any of them a Tipping Point.

Ta da! Nice to be posting again.







 To follow up the post last week, I spent much of Sunday calmly and dispassionately looking through the facts and various commentaries surrounding the Hp and Autonomy dispute and thinking through two questions—

  • What is really going on here?
  • Are there any IP issues, where I can claim some insight and which are worthwhile commenting on?

I decided to stay largely out of the who’s right and who’s wrong debate. Will Hp successfully transition into something of worth to its shareholders? I don’t know enough to comment never mind give an absolute statement like Nick White does to my original post below—I might be opinionated Nick but I’m not so bold as to call a $130bn turnover company a train wreck.

Did Autonomy manipulate its results? That’s a question of accounting and regulatory fact—though the apparent involvement of several leading financial advisory firms in both audit and diligence reviews would suggest that however Autonomy was accounting for revenues and profits, it would be surprising if Hp did not go into the acquisition having diligenced Autonomy with some rigour and therefore with open eyes. What did the board paper say? That would be an interesting disclosure Hp?

I believe that the key IP, or to be more accurate intangible questions to ask, are those posed in Friday’s post.  But I thought I might also try to offer Hp some free IP strategy advice.

The intangible value of Autonomy to Hp

In all of the reporting, the numbers paid and written off get different levels of reporting and it’s hard to work out what is and really was what. The facts appear to be these:

What did Hp actually pay for Autonomy? Hp paid a 64% premium to its market value on the London Stock Exchange in a deal announced on 19th August 2011, valuing Autonomy at £7bn, or $11.7bn at that time. The various reports seem to give different dollar valuations, anything from $10.1 to $12bn—but this BBC report simultaneous with the transaction being announced can be taken as accurate. We should therefore take $11.7bn as the accurate number.

What did Hp write down? On Tuesday 20th November 2012, Hp wrote down its own total value by $8.8bn, all of which it attributed to Autonomy. That took Hp’s $6.8bn profit for the period down a net loss.

Why did Hp pay such a large premium for Autonomy in the first place? I can only go back to Leo Apotheker’s statements at the time

“Autonomy represents an opportunity for HP to accelerate our vision to . . . lead a large and growing space, which is enterprise information management. If we execute this deal it will position HP as a large and growing leader in the space”.

Ignore the numbers paid, I suggest, and look at the premium. 64% above its market capitalization is a large number to pay. But then new Hp, with Autonomy, was going down the enterprise route, getting rid of its consumer focused PC and smartphone ambitions having decided, apparently, that it could not compete. Autonomy’s unstructured search capability was and still is a good and highly strategic fit with that plan and Hp paid a giant slice of its then cash reserves (over 85% by my reckoning) which at the time stood at just over $13bn. Notwithstanding the number paid, Hp was acquiring something without which it could not compete with IBM as new Hp. Autonomy was and is still recognized as the worlds’ leading unstructured search engine.

What has changed? To justify such an extraordinarily large write off, the only conclusion that can be safely reached is that the underlying reason for Hp’s purchase no longer applies. In other words, Autonomy is no longer central to what Hp is seeking to achieve. Try a football analogy, its like Liverpool paying an extravagant £35m for Andy Carroll in January 2010 and then finding he can’t fit into your playing system under the new guy only 18 months later- Liverpool can only try to sell him at a loss. In his case 1/3 of his original price—that’s actually a really good parallel now I think about it.

 Are the claims of impropriety accurate? I’m not qualified to answer and neither is the opinionated Nick White. But I’d assume that Hp would have had access to full diligence from KPMG and Apotheker today described the diligence as “meticulous”. I’m sure it was. But it misses somewhat the point—and that is that Hp was not buying Autonomy for then Autonomy, it was buying it as Autonomy was central to new Hp’s future—an impulse buy if you like. When you really want something, do you really question its price? Think of Apotheker and the Hp board, little changed from then to now, all buying iPads, price is less of a factor than how it feels to own it

What is Autonomy now worth to Hp? It’s a safe bet that the answer is a lot less than it was even before the announcement of last Tuesday. At that point, by my calculation, they still valued it at $2.9bn ($11.7-8.8). But what damage has been caused to Hp and to its own product by these claims (and did anybody think about that factor in the PR strategy).  What do you now think of Autonomy–would you use it? Value destruction by Hp’s own hand. I’ll go back again and say that, as an IP strategy house, any structured and sensible IP diligence on Autonomy would have shouted that this was not a company that relied on patents—it had gone the sensible and credible IP strategy route of protection by trade secrecy and confidentiality (ie, not telling anyone) and that had to mean that the Autonomy core team were essential to its long term success. No deal without a long term lock in—quite simple.   

And for the Autonomy team and Brand Cambridge. This is not good news for either. In Mr Lynch’s shoes I’d be thinking about protecting my reputation.

And finally, why is Larry Ellison telling a non-story? It is odd isn’t it that Ellison, Mr Oracle, would come out and state that Autonomy had put itself up for sale and was talking to Oracle. Where is the story in that? And that it met both the company and its advisers—so what? I’d consign this to the Valley taking care of one of its own.

So what is really happening here?

In my view, it’s a smokescreen.

 Hp has a lot of bad news to get out of the way– it would not want to admit to another failed large acquisition, particularly one that took up over 85% of its then cash reserves, which at the time of the purchase Leo Apotheker correctly descibed as a “critical moment for Hp” (too true Leo, and that was 18 months ago). 

And so Hp hits out at the alleged perpetrators of a fraud and that becomes the story.Not that  Hp has just recognized another very expensive but failed transition, which was approved by all of its board. It’s quite savvy PR isn’t it—and add in pulling a favour from Larry Ellison to support the impression that everyone was duped and the story grows in credibility.

None of this should not distract attention away that another reinvention is on the way at Hp.

To back up my theory, try this link. I got directed at this site by a yoga friend, apparently in the software world the saying has been going around for a long time—Hp is where software goes to die.

Free IP Strategy Advice

It is hard to hide from the fact that Hp doesn’t quite know what it is any more or where it fits into a rapidly changed world. However, I’d suggest that against our Intangibles Tree Model™, Hp has two things that give it a start:

  • A still strong and trusted brand
  • Great know how and innovation capability.

What it really needs is a direction. A clear simple “we are going that way and not diverting” direction which takes these USPs and asks where can Hp now compete?

Oh, and it needs a leader. Meg Whitman’s appointment makes everyone think it’s going consumer as a key plank—or alternatively staying and extending consumer. But every time I see Nate Archibald or Serena Van Der Woodsen using an Hp laptop on Gossip Girl, why do I think “they would never be seen dead using an Hp”. Can you compete there—it’s hard to see?

And in enterprise? Hp is so far in time and maturity behind IBM that it will take a 10 year generation to get there.  But that’s where its relationship capital at least counts for something—Hp remains a trusted business brand. In fact, Apotheker’s vision from 2010 seems, in retrospect, exactly the way that Hp should go—captured well here.  Dont be too surprised to see new new Hp start to look in the same direction as the CEO it despatched.

We did think at one point that Autonomy may be a strategic asset for both a new resurgent Hp #2 to MSFT’s consumer ambitions, covering both consumer and enterprise in a world where there is still room for one more OS. Maybe this strategy might still apply, in which case there my be some real embarrasment when the time comes to write back up that Autonomy thing Hp almost killed. Quite what will be left of Autonomy after this last two weeks is hard to say.

As a PS I’d be thinking hard if I were Hp of replacing my PR agency. For the sake of a “sorry we messed up again” alternative line, the story that wasn’t the real story has likely knocked another 1 or 2 billion dollars off Autonomy’s valuation. Very sad to see a great product trashed.

Phew. I should turn this into an analysts report!


Hp and Autonomy–I feel a blog post coming on

by Andrew Watson on 22 November 2012

It’s been a hectic few months and I’ve got out of the habit of blogging. There’s is much IP news around and some good informed debate (more of the former than the latter) but the Hp and Autonomy alleged accounting scandal caught my eye this week and seems worthy of debate. Noodling on the facts, here is what this appears to be about:

  • Hp announces it will buy Autonomy as a supposed central plank of the future strategy put forward by Leo Apotheker
  • It then disposes of Mr Apotheker, only months into his reign
  • But continues to buy Autonomy for a whopping $12bn
  • Apparently 15 different advisory firms involved in the transaction failed to spot the accounting “irregularity”–combined fees earned likely some £600-750m–anyone feeling uncomfortable?
  • And then, somewhat clumsily, loses the entire Autonomy management team (how can that be–did they think that the company would run by itself, when so much of Autonomy’s essence was its know how and trade secrecy?)
  • Then puts its own head of strategy in charge
  • And ends up 6 months later taking an $8.8bn (73%) write down against an asset acquired only 14 months beforehand.

Now that all takes some thinking through.

It is probable that Mr Apotheker’s original strategy saw Autonomy as a key asset in his strategic thinking (it would be hard to justify such a price premium otherwise) and it is also possible/probable that Autonomy’s big data solutions remained central to Hp’s strategy under the consumer focused Meg Whitman. It’s also possible/probable that withdrawing from the acquisition after Mr Apotheker’s demise would have been costly in terms of cash ( break fee and paying Autonomy’s adviser fees) and reputation (don’t ever sell to Hp, they can’t be relied on to close and change strategy like they change their underpants).

But at the heart of this are three interesting questions:

  • How was Autonomy valued? in the World of Motorola Mobile being worth $12bn to Google, Meraki being worth $1.2bn to Cisco and Instagram being worth $1bn to Facebook, true fundamental value cannot apply so one has, I think, to justify the  intangible  merger premium by a 1+1=4 logic.
  • What was the merger premium paid?
  • Was Autonomy a strategic acquisition in the first place, and if  it is no longer–does that justify the $8.8bn write down?

Mike Lynch was very impressive at the BVCA summit a few weeks ago, explaining what it takes to build a great company. I would also expect him to be a dynamic and charismatic negotiator. I’m trying to imagine the scene where he first persuades Apotheker to place a $12bn value on Autonomy, and then the scene revisted where Apotheker”s successor comes back in to say that Hp may want to change their minds. No mercy!

I’ll noodle on those three questions over the next few hours and attempt to answer them tomorrow. To this point its hard not to be more in Mike’s camp that “Hp are looking for scapegoats, and I don’t intend to be one…”.





Brands that deserve to succeed, Mr Olympic Sausage

by Andrew Watson on 25 July 2012

Thanks for the pointer to this article from the lovely Sam Funnell at ARM. Mr Olympic Sausage sounds like one of those names you come up with for your porn star name by combining the name of your first pet with your mother’s maiden name. In my case Wyn Bolton (or, with the right emphasis, Wyn,after the great Wyn “the Leap” Davies) Bolt-on. Made me laugh anyway.

But no this Mr Olympic Sausage is “a butcher in a town hosting sailing events who had to remove a sign showing the Olympic rings made from sausages.”

Now I guess I would understand if I was Coca-Cola that if I’d paid close on $1bn to sponsor the Games over 4 years, I’d be justifiably miffed if Pepsi ads were then shown all over the main stadium and David Beckham dropped his shorts, a la Niklas Bendtner, and they were advertising the other cola.

But to apply this to Mr Olympic Sausage is just silly. We all know that the Games are now so huge that sponsors need to be attracted so that they can be financially viable. Though whether they need to turn so large a profit and be surrounded by corporate smoothing does somewhat offend my sense of what they are really all about.

But where Mr Olympic Sausage is concerned, what happened to common sense, what happened to that English sense of fair play and quirkiness, what happened to Boris’ wiff waff spirit? Do we have to kill all things that make life sweet and fun and are entirely within the spirit of the Games, just so that the Games’ official sausage sponsor (even if there is one) can say with certainty that they got their money’s worth.

As a former one, I smell the work of fundamentalist lawyers. This breed is precise to 28 decimal places, shows an alarming absence of common sense or commercial sense, becomes the deal rather than just writing it down, and, worse still, charges one arm and one leg for the displeasure and has no sense of fun or joy.  And can quote word for word clause 28.1.1, sub section (ii), sub clause (b) of the 130,000 word sponsorship agreement with the Olympics sausage partner which says “No person other than the Official Sausage Partner can show, demonstrate, hint at or in any way have an association with sausages, on pain of being excruciatingly killed by having to spend 2 full weeks in a locked room full of lawyers……….” Aaaaaaaaaaaaaaaaaaaaaaargh!.

Common sense is not so common. Is it?