MP3 patent spat

Talking of Steve Jobs and his creations, there seems to be trouble brewing in the general direction of MP3 players. Patent suits are an unfortunate side effect of the technology industry. Companies need patents to protect their IP, but they rarely go suing other companies on the basis of their patents unless they are in serious danger of losing business or there is huge potential for a good return. The latter seems to be the case in Alcatel-Lucent's suit against Microsoft. It looks like Microsoft may have to shell out $1.52B if the ruling holds. Apple Insider discusses the impact of this for Apple, and its not pretty. Here is one case where Apple must be hoping Microsoft wins the fight ;-) Technology does indeed make for strange bedfellows. It will be interesting to see how this one turns out. Success does breed a lot of enemies. Apple has succeeded in winning many difficult cases and it will be fun to see how this one turns out, if indeed there is a lawsuit.

Disneyland of Technology ?

Yes, that's how Jean Louis Gassee describes Silicon Valley. CNET covers SFMOMA's candid videos from Valley survivors. The stories ring true and are touching and funny. Of course, they represent only a small cross section. When powerful ambition, money and technology collide some amazing things come out of it. The stories in the videos expose some of the ambition and the heartache. What they don't capture is the pace at which change occurs here. Who says you can't time the market ? There are many extremely successful people in the valley who got there by doing exactly that. Of course, as I discussed last week, you could attribute that to karma :-) But, then there are the true legends like Steve Jobs or Larry Ellison who truly deserve the success they have earned, simply because they have sustained it over very long periods of time. They have transformed their passion into world changing technology and reaped the rewards, again and again. I am sure they will not be the last and that's what makes the Valley the Disneyland of technology.

The Valley Casino

The Mercury News has been discussing the windfall from YouTube's acquisition by Google. The disclosures show how far and wide the impact of the Valley's wealth creation goes. The beneficiaries include YouTube employees from the founders to admins, VCs (of course), but also some interesting others like Maury Povich and Forrest Sawyer. These articles are interesting in that they provide a glimpse of some of the people who get to invest in VC funds and startups like YouTube. I also liked the comparison of the valley to a giant casino with the acquisitions and IPOs playing the role of payouts at the slot machines. To be certain, wealth is created and shared in an extraordinarily egalitarian way in the Valley. But, most people outside the Valley do not see the excitement of the innovation happening here and the risk taking. They do not see the many startups that fail and the entrepreneurs who pick themselves up and go at it again. They do see the results of the innovation in the many end products which many use all over the world. There is some element of luck in who makes it and who does not, but I would call it karma more than luck :-)

Turning deserts into forests ?

The title of the talk was "Building a company that can turn deserts into forests". Coupled with the offer of a wine tasting and hors d'oeuvres at the upscale Fremont Hills Country club, free to MIT alum, this was an offer I could not refuse. Yesterday's (February 8th) event was hosted by ACG (Association for Corporate Growth) Silicon Valley. ACG is a venerable organization founded in 1954 and the Silicon Valley chapter is focused on helping small and midsize valley companies grow with contacts, ideas, training and networking. The speaker for the event was Hans Peter Michelet, Chairman of the Board of Energy Recovery, Inc. (ERI), and the talk was moderated by Sramana Mitra, an entrepreneur and MIT alum herself. ERI's product, the PX Pressure exchanger is a ceramics based reverse osmosis system (as opposed to thermal/evaporation), which claims energy efficient desalination to provide drinking water from desalination of salt water at rates cheaper than we buy water in California. HP claimed that 20% of the energy consumption in California is from pumping water.

ERI's primary customers (97%) are outside the US, though many are US companies doing business abroad. The largest deployments are in Spain with 23 large desalination plants and ERI claims to have 90% of the Chinese market. The sales are however very long cycle - 4 years or more.

There are major areas worldwide which have very serious water supply problems. In Chennai, India, the city gets water trucked to homes and businesses, to cover for shortage. Of course, countries like Saudi Arabia have very large water needs which are satisfied today by evaporation based systems. In California, where we depend on water from the Sierra, if the global warming predictions come true, we may be in need of water too. In years where we have low rainfall, we have water supply and usage regulated.

So, clearly, clean water is a worldwide problem and a more urgent problem in some areas than in others. ERI claims to have a lock on their technology with patents and sees large growth opportunities worldwide. Overall, a very interesting evening and talk. Sramana Mitra has a much more detailed a multipart write up of the talk on her blog.

Happy (IPO) Days are here again ?

One is led to believe that happy IPO days are back again, if one were to take a look at what Accuray Inc. of Sunnyvale, CA did yesterday and today. They make the CyberKnife a non-invasive robotic radiosurgery system to treat tumors in the body. They claim sub-millimeter accuracy ! Accuray (ARAY) priced their IPO at $18 at the high end of the range. The stock opened at $21 today (2/8/07) and closed at $28.47, up over $10 (58% for the day), giving the company a market cap of over $1.5B. Heady stuff ! Reminiscent of the heydays of the valley in 1999 and 2000. Of course, one swallow does not make a summer. But, coupled with the rise of ISRG , indications are that the biomedical space may show hot growth for Silicon Valley, as I discussed in my Feb 4th posting. The opinions of the CSPA VC panel that 2007 could be a good year for the IPO market (see my Jan 24th posting) seem to be heading in the right direction too, if ARAY is an indicator.

Earthquakes and the Bay Area

When we think of Silicon Valley, we usually think of technology and the latest and greatest. We do not usually dwell on the great weather or the fruit orchards of the past, left as fruit trees in our backyards. We also consciously avoid thinking about the earthquakes the Bay Area and the Valley have experienced. In my twelve plus years in the Valley, I have been fortunate to only have experienced a few minor ones. But, today's article in the SJ Mercury News on the estimated magnitude of the big quake of 1868 on the Hayward fault, reminds us that it should never be too far from our thoughts, at least in terms of being prepared. The column notes that there is a 27 percent chance that a 6.7 or higher magnitude quake will occur by 2032. But, this hardly tells us when one will occur or how devastating it can be. In the first few years in the Bay Area you tend to worry about it, but after a while it becomes apparent that quakes occur in Seattle, the Northeastern US, in India (remember the deadly one in Gujarat?), Mexico and many other places in the world. But, sometimes out of morbid curiosity one tends to check out the USGS earthquake maps for California. These are really great. Actually, the USGS Earthquake center shows earthquakes from all over the world and region by region with exact times and magnitudes. They are cool to see on the map, but we hope that we never have to deal with a big quake.

Biomedical technology and Silicon Valley

On Thursday, Jan 31st, I attended a seminar on Biomedical Technology hosted by Silicon Valley Technical Institute. The instructor was Dr. Sudhi Gautam, an ex-ENT surgeon with a PhD in Engineering from the Indian Institute of Technology. For a layman in biomedical technology like me, it was an eye-opener. Overall, a most excellent introduction to biomedical technology.

To begin with, I did not know the difference between biotechnology and biomedical engineering (not to be confused with bioengineering). It turns out that biotechnology is best defined as the technology concerned with manipulation of living cells and is most related to biology. Biomedical engineering is at the convergence of technology, medicine and biology and is focused on developing medical devices and systems. Bioengineering is concerned with modification animal and plant cells by manipulating their genetic and cellular properties. So similar sounding names, with very different meanings. Furthermore, the regulatory approval process in the United States is dramatically different for biotechnology compared to biomedical devices.

Biomedical devices are classified based on their level of risk application and impact, and in the low risk devices can be approved anywhere from 90 days to 3 years. Biotechnology applications, especially where they have therapeutic applications go through the same cycle of approvals and clinical trial as pharmaceutical drugs and can generally take anywhere from 4 to 7 years or more to get approved. Some of the higher risk biomedical devices like pacemakers and robotic surgery machines like those from Intuitive Surgical can also take as long to be approved by the US regulatory bodies.

Where it gets very interesting is in that biomedical engineering, because of its intersection between engineering and medicine, has a great deal of relevance to Silicon Valley. Even with all the advances in medicine today, the gap between medicine and technology outside of medicine is huge. This makes the health care system very inefficient. This triggers the opportunity, which is so characteristic of others, which Silicon Valley exploits best, with its mix of capital, technology and entrepreneurship. California has close to 2600 biomedical companies, with over 700 in the Bay Area alone. Silicon Valley appears to be the biggest hub for biomedical technology, followed by Orange County, Minneapolis and the Northeastern US. Many of the Bay Area companies are spinoffs from Stanford, UC Berkeley and UCSF. The estimate is that 50% of the world’s biotech and biomedical companies are in the US and a very high percentage of them are in California. US biomedical devices are valued worldwide due to the rigorous approval process and quality requirements they are subjected to. These devices require a significant amount of engineering design and and in many cases have significant semiconductor content. Where the devices are endorsed by Medicare or the insurance companies for use by their patients, the volume can also be considerable at pretty good margins.

The latest biomedical device company in the news is Intuitive Surgical (mentioned earlier) of Sunnyvale, CA. They make the robotic surgery machines, called the da Vinci surgical system. These are approved only for three or four types of surgical procedures in the US (they are seeking approval for more types of procedures), but are still in hot demand in India and other countries. The latest rumor is that their machines have been approved for hysterectomies by the US regulatory bodies. This may account for the fact that their stock (ISRG) surged over 17% on Friday, February 2nd alone and is up close to 50% in less than a month.

So, following semiconductors, computers, the Internet, the iPod and iPhone, we have a lineup of alternative energy, biotech and biomedical products to supply the world. These are exciting times indeed for Silicon Valley.

Alternative energy and Silicon Valley

Friday, February 2nd, 2007, was big news day in the global warming story. A group of international scientists concluded that global warming had a 90% chance of being caused by humans. I wonder why they don't come right out and say it is our fault. I guess the last 10% is always the most difficult. :-) In any case, by a strange coincidence, Al Gore (he of "An Inconvenient Truth" fame) spoke yesterday at the 2007 State of the Valley conference on the Valley's role in saving the world again. Many of the same players are back again. VC's like John Doerr, entrepreneurs like TJ Rodgers, and even Al Gore. Matt Marshall talks about some entrepreneurs like Marc Porat who have been there and done that, who are back again with not one, but three green building companies. A lot of startups will seek money, many will be funded and some may even cash out. Clearly, its deja vu all over again, as Yogi Berra would have it. But, this time there is a difference, in addition to making money, the entrepreneurs will have a feel good feeling that they are genuinely in it to save the world, not to mention the Bay Area. Not a moment too soon, either. I saw projections in the news which would put San Francisco International airport and significant portions of the reclaimed land in the Bay Area underwater in a few decades if global warming causes sea levels to go up significantly.

Beyond Web 2.0 ?

I had barely caught up with Web 2.0 to find its already passe ! Today's SJ Mercury News has coverage of the DEMO conference by Dean Takahashi, (one of the journalists who can tell you the most about technology and Silicon Valley). He defines Web 2.0 as the world of blogs and podcasts and describes beyond that as sharing " our own books, photo albums, greeting cards and movies" online. He goes on to talk about companies like Ink2, OurStory, SharedBook and others which would entice us to go beyond Web 2.0. Somehow I see ghosts of 2000 in this scenario, but maybe its because I was too close to the bust :-) But, Dean also seems skeptical about the ability of these companies to get us past our own inertia and share so much of ourselves. But, if YouTube can generate so much user generated content, maybe there is hope, and big buyouts, for more Silicon Valley companies, after all. For further coverage of the DEMO conference you can catch Dean's blog.

Speaking of the Internet, the other interesting item in the Mercury News today was how Al Gore has become a Valley guy. My last direct sighting of Al Gore was when he spoke at our convocation in 1996 and the MIT Hackers played Buzzword Bingo with his speech. But, he clearly has the last laugh now, with his movie an Academy Award nominee, and close ties to Apple and Google, arguably two of the best technology companies in the world. Maybe I'll see him again one of these days, in Cupertino too.