Chief technology officers (CTOs) in big high-tech companies increasingly view "open innovation'' as a way to get more bang from the billions of bucks they spend annually on researching and developing new products, according to a venture capitalist focused on large manufacturers of IT and telecommunications equipment.
"CTOs in major corporations recognize they need to be part of a community that is exchanging intellectual property rather than having closed walls around their R&D labs," said Andrew Garman, managing partner of New Venture Partners, in an interview Thursday.
New Ventures Partners began life in the early 1990s as an in-house venture capital arm of Lucent Technologies, taking promising ideas born in the company's Bell Labs unit and spinning them out into new, commercial ventures.
Twenty years ago, big corporate R&D (research and development) spenders felt they could develop all the technology they needed on their own, according to Garman. Very few believe that anymore, he said. Instead, many now see opportunities in a two-sided exchange that allows intellectual property (IP) for some innovative ideas to leave their labs and, equally important, for others to come in.
Sometimes, it makes more sense for a corporation to spin out a research project that doesn't fit strategically with what the business units are doing or that can't be easily turned into a marketable product or, if it can be turned into product, then one that the company would prefer to sell rather than manufacturer itself, Garman said.
Flarion Technologies a Bell Labs spin-out acquired last year by Qualcomm, is an example of company that was ahead of its time.
Flarion is the pioneer of a 4G (fourth-generation) wireless technology with the unwieldy name Flash-OFDM, or Fast Low-latency Access with Seamless Hand-off Orthogonal Frequency Division Multiplexing. OFDM can be used either to connect notebook computers of mobile users or serve as a fixed wireless access system at high speeds. The fully Internet-based technology, for instance, enables users traveling at 250 kilometers per hour to download data at speeds up to 1.5Mbps (bits per second) or upload at speeds up to 500Kbps.
"When we started with Flarion in the late '90s, the company was literally a single researcher who believed the existing mobile infrastructure, which is optimized for voice communications, would remain sub-optimal in a world in which traffic would be dominated by data," Garman said. "He was talking about 4G at a time when 3G was still not off the ground."
Lucent decided it was too early to move on this technology and allowed Bell Labs to spin out its Flash-OFDM activities. Qualcomm turned around and bought the Flarion startup for about US$600 million, plus an extra US$205 million or so if certain goals are met over the next few years. The acquisition sets up a powerful competitor to the emerging mobile WiMax technology and its deep-pocketed proponents, such as Intel.
New Partner Ventures has since become an independent company, winning several big technology companies as customers, including BT Group and Koninklijke Philips Electronics.
In April, the venture capitalist company helped Philips commercialize the Dutch manufacturer's electrowetting display technology through the spin-out, Liquavista BV.
Electrowetting technology can be used to make displays that are extremely bright and energy-efficient -- two critical features for portable devices, such as mobile phones, MP3 players and cameras. It uses electronic currents to manipulate colored oil and water in a tiny cell to create full-color displays that are six times brighter than an LCD (liquid crystal display).
Electrowetting, said Garman, is an example of a technology Philips would like to see others use to manufacturer components that the Dutch electronics giant could later purchase for some of its products.
Garman referred to Microsoft's IP Venture program, which licenses technology collecting dust in the US software giants labs, as "indicative of the trend toward open innovation."