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The 2014 debut of Apple’s iWatch and the release of the Google Glass computing eyewear the prior year stamped both tech giants as leading innovators of wearables. Except that neither Apple ( AAPL ) nor Google parent Alphabet ( GOOGL ) is actually the leading innovator in wearables. Microsoft ( MSFT ) is. At least, Microsoft is No. 1 worldwide when looking at patents for wearable-related technology, according to LexInnova, a patents-consulting firm. Microsoft has 757 wearables patent filings, Rana Pratap, LexInnova’s principal consultant for technology, told IBD. At least 53 filings are directly related to wrist devices. Another 13 are related to eyewear. Netherlands-based Philips ( PHG ) is right behind in wearables-related intellectual property, with 756 wearables patents and patent applications. Alphabet, parent of Google, has 602 to place at No. 3, and the patent numbers drop off precipitously from there, says LexInnova, which recently researched the topic . Apple, for instance, has only 197 filings, says LexInnova. Wearables startup Fitbit ( FIT ) has 192 filings. That is a good bit of patent activity, but then again, this market is already generating a good bit of revenue. “We estimate the wearables market at $8.9 billion in wholesale device revenue in 2015,” Cliff Raskind, an analyst for market research firm Strategy Analytics, told IBD. While some of Microsoft’s wearables portfolio is getting old — U.S. patents last no more than 20 years — Pratap says that, collectively, the patents remain strong. So, Microsoft’s wearables patent portfolio doesn’t just have quantity, but also quality. LexInnova uses a proprietary algorithm involving about 50 factors, including patent age, the number of times a patent has been cited in other companies’ patent filings, and court rejection of challenges to a patent, to judge the quality of patent portfolios, Pratap explains. Without giving details, he said Microsoft’s is strong. What Are Microsoft’s Plans For Wearables? But the ramifications of Microsoft’s wearables-patent activity are unclear. Satya Nadella, who was promoted to Microsoft CEO two years ago, is focused on companywide strategies designed to recharge Microsoft’s growth. Microsoft, like any company, could develop products based on its patents, license its patents or both. The company last month disclosed that it has signed 1,200 licensing agreements of all kinds since launching its IP licensing program in December 2003. One of the most recent agreements involved licensing wearables-related technology to Olio Devices, a niche watchmaker. “Maybe Microsoft has been watching what Google’s doing (with technology licenses) and longingly remembering their big (operating system) licensing days,” said Raskind. “That could be where they are going with the Olio deal.” Pratap says 700 of Microsoft’s wearables patents are based on Microsoft’s own research. “According to our analysis, 49 patents and applications (were) acquired from Tangis,” he said. Microsoft acquired another seven from Osterhout Group and one was acquired from Antenova. So what, if anything, is Microsoft planning in wearables? “I’m not necessarily watching for a Microsoft wearables pop-up retail store next Christmas,” said Amy Webb, founder of technology forecasting and strategy consulting firm Webbmedia Group. Webb and others say there are more lucrative, near-term markets for wearables for Microsoft to exploit with its portfolio. More on that in a moment… Microsoft’s intellectual-property cache might surprise some. The company sells only one internally developed wearable product, the Band 2 fitness tracker bracelet, and executives say they will begin selling eyewear called HoloLens by April. Plus, executives rarely discuss Microsoft’s large overall patent portfolio. Indeed, Microsoft declined to comment for this story. “Whenever we do a patent analysis like this, we find that the biggest (technology) companies in a sector have the most patent filings,” Pratap said, thanks to their often large research-and-development units. R&D spending by Microsoft has been gradually rising since 2010, reaching $12 billion in 2015, according to market-statistics firm Statista. Pratap points out that Microsoft’s wearables portfolio began before it had a wearables product line. The earliest relevant patents resulted from other research projects. Over time, these innovations were recognized as addressing the new wearables market. This is common for tech and manufacturing companies, he says. Microsoft Tech Licenses Built Its Business Like all successful technology innovators, Microsoft has much experience — good and bad — with developing products and licensing technology. The company’s first hits were the MS-DOS and Window operating systems, both of which were licensed so extensively that Microsoft endured years of antitrust lawsuits in the U.S. and Europe. There have been notable failures, too. Microsoft intellectual property was used to develop the firm’s Zune digital music hardware. Microsoft also licensed Zune technology. Neither approach could save the entertainment player, which was discontinued last fall. Webb says developing products and licensing technology each have advantages and disadvantages. Licensing intellectual property typically brings modest, low-risk and ongoing revenue. A disadvantage of licensing is that it can put the licensee in the background when the technology succeeds in someone else’s product. Development costs more compared with licensing and puts any failure in a company’s lap. But the potential revenue upside is far larger, and the company is tied visibly to market success. While Webb says she has not had any contact with Microsoft regarding wearables, she feels the company is not likely to focus its related intellectual property solely or even primarily on consumer goods like fitness trackers. She said the most immediate market is for business-to-business applications (as was the case for MS-DOS), and what she calls “B-to-D” — business-to-doctor. Health-monitoring and diagnostic roles for wearables are growing today, and they should continue to expand as medical wearables become small, inexpensive and sophisticated, Webb said. But rival Apple is making an aggressive bid to invade health care with mobile devices, including the iWatch, and HealthKit, the company’s software platform for health-related applications. According to Black Book Market Research, almost 70% of physicians using medical apps do so on iPhones . That is a size-14 foot in the door for Apple. Webb says the promise of significant new revenue and the need to keep Apple at bay are likely to persuade Nadella to sift Microsoft’s patent portfolio for related innovations. Scalper1 News
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