"It's like the opposite of the whole being bigger than the sum of the parts"The issue under discussion at Thursday morning's #tvsmc was the price range demanded for licensing intellectual property, particularly in software products, on the rumours that Microsoft is about to strike a deal with Samsung worth around $10-15 per unit for every Android device sold.
For those outside the industry that might not sound much, but it's simply massive. It's on a par with the cost of the CPU - the processor at the heart - of some low-end Android phones. Considering some lower-spec smartphones now wholesale as low as $100 - and that includes: display, mobile phone transmitter (RF) components, GPS etc - handing $10-15 to Microsoft for a Linux-based mobile phone seems quite extraordinary.
Patent holders are in a monopolistic position, and the limits to what they can charge for licensing relatively small components are not governed by normal market forces. It's a pay up or else scenario for a company like Samsung, who took-on Google's Android platform [presumably] in good faith.
The monopolistic position of patent holders leads to some strange phenomenons, and is at the heart of the very strong argument that protection of intellectual property can impede rather than promote innovation. Inflated prices can stunt the mass take-up of new technology, and keep smaller players who don't have the license bargaining power (and tit-for-tat patent portfolio) of established dominant market players.
Taking the growing list of reported patent claims against Android as just one case in point, it appears as though the value of the whole - the Android operating system - is very much less than the sum of the licensing fees claimed for just a small subset of its parts.
Software patents are threatening the market take-up of a new technology and therefore are a threat to innovation. It's hardly surprising, as change is not in the interests of those currently profiting from any monopolistic position, in software or otherwise, and innovation is change.
It also leads to some interesting accounting problems when accountants value intangibles like intellectual property. Because the market has got used to seeing inflated prices that price individual parts so highly, I believe there's a real risk that many technology companies are over-valued. This over-valuation can lead to over-leveraging (borrowing against assets), and therefore contribute to boom and bust.
How much have you insured your mp3 player for?
The sum of the whole argument also fails the common sense test when considering the way music is consumed in the digital era, i.e. without physical restrictions on the manufacture, shipping, retail and storage of physical media.
Here's the rub - if you bought each track independently, a fully-loaded 64GB digital music player would be worth £8,900 in music alone. Yet no physical resources were used (bar the very tiny amount of extra energy consumed in pushing the bytes through the network).
Now let's say you lose this, and haven't backed it up. How many insurance companies will accept a claim in excess of £9,000 for the price of a digital music played, plus content?