white paper - mitigating risk with ip analysis - virtual reality

Mitigating Risk with IP Analysis

Through the Lens of Virtual Reality

2016

Table of Contents

Introduction: Fad or game changer? 3

Competing in a new tech space: sizing up the market 4

Staying relevant in a rapidly changing world 6

Start-ups as pioneers of the future 9

Using IP analysis to pursue lean product development 12

Mitigating risk through growth 14

Conclusion 17

Is VR the next big thing? Consultants at Deloitte predict that virtual reality will have its first billion dollar year in 2016, with around $700 million coming from hardware sales and the remainder from content.1 Meanwhile, research firm CCS Insight predicts the number of virtual reality devices sold will grow from 2.5 million last year to over 24 million in 2018, with smartphone-based devices representing the majority.2 The virtual reality (VR) market is segmented in a number of ways, depending on the type of experience and the way in which it is delivered. Pure virtual reality involves taking the user into a fabricated world for an immersive experience; augmented reality involves overlaying data and visuals on top of the real world view. There are dedicated VR devices, as well as those that rely on smartphones to deliver the content. Who’s shaping up the market? The most widespread application for pure virtual reality remains in gaming. Sony is set to release the Sony VR Playstation later this year3; and Microsoft is set to follow with a VR video game console scheduled for the holiday season next year.4 Also this year, many vendors have been keen to catapult virtual reality into the mainstream – to the extent that Samsung gave away a Gear VR headset free with every pre-order for its new flagship Galaxy S7 phone at the 2016 Mobile World Congress event in Barcelona. They also launched the Gear 360 virtual reality camera, so that users can create their own immersive content. Smartphone vendors see VR as a way to bolster their business with a lucrative new revenue stream, as revenue growth from handsets comes under pressure. Meanwhile, HTC Vive announced last month a $10 billion venture capital alliance to mark the crossover from R&D phases into mass market adoption.5 The HTC Vive VR headset was launched in April 2016. Other players include DAQRI LLC, with its smart helmet for industrial applications; Vuzix, who focus on smart glasses; and, of course, Google with its Google Cardboard.

© 2016 All Rights Reserved 3

1 http://www2.deloitte.com/global/en/pages/technology-media-and-telecommunications/articles/tmt-pred16-media-virtual-reality-billion-dollar-niche.html 2 http://www.ccsinsight.com/press/company-news/2251-augmented-and-virtual-reality-devices-to-become-a-4-billion-plus-business-in-three-years 3 http://finance.yahoo.com/news/sony-bets-video-games-virtual-221710423.html 4 http://fortune.com/2016/06/13/microsoft-project-scorpio-gaming-console-virtual-reality/ 5 https://techcrunch.com/2016/06/29/htc-vive-announces-10-billion-vr-venture-capital-alliance/

Introduction: Fad or a game changer?

Evaluate the market direction

There is admittedly a lot of risk attached to entering a new hi-tech market. On the one hand, there are internal risks to be evaluated and managed: will the product work effectively and without fault; is the project being resourced properly, and is it adhering to the budget? What’s far more difficult to evaluate are the risks associated with commercially launching a new product in an emerging technology sector. If we take virtual reality, for example, we know already that the first wave of headsets flopped in the market. From a patent perspective, we can see that filing activity reached a peak in 2002, a volume which was not surpassed again until ten years later, as wave 2 began to ramp up.


Competing in a new tech space: sizing up the market

It is noteworthy that between wave 1 and wave 2, the volume of patenting activity remains fairly robust, never dropping under 2,000. This is very different behaviour from a fading technology – for example, if we were to compare the trend for VCR, we’d see that after a 56% drop in the year 2000, activity gradually dwindles, never to recover. This continued commitment during an extended period of slack shows that market players continued to back the technology, even though an optimum application had yet to be found. It is an important factor for organizations deciding whether to continue with a specific technology or prioritise something else.

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Total yearly number of patents with term ‘virtual reality’ and annual change

Source: PatSnap Insights

Related technologies

There are further clues in the data about market direction when related technologies are taken into account, which could give a different indication of the risk associated with the technology area. For example, in the case of virtual reality, if we add ‘augmented reality’ into the terminology searched, we gain an even more positive picture.


Competing in a new tech space: sizing up the market

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The total yearly number of patents including the terms ‘virtual reality’ and ‘augmented reality’ shows ‘augmented reality’ grows more rapidly

The higher growth rate for augmented reality is likely due to some of the wider applications associated with this technology, which takes it far beyond the main application of virtual reality, which is primarily entertainment and gaming. In the augmented world, there is the opportunity to develop a wide range of experiences that could enhance or change how we experience the world around us. This requires a more detailed understanding of the areas and industry verticals in which it could be used, and how the real world and digital worlds could be merged.


Seeking vertical solutions So, when we look at the various industry sectors, it is no surprise to see that entertainment is the main area for filing activity in terms of virtual and augmented reality. VR entertainment will be found in social media, television, film and of course gaming. Healthcare represents just over one-quarter of activity in this space. Within the sector, there are many training applications, such as a simulated surgery, where life threatening procedures can be practised. For patients, there are opportunities to pursue therapies, such as treating phobias in controlled environments. In the automotive sector, which accounts for 18% of activity, much attention has been paid to the virtual reality showroom, which vendors hope will revolutionize the sales experience for the customer, with features such as virtual reality test drives.


6 https://techcrunch.com/2016/01/23/when-virtual-reality-meets-education/

Staying relevant in a rapidly changing world

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Entertainment Healthcare

Automotive Education

Other

Education represents 10% of activity – although in this category, there is much cross-over into other activities, such as training or educational games, so this figure under represents total educative applications. As an article in Tech Crunch points out, much of the focus in terms of school-based learning has been on hard sciences, such as biology or astronomy, or for virtually visiting locations, such as historic or natural sites. In this space, a number of companies dedicated to solutions solely for school education have emerged, including zSpace, Alchemy VR and Immersive VR Education.6

Share of IP by industry vertical


We are evolving. Companies need to evolve with us.

The vertical, sector-by-sector perspective drives home the fact that new technologies can fundamentally impact different industries in ways that might be unanticipated, so it is important to understand and take into account the impact of these wider applications.

For example, if we look at the share of IP among the different vendors in the virtual and augmented reality space, we can see that Sony has decreased, while we see an increase from Microsoft, Samsung and Google.



Sony’s attention is, of course, on the Playstation VR, and new ways of delivering both gaming and entertainment content to consumers, which reflects the constant need to provide consumers with lively, new experiences.

Meanwhile, Microsoft with its HoloLens solution, has an interest in both enterprise as well as consumer applications, and is more interested in what it terms ‘mixed reality,’ which enables users to interact with holograms superimposed on top of the real world – essentially a form of augmented reality under our definition.

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Google Microsoft Samsung Sony Siemens

Share of IP by vendor, by year




This could explain Microsoft’s gain in share of patenting in this area compared to Sony. Of course, this is a strategic decision for both organizations involved, but in terms of risk for new entrants into the market, the data suggest that the wider use cases exist in augmented, rather than pure virtual reality, and the competitive landscape will vary according to which of these areas is pursued. For the established players, from a risk perspective, there’s always the danger that new entrants pursuing new technologies or uses could cause significant disruption. Particularly because large organizations do not want to disrupt their own revenue streams and pricing models, and therefore need to balance the risks of new technologies very carefully against the potential gains - particularly those that require a change in strategy. Therefore, if Microsoft is pursuing the wider enterprise applications market with its form of virtual reality, it will want to keep a very close eye indeed on entrants into the augmented reality space.

The disruptive factor As larger organisations can be slower to gain momentum in new technology areas due to the reasons discussed, it gives the chance, of course, for start-ups and new entrants to take full advantage. The difference in approach between large organizations and new-entrants will be evident in their strategy for IP. One method for evaluating these differences is to use a radar map which compares the relative strengths of competing vendors in different areas of IP strategy. Criteria by which strategy could be measured might include rates of growth, or certain quality measurements, as detailed below:


Start-ups as pioneers of the future

Quantity growth How quickly the portfolio is growing

Joint R&D Levels of co-patenting

Internationalisation Degree to which an organization's inventors engage in collaborative R&D with inventors outside the home economy

Tech diversification Number of complex patents covering multiple fields

Tech specialisation Degree to which a portfolio is concentrated in a specific field

Market driven R&D: Speed in turning leading edge technology into IP

Science-driven R&D Share of patents with scientific content

Quality improvement Measuring how often patents in the portfolio are cited by others

Table: possible metrics to consider for measuring IP strategy strengths

Radar maps highlight different strategies

In the charts opposite, it is clear that large corporations can command a wider strategy footprint. Meanwhile, newcomers begin by excelling in just a couple specific strategy areas. If we take Oculus, on the bottom chart, for example, we can see that quality improvement, tech specialisation and joint R&D have formed three of the most important aspects of its IP strategy. Magic Leap is also high on joint R&D, but places more emphasis on growth of portfolio rather than improvement.



The radar map shows how established large enterprises have the agility to focus more of their development efforts on science-driven R&D and internationalisation in comparison to smaller companies.

Having deeper pockets and access to more resources, such as researchers and facilities, they are able to push their research efforts on a global scale using cutting edge equipment. Comparatively, up and coming teams like Magic Leap and Oculus have traditionally been required to prioritise their resources to ensure efficient innovation from a commercialisation perspective.

Science-driven R&D

Inter- nationalisation

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Quantity Improvement Joint R&D

Tech diversification

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Market driven R&D

Science-driven R&D

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Quantity Improvement Joint R&D

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Established large corporations

Newly emerged players

Virtual reality strategies compared


The right strategy creates the big break

Returning to Oculus for a moment, we saw that it scores highly for quality improvement criteria. This means it has some highly influential IP in the industry, which always would have made it an attractive target for suitors – which of course was exemplified with the Facebook acquisition announced in March 2014.



Meanwhile, Magic Leap has focused on growing the total size of its portfolio in the space. Jaunt, who devised their VR cinematic creation concept in 2013, on the other hand, has the greatest focus on market driven R&D and technology diversification. Although it’s only a small volume of patents to analyse, it shows that these steps generally come before science-driven R&D or internationalisation. All of the examples show that IP needs to approached strategically and, for a growing area such as VR, different approaches can be taken to mitigate risk.

Oculus’ patent USD701206S1, published March 2014, has been cited a further 26 times, including by Samsung, Microsoft, Google, Rangevideo and Mergelabs

Fail faster theory

All organizations are striving to foster an environment of more efficient innovation. However, it is a resource intensive exercise. Smaller organizations, in particular, have greater restraints on resources and therefore need to be careful about what to prioritise and when.

It is pertinent to VR due to its volatile nature – there has already, of course, been one failed attempt to drive the technology into the mainstream. For smaller organizations, who may rely solely on one technology, this could be the difference between boom or bust. It is therefore important to identify the most likely areas of success, while not reducing the ability to pursue continuous innovation.

One way in which aggregated IP analysis can help is through the use of landscaping in order to answer questions such as how saturated a particular area of innovation is, whether there are technologies that threaten the plan, whether it is an area of risk from a litigation perspective, or whether it is an area in which funding is available.

In practice

Let’s take an example. The landscape below shows the virtual reality IP landscape, with two provisional projects plotted onto the landscape:


Using IP analysis to pursue lean product development

Two proposed projects could fall within two very different types of IP landscape

Source: PatSnap

How the landscape determines strategy The landscape shows that one project (marked by the blue triangle) sits in a densely populated area, which suggests that a higher risk of infringement exists. This is in stark contrast to the second project (green triangle) which is placed in an open valley. At this point, research can concentrate on understanding the genetics of the surrounding technologies to comprehend the level of opportunity. One of the advantages of developing in a saturated area is knowing that it is likely to be a safe investment in terms of demand. However, there is a far greater need to be careful not to infringe. On the other hand, whilst white space offers opportunity it also may be more risky as it suggests that the area is new or demand might be low. The real strength of the landscape is that it enables research teams who have expert knowledge of a technology space to build a bridge between the IP threats and their research field. So, if a research team is able to identify a white space that they believe has technical potential, then that is a huge opportunity for the business that might not otherwise have been realised. Speeding up innovation It is essential to understand the associated IP risks and opportunities during the ideation phase of the product development process to ensure that resources are directed appropriately and towards the right projects. By identifying potential obstacles early on, R&D teams can continue with only those projects that are commercially viable, which in turn will speed up time to market and increase take-up rate. This will also help smaller organizations to ramp up IP strategy in the various different areas as described on the radar map – assisting in the transition from a quality/improvement and market driven approach a much larger IP strategy footprint as witnessed in large established enterprises.


Using IP analysis to pursue lean product development

Avoid wasting resource by targeting the right areas

Once an organisation has established itself in a market, it is a good time to be thinking about how to maintain portfolio growth whilst keeping innovation efficient. Rather than having to look for completely new spaces in which to develop, it is important to understand what other technologies are being pursued in the near vicinity of your current technologies. In this way, the risk of wasting budget on patents that will later be abandoned can be reduced.

Again, a landscape of IP will help to identify these opportunities. The landscape below shows Microsoft’s VR patent portfolio in red, overlaid with technologies that have been patented in 2016 that have been classified in the same technology space.


Mitigating risk through growth

This provides two key insights. First, new technologies can be identified that could complement the current portfolio. Second, new technologies that may be infringing on Microsoft’s patents can be taken into consideration.

It is also a great way to identify not only collaboration partners, but also acquisition targets.

Plotting where new IP from competitors is falling enables a thorough understanding of an emerging competitive landscape

Source: PatSnap

Minimising risk through acquisition

Acquisitions are an effective means of expanding an organisation’s portfolio, opening up the field of play quickly for an R&D team. Bringing in complementary technologies not only saves time, as teams do not need to go through the entire product development process, but on most occasions will also save money and generate new revenue for the business because investing in existing projects minimises the risk of the product not reaching the market.

If we consider the VR area, we can see how organisations appear to have spread their risk between what may be stickier technologies versus higher value technologies.



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Spreading risk with acquisitions in low volume, high value and high volume, low value areas

Sony/Samsung acquisition activity

Source: PatSnap



The bars on the previous chart represent the key areas of patenting activity in the virtual reality space, plotted against the purple line which represents the average value of virtual reality patents within those fields. This gives further indication as to the return on investment of an acquisition within a specific technology space, and we can see evidence of acquisition activity (blue circles) by Sony and Samsung. It appears that there is an acquisition balance between high patenting-low value and low patenting-high value areas, which demonstrates that Sony and Samsung might be spreading their risk.


Conclusion

Mitigating risk with IP analysis

There are a number of methodologies for approaching IP data in order to understand how to best mitigate risk in a rapidly evolving area:

• Identify the technologies involved, related technologies and how technologies relate to specific verticals. The segmented vertical view is important • Evaluate areas where innovation is growing and which segments specifically are demonstrating growth, using the segmented view to prioritise specific opportunities • Identify who is active in these areas and compare their approach in terms of technology and strategy • Keep track of new entrants and new patents emerging in the landscape where you are active to protect the future product road map and stay ahead of the competition • Use the landscape methodology to pursue a fail faster strategy • Discover who is in the white spaces to determine levels of risk and opportunity • Find out who is acquiring which technologies

By following these steps, it is possible to pursue efficient R&D with lower levels of risk attached.

About PatSnap PatSnap is the leading provider of Intellectual Property Analytics, for analysing tech trends, driving innovation, market planning, competitor intelligence and maximising return on IP assets. Founded in 2007, PatSnap is used by of R&D, business and IP professionals in thousands of commercial and not-for-profit organisations globally, including NASA, the Department of Defense, China Mobile, Goodyear and Vodafone. With a database of over 113 million patents, augmented by economic, legal and company data, we use proprietary machine learning technology to make IP work for all, including those with no IP experience. We have offices in London, Singapore and China. Find out more: www.patsnap.com

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