Kumar, re Echelon Royalty Game and Gorilla Formation.
I think you understood what I wrote, problem is I didn't express myself properly and what I wrote didn't really address your concerns. Thanks for your post. It made me focus, get this out and write it down for once and for all.
let me preface my comments by stating that I do not think that Echelon is a gorilla.....yet. I think you all can recognize by now how I feel about this company. I am long this stock. Doesn't mean that I'll never trade it though, since I've found it best to trade stocks that I hold long positions in and have owned for some time. Impatient trading magnifies risk exponentially and if I'm going to do it, it?s going be outside of my core holding, and it's going to be with a stock who's "behaviour" is somewhat familiar to me....my rationale for giving myself at least a fighting chance in what is a super risky business. I am not encouraging trading and I have not yet found it in my heart to short the stock...maybe one day it'll fit my risk profile and strategy, not now, not yet. Now I know you never asked for all that so lets get down to bizniz.
you wrote:
1.Lontalk (the protocol) is IPR without fees/royalty (ie free).
careful here...this is really the crux of the issue. It is licensed without fees or royalties. The LonTalk protocol is free ie. it costs nothing, but the licensing of the Lontalk Protocol is controlled by Echelon. Period. Herein lies the power of open, proprietary architecture. Now this may lead to all sorts of lawsuits down the road, for with power comes the responsibility to use that power responsibly and the definition of that word...well let's worry about that later, please g-d it should happen to Echelon.....say in about 15 years time maybe. <ggg>
I think you know enough about the game or should I go on. What the h*ll...you know me.<gg> (see trfm p.1-500) <gg>
LonTalk Protocol Patent License Agreement: 12 page pdf. Been told that Echelon?s lawyers are ?tops? search.echelon.com
2. LonWorks products that utilize Lontalk are not free. Correct. They are ahead of the competition, they contain key IP protected elements that turn LonTalk on, (thanks Ruffian), and currently, they optimize implementation of the protocol.
3. there is nothing stopping XYZ company from using Lontalk to make their own "Lonworks competing product(s)" see point 1. above. Theoretically possible, also theoretically impossible depending on which side of the contract you stand.
In practical terms, probably possible at some point, I really don't know, but they could not make something that turns LonTalk on without Echelon collecting. I understand that "non Echelon Lonworks products? already exist, in the sense that there are products, made by Licensed companies, that perform very limited tasks. My understanding, but I am not sure of this, is that these are very small very application specific products mostly software orientated. I have enough faith in management to believe that if they are allowing these products, be they hardware or software, then they must not be a threat to Echelon's core competency.
4. Echelon has "time to market" advantage because of their knowledge of Lontalk better than others (today) Correct. see additional notes below, when you get there.
5. Is the current "knowledge of Lontalk" by Echelon the only reason they are able to establish a value chain ? No, they have the power to License the LonTalk protocol.
It is not the ability to create a value chain that is important, every successful company does that, part of a gorilla's power comes from the fact that not only does it control the value chain, but that the value chain wants to be controlled. Gorilla?s control via architecture, which it licenses as it sees fit, in line with company goals of establishing a de facto Std.
6. what if tomorrow (or 5 years later) the value chain competes with Echelon in developing competing products, because by then they too would be skilled in the Lontalk protocol ? Echelon could revoke their LonTalk License, but probably not without a fight. You failed to take note of this sentence >> Moore points out many reasons why companies like to buy from sector leaders, and these I believe will be applicable to Echelon should there be a tornado in LonWorld. This I imagine would prevent elon from becoming just a royalty play.<< Also, as the gorilla matures, the game is on to perhaps design out a company that was once a staunch supporter, it is a delicate and intricate war.
Should a LonTalk tornado develop I believe that the market will standardize on LonWorks, from Echelon, the LonTalk leader. If/ when this happens, the distinction between the open std and the leaders products becomes so intertwined as to become almost invisible. Down the road, I'd imagine royalties only, being earned from some companies, but product a plenty being sold to others.
7. If my understanding above is correct, "time to market" (aka execution), as the only advantage, does not appear to me to be a characteristic of a primate. rather it appears to be a characteristic in a royalty play. In general I would agree, but not for gorillas.
The problem is that at the time a company comes first to market with disruptive technology, by definition it cannot be a gorilla since there is no tornado in that space. If there is, they would not be first to market. In looking back at any specific gorillas' evolutionary path, I sense that it would be apparent that that there are no gorillas who were not the first to market. I haven?t read the whole book and at the least I am unaware of any. This may be a truism of the GG, since if the gorilla controls the std, it would seem to only make sense that they be the first to market with the disruptive technology they introduce.
I just re-read my previous post and see that indeed I emphasized being "first to market" in the penultimate paragraph. I didn't explain myself clearly and I realize how my response could have been misleading. For me "first to market" is the dynamic that encapsulates all of, and implies gorilla power, assuming that the company we are looking at meets tfm's criteria for gorilla power. I hope I have explained myself better here.
Now, I think Echelon meets the criteria, but, sans tornado, is not yet a gorilla, and it is premature to assume that it currently can exercise the powers alluded to above, in any tornado. I do think Echelon has the potential, but needs that high wind to really take off. If closed, this Enel deal would likely yield quantitatively verifiable, tornado evidence wrt revenue growth starting in calender year 2001. This comes from one deal, does this count as statistically significant? not quite sure how to deal with that one yet...massive bowling pin for the company, but only one of thousands in that particular bowling alley...makes me shudder.
As Moore points out, crossing the chasm and establishing a beachhead is a treacherous time and management's strategy is critical. I have confidence in Echelons team. They have had to fight a massive battle, introducing disruptive technology into mission critical applications where proprietary systems have stood deeply entrenched for many, many years, and spawn their own tornado in Interoperable Control Networks as they take the tech one step further into the networked world....a vision whose time has come. For a small company they seem to have forged some very powerful alliances and so far I'm satisfied with their execution. Over the long haul...well, as you said.....time will tell.
The bottom line is that with open stds, even if they are proprietary, (as they are in this case, since Echelon has the right to License the protocol to whoever it wants to), ultimately the theoretical possibility exists that another company will come along and beat the incumbent leader at their own game. I believe this to be an extremely unlikely scenario, but at the same time...never say never. Yes, other companies can create competitive products, but these companies may or may not be Licensed to use the protocol and whether they'll be successful in bringing them to market is another story. I guess in addition to threats from disruptive technology and catastrophic natural events, there's always Uncle Sam.
I know you like thinking of Echelon as a bridge...OK....Take it to the Bridge....Take me to the River.....Wash me in the Water.
Caution: JMHO, I am new to the GG, and may have got this all wrong. Comments? |
