Tuesday Sep. 04, 2007
Black Swans on IP Lake
The debate on the future to the IP market rages on with dozens of Letters to the Editor protesting Mark Lapedus’ controversial opinion piece (Semi IP is a lost Cause) last month.
I’ve just returned from Japan and had the fortune to pick up a great, thought provoking book called “Black Swan” by Nassim Nicholas Taleb. A Black Swan is defined as a rare event with three very special characteristics: 1) It is not predicted, 2) it has massive consequences usually on a global scale, and 3) in retrospect people invariable claim that they could have predicted it if they had been paying attention. Examples of Black Swans are 9/11, the Netscape IPO, and the stock crash of October 1987.
 In the book, Taleb warns that people are frequently (and naturally) fooled into a comfort zones by looking at a set of indicators and drawing conclusions that supports their internal bias. In other words, people tend to believe what they want to believe and buttress that position with information that appears to support that position. If they discover evidence that doesn’t support their conclusion, it is often set aside as irrelevant compared to the main proof points.
Most disturbing (at least to me!) is that this seems to be embedded in our human nature and can dangerously insulate us from appreciating the possibility of a Black Swan. For example, 5 years before the Titanic famously sank, Captain Edward James Smith confidently proclaimed that he had never been involved in a maritime accident, never seen one, and never knew anyone that had been involved in one. One has to wonder whether Captain Smith’s judgment was impaired by having too much information. Had he been a junior captain, he might have been a little less cocksure the ice fields held no danger. He would not be the first to be a victim of the curse of knowledge.
As pointed out in the many of the letters to Mark, the IP market is expanding rapidly, pushed faster and faster by the consolidation of silicon content onto larger and larger chips. Mark’s judgment of the IP market struggling is based on a set of some key, undisputable facts (number of profitable IP companies versus struggling ones). Conveniently ignored (like Captain Smith?) is that the overall market is growing and there is no known alternative to IP reuse to make the big chips tomorrow.
The IP market itself is the type of market which lends itself to the periodic appearance Black Swans. In fact, the emergence of the IP industry itself is a bit of a Black Swan. Who predicted 15 years that ARM would emerge as the dominant microprocessor architecture in consumer electronics? Black Swans tend to appear in markets where there is rapid change and agile, new companies that can stake out a position and ride the market in a way that wasn’t previously envisioned.
We are likely to see new companies and business models arrive as major players in the IP market as it continues to expand. And when it happens, I fully expect media pundits to claim they predicted it.
1 Reader Comments
On Sep. 20, 2007,
Steve said:
You make an excellent point! I would encourage Mark to take a look at some of the financials of these semi IP companies. The model leads itself to being extremely profitable. In fact Nathan Myhrvold is calling it the new software. What other businesses operate with such high profit margins. So even though these companies may not be big and sexy, they certainly are small little cash cows!
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About the Author
Warren Savage, President and CEO of IPextreme, is a well-known and published authority in the field of semiconductor intellectual property.
He has a long history of pushing the envelope of design methodology from his work in fault tolerant computing at Tandem Computers in the 1980's and driving reliable design metholologies into commercial practice at Synopsys for its DesignWare IP product in the 1990s.
Much of his thinking became embodied in the seminal book on IP reuse, the Reuse Methodology Manual. Warren is taking his vision to the next level with his latest company, IPextreme, which is focused on enabling broad commercialization of IP captive in large semiconductor companies.
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